British Politics’s Blog

The ravings of an individual, UK voter frustrated with our politicians

Posts Tagged ‘banking

RBS Pension scandal or attempt to divert attention

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Perhaps it is the cynical side of me, but, I can’t help wondering whether the release of Sir Fred Goodwin’s pension entitlement is a bit too convenient. Bear with me if you will.

Sir Fred has complained that his pension arrangements have been made public. Now lets face it, given the scale of the losses at RBS, it is not inconceivable that this particular obligation could have been ‘lost’ in the malaise, but it wasn’t. Why is that? At time of public anger over bankers, a nice juicy pension to a former banker was bound to get the blood pressure rising, with the masses venting their anger at the recipient. Yes, yes, the government must have known about it, but they have got away with other issues in relation to due diligence, so why not this. Added to which, the government will have known that the public, for the most part, would target the recipient not them. Then there is media commentators, the vast majority of whom have fallen for it, stating that the if the government did know and released the details then, it must have been an own goal. But was it?

Take a look at the headlines and you can get a feel for what has captured the public imagination. Not the fact that RBS is about to receive another £13bn of taxpayers money (on top of £20bn last year);  not the fact that a bank that is 70% owned by the tax payer has just announced losses of £24bn, 70% of which is ours; not the fact that we, the taxpayer, are about to underwrite £325bn of ‘toxic assets’ in return for a premium of just £6.5bn; and not the fact that our ownership of this company is now likely to rise to 84% in economic terms, if not voting shares (75%).

You would expect something of this magnitude to lead the news stories, but is has not, instead, in a classic New Labour ‘smoke & mirrors’ game designed to dupe the public, our attention is turned to Sir Fred Goodwin and his obscene pension. The bailout of the banks, the underwriting of inter-bank loans and the public guarantees on toxic assets have all but bankrupted this country and here we are kicking up a big fuss about Sir Fred’s pension arrangements. Instead of Gordon Brown having to defend the fact that he has just spent way in excess of our expected tax receipts for this year, he could go on television and say that the government were considering legal action to challenge Sir Fred’s pension entitlement, in other words, he (Gordon Brown) could appear to be in tune with the public mood.

Please people, stop falling for these classic New Labour, cynical moves to wrongfoot the public, they are laughing at us and in a way, we deserve it. As for the political commentators that have fallen for this trick, they should hang there heads in shame. Before anyone accuses me of supporting Sir Fred’s pension arrangements, I will state for the record that I firmly do not, I just believe that this government has used the pension to divert our attention and boy, has it worked!

Written by British Politics

27 February, 2009 at 3:59 pm

Bradford & Bingley nationalisation, is it a good deal?

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As I have said, not for the first time, I am no financial expert, but I am a little confused about the ‘part nationalisation’and ‘part sell-off’ of the Bradford & Bingley deal. I accept that there is probably still more detail to come about, but from the little that is available, I find myself wondering, whether the government, on behalf of the hard-pressed taxpayers of this country, worked out a good deal.

In the past, building societies received deposits, in order that they could then use that money to offer mortgages and loans to others. The saver would receive interest on their money, the mortgage payer would pay interest on their borrowings and the building society would take a commission in return for the introduction and managing of the arrangement. Although this model has been turned on its head, with the wholesale trading of these mortgages, the principle should still be sound.

Therefore, if the government have taken on all of the mortgage debt of the Bradford & Bingley, estimated to be some £50bn, why not retain the deposits as well? Instead, they “sell”, the ambitious Spanish conglomerate, Santander, some £20bn of saver deposits (2.7 million people), for the miserly some of £612m. How can this be a good deal for the taxpayer? How can the government be so sure that the savers interests are protected, given we don’t really know that much about Santander. In fact, if the government were responsible for the sale of these customer deposits and something were to happen to Santander, would the government be culpable or liable, given it was they who negotiated the deal?

This particular arrangement can’t be good for the employees either, because Bradford & Bingley employed some 3,000 people and operated 197 branches. Does anyone imagine that a foreign owned bank, will give a toss about these employees? No, from what I can see, the UK government has passed over the profitable side of Bradford & Bingley to the Spanish owned bank ‘Abbey’, whilst leaving the British taxpayer exposed with just the bad mortgage debt. What was the point in getting rid of depositors money which has traditionally been used to offset mortgages? Looks like a very poorly thought out deal to me and somebody needs to explain why? Santander must be rubbing their hands with glee at the at the apparent naivety of the UK government.

I would not normally be a supporter of nationalisation, although in this case, as in the case of Northern Rock, there was probably no palatable alternative. However, I do believe that the government is responsible for driving home a decent deal for the taxpayers, they have a duty of care to the public purse and a responsibility to the taxpayer. No matter how urgent the problem, they should not lose sight of this. Yet here, from what I can see and perhaps against the views of many other observers, I fail to see how anyone, other than Santander would be considered to a be a winner.

HSBC increases mortgage rates in the UK

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HSBC have announced an increase in their mortgage rates to borrowers which will affect hundreds of thousands of borrowers. Now, whilst I accept that the inter bank lending rate has risen and that the banks have losses to contend with, this should be weighted against the fact that the same people that have mortgages, the tax payer, are currently accepting the increased risk brought about by the incompetence of the banks.

The Bank of England has advanced £billions of tax payers money to help prop the banks, this is not a risk free strategy and the evidence suggests that it hasn’t worked anyway. But there needs to be some form of quid pro quo, if the Bank of England is advancing the bank’s our money, then there needs to be a cap on the level of mortgage increases levied by these banks. Mortgage rate increases should be commensurate with need not greed. The simply can’t have it both ways. I would hope that the Bank of England and/or the government have sought some time of assurance from the bank’s that they won’t shaft mortgage payers in order to have a quick fix for their profits. Based on experience, I suspect this has not happened, but rest assured, a more savvy public will be watching and waiting.

Tax payer owned (not government owned as is often the way it is described), Northern Rock has indicated that it may well follow suit. Northern Rock should be setting an example for other lenders, no playing a game of me too.

Written by British Politics

25 September, 2008 at 3:42 pm

Gordon Brown criticises companies for off-balance sheet activities

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What a hypocrite Gordon Brown is, this man lauded for his so called economic competence. In an in interview with Sky News, Gordon Brown criticises companies for running “large off-balance activities”. He then goes on to say, “We cannot excuse the irresponsibility that took place in a number of institutions. And, you guessed it, he did this with a straight face and no sense of irony.

So, this is the same man, that to be certain that he did not break his own golden rules, ensured that the cost of the Private Finance Initiative’s (PFI’s), were not included on the government’s own books. These are calculated to cost the tax payer some £172bn between now and 2032. This is the same man that forked out £110bn of tax payers money in loans and guarantees for Northern Rock, once again, ensuring that it was not included on the government’s balance sheet.

Then there is a further £1.7bn that the government must pay for Metronet’s debts, this figure is also excluded from the governments balance sheet. There is also a further, estimated £790bn in government pension deficits, this is another liability that is excluded from the government;s balance sheet. Now I accept that this may be ‘legal’ but it is morally wrong and serves only to deceive us all into a false sense of security. Some would argue that the game that these large companies and institutions alluded to in Gordon Brown’s interview did nothing more than he has.

Now, Gordon Brown has says that “It’s got to be cleaned up and its got to be cleaned up quickly.” I would hope, that when he is considering these words, he will consider his own actions, because their are many in this country that would consider his own actions as “irresponsible” and “inexcusable”. Enough said!

 

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Federal Reserve Bank step in to help insurance firm AIG

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The world must welcome the news that the Federal Reserve Bank has stepped in to offer AIG, the American insurance giant with a bridging loan of $85bn. Although many pundits urged the fed not to intervene, there were just as many that were in support of such a move. The reality is, the Fed had little choice, given the ramifications of a failure of AIG could not be measured, but would have undoubtedly been far more significant than the failure of Lehman Brothers.

“It’s not just the failure of one company,” said Julie Grandstaff, vice president and managing director of StanCorp Investment Advisers. “It’s the ripple effect of the disappearance of counterparties” that was spurring urgent efforts to bolster AIG.

AIG’s difficulties have been exacerbated by a fall in its share price of some 60% and a downgrade of its financial standing by three levels to A- by Standard & Poor, making it more difficult and expensive to raise funds. Too many downgrades could trigger events requiring AIG to post billions in collateral to its credit default swap counter-parties. These ‘swaps’ are essentially insurance coverage to protect investors against defaulting bonds or debt. These products, often linked to the US real estate market, are at the heart of the current banking crisis and have led to massive write-downs of assets around the world.

AIG’s problems actually started earlier in the year after their auditors, Price Waterhouse claimed that AIG had material weakness in its internal controls over financial reporting and oversight. This type of qualification for any business is quite serious, but for the business such as AIG, it was bound to lead to some fall out, indeed, its shares fell some 10% on a single day in February following this news.

With one trillion dollars in assets and tentacles in many markets the failure of AIG would have affected many, many more companies, given it is not just an insurer, but a major player in the Credit Default Swap market. In the end the Fed could not stand by and do nothing.

Once the financial markets settle down, there is a good case for looking at how such major companies became engaged in such a risky strategy and who benefited, in what appears to smack of short-termism. There may even be a case to answered by the directors of some of the companies that have been affected, either way, there is certainly a case for more regulation and given American tax payers are expected to take up the risk, it is only right that they should seek assurances in terms of the way these types of companies trade in the future.