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June/July 2011: News roundup

New site promotes better business finance
The quest to provide the best financial support to business received a major fillip with the launch of a new one-stop-shop website.

Developed by the British Bankers’ Association (BBA) in partnership with leading high street banks, www.betterbusinessfinance.co.uk will offer impartial advice, tools and factsheets to help SMEs access the right funding.

BBA chief executive Angela Knight said: “Making the right impression is as vital for business as for individuals.

Our new website is designed to put businesses in touch with the kind of practical help they need to help make any application for credit a winner. It will also let people know where they can go for additional help and support includingour calendar of regional roadshows.”

The site was launched at the Better Business Finance roadshow in Sheffield, the first in a series of events where businesses can meet lenders and participate in workshops and seminars free of charge.

Consumer helpline launched
The government has launched The Money Advice Service, which will give individuals free assistance in managing their finances.

Available over the phone and online, it aims to enhance public understanding and knowledge of financial matters, and enable the public to better manage their financial affairs.

The service replaces the Consumer Financial Education Body and is paid for by a levy on banks and the financial services industry.

Interest rate freeze to stay
April’s surprise increase in inflation may bring an interest rate rise nearer, some analysts predict.

April’s faster than expected rise to 4.5% – the highest in two and a half years – made analysts predict that the Bank of England might be forced to sanction a base rate increase this December, a month earlier than forecast.

The May meeting of the Bank’s Monetary Policy Committee held the rate at its historic low of 0.5% for the 26th month.

Ulster Bank names new CEO
Jim Brown has been named as the new chief executive of Ulster Bank. A 30-year veteran of the financial services industry, his most recent position was that of CEO Retail & Commercial Markets Asia for parent company Royal Bank of Scotland. Brown has held senior positions with ABN Amro and Citibank.

Brian Hartzer, Chief Executive, UK Retail, Wealth and Ulster, said of the appointment: “Ulster Bank will benefit hugely from his experience of successfully leading businesses across a range of diverse markets, delivering strong financial results through change and difficult market conditions.”

Brown admits banking blunders
Former Prime Minister Gordon Brown has admitted he made a “big mistake” in his handling of banking regulation.

Speaking in the USA, Brown said the Financial Services Authority (FSA) had been set up to deal with the failure of anindividual institution but he had failed to realise how entangled global banking was.

“That was our mistake, but I’m afraid it was a mistake made by just about everybody who was in the regulatory business,” he said.

Lloyds review could split bank
An internal review of Lloyds Banking Group is said to be considering splitting the bank in two.

Chief executive António Horta-Osório is currently spearheading a review of the Group’s business and is thought to be analysing splitting the bank in half, with assets seen as particularly ripe for sale placed in a holding bank.

The move would involve the creation of a separate balance sheet through which non-core assets would be run. Horta-Osório is thought to prefer to focus on core UK business and such a scheme would play to that strategic direction.

Santander plans SME fiesta
Abbey National owner Santander has set aside £200m for UK small businesses outside of London, as part of its challenge to the major players in the sector.

The fund is supporting a programme for SMEs based around local charitable projects. It will also invest directly in a number of regional growth funds that will be used to support small local businesses in need of additional equity or capital.

Available over the next three years, the Santander fund is seen as the Spanish bank’s alternative to the government’s Big Society Bank.

November reign for Junior ISA
The government has confirmed the date of 1 November for the launch of the Junior ISA.

The scheme will have a maximum annual allowance of £3,000, which can be invested in a cash deposit or in stocks and shares. The balance will be locked in the account until the child in question turns 18.

It is thought up to 800,000 children could benefit from the product, which can be sold by high street banks, building societies, investment companies and friendly societies already selling ISAs.

All UK resident children who do not have a Child Trust Fund will be eligible.

Economists are merry men
More than 1,000 economists from all over the world have backed the introduction of a so-called “Robin Hood tax”.

A letter, which suggests giving the money raised from a Tobin tax (a small levy on financial transactions) to charity, was handed in to G20 finance ministers meeting in Washington.

Among the signatories were 127 UK economists, a former senior World Bank economist and a professor of political economy at Harvard University. The document says that the tax is “an idea that has come of age”.

A copy of the letter was also sent to Microsoft supremo Bill Gates who has been asked by the G20 to examine ways to raise money to fight climate change.

Fraud cases rise
Instances of attempted fraud against UK banks rose by 11 per cent last year, with young professionals often the culprits.

Research by Experian says that 20 in every 10,000 applications for credit and other financial products were discovered to be fraudulent. Mortgage fraud attempts increased to 32 in every 10,000 applications, with first-party fraudsters responsible for 97 per cent of cases. Automotive fraud rates were up 31 per cent on 2009 levels, with 38 in every 10,000 car finance applications discovered to be deceitful.

The credit agency warned that organised criminal gangs were thought to be more likely to seek to open current accounts to launder money or access credit. London remains the identity fraud capital of the UK, although it was noted that Thames Valley locations such as Reading and High Wycombe also appeared to be popular with those planning deception.

Icelandic rejection of payback deal triggers legal fight
The UK government is to sue Iceland over the millions of pounds lost when that country’s banking system collapsed.

The people of Iceland recently rejected a proposal to pay back the £2.3bn which was spent by the UK government compensating savers who had money in Icelandic accounts. The settlement, which was put to a referendum, would have seen the money repaid over a 30-year period, beginning in 2016.

Iceland’s Landsbanki ran savings accounts in the UK and the Netherlands and investors in those countries lost £3.5bn. Both governments bailed out their citizens’ deposits after the 2008 crash. The matter is now likely to end up in the courts.

Move away from Liquidity Scheme gains approval
UK banks have been praised for making “good early progress” in reducing use of the Special Liquidity Scheme.

Bank of England executive director of markets Paul Fisher applauded the way banks are winding down their reliance on the system, which is due to end in January 2012.

In a paper setting out collateral policy, Fisher, who is a member of the Bank’s Monetary Policy Committee, also said he expects banks to be able “to generate liquidity using their mortgage assets in the private market or by raising funding through other markets” following improvements in markets for mortgagebacked securities.

The Special Liquidity Scheme has allowed UK lenders to swap difficult-to-trade mortgage-backed securities for easier-to-trade Treasury bills.

Property sales halved in just three years
Property sales in England and Wales have almost halved over the last three years according to Lloyds Banking Group.

The situation in the north was particularly troubling with sales since 2007 plummeting by 51 per cent compared to 47 per cent in the south. The south-west of England fared best with the smallest drop.

A modest recovery in 2010 was mostly led by properties in London, claimed the research. In fact, seven out of the 10 towns that saw the biggest increases in property sales between 2009 and 2010 are located in the south.

Lack of interest at Barclays
Barclaycard has re-launched its 18-month interest free balance transfer product to run alongside its recordbreaking 20-month offer.

The two market-leading deals, both of which also come with 0 per cent on purchases for three months, will be available to Barclaycard Platinum customers.

Elsewhere, Barclays is to cut its range of Offset Woolwich mortgages by up to 0.5 percentage points. It is hoped the new rate will enable customers to pay off their mortgage quicker and make them more tax-efficient.

Commenting on the move, Laoiseach Lynch, Head of Mortgage Products at Barclays, said: “Offsetting is the most tax-efficient way to manage both savings and a mortgage so it makes sense for borrowers to look at these options.”

Hong Kong probes UK banks
Two UK banks are being investigated by Hong Kong’s regulator amid concern over floats.

Royal Bank of Scotland and HSBC have been referred along with JP Morgan, UBS and Deutsche Bank. Hong Kong has dominated the world IPO market in recent years and the large number of forthcoming offerings has raised questions about the quality of advice companies are getting and the transparency and accuracy of information given to shareholders.

A recent investigation by the Hong Kong Securities and Futures Commission found serious deficiencies in banks’ behaviour. The Hong Kong Monetary Authority has made the recommendation to Hong Kong’s central bank to target the five banks in this case, although it would not say what specific issues it was looking into.

Lloyds opens a £3.2bn floodgate for PPI mis-selling
UK banks face gigantic bills to compensate customers who have been missold insurance. This follows the decision by the industry trade body, the British Bankers’ Association (BBA), to abandon its appeal against a legal judgement requiring the banks to make redress.

Lloyds Banking Group (LBG) takes the biggest hit – it is to set aside £3.2bn to meet claims. The move pushed the 41 per cent taxpayer-owned bank back into the red to the tune of £3.47bn on this year’s Q1 results. Provisions, each about a third as large (see table), have also been made by Barclays Bank and Royal Bank of Scotland Group – the latter has already paid out £100m in addition to the £850m Q2 provision it has now made to meet further claims.

The industry cave-in came after the High Court recently rejected the BBA’s call for a judicial review of regulations governing Payment Protection Insurance (PPI). It had disputed Financial Services Authority (FSA) guidelines which said banks should invite all past PPI customers to complain if they thought they had been mis-sold loan insurance, regardless of whether they had complained at the time.

The BBA argued that the edict effectively applied “new standards to past sales”. PPI policies are supposed to cover loan repayments if someone falls ill, has an accident or loses their job.

The PPI bill:
Lloyds Banking Group £3.2bn
Barclays Bank £1.0bn
RBS £850m
HSBC £269m

Up to 19 banks ‘face ratings cut’
Moody’s warns that the decreased likelihood of another government bail-out could lead it to cut ratings for 19 UK banks. The ‘systemic support’ offered to UK banks by the government currently means they enjoy a rating much higher than they would otherwise. As it is thought unlikely that the UK government would offer the same level of financial assistance to a struggling bank as it did during the banking crisis, the ratings agency is re-examining its position.

That would hit smaller lenders, particularly building societies, first. The agency said the reassessment will “be taking into consideration Moody’s expectations on how the relevant banks’ standalone credit strength will develop”. The group said it was merely setting the scene to avoid a nasty surprise for markets. The UK’s big four banks will be assessed in the second half of the year.

Vickers report:
- the debate continues

There’s been a cautious welcome for the interim report of the Independent Commission on Banking. Most commentators forecast that the real battle has yet to be fought when the Commission ties up the loose ends with its final recommendations in September.

Structural changes to the UK’s biggest financial institutions are proposed by the Independent Commission on Banking led by Sir John Vickers.

Its interim report also has suggestions on how consumers can be given a better deal.

Proposals include:

  • forcing Lloyds to sell off more than the 600 branches it originally planned
  • keeping customers’ money and day-to-day banking services in ring-fenced subsidiaries, away from investment banking arms.

The report acknowledges that consumers face restricted choice caused by difficulties in comparing and switching accounts, and it outlines how banks could make it easier for customers to shop around. The main reactions to the interim report (the final one is due in September) include:

‘No more bail-outs’:
Our goal is to make sure that in future we have safer banks, but also that millions of pounds of taxpayers’ money is not spent again bailing out those banks.
GEORGE OSBORNE MP Chancellor of the Exchequer

‘Robust firewalls’:
To protect customers and taxpayers we need tough accountability and transparency and clear, workable and robust firewalls. The devil will be in the detail of the commission’s final proposals, but we must get this right.
ED BALLS MP Shadow Chancellor

‘Significant change’:
Banks in the UK have already undergone significant change since the global crisis, including significantly increasing their capital and liquidity and establishing resolution plans, to protect depositors and to keep finance flowing, should a bank get into difficulty.
The British Bankers’ Association

‘Bigger airbags’:
Capital isn’t the be-all and end-all. It’s just one of the many tools that can be used to control the effects of major loss events. To believe greater capital requirements will solve the problem is like encouraging motorists to fit bigger airbags rather than urging them to be safer drivers.
Dr SIMON ASHBY Financial Services Research Forum

‘Who pulls the trigger?’:
Ring-fencing the retail arms will, by definition, create ‘living wills’, meaning that if one part of the bank fails, the rest can be saved. But the ICB hasn’t addressed the crucial issue of who in the bank should pull the trigger and when. With individual countries introducing their own rules, the capital requirements specified in Basel 3 are rapidly becoming the lowest common denominator.
AJAY RAWAL Senior Director, Alvarez & Marsal

‘Heated discussions’:
You really have to question whether a faster switching process or being able to keep the same account number will change consumers’ attitude to changing banks. No doubt, the discussions will continue until the commission’s final report is published in September 2011. Thereafter, they may become even more heated.
ANDREW HAGGER Moneynet

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