The thing about useful stuff is

Icesave accounts have been frozen Tuesday, October 07, 2008

Following the nationalisation of Iceland's second largest bank, Landsbanki, its' UK internet banking arm which has the unfortunate name of Icesave has frozen all activity on accounts.

Its' home page has the simple and concise message

We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly.

The internet bank is covered by the UK Deposit Protection Scheme, which protects each customer for up to £50,000 [changed from £35,000 today].

For the superstitious amongst you, the jinx of Newcastle appears to have struck again - Icesave's contact details indicate that it is the location of their processing centre, as well as being home to Northern Rock. Worryingly, whilst they disagree on the location of the postcode given for Icesave of NE28 5AL (Microsoft can't even find that postcode!), Google maps suggest the Bank is in the middle of a housing estate near Wallsend.

On a related note, some funny emails doing the rounds on several themes related to the crisis

Mums in trouble with their families for going to Iceland, a twist on the foodstore slogan, with Fathers quoted as saying they always knew its' business model was on slippery ground
Mock-ups of queues forming outside Iceland stores as shoppers panic about its' possible collapse
Questions in banking circles about why no-one realised their was something fishy about Iceland and whether their Govt can revert to any slush funds

Gallows humour is rampant in the City.

Labels: Google Map, Iceland, Icesave, Landsbanki, northern rock

posted by John Wilson @ 2:21 PM Permanent Link ,

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Luck of the Irish [Banks] Thursday, October 02, 2008

Image via WikipediaWalter Bagehot, Editor of the Economist for 17 years and son-in-law of its' founder, provided a most telling quote in his book, Lombard Street - A description of the money market, published in 1873.

"To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies"

He specifically criticised the Bank of England’s handling of earlier panics by responding “hesitatingly, reluctantly, and with misgiving.”

Whilst the UK Government has continued to tinker with deposit protection, indicating that it may raise the limit to £50,000, the Irish Government has provided an unlimited guarantee to underwrite its' own banks. The consequence of this has been evidence of a flight to "safety" with Irish banks benefiting from a flood of new deposits [the guarantee applies to GBP deposits by UK investors in Irish Bank branches in the UK].

Whilst the guarantee offered by the Irish Govt reportedly equates to EUR92,000 for every person in Ireland and would be devastating to Ireland if even one of the large banks collapsed, this measure has quickly restored confidence and hence dramatically reduced any likelihood of a bank run, thereby stablising the market.

In contrast, UK National Savings which is a Government savings institution has been deluged with new deposit applications. Likewise, the explicit Government guarantee resulting from ownership of Northern Rock has also prompted a rush of deposits to that institution to the extent that it has been forced to close certain of its' savings products to avoid breaching restrictions that were placed on its' market share [1.5%].

This distortion threatens the stability of the UK market - whilst it is inconceivable that the Government would allow any depositors to lose money in one of the large UK banks, especially in the current climate, the failure to explicitly state this simply prompts prudent savers to seek "safer" harbours.

Labels: bank of england, northern rock

posted by John Wilson @ 1:09 PM Permanent Link ,

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Structure of Bradford & Bingley's nationalisation is clever Monday, September 29, 2008

The manner in which taxpayers have been protected from Bradford & Bingley's ["BAD"] demise deserves applause.

The Financial Services Authority ["FSA"] deemed that the Bank no longer met the conditions for operating as a deposit taking institution, which invoked the provision of the Financial Services Compensation Scheme [ "FSCS"]. This scheme is funded by the banking industry and is designed to protect the first £35,000 of a customer's net deposits with an organisation, which I discussed previously here. This prompted a payout of £14bn to protect the assets of retail depositors to enable the deposits to be transferred to Abbey National plc. In addition, the Government backed up its' promise that no money will be lost by retail depositors i.e. unlimited guarantee by adding a £4bn to the pot that wasn't covered by the FSCS.

However, rather than drain other banks of cash to fund this payout, the Bank of England has lent the scheme the money on which it will charge interest [one-year LIBOR + 30bps], which will be converted into a three year loan by the Treasury. The Government also affirmed it stands behind the FSCS in meeting claims.

Hence shareholders will have borne the brunt of the collapse, followed by subordinated debt holders. Thereafter, the FSCS will absorb any shortfalls on assets, which the banking industry will be on the hook for. Only after each of these is exhausted, will the taxpayer be exposed.

Sadly, I haven't as yet figured out why they couldn't have done this with Northern Rock.

The Treasury statement can be found here.

Labels: bank of england, Bradford and Bingley, Financial Services Authority, Financial Services Compensation Scheme, FSA, FSCS, northern rock

posted by John Wilson @ 9:49 AM Permanent Link ,

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UK Govt to nationalise Bradford & Bingley Saturday, September 27, 2008

News is emerging tonight that the Govt has decided to nationalise Bradford & Bingley using the legislation created for Northern Rock.

The Bank had teetered in recent weeks as concerns have mounted about its' lending book, which has about $41bn of mortgages classified as self-certified [income was not independently verified] or buy-to-let. These are considered highly susceptible to losses.

The likelihood is that the Treasury will split up the mortgage book and sell off the safer elements whilst retaining the riskiest mortgages referred to above, probably taking these into Northern Rock in order to merge the administration functions. It is conceivable that the branch network could be sold separately.

Job losses are inevitable adding to the huge numbers already lost in the financial services industry.

Labels: Bradford and Bingley, northern rock

posted by John Wilson @ 9:55 PM Permanent Link ,

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A new mis-selling scandal Tuesday, September 02, 2008

Image via Wikipedia On Radio 4's Today programme this morning Hazel Blears outlined the new “HomeBuy Direct” scheme part package of measures to help the housing market being announced today. First-time buyers will be able to borrow up to 30% of the value of a new-build home - interest-free for five years - co-funded by both the government and housebuilders.

With £300m assigned to this portion of the programme, she claimed about 10,000 people would be assisted by this initiative.

In essence, beneficiaries of the scheme will not have to put any equity into a property, assuming that they can get a mortgage. However, it will require them to buy a property at a time when prices are expected to continue falling i.e. most probably leaving them with an significant equity shortfall.

Directly asked whether she would advise first time buyers to buy at this point in the cycle, Hazel Blears was keen to emphasise that despite recent falls, the housing market had risen phenomenally over the last 5 to 10 years and so were a great investment. Hence she would advise to buy now!

Every time she speaks about economic matters, you simply want to scream "Are you the most stupid person in Government?"

So, yet another £1bn thrown at the housing market, on top of sums given to Northern Rock, in an effort to be seen to be doing something and make a feeble effort to prop up an overinflated market. Perhaps if house prices were allowed to fall without interference then they would achieve the Government's target of making housing "more affordable", without spending any tax payers money.

Labels: BBC Radio 4, Hazel Blears, northern rock, Today programme

posted by John Wilson @ 8:48 AM Permanent Link ,

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He's no Virgin, he's private equity in disguise Monday, November 26, 2007

I confess to some shock that Virgin are the front runner to acquire Northern Rock for many reasons. Whilst Virgin Money has been around for some years, it's never really made much of an impact on the sector.

Taking over Northern Rock is a completely different proposition for Virgin though. Although the bid is backed by a consortium including AIG, the brand at stake is Virgin's and keeping the venture afloat will be no easy task without a fundamental restructuring of the balance sheet.

It's by no means certain this deal will happen though, given that the shareholders, led by two funds that have built up a combined 13% stake, are seeking to instruct/remind the Board to act in the interest of the shareholders, who are almost being overlooked in the whole process.

However, the thing that most astounds me is the easy ride that Virgin is getting, given that it is effectively a private equity business, but which happens to be headed by a populist figure in the form of Richard Branson. The reality is that he is a tax exile living in Switzerland, heading a secretive group that operating behind a series of complex cross holding in offshore vehicles. An attempt by the Economist a couple of years ago to lift the veil of secrecy failed and it is fairly unlikely Virgin will adopt the private equity code of voluntary disclosure - why should they when people aren't bracketing them as a private equity firm thanks to the excellent PR they operate.

One has to hope that the Bank of England and FSA conduct adequate due diligence on the bidders and their financial stability, rather than simply skip this step in gratitude for someone stepping into rescue them. But perhaps they are also attracted by the possibility that if the bank was to be turned around and Branson made a fortune down the line, the public would think more kindly of that ("what a hero, he deserves the money") than they would of JC Flowers doing the same.

Still to have a Bank fail once is bad, but to have it fall again would be calamitous.

Labels: northern rock, virgin

posted by John Wilson @ 3:29 PM Permanent Link ,

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Mervyn King, Governor of Bank of England speaks re Northern Rock Thursday, November 08, 2007

Below is an edited BBC interview with the Governor of the Bank of England talking about Northern Rock.

Some fascinating comments
- he would have wished to have had a mechanism to be able to transfer out retail accounts
- because of the inadequacies of the deposit protection scheme i.e not 100%, he refused to tell people that their money was safe when the rational thing was to withdraw their money
- the Bank had to intervene because of the number of retail depositors involved and the systemic risk that would have been created
- the photos of queues at a British Bank was the most damaging one to the reputation of the Bank

Link here

Labels: northern rock

posted by John Wilson @ 10:45 AM Permanent Link ,

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UK Chancellor squirms more than a Northern Rock CEO Monday, November 05, 2007

Alistair Darling was interviewed on BBC Radio 4's Today programme this morning and was plainly uncomfortable about the situation he finds himself re Northern Rock, struggling to counter accusations of incompetence.

He ridiculed the notion that the Govt was already lending £40bn via the Bank of England, but it can't be far off as the business continues to find it impossible to attract wholesale funds from banks concerned that they will look stupidly if they are left holding Northern Rock debt by rolling over existing debt or providing new funds. Only retail depositors are being provided with a Government guarantee.

Click here to hear the interview

Labels: northern rock

posted by John Wilson @ 11:49 PM Permanent Link ,

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