Lloyds: A blip in the recovery

If I could borrow off the Bank of England @ 0.5% and lend it out @ 5%+ I’d be back in the black to.

How on earth does even a bank, in one year, reduce by £61bn the amount it has 'in effect borrowed from taxpayers'. Presumably this relates more to guarantees than actual loans?

Could someone please clarify this otherwise baffling assertion.

This comment was removed because the moderators found it broke the house rules. Explain.

I am amazed Mr Peston...have you gone through the whole of the Results by 8.15 seeing as they were published at 7am today ?

A technical question if someone out there would be kind enough to help.

From page 125 of the Lloyds Results pdf :

The embedded equity conversion feature of £1,177 million (31 December 2009: £1,797 million) reflects the value of the equity conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; the loss of £620 million arising from the change in fair value over 2010 (2009: loss of £427 million) is included within net trading income.

Question: how is the valuation of this equity conversion 'value' undertaken ?

This comment was removed because the moderators found it broke the house rules. Explain.

This comment was removed because the moderators found it broke the house rules. Explain.

RP Wrote:

"But it still has a further £91bn to repay over the coming year and a bit - which it may not find easy."
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They're not alone on that one are they Robert. They have sovereign bond liability too, what about their sovereign boind liability which will be exposed fairly soon.

Things seem to have gone quiet on the PIIGS bond front, but it hasn't gone away has it? I see trouble for banks ahead, with the ECB providing substantial support in the next round of bond issues, support it can ill afford.

In your addendum Mr Peston you wrote :

And he (i.e.Eric Daniels) was confident that Lloyds would be able to repay all that money it has borrowed from taxpayers: he said that since the end of the year, Lloyds has repaid a further £13bn, so it now has to pay back another £83bn in the next year and a bit.

This was about 200 bn originally with a time horizon of five years for repayment (if my memory serves me well).

So in two years and eight weeks about sixty per cent has been repaid. Any guesses for when this may be paid off...next year sometime ? [BIG question mark]

Lloyds is an elephant whether it is in the room or not. Any attempts to break up the banking sector will have to confront the progressive integration of HBOS with the Lloyds group (which was pretty big to start with). It is difficult to imagine Osborne or even Cable trying to take this leviathan apart. Lloyds will continue to be too big to fail and instead of selling off the public shareholding the government should increase it - fat chance with these Adam Smith headbangers!

Most ordinary folk would find it difficult to understand how the Chief Executive is entitled to a bonus of £1.45m given the performance of the business. Eric - and his like - still don't get it. What, on God's earth, stops him from saying "I decline to take the bonus" ??

Robert,

In the highly unlikely event, that RBS and Lloyds are returned to health, why can't the UK taxpayer keep tpart ownership?

If they returned to normality, started making big profits, paying big dividends etc, surely keeping our shares would put an end to: 'privatizing the profits -socializing the losses.

Or is it more like selling a old banger where only the rust is holding it together -patch it up and sell it on asap!

Banks are tug boats, tricky to turn but once they are start moving forward they start to gain powerful momentum. So given the place they came from I think this is quite impressive.

The best thing the govt could do (if the idea is to liquidate the equity stake at some point) is to provide the markets with % constraints over a long period e.g. they won't sell more than 10% in the next two years. Then the percieved cap would be lifted.

Moderator you may not be aware of it but the first half-dozen comments today do not show up for us to read.

"To the last he has no regrets on the HBOS takeover"

Why would he? He kept his job and it was shareholders that paid the price of his hubris.

On the Irish losses, he said the bank was being ultra conservative in the provisions it is making against likely future problems with loans there.
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Any idea what there total asset exposure to Ireland still is? And what price they are marking it at. Irish property has fallen 50% from 2007 and has probably another 30% to go.

£2.2bn profit, 41% owned by tax payers. Therefore £0.9bn belongs to taxpayers. Instead of Big Society and cuts to public services can we have our money back!!!!!!!!!!!!!!!!
A very annoyed tax payers who has moral values!!!!!

There is a lot to repay the government still, but the big question in the short term are all those old Bank of Scotland loans in Republic of Ireland to build amongst other things those ghost towns of incomplete houses and failed and failing businesses. Therefore the group is still very exposed to the Celtic Cat (The tiger died long ago).

If you didn't understand the RBS accounts, what makes you think Lloyds/HBOS is different? Smoke & Mirrors guys and gals.

It's about time the owners (us) insisted on some asset stripping of these organisations. That might persuade the like of Barclays, HSBC et al to do the same, then we could all sleep a bit safer.

A good result from Lloyds marred only by the problems in Ireland. I wonder why you don't advocate the Government selling off its holding and paying down the deficit?

Perhaps that would leave you and Cable with less to complain about! Or do you think that the ConDems are holding back on the sale as an election bribe for the future?

The reason why the second half profits are £1bn less than the first half is that they do not include the one off benefit (of £1bn) achieved from imposing revised terms and conditions on its defined benefits pension scheme members in H1.

This change introduces the concept of a pensionable salary which is totalling separate from the actual salary being paid. The pensionable salary can only increase by the LOWER of RPI, the annual pay rise received or a 2% cap. Just what is required as we enter inflationary times.

I mention this not in expectation of any sympathy on a personal basis (I fully appreciate that even the revised terms provide a better pension than many will receive) but to point out that two people were exempt from this arrangement - Eric Daniels and Archie Kane, the other Executive Director in the scheme. Daniels shouldn't even have been in the defined benefit scheme because it closed to new members before he joined LTSB, but an exception was made.

Daniels may have no regrets about the HBoS transaction but most of the LTSB staff within LBG do. Not only have thousands lost their jobs for it, their savings been trashed through the decimated share price, their income affected through the loss of the dividend but they have salt rubbed in the wound through this twin track pension change and all so that Daniels can try and save some face with his final set of figures.

@7 North Sea Halibut wrote:Things seem to have gone quiet on the PIIGS bond front, but it hasn't gone away has it? I see trouble for banks ahead, with the ECB providing substantial support in the next round of bond issues, support it can ill afford.

May I also add to this the large funding gaps that UK banks have in their commercial and real estate books. A problem particularly affecting Ireland and Spain. The "evergreening of these loans goes on apace.

Interesting comment on Australia who's housing boom seems to of had little correction.

On Lloyds it is simply far to big in the UK and needs to be broke in two , but when and how , I suspect is years away....

20. At 09:40am on 25th Feb 2011, BerkshireTerrier wrote:
.... but to point out that two people were exempt from this arrangement - Eric Daniels and Archie Kane, the other Executive Director in the schem
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BT, that is disgusting if true, but hardly surprising unfortunately.

Oh dear the UK economy even worse than originally thought, where has all the money gone;

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-12577154

Ah, here it is;

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-12575697

Just more evidence that the banks aren't going to change or rather those that run the banks aren't going to change.

Time is running out.

This blog and the previous blog are the best arguments I have seen yet in favour of a break up of banks into their component parts. To me, the hesitation in the break up is totally indefensible.

So lets get this straight. "We made a big profit, but we still owe you a lot of money."

So thats ok with everyone is it?

23. At 10:05am on 25th Feb 2011, Reticent_Trader:
20. At 09:40am on 25th Feb 2011, BerkshireTerrier:

When I worked in a bank there were two pension schemes, the Executive scheme and the Employee scheme. Soon the geniuses spotted the Executive plan was shelling out more than it was getting in and to the contrary the Employee plan was running a surplus. So what to do, yep you've guessed it merge the schemes so the employees paid the executives pensions. Bigger brainwave, give the employees a contribution "holiday" to sell them the idea (I voted against). Within a couple of years the new merged scheme was a running a deficit because the Exec's had awarded themselves weapons grade pensions and eventually increased the employee contributions.

And they wonder why people hate banks. To be honest what I could tell you would make your toes curl but I signed a disclosure document when I left because apparently my knowledge would benefit the criminal fraternity, although I'm not entirely sure the criminals aren't already benefitting doing an inside job.

Cant complain at these set of results, we knew it would be a long road to recovery, but Lloyds itself is much better placed than RBS to be suitable for a share sale sooner.

I dont see much to complain about.

RP wrote: It says that rather than finding new lenders, it plans to "right size the balance sheet" (horrible banker-speak for shrinking its balance sheet), so that it has fewer assets (loans and investments) that need funding.
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Is this the reason why Lloyds now charge a monthly "overdraft usage fee" in addition to interest on agreed overdrafts? It is certainly a discouragement to use the facility as it makes the cost of a small overdraft near that of loan shark rates.

They want us as customers at the same time as not wanting our custom.

Time to leave them after 37 years. Good riddance.

It must be very annoying to all customers of lloyds, rbs etc etc to see how badly their banks have been run and yet the people who were responsible still walk away with a pat on the back and a sack full of cash.

Cash that has been taken from their accounts in one way or another.

Dick Turpin would be proud of the way these people operate.

I do get somewhat fed up with several things these days:

-The miserable English weather
-Forever increasing petrol prices
-Robert Peston
-Tax payers that think they understand the banking sector

Lets be clear for those people who just because you think you "own" a stake in a Bank, which technically you don't, you therefore became an expert consultant on how to run one and how it should be done, and what is and isn't ethical.

I don't like it anymore than you do, but then I don't like the fact that executives all over the country that work for private, semi-private and public companies get paid exorbitant salaries and bonuses, I'm sure that view would change however if I was offered a job like that, as it would for the vast majority of people here, who'd turn it down, or offer to give it back? nobody I bet.

I can't wait for the day that somebody chooses to bleat on about something a bit different (Robert - Take note, you've become a one trick pony), I am SO BORED of hearing and reading about the supposed "greedy banker" now, I really am, to the point that I can't wait for the Royal Wedding to start hitting the news a bit more....

@29. At 10:41am on 25th Feb 2011, mr ff wrote:
Cant complain at these set of results, we knew it would be a long road to recovery, but Lloyds itself is much better placed than RBS to be suitable for a share sale sooner.

I dont see much to complain about.

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Ta for that. Best laugh I've had for ages.

We should be pleased that we have moved on from the collapsing bank scenario.

I was also very pleased, Robert, in your interview this morning that you allowed the issue of taxpayer support for the banking sector to remain the hissing goose.

I don't honestly care whether Mr. Daniels takes his bonus or not, I just think in my position as representative for a frail and elderly Lloyds shareholder, the bank will be better off without his judgement.

The issue of banking reform remains extant. There needs to be a division between retail and investment banking for the simple reason we cannot afford another banking bail-out. This is both an economic and political imperative.

I am looking forward to see how much tax these results will pay into the Treasury given the level of bad debt. After the poor contribution from Barclays one is begining to wonder whether the financial sector was worth bailing out. There seems so little value for the taxpayer. We could do so much better from manufacturing what is euphemistically called crowd control equipment.

30. At 10:47am on 25th Feb 2011, Kit Green wrote:
RP wrote: It says that rather than finding new lenders, it plans to "right size the balance sheet" (horrible banker-speak for shrinking its balance sheet), so that it has fewer assets (loans and investments) that need funding.
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Is this the reason why Lloyds now charge a monthly "overdraft usage fee" in addition to interest on agreed overdrafts? It is certainly a discouragement to use the facility as it makes the cost of a small overdraft near that of loan shark rates.

They want us as customers at the same time as not wanting our custom.

Time to leave them after 37 years. Good riddance.
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For arranged overdradfts HBOS charge £1 per day you're overdrawn, if you exceed the agreed limit they cahrge £5 per day overdrawn. Those nice HBOS people charged me £100 for going £7 overdrawn for 20 days. My fault agreed but this is loan sharking as you say. I knew HBOS were in trouble before it was official when they chased me vigilantly for a £100 credit card debt and dropped my credit limit from £6K to £500 despite always paying my debt in full, actions speak far louder than words.

There is an interesting movement against banks and absurd statute laws - google FMOTL - I found it quite interesting and surprised at their success stories. Slightly idealistic but interesting.

#32 beanoir

"I don't like it anymore than you do, but then I don't like the fact that executives all over the country that work for private, semi-private and public companies get paid exorbitant salaries and bonuses, I'm sure that view would change however if I was offered a job like that, as it would for the vast majority of people here, who'd turn it down, or offer to give it back? nobody I bet. "

Executive tend to be paid for the risk they are taking on. The bank executives don't seem to be taking any personal risks whatsoever. Their business will not go bust and they will never be penniless.

And this isn't just about being jealous its about the excess money they are being paid that could be used to employ (several) people that would be losing their jobs. That's why people have had enough.

They are losing jobs because of the mistakes made by the same people paying themselves exorbitant salaries, bonuses and pensions. And it was OUR money they used to get us into that trouble in the first place. And OUR money that's getting them out. And its OUR money they are paying themselves from. What is there not to get?

#31 AqualungCumbria
"Dick Turpin would be proud of the way these people operate."

Dick Turpin would be disgusted at what an amateur he was.

#32. At 11:00am on 25th Feb 2011, beanoir wrote:
I do get somewhat fed up with several things these days:

-The miserable English weather
-Forever increasing petrol prices
-Robert Peston
-Tax payers that think they understand the banking sector.........

.........I can't wait for the day that somebody chooses to bleat on about something a bit different (Robert - Take note, you've become a one trick pony), I am SO BORED of hearing and reading about the supposed "greedy banker" now, I really am, to the point that I can't wait for the Royal Wedding to start hitting the news a bit more....


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Irony isn't lost on you I bet!

What amazes me is that not only are banks skimming our profits, they have unbelievably found a way of skimming our losses. Although skimming seems far too subtle a description. I feel we need advice from the Chinese judiciary on how best to deal with these people.

Another sign that Lloyds is returning to health - after its controversial merger with HBOS two years ago

- Takeover not merger. You can't merge under IFRS and besides when one company buys all the shares of another company, it's a takeover! I understand that the great unwashed don't understand the difference but really Bobby P you're role is to inform and entertain and you're not informing accurately.

On the Irish losses, he said the bank was being ultra conservative in the provisions it is making against likely future problems with loans there.

- So they haven't gone bad as you earlier stated, they are just being provided against.

28. At 10:31am on 25th Feb 2011, NorthSeaHalibut wrote:
And they wonder why people hate banks. To be honest what I could tell you would make your toes curl but I signed a disclosure document when I left because apparently my knowledge would benefit the criminal fraternity, although I'm not entirely sure the criminals aren't already benefitting doing an inside job.
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LOL, you are not the only one. I also had to sign non-disclosures, the knowledge of which would make the SFO and HMRC toes curl.

20. At 09:40am on 25th Feb 2011, BerkshireTerrier wrote:
their savings been trashed through the decimated share price,

- I don't think the share price was decimated (10% reduction) but was rather more than that. Why are you complaining about a 10% decrease?

@36

"They are losing jobs because of the mistakes made by the same people paying themselves exorbitant salaries, bonuses and pensions. And it was OUR money they used to get us into that trouble in the first place. And OUR money that's getting them out. And its OUR money they are paying themselves from. What is there not to get?"

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I do get it, I think its comments like yours that a short sighted i'm afraid.

It's not YOUR money, it's money used from money you've paid to the government for them to do with what they choose also known as TAX. If it was YOUR money you'd have a choice what to spend it on, if it was YOUR money you would get it back when the banks repay the debt. Its not YOUR money, you won't make a return on it, and you never will, and you're no worse off as a result of that money being spent on rescuing the banks, if hadn't have been spent on the banks it would have been spent on resucing an equally failing corporation, like the NHS for example - which is exactly the same (people at the top getting huge bonuses and the people below taking the pain)

So get over it, the fact is, what you like to define as YOUR money will always be spent on something you're not happy about. The minute you pay that tax you stop owning that money.

2. At 08:40am on 25th Feb 2011, bxr wrote:
How on earth does even a bank, in one year, reduce by £61bn the amount it has 'in effect borrowed from taxpayers'. Presumably this relates more to guarantees than actual loans?

Could someone please clarify this otherwise baffling assertion. [End quote]


Well the balance sheets of banks are huge. Insofar as they owe money to HMG/BoE they can reduce assets by sale or by not re-lending when loans are being paid off over time... Thus the liabilities can be reduced way ahead of what may be earned by normal trading.

A simple example : I owe Regal Bank of ToyTown £100 and last year I had an income of £20. I also have a bicycle worth 50 pounds which I now sell for 40 pounds. I pay my 100 pounds debt down by 60 pounds...ten from income and fifty from the sale of my bike.

My balance sheet assets have been hammered to death...but I also owe much less. Phew !

NOW bxr PLEASE help me with my question at #4 :


The embedded equity conversion feature of £1,177 million (31 December 2009: £1,797 million) reflects the value of the equity conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; the loss of £620 million arising from the change in fair value over 2010 (2009: loss of £427 million) is included within net trading income.

Question: how is the valuation of this equity conversion 'value' undertaken ?

Thank you.

#44 - Also, I tend to find that the people that moan the loudest tend to have paid the lowest tax (as in absolutes not percentages) so even if they did "own" the banks, they have a smaller ownership that the greater tax payers such as myself. Now as a percentage I pay less but remember the top 10% pay 50% of all the tax.

I've been reading these bank related blogs for a while and thought I'd started to get a feel for the extent to which the banksters have well and truly shafted us but I read a book yesterday which I would highly recommend to anyone curious about how we got to where we are:

"Whoops!" by John Lanchester (subtitled "Why everyone owes everyone and no one can pay" ISBN:978-0-141-04571-9)

It sets out in clear non-technical language the steps by which the crisis was allowed to happen, and how the banksters were complicit in every wrong decision made since the fall of the Berlin Wall.

Read it and weep.

#44 No you don't get it.

Come back to me when an NHS executive is paid a 9 million pound bonus. I've benefitted from the NHS. I had my arm fixed by them. They are not failing to anywhere near the magnitude of the failure of the banks. I've never benefitted from the banks. Although I will probably be paying for their failure.

And its not that the government are spending money on the banks its the economy and life changing amount they are spending. And its the huge amounts they are rewarding themselves within a year. And its the very real misery their investors are wreaking on poor people by gambling in commodities markets.

"46. At 12:13pm on 25th Feb 2011, Lindsay_from_Hendon wrote:
#44 - Also, I tend to find that the people that moan the loudest tend to have paid the lowest tax (as in absolutes not percentages) so even if they did "own" the banks, they have a smaller ownership that the greater tax payers such as myself. Now as a percentage I pay less but remember the top 10% pay 50% of all the tax. "

Because even though you might be losing more money, you are still comfortable. You're not in fear of losing your job. And if you are you've presumably got savings and assets that you can call on soften the blow.

For someone on low tax, many are living hand to mouth to make ends meet and that could mean not being able to feed pay their gas bill or falling into rent arrears. Its not really rocket science. It just requires empathy.

#48

Argue all you like, It's quite clear from that last post that you don't even have a basic understanding of the underlying issues. I can't hold a debate with you if you can't get your facts correct.

The NHS may help you out when you're broke, just as the banks' no doubt have helped when you're broke (you meaning many people), it's a service that people rely on and receive, and unfortunately these days expect! And the NHS DO pay untold amounts to executives and massive payouts to get rid of poor performers and dead wood, at least Eric Daniels is actaully being paid for good performance.

Commodities markets....are you sure about that...?

Lindsay from Hendon:

- I don't think the share price was decimated (10% reduction) but was rather more than that. Why are you complaining about a 10% decrease?

I'm not, as well you know.

I used the word aware of its origin but equally aware of its common usage (see below). In this particular case reduced to a tenth of its original value would be most appropriate. Prehaps you could enlighten us on a suitable word for that?

From my Compact Oxford English Dictionary:

The earliest sense of decimate was 'kill one in every 10 of a group', a reference to the ancient Roman practice of killing one in every ten of a group of soldiers as a collective punishment. This has been more or less totally superseded by the sense 'kill or destroy a large proportion of a group'* although some people argue that this later sense is wrong (in Hendon in particular it would appear).

* or 'drastically reduce the strength of something' the second of the two listed meanings.

32. At 11:00am on 25th Feb 2011, beanoir wrote:
I do get somewhat fed up with several things these days:

What's this? Another upset banker?
Sorry mate but if you can't stand the heat....move!!!
They deserve everything they are getting after years of greed at the expense of the public.

And here's a mystery for you......I was offered triple my current salary by a competitor........ but I chose not to go!
Why?!
Because I feel my current salary is plenty and I enjoy working here.
If I was like the bankers, I'm sure I'd have ran away to one of our competitors by now....and as they asked me what it would take to make me move, I would have beenn demading a seven figure bonus.....but I'm not!

And you don't hear me moaning about the abuse my industry (oil) gets from the enviornmentalists....and quite rightly too!

There's a serious shortage of engineers and thanks to the bankers we'll be struggling to avoid another major incident offshore as the new generation is trained and make their own mistakes in life....lets hope it's not as bad as Piper! Just in time and maximising profits has ruined every industry we've ever created in this country.....and who was the master in those processes....oh yeah...banks!

I risk my life to keep petrol flowing to your pumps........I am highly skilled and consider myself to be in the top 10% or so educationally. Yet if my company was still making a loss or being subsidised....I certainly wouldn't be receiving any bonus and I wouldn't consider it my right to receive one........let alone a multi-million pound one! Despite some of my projects making 7 or 8 figure sums for the oil companies....o wait, I mean banks!

One Bank to Fool them all, One Bank to Fine them,
One Bank to bring them all and in the darkness Blind them

These guys seriously need a reality check. As I've stated before that no-one should be receiving bonuses for making lucky bets with other peoples money in a system designed to grow anyway.....a monkey could make money in a market swinging around the way it does.....he just needs a fast enough button to press!

There's more to life than money.....my last suggestion would be you find something you actually enjoy!

• 44. At 11:59am on 25th Feb 2011, beanoir wrote:
@36

"They are losing jobs because of the mistakes made by the same people paying themselves exorbitant salaries, bonuses and pensions. And it was OUR money they used to get us into that trouble in the first place. And OUR money that's getting them out. And its OUR money they are paying themselves from. What is there not to get?"

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I do get it, I think its comments like yours that a short sighted i'm afraid.

It's not YOUR money, it's money used from money you've paid to the government for them to do with what they choose also known as TAX. If it was YOUR money you'd have a choice what to spend it on, if it was YOUR money you would get it back when the banks repay the debt. Its not YOUR money, you won't make a return on it, and you never will, and you're no worse off as a result of that money being spent on rescuing the banks, if hadn't have been spent on the banks it would have been spent on resucing an equally failing corporation, like the NHS for example - which is exactly the same (people at the top getting huge bonuses and the people below taking the pain)

So get over it, the fact is, what you like to define as YOUR money will always be spent on something you're not happy about. The minute you pay that tax you stop owning that money.
Xxxxx

NO! sorry beanoir it is you that has it ‘A about T’. We elect a government to use the money the populace provide in the form of taxes for the benefit of the populace.

Everything that is owned by UK Plc is also owned by the populace but we chose to elect people to use this money for us. Have you ever noticed that we have elections, just in case you hadn’t, here’s a hint ‘you put a cross’ by a name!

We delegate responsibility to those elected, over the years some of the populace as been made to feel that they have abdicated responsibility and it appears that you are one of them.

When the majority say no more then you have to accept it because of this. Get over it and start smelling the roses.

#32

If you are fed-up with the blog - why are you here?

I hope you don't leave though, there are very few banking apologists left...

re #48
You only got your NHS op because of banking. No banks. No ops. We probably came quite close to that in 2008 & 2009.

re #4
By the accountants who valued CDOs, etc., and signed off on going concern accounts in 2007 & 2008?

Tend to agree here. Lloyds spokesman referred this am to high level of commercial property (bad) lending undertaken by HBOS.

1. Wonder if they have got all their provisions right.
2. Also wonder whether there is any of this in RBS's B/S - and the other banks, too.
3. Am also thinking how close other property developments are sailing to the wind, including PFIs.

Poster No 1. Your comment shows that you really have no idea how banks operate. Lloyds do not borrow money at the standard 0.5% interest rate. I'm sure they wish they could! They borrow money at the LIBOR rate, which is considerably higher, and is why the cost of mortgages and loans are going up, not down. Get your facts right.

As I told you beanoir get back to me when an any NHS executive gets a 9 million pound bonus. I pay for any service I get from banks by lending them my money on a monthly basis. I am ok with that service - its not with any of the major banks and they are very lenient with my overdraft rates, in the very few occasions I go overdrawn.

My problem is with investment banks using investment mechanisms that intrinsically rely on assets that either don't exist, or are hugely overvalued.

However, you seem an expert. So:

Tell me how many years its would take for the NHS to consume the amount of money paid by our government to bail out the debts of the major investment banks.

How much money are we continuing to subsidise them by holding the BoE interest rate at 0.5% without them increasing significantly the amount of lending to British business or reducing the rate they lend at?

What is the prospect of further mortgage defaults with the number of local authority and publically funded jobs (and dependent economies) likely to be lost?

Why can't poorly performing investment banks be allowed to go bust like the failing motor industry, and the failing coal and steel mines, with considerably less money being pumped in to save them?

What was the real purpose of Thatcher stopping local authorities from being able to use their income to invest in major housing projects?

Why does it cost 8 times the average salary to buy the average house?

You're right I'm not a banking expert but I know enough to know that this is no ordinary bail-out. And when the people at the centre of it are continuing to reward themselves very handsomely while all the news headlines are about massive job cuts, it makes me angry. And while the impact affects people outside the banking industry I will voice my anger. Regularly.

Is it only me that fails to join the flaming torches and pitch fork wielding masses when it come to bankers bonuses and the taxpayer part owning banks.

1) Whatever bonuses the Banks pay out the government recoups half of this though tax. The Government knows this when they jump on the media bandwagon because it takes the heat of them for 5 minutes.

2) So the taxpayer owns the Banks. The deals to buy stakes were at extremely attractive preferential share prices. All it takes is for the share prices to rise and the taxpayer will recoup the money back with a very healthy profit.

3) Not all bankers are fat cats. The vast majority of the bank staff that receive bonuses rely on any bonus that they receive to supplement their income. The average income is in the region of £15k, not the vast sums that traders in the City receive.

4) Bonuses need to be paid. When Wayne Rooney threatened to leave Manchester United they offered a massive improvement to his salary to retain his services. Banks have to do the same to keep their best staff, those that make the Bank money to prevent them leaving and joining one of their competitors.

No47 pharmaboy,
I agree. I think you would find 'Treasure Islands' - N Shaxson and 'The Big Short' - M Lewis equally enjoyable.

@ common_man_123

NO! sorry beanoir it is you that has it ‘A about T’. We elect a government to use the money the populace provide in the form of taxes for the benefit of the populace.

Everything that is owned by UK Plc is also owned by the populace but we chose to elect people to use this money for us. Have you ever noticed that we have elections, just in case you hadn’t, here’s a hint ‘you put a cross’ by a name!

We delegate responsibility to those elected, over the years some of the populace as been made to feel that they have abdicated responsibility and it appears that you are one of them.

When the majority say no more then you have to accept it because of this. Get over it and start smelling the roses.

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Big round of applause, you clearly know the text book theory, now lets step back down to planet Earth and enter the real world and discuss how things work in practice.

Given that 60 million people were not in the least surprised but the treasury and the city claim to be surprised by the contraction of the economy of the last quarter of last year a brief profit period from Lloyd's is not a lot to crow about.
If this does stall interest rate rises further then no-on with any brains is going to leave any of their money evaporating in a bank account. This current bubble is looking frothier and frothier but some idiots think its champagne popping.

#58 Considerably more?

https://www.bankrate.com/rates/interest-rates/libor.aspx?ec_id=m1021745

Maybe a banker can help me out here.

44. At 11:59am on 25th Feb 2011, beanoir wrote:

'It's not YOUR money....'

Sorry but this rant misses the point.

The money was sourced from the people and given to the banks - whether it went via Alistair Darling is irrelevant.

• 49. At 12:25pm on 25th Feb 2011, United Dreamer wrote:
Because even though you might be losing more money, you are still comfortable. You're not in fear of losing your job. And if you are you've presumably got savings and assets that you can call on soften the blow.

For someone on low tax, many are living hand to mouth to make ends meet and that could mean not being able to feed pay their gas bill or falling into rent arrears. Its not really rocket science. It just requires empathy.

- Right, I've got an idea! If you lose your job the state will pay you whilst you get back on your feet. We don't want to give you too much because then you won't bother to look for work so it's basically an allowance for job seekers. We'll call it "Jobseekers' allowance." If you lose your house, the state will house you elsewhere - best if this done on a local level say by the council. We'll call it "council housing." What if you get ill? Well you probably wouldn't be able to afford private treatment so what we'll do is having a health service which is free at the point of service. It will be national so we'll call it "The National Health Service." We'll provide free education (at the point of service) to your children too. This state will be well fair so we'll call it "The Welfare State." As soon as this is all implemented, I'll let you know.

51. At 12:34pm on 25th Feb 2011, BerkshireTerrier wrote:

- You had to look it up! Tell me, does Berkshire Terrier go on a Berkshire Hunt?

#58

Overniight LIBOR rate is 0.56%

3 month is 0.8%

- not exactly 'considerably higher'...

52. At 12:44pm on 25th Feb 2011, Economissed wrote:
There's more to life than money.....my last suggestion would be you find something you actually enjoy!

- You enjoy working on an oil rig? I suppose it is by the seaside. Do you still have to inject citrus fruit with vodka to get it on board?

N028 NorthSea,
Your experience working in the bank seems to leave you with the view that the banking and financial system is little more than a colossal PONZI scheme run by morons with an element of criminality at the top. Recent court cases appear to support that view. Your knowledge of the sectors practices, and their exposure, could go a long way in eradicating the bandits and their accomplices in the legal and accountancy professions. Give it a try.

"60. At 13:14pm on 25th Feb 2011, ChrisG - Wigan wrote:
Is it only me that fails to join the flaming torches and pitch fork wielding masses when it come to bankers bonuses and the taxpayer part owning banks.

1) Whatever bonuses the Banks pay out the government recoups half of this though tax."

Do you really think that is the case though? For the most highly paid, do you not think they are paying accountants to maximise their ability to avoid paying tax?

And how does that income stack up against the explicit and ongoing implicit subsidy of the banking industry?

When Barclays bank paid an average 17% pay rise (very little of that to the low paid bank tellers and admin staff) how do you think that affects the wider publics view on Government edicts that people should be accepting pay cuts? Especially given that they are benefitting from the government bail out of the banking industry (albeit "indirectly").

Lloyds have suggested that there could be some problems in the Australian property market.
In some areas of Australia ordinary homes are selling for as much as 15 times average salary.....that is a possible recipe for disaster.... bear in mind what happened in the USA, Ireland, the UK and Spain.
Beware all banks dealing with the Aussie property market.

46. At 12:13pm on 25th Feb 2011, Lindsay_from_Hendon:
Now as a percentage I pay less but remember the top 10% pay 50% of all the tax. "
================================

Care to provide a source for that?

Income tax maybe, but cannot see for tax as a whole.

If we look at a simple example that does not consider taxes paid by businesses then this is quickly illustrated.

If the average wage is £20k then the avearge person would pay roughly £2.5K income tax and £1.3K in NICs. Assuming the other average pension has no savings or investments other than say a £500 a month rent or mortgage then this leaves £10k which is spent in the economy being charged at say an average VAT of 20%, i.e. 2K.

So the average person spends roughly £6K a year in taxes, directly and indirectly, which is 30% of earnings. This more or less agrees with my experience.

Now let's assume that the top 10% of the population have 40% of the wealth and output. This is broadly the case.

Simple maths illustrates that for this top 10% to pay an equal amount of tax as the bottom 90% (who own thus 60% of the output and pay 30% tax on it) then they would need to pay more than 400% of their output. This is patently rediculous.

Looks like inflation is going to help these guys massively (as long as wages get dragged along) the only way uk housing will look cheap if if a an apple costs £5.

I wouldn't bother saving a penny right now, our problems are going to inflate away...less defaults but going to poorer though.

#63

"Big round of applause, you clearly know the text book theory, now lets step back down to planet Earth and enter the real world and discuss how things work in practice."

Planet Earth? Believe me, planet Earth is what is happening in Libya and Egypt. It just hasn't reached us yet.

#66 Thanks Lindsay. Now consider those as YOUR options when the fans gets struck. Who is going to complain more (your original assertion) - the person with your scenario as an option, or the person in your situation?

Regardless on all the arguements for or against bankers the fact is that:

Mortgage margins and credit card charges at highest in years + interest paid at all time low = banks rebuild balance sheets at the publics expense.

Will "they" use these results and those of the other banks, being presented to show some sort of improving picture, as a reason to gloss over the issue of banking reform? NB! folks, bonus payments are emotive and morally unfair, but they are not the main issue.

I can imagine that LLoyds wrote off much more bad debt than had actually been realised in 2009. That is usually a prudent thing to do and it is diffcult for the outside world to judge how much you have overdone it. It is likely that some of that comes back in as income and profit in 2010. I think one needs to wait for another year or two before one passes judgment on Lloyds Bank's recovery. Daniels should not get his bonus until the bank is firmly in the clear.

Roberts Headline Lloyds: A blip in the recovery.

As WOTW is off volunteering today I am going to stick my neck on the line today and say June 2011 will be the tipping point when we head back into recession again.

The rapidly rising oil prices that have not been factored into any economists projections for this year will be the major cause.

Other factors: Airlines will collapse with the rising fuel costs, lack of tourism will kickstart the PIIGS scenario again, the speculation on the commodities futures market will feed through from last years bad weather and Bernanke's constant printing of money exporting their crisis to the world.

The only thing that may prevent us heading off a cliff again is if the ongoing crisis in the middle east suddenly stops. Somehow I don't think Libya will be the end.

I hope to post again in July that I was wrong.

60. At 13:14pm on 25th Feb 2011, ChrisG - Wigan wrote:
===================================

Mate, I think you win the prize for worst ever attempt at banker apologising, so I'll respond in your honour:

"1) Whatever bonuses the Banks pay out the government recoups half of this though tax."

But all bank profits are currently as a result of BoE subsidy, paid for by all of us in terms of higher inflation. So society pays 100%, bankers get 25%, HMRC gets 25%, shareholders get 25%, balance sheet gets 25%. Doesn't seem right to me.

"2) So the taxpayer owns the Banks. The deals to buy stakes were at extremely attractive preferential share prices."

Hmmm - Government paid roughly 50 pence for RBS shares in the rights issue. The shares were then trading nearer 20 pence on market. If the government hadn't stepped in they would have traded at zero. zilch. nada. Hardly prefferential terms, is it?

"3) Not all bankers are fat cats. The vast majority of the bank staff that receive bonuses rely on any bonus that they receive to supplement their income."

ALL bankers are fat cats or wannabe fat cats. You said it your self by differentiating "banker" from "bank staff". When people criticise the bankers they are not criticising bank staff, tellers, advisors, branch managers, back office. A real banker would be horrified at the thought that you consider such people bankers.

"4) Bonuses need to be paid. When Wayne Rooney threatened to leave Manchester United they offered a massive improvement to his salary to retain his services."

Wayne Rooney is at least good at football, or used to be, most bankers are pretty rubbish.

Robert,

Please could you help in educating the pulic re bank charges on loans, mortgages, deposits, and overdrafts.

Firstly, many assume that banks can borrow from the bank of england at base rate. Whilst this is true it is generally very short term funding. Not very good if you want to match your assets and liabillities!! Furthermore this will only account for a fraction of your funding.

Generally banks have to borrow in the markets long term which is very expensive, covered 7yr £ money costs 3.43 + 225bps.

So what should a bank lend at? if you want low borrowing costs you have to accept less on your deposits.

Or a bank can short term fund itself offer you lower rates on loans, higher rates on deposits and charge you nothing for holding your cash, whilst also allowing you to access it anywhere for free.

Guess what happened they all went bust..

The british public needs to wake up and understand that nothing is for free. If you want a stable banking system the customer will have to pay for it. Allowing shareholders to gain a reasonable return on their equity invested. The reson many turned to investment banking was to make a return!

68. At 13:29pm on 25th Feb 2011, newblogger wrote:
#58

Overniight LIBOR rate is 0.56%

3 month is 0.8%

- not exactly 'considerably higher'...

==================================

And he is doubly wrong because it's the low base rate that keeps LIBOR low.

You know I love it when a banker tells me I know nothing about banking. True I don't know a good deal, but I know enough to know its not sustainable and that its intrinsically wrong to sustain it.

In my defence its hardly a surprise I don't know a great deal but that's only because the industry has spent the last 40 years trying to hide how they generate money out of almost nothing and how it affects real people. You would expect after all these years that they would become good at pulling the wool over people's eyes given the number of years they've been trying.

And while we were not getting hurt we were happy to implicitly comply. But now we are being hurt and no amount of clever banking tricks in trying to undermine people through their lack of knowledge of the rules of the game is going to save the game being exposed and ultimately disbanded, even if it delays the process enabling them to inflict more damage. Or the threat of us hurting ourselves in the process.

The game is up guys. Now is the time to look at alternatives not regurgitate the party line. It needs to be changed. Stop wasting your time and effort trying to protect it. Use those talents to fix it.

From an outsider's perspective it seems to me for the last 30 years or so the only thing the banking industry seems to have been doing is looking to profit out of the weaknesses of government legislation and international collaboration and control of the worlds resources through a complicit monopoly.

Seriously how is that system helping anyone? We have global warming, an impending oil crisis and a critical shortage of resources. How is capitalising on these shortages actually helping us move forward?

#65

Actually it was sourced from the global credit markets, unfortunately the legacy of labour means that a good deal of what we spend isn't being sourced from us at all, just from future generations.

Its going to take some incredible spin for me to ever consider voting for a labour government again, after they left us a legacy of immense public sector waste, and immense public sector debt.

New new labour is needed.

#81 Ouch - that will hurt his astroturfing bonus!

#85 I actually agree that party change is not going to help us at least not within the constraints of our democracy. Real democracy has long been a fallacy in this country for a while undermined by media monopolies and increasing stranglehold by the banking community on our politics. We need a grassroots reorganisation of how resources are controlled to address this problem.

If anything the politicians are delaying a fix given they are now simply obeying Rupert's instructions. Not Rupert the bear either (maybe Winnie). In some ways though their open and self-evident incompetence is helping the cause of change.

Before anyone suggests that Aussie banks may have an "ostrich mentality"....(burying their head in the sand and hoping that the worst never happens)....it's Australia, so it would be an emu mentality.

"85. At 14:05pm on 25th Feb 2011, mr ff wrote:
#65

Actually it was sourced from the global credit markets, unfortunately the legacy of labour means that a good deal of what we spend isn't being sourced from us at all, just from future generations."

And what asset was that global credit pinned against?

82. At 13:54pm on 25th Feb 2011, JimboU1986 wrote:
Generally banks have to borrow in the markets long term which is very expensive, covered 7yr £ money costs 3.43 + 225bps.
=================================

Wrong, the banks lend long and borrow short. They lock in long-term rates using interest rate swaps.

#87

Frankly I dont think the media (non public owned) has had too much effect on politics, I always thought the BBC and its alleged lack of bias was the main problem.

Its always been excaggerated how much an influence the newspapers have, they merely tend to represent the views of their readership.

If politicians choose to take them too seriously that is their error, in my opinion the problem with British politics is the lack of PR (proportial representation) and parties being obsessed with occupying the centre.

Mea culpa on my post #89 Mr FF - missed out your last sentence (after quoting it!).

#89

"And what asset was that global credit pinned against?"

Well it really would depend where the credit was coming from, I havent taken it upon myself to find out exactly who our global creditors are. Obviously state 'investment' funds and hedge funds supply a fair amount of it.

The state 'investment' funds being supplied by various sources and really dependant on which country said investment fund is working for.

Obviously hedge funds are supplied by their investors.

Post 52 from Economissed

Imagine that the oil is created by oil companies and then you have an analogy with the private banking sector.
They are licensed (by us!) to create the credit needed to oil the works of society.
97% of "money" is now created by borrowing from the private banking cartel and its private superstructure of central banks, IMF, World Bank and Bank for International Settlements.
If there were no debt, there would be no money.
The top bankers KNOW that without them there would be no "money" at all so they feel that they always deserve big bucks for giving this "service" to us.
Its their system and they allow us to use it as they dictate.
Politicians know this too but take advice from bankers (equivalent of engineers but more like priests because things run on faith) and like most people they think that's just the way things are.
In theory, we can have any money system we want but now the moneypower is allowed to organise on a World scale without World policing, they are in a Ferrari and we have a fat policeman after them.
Our money system does not belong to us but we are still the lenders of last resort.

"the borrower is servant of the lender" Proverbs 22:7

We can see all this happening and it will get worse for our children unless we see the real problem. We must ake ownership of the credit creation system for the benefit of all, saving enormous amounts of interest and taxes could actually go down.

"Its the American dream. You have to be asleep to believe it." George Carlin.
"WAKE UP!" Rage Against the Machine.

#87 mr ff
"If politicians choose to take them too seriously that is their error"

I agree, an unfortunately an error both seem to be making.. I blame the spin doctors. The BBC are ok, we could end up with Fox. But if you really want esoteric, maybe the royal family are the root of the problem.

#59 United Dreamer

Answers for you sir.

Q. Tell me how many years it’s would take for the NHS to consume the amount of money paid by our government to bail out the debts of the major investment banks.

A. I don’t know the real figures, but bear in mind much of the figures banded about (£850bn etc) are not figures for money lent/invested in/to the banks, it’s the figure of “support” provided which is not the same.

The NHS costs the taxpayer c. £50bn a year to run.

The two aren’t comparable, simply because much of the money “lent” to the banks will be paid back. And the money “invested” in RBS and Lloyds will be paid back to the Govt. with a profit. The money sunk into the NHS is just that, no financial pay back and no investor return.

Q. How much money are we continuing to subsidise them by holding the BoE interest rate at 0.5% without them increasing significantly the amount of lending to British business or reducing the rate they lend at?

A. Not much really, the banks don’t borrow at the BoE base rate.

I laugh when I read about banks being forced to increase lending, since it’s the banks that shovelled money out of the door to those that could ill afford it in the first place that caused this credit crisis, or have people forgotten that already?

Q. What is the prospect of further mortgage defaults with the number of local authority and publically funded jobs (and dependent economies) likely to be lost?

A. Quite a bit I should imagine, hence why the banks are reluctant to increase their lending.

Q. Why can't poorly performing investment banks be allowed to go bust like the failing motor industry, and the failing coal and steel mines, with considerably less money being pumped in to save them?


A. Not sure on that one, but I don’t know of any Investment Banks that were bailed out in the UK.

What was the real purpose of Thatcher stopping local authorities from being able to use their income to invest in major housing projects?

A. To encourage people to look after themselves ultimately.

Why does it cost 8 times the average salary to buy the average house?

A. Supply and demand dictates. If people stopped paying silly prices for houses and the banks gradually reduce the amount they are willing to lend to people (which they currently are and people seem to be moaning about it!!), then that ratio will reduce, that’s the economic theory anyway. In practice, estate agents still inflate people’s egos about how much their house is worth.

You're right I'm not a banking expert but I know enough to know that this is no ordinary bail-out. And when the people at the centre of it are continuing to reward themselves very handsomely while all the news headlines are about massive job cuts, it makes me angry. And while the impact affects people outside the banking industry I will voice my anger. Regularly.

90. At 14:28pm on 25th Feb 2011, Reticent_Trader wrote:
82. At 13:54pm on 25th Feb 2011, JimboU1986 wrote:
Generally banks have to borrow in the markets long term which is very expensive, covered 7yr £ money costs 3.43 + 225bps.
=================================

Wrong, the banks lend long and borrow short. They lock in long-term rates using interest rate swaps.
--------------------------------------------------------------------------------

The problem in one sentence.

#95

The thing with fox is you know what your going to be getting, everything with a pro - republican spin.

With the BBC its much harder to notice, people expect everything to be unbiased and that isn't necessarily the case, which means when the BBC is biased it has a much greater effect.

The problem is people are naturally opinionated, so the BBC is unable to manage to be unbiased. It also seems to have taken being unbiased to mean, occupy the centre ground in politics, which really isn't a good thing.

Thats why I like to read Peston's blog, its opinionated, and his opinions are based on his career (especially in banking) and his slightly left of centre viewpoint, which I can cope with.

93. At 14:38pm on 25th Feb 2011, mr ff wrote:
#89

"And what asset was that global credit pinned against?"

Well it really would depend where the credit was coming from, I havent taken it upon myself to find out exactly who our global creditors are. Obviously state 'investment' funds and hedge funds supply a fair amount of it.

The state 'investment' funds being supplied by various sources and really dependant on which country said investment fund is working for.

Obviously hedge funds are supplied by their investors.
==============================

What do you mean by global credit? Money-markets (finance) or capital markets (equity or bonds)?

Hedge funds don't provide "credit", they take it. Their investors provide collateral (capital) for the purpose of raising finance which they use to trade on various markets.

Sovereign wealth funds also do not provide "credit". They invest capital in overseas businesses.

Leveraged finance (which I think is what you mean my credit) is wholly offered by banks.

Another acidic blog from RP - when will he start reporting an intelligent objective analysis of financial results? Otherwise, some good comments, observations and questions from the commentators - which is why I read this blog at all. Keep it coming guys and gals! :-)