The month at a glance

Lending Strategy Feb 2010

For most people January is usually a pretty depressing month. You’ve eaten far too much over the Christmas break and have to concede your jeans have shrunk not because of the washing machine but rather because your stomach has expanded due to all the Christmas pud you have scoffed.

You’ve also drunk a ridiculous amount and are joining the millions entering a supposed four weeks of the dreaded post-festivities detox which loses it’s appeal after January 3.

Meanwhile, your Christmas spirit-fuelled generosity has left your bank account in a shocking state. And worst of all it’s time to go back to work. While the Christmas break may only last for a few days the month of December is usually so full of boozy nights out and festive cheer it feels like a holiday in itself.
So the first day back at work in January is usually dismal. And add to that the challenges facing the lending market and you’d have been forgiven for feeling suicidal in the first week this year.

The only silver lining in January’s unremittingly cloudy sky - and yes, you do have to look very hard indeed to find it - is that this is traditionally a time for new beginnings and fresh initiatives.

One who went along with this upbeat theory wholeheartedly this year was US President Barack Obama.

Obama decided it was time to implement some of the change he’s so fond of talking about by proposing significant alterations to the way banks operate.
These include limiting the size of lenders and restricting risky trading. In an address to his nation Obama said never again would US taxpayers be held hostage by banks that are too big to fail. Fighting talk indeed, and then the leader of the free world admitted he was ready to fight any bank that tried to oppose the new initiatives.

Shares plummet
While the people of America may have breathed a collective sigh of relief that finally the banks were getting what they deserve Wall Street and the City of London did not receive the news so well. Shares fell dramatically in value almost immediately.

And Obama’s promise to make changes left many in the UK wondering whether Prime Minister Gordon Brown and chancellor Alastair Darling would follow suit. Or, indeed, whether they would be in power for long enough to do so.

But even before Obama shook the financial world to its core there were depressing tidings for the industry with the news that Nationwide’s index of consumer confidence recorded a five-point decrease during December to 69 - its biggest decline since November 2008.

While the lender’s Present Situation Index remained unchanged on 20 points its Expectations Index experienced a significant fall, plummeting eight points to 101 in the month.

On the bright side, the index is still high compared with historic figures following a strong rally in 2009. The Spending Index showed a single point decline during the month and has remained broadly stable since September.

Good news for Northern Rock
There was some good news for government-owned bank Northern Rock which was awarded an outlook of stable by ratings agency Standard & Poor’s following the lender’s restructure.

A new bank has been carved out, splitting the old company in two. The new Northern Rock will hold existing savings accounts and some mortgages. It will offer savings and mortgage products to all customers.

A second company, Northern Rock Asset Management, will hold most of the mortgages as well as unsecured loan accounts.

The restructuring came into effect on January 1 following approval from the European Commission, the Financial Services Auth- ority and the government.
Meanwhile, rumours surfaced in the market that National Australia Bank, parent of Clydesdale Bank and Yorkshire Bank, is considering a deal to take over Northern Rock.

A report in The Times stated that NAB held meetings with Citigroup, Lazard, Credit Suisse and Morgan Stanley to discuss a deal to take over the bank.
It is thought that NAB is also looking at buying up some of the branches being shed by the Royal Bank of Scotland and Lloyds Banking Group.

But things weren’t so rosy for building societies as figures revealed that gross mortgage len-ding by the mutual sector fell to £1.6bn in November compared with £1.7bn in October.

Society gross lending also fell compared with the £2.5bn seen in November 2008, while net lending by societies was - £543m in November 2009 compared with £412m the previous November.

Mortgages approved by mutuals in November 2009 amounted to £1.3bn compared with £2.2bn in November the year before.

Winter wonderland

The beginning of January also saw the country grind to a halt when a few inches of snow fell. Countries such as Canada were no doubt suitably impressed with our resilience.

In this winter wonderland eight lenders hiked their SVRs while the Bank of England base rate was held at 0.5%.

Lenders bumping up their rates included Marsden Building Society which increased its SVR by Snow blankets the country but the housing market may be thawing0.46% to 5.95% on January 1 and Mansfield Building Society which pushed its rate up by 0.35% to 5.59%.

Alliance & Leicester was sitting pretty early in the month when research by Evaluate Technologies ranked it as the most consistently competitive lender in Q4 2009. It seized the crown from HSBC which was rated top lender in Q3.

Rankings were based on a points system whereby lenders were awarded a point for each time their products appeared in Evaluate’s top 10 mortgage deals between October and December.

Then business secretary Lord Mandelson used a London speech to warn us all that the financial services sector should not be at the heart of future economic growth in the UK.

Mandelson believes that in the past 10 years the country has become too dependent on the City and financial services for growth and tax revenues.

“That is why, without wishing the financial sector to be smaller, we need other strengths and sources of revenue to grow faster,” he told his audience.

“Finance will have to change - the insurance bill for saving the economy from the status quo was far too steep and it can never happen again.

“While putting the City in an iron cage of regulation is undesirable, just relying on a bit of nudge here and there will not suffice,” he adds.

The latest Halifax index of house prices showed that prices in December were 1.1% higher on an annual basis, marking the first such rise since March 2008.

Prices increased for the sixth successive month, with December’s increase being slightly below the average for the preceding five months.

House prices in Q4 2009 were 3.5% higher than in Q3, representing the highest quarterly increase since Q4 2006.

The biggest news in the middle of the month came from Virgin Money which entered the banking market by acquiring small retail bank Church House Trust.

The move has been approved by the FSA and will provide the platform from which Virgin Money can develop a retail banking business in the UK.

A range of products will be offered to consumers under the Virgin Money brand. Church House Trust is a regional bank offering deposits and mortgages.

A spokesman for Virgin Money said at the time that the company was focussing on securing its banking licence from the regulator. The company applied for this licence in October and says it expects to hear about the progress of this soon.

And it was all change at Abbey as the great Santander rebrand began. But it was also confirmed that the Abbey for Intermediaries brand would be retained despite the upcoming changing of all the company’s UK branches to its Spanish parent’s name.

All Abbey and Bradford & Bingley branches will become Santander, with Alliance & Leicester changing to the new name later in the year.

In the last week of the month the National Fraud Authority released its estimate that fraud now costs the country more than £30bn a year, with an estimated £1bn lost to mortgage fraud.

The NFA says the revised national estimate is more comprehensive than the previous widely accepted figure of £13bn which came from a report produced in 2007.
The higher figure is driven by previously unpublished fraud loss statistics along with the NFA’s estimates.

Meanwhile, it was a case of two wrongs make a right for B&B and Northern Rock when it emerged the banks were close to agreeing a merger which would combine B&B’s loan book with Northern Rock Asset Management.

A recent report in the Sunday Times states that B&B is about to receive approval from the EC for its state aid package, a move which should pave the way for the merger.

And January ended on a high when figures from the Office of National Statistics revealed that the country is officially no longer in recession.

GDP grew by 0.1% in Q4 2009 compared with a decrease of 0.2% in Q3. Overall, economic output fell by 4.8% last year - the biggest annual contraction since records began in 1949. It has fallen back by 6% since the recession officially began in 2008.

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