January began on a negative note with then US President-elect Barack Obama describing the US economy as “very sick” and then – just in case anyone was still feeling slightly festive after the Christmas period – warning us that the situation is getting worse.
“We have to act and act now to break the momentum of this recession,” he said.
And the new year was not much better for HBOS – now, of course, part Lloyds Banking Group – which is being sued for a staggering £16.7m by a Muslim former banker.
The ex-staff member claims she was sexually, racially and religiously discriminated against by members of the opposite sex at the bank. No doubt the top dogs at Lloyds Banking Group won’t be too pleased with taking that on.
On January 6 the credit crunch caused yet another tragedy as it emerged that German billionaire Adolf Merckle had committed suicide after his business empire ran into trouble.
Merckle had apparently run up losses of about E400m in a year as a result of bad bets on Volkswagen shares. The first Bank of England Monetary Policy Committee meeting of the year resulted in a cut in the base rate of 0.5%, taking it to its lowest level since the Bank was created in 1694.
The Bank said the rate of contraction in business activity had increased during Q4 2008, and that output is likely to continue to fall sharply during the first part of this year.
Obama’s fears were realised on January 9 when official figures revealed the US jobless rate had risen to 7.2% in the last month of 2008, taking the figure to the highest it has been for 16 years.
The President-elect pointed out the obvious, telling us: “Clearly the situation is dire.”
But the world could take some hope and solace from the man who would be in office in less than a month, as he indicated the crisis would be a priority.
He said: “[The situation] is deteriorating and it demands urgent and immediate action.”
On January 13 there was more stating of the obvious from the British Chambers of Commerce, which helpfully informed us that 2008 saw a “frightening deterioration” in the UK economy.
Meanwhile, our European neighbours were being a little more proactive, with German chancellor Angela Merkel unveiling an economic stimulus package to kick-start her country’s economy.
The package includes a E100bn loan guarantee programme for companies hit hard by the crisis, E2,500 payments for scrapping cars older than nine years and buying new ones, and tax breaks including in healthcare.
There was a ray of hope here in the UK as a report from the Confederation of British Industry and PricewaterhouseCoopers stated that mortgage losses would not be as severe as had initially been thought.
John Hitchins, UK banking leader at PwC, said it was likely to be the corporate sector rather than retail that would suffer most as a result of bad mortgage debt.
He said: “Mortgage losses in prospect this time won’t be as bad as those seen in the early 1990s. What we are experiencing now is less of a housing bubble than we had then. Although it’s difficult to put a number on the level of non-performing loans I don’t think it will be as bad.”
But Hitchins’ positivity was marred by some figures in the report – namely that 59% of the 87 financial services firms quizzed as part of the CBI/PwC survey reported a fall-off in volumes over Q4 2008 a further 55% saw a fall in profitability over the same period.
The Association of Mortgage Intermediaries announced it had written to Vince Cable, shadow chancellor for the Liberal Democrats, warning him of the dire consequences if effective measures for the mortgage market aren’t implemented immediately.
Chris Cummings, director general of AMI, said: “AMI has expressed its concern to Cable that it is taking too long to see real results concerning arrears and repossessions.”
One wonders whether writing to the real chancellor might not have been more beneficial.
The Council of Mortgage Lenders has estimated that the number of repossessions will jump by 67% on last year’s figure of about 45,000, to 75,000. This is a level not seen since the depths of the UK’s last recession in 1991.
On January 14 the government, via business secretary Lord Mandelson, decided to have another go at boosting the economy by announcing a plan to guarantee up to £20bn of loans to small and medium-sized firms.
The move was immediately slammed by Tory shadow business secretary Alan Duncan as “too little, too late and too complicated… a small bandage on a massive wound”.
Meanwhile, business minister Baroness Vadera caused uproar when she claimed she could detect some “green shoots of economic recovery”, prompting an outpouring of ridicule.
The Tories had a field day, with the baroness being branded as “living on another planet”.
January 15 saw the European Central Bank follow the UK’s lead by slashing eurozone interest rates to 2%.
And Irish eyes weren’t smiling as the Republic’s government announced it was to nationalise Anglo Irish Bank.
January 16 saw the US government take its turn at helping. Throwing in its two cents’ worth it announced it would provide Bank of America with another $20bn in aid from its $700bn financial rescue fund. Meanwhile, Citigroup announced plans to split in two following losses of $8.29bn.
The same week automated valuation model provider Hometrack launched a product designed to protect lenders from the risk of property overvaluation.
Hometrack developed the Failsafe product to trigger an alert to lenders when there is a discrepancy between a surveyor’s valuation and Hometrack’s AVM.
January 19 brought the Great Economic Bailout Part II as Prime Minister Gordon Brown and his fellow chancers took a second roll of the dice since the Great Bailout of 2008 didn’t quite save the market – or indeed the world – as Brown had intended.
The second attempt at hero status for Brown and his sidekick chancellor Alistair Darling involved a £50bn Bank fund to try to get banks lending again.
It was announced that the Bank will set up an asset purchase programme through a specially created fund to buy high quality private sector assets.
These would include paper issued under the credit guarantee scheme, corporate bonds, commercial paper, syndicated loans and a limited range of asset-backed securities created in viable securitisation structures.
Darling – showing that after well over 18 months of ignoring the true problem of interbank lending he finally got it – said the aim was “to get banks lending to each other”.
Taxpayers to the rescue – again
Speaking on the BBC’s Today radio show Darling said: “We are creating a £50bn fund for the Bank to help lending to the larger companies in this country which have had problems being able to get borrowing at reasonable prices.
“In addition to that, we are prepared to guarantee new lending for mortgages and also business lending of up to £50bn. In relation to all these things [we] will get security in return for that loan, and these assets can be sold when the economy starts to recover.”
Other initiatives featured in the latest bailout plan include extending the drawdown window for new debt under the government’s credit guarantee scheme which is designed to reduce the risks on lending between banks, establishing a new facility for asset-backed securities and extending the ma-turity date for the Bank’s discount window facility which provides liquidity to the banking sector by allowing organisations to swap less liquid assets.
And just like Superman saving the ‘plane, the heroics continued with SuperBrown and Captain Darling bailing out the Royal Bank of Scotland by increasing the government’s stake in the struggling bank by 12% to a whopping 70% – only once again it’s the taxpayers who are the real un-sung heroes.
The move came after RBS announced mind-boggling losses of £28bn.
The bailout was met with some cynicism in the industry, with some commentators claiming specialist lenders will remain excluded.
Tony Ward, managing director of Home Funding, said: “Specialist non-bank lenders still have nothing even though they have not had to rely on support from bailouts like the banks.
“Just look at the support RBS now has – it seems pretty inequitable and uncompetitive. It can’t be good for the market or consumers in the longer run but there seems to be a deliberate lock-out of specialist players”.
For Northern Rock, January 19 brought some much needed breathing space as the government announced it would give the bank longer to repay its loan.
In an attempt to meet the deadline initially set by the powers that be the Rock had been reducing it’s mortgage book at such speed it would have left everyone else for dust in a slimmer of the year contest.
But all this was leaving borrowers pretty much for dust as they desperately searched to find lenders that could match the deals they were on at the Rock. With the lender famed for its 125% LTV Together mortgage, borrowers had as much chance of finding a similar deal as finding a celebrity on Celebrity Big Brother.
The leeway given by the government means the bank can stop chucking borrowers off its books – for the time being anyway.
A statement from the Rock read: “A key objective of the company’s original plan was to repay its government loan, primarily through a programme of accelerating mortgage redemptions.
“This has been achieved by actively encouraging existing customers to remortgage to other lenders when their fixed rate product deal ends. This has been effective and has enabled the company to reduce the government loan well ahead of the business plan.”
It continued: “Reflecting this and in order to support government policy to increase mortgage lending capacity in the market, the company confirms that it is slowing down the rate of mortgage redemptions. This means that more mortgage customers will be able to stay with Northern Rock.”
Interestingly while one government-owned bank decided to stop reducing it’s loan book another decided to start. Bradford & Bingley indicated that its intermediary arm Mortgage Express would waive early repayment charges in an attempt to encourage borrowers to move lenders.
One has to wonder whether we’ll get that deja vu feeling in a few months’ time, bearing in mind the Rock scenario.
From a former building society to the UK’s biggest. News broke on January 19 that Matthew Wyles, non-retail director at Nationwide, was to become group distribution director at the society.
Wyles takes over the reins from Stuart Bernau who retires in July. Former Alliance & Leicester group finance director Chris Rhodes will also be appointed to It’s a serious business, fixing loans (also see page 39) the board as group product and marketing director as of mid-April this year.
January 20 saw history made as Obama took the presidential oath amid extraordinary scenes of celebration in Washington DC. But next day it was straight to work for the new boss of the world, who vowed to tackle the “badly weakened” economy.
The same week Britannia and Co-operative Financial Services announced they were to merge to form a supermutual. Apparently the move will create “an ethical alternative to shareholder and government-owned banks”.
Combining CFS, part of the world’s biggest consumer co-operative, with Britannia, the UK’s second biggest building society, will create a business with £70bn in assets, nine million customers, more than 12,000 employees, over 300 branches and 20 corporate banking centres.
And as the month drew to a close there was some good news for Barclays as January 26 saw the bank’s share price soar by more than 60%.
The jump came after chairman Marcus Agius and chief executive John Varley wrote a letter to shareholders insisting the bank was ahead of market targets. The pair claimed annual profit would be north of £5.3bn.
The letter had the desired effect, despite BBC pest Robert Peston once again throwing a spanner in the works by suggesting the bank may be protesting too much. Will somebody please gag that man.