British banks may face second credit crunch in the New Year

Rising unemployment may prompt new capital raisings

The worsening economic slowdown is increasing fears that Britain’s banks will have to raise still more capital next year in a market starved of investors.

Investment bankers are preparing for a second round of capital raising by UK lenders on top of the £65bn already declared. Having rebuilt their balance sheets after toxic debt writedowns, the banks face an increasingly dire economic outlook that threatens to take ordinary loan impairments from individuals and businesses to levels not seen since the early 1990s.

Under those worst-case conditions, impairment charges at the domestic banks – Barclays, Royal Bank of Scotland and the combined Lloyds Banking Group – could hit £60bn next year, according to Credit Suisse analysts.

“There could be a second credit crunch for banks, with a whole new round of writedowns late in 2009 as the economy filters back to banks,” a senior investment banker said. “They have so far only provisioned for the credit crunch – so they will need to undertake a whole new round of capital raising.”

A trading update earlier this year from HBOS, which will be bought by Lloyds next month, made grim reading for the sector. Impairments from commercial and residential property shot up, and the bank warned of more bad news to come as unemployment, the biggest driver of bad debts, continues to rise.

Read moreBritish banks may face second credit crunch in the New Year

HBOS takes £8bn write-down as UK economy weakens

HBOS sent another wave of panic through the banking industry today after revealing that its bad debts will top £8bn this year, wiping out more than half the £15.5bn of emergency capital raised by the lender so far.

Shares across the sector tumbled, with HBOS crashing 20pc and Lloyds TSB 17pc as HBOS investors gathered in Birmingham and voted on its merger with Lloyds TSB. Preliminary indications show they voted overwhelmingly in favour.

Royal Bank of Scotland was off 17pc and Barclays 13pc by early afternoon, while analysts at Dresdner Kleinwort said “more capital increases [are] virtually inevitable” on top of the £50bn being injected into Britain’s eight largest banks.

HBOS revealed that bad debts on mortgages, credit cards and corporate lending – plus writedowns on “toxic” debts – had reached £8bn in the first 11 months of the year. The figure is a £3.2bn increase since September alone.

Read moreHBOS takes £8bn write-down as UK economy weakens

RBS secretly charged 80% interest on loan

ROYAL Bank of Scotland has secretly changed customers’ accounts into personal loans with up to 80% interest, generating debts of as much as £100,000, an investigation has revealed.

The bank, which was effectively nationalised 10 days ago, has admitted that its debt collection branch drew up new loan agreements and accounts for customers without their consent. MPs this weekend questioned whether the scheme was legal.

Duncan and Debbie Birch from Torrington, Devon, say their £24,100 overdraft ballooned into a debt of £100,000 when new loan accounts were created without their permission.

Documents show that at one point the couple were being charged an interest rate of 80%, although the bank claims this was rectified. Yet the couple say it has now obtained a legal charge of £70,000 on their home.

Another customer, Paul Walton, 41, from Rotherham, South Yorkshire, found loan documents drawn up in his name for new accounts. “They were fabricated and there was interest accumulating in the accounts,” he said.

The bank claims the new loan accounts were created “purely” for administration and that it was never intended that the debts should be collected.

They were unable to explain exactly what the purpose of the “administrative accounts” was, why they had created them and how many customers were affected.

John Healey, a former Treasury minister and Walton’s MP, said the situation was “deeply disturbing“.

“The system does not appear tight enough to prevent [these accounts] becoming the basis of real debt demands and court action,” he said.

December 7, 2008
Georgia Warren and Jon Ungoed-Thomas

Source: The Sunday Times

Taxpayer now owns nearly 60% of Royal Bank of Scotland

Royal Bank of Scotland, Britain’s second biggest bank until the credit crunch struck last year, confirmed today that is now majority-owned by the taxpayer after a £20bn bail-out by the government.

The Edinburgh-based bank announced this morning that its existing investors had shunned its £15bn cash call, leaving almost all the new shares in the hands of the government. The taxpayer now owns 57.9% of the business. Only a handful of investors took up the offer to subscribe to new shares at 65.5p because the bank’s share price had been trading below that level, giving them no incentive to support the cash call.

Read moreTaxpayer now owns nearly 60% of Royal Bank of Scotland

Businesses hit by huge bank charges

Companies targeted as nervous high-street lenders introduce crippling fees

High-street banks are continuing to hit businesses with punitive interest rates for loans and overdrafts and are resorting to more severe measures to ensure they are paid.

Some are demanding that owners of small businesses put up personal assets as collateral in return for a business loan. Others are changing conditions of loans by sending emails rather than meeting in person, and giving borrowers just 48 hours to comply with unilaterally-rearranged overdraft and lending agreements.

The Business Secretary, Lord Mandelson, said he was alarmed by the banks’ behaviour: “That is not the sort of constructive relationship that is sustainable between banks and businesses.

“I want a constructive relationship with them, of course, but they have to know they are going to be tested and judged by what role they play to help Britain and British business get through this economic storm.”

The Prime Minister, Gordon Brown, also heaped the pressure on misbehaving banks. “There is a loss of confidence in the banking system and they are increasing that loss of confidence by not acting the way banks usually do,” he wrote in a Sunday newspaper.

Read moreBusinesses hit by huge bank charges

RBS bank executives enjoy SECRET £300,000 champagne party… just weeks after £20bn bail-out by taxpayers

Last night an RBS spokesman said: ‘This was an entirely appropriate staff event to recognise outstanding performance by a small number of our staff.’
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The Royal Bank of Scotland has blown £300,000 on a secret champagne junket for executives – less than a month after being given a £20billion handout by the taxpayer.

Bankers and their partners enjoyed the lavish party to mark their ‘success’ after a year in which the collapse of the banking industry led to global financial meltdown.

The supposedly stricken bank laid on the celebration amid extraordinary secrecy to try to prevent details reaching the public, even cancelling the original venue, a top hotel in Hampshire, and transferring the party 350 miles north to Edinburgh.

Dancing in the street: Bankers threw a lavish party to celebrate 'success'
Dancing in the street: Bankers threw a lavish party to celebrate ‘success’

But despite holding the black-tie ball in private, executives gave the game away as they danced in the street and continued the fun back at their five-star hotel.

Read moreRBS bank executives enjoy SECRET £300,000 champagne party… just weeks after £20bn bail-out by taxpayers

Darling summons bank chiefs over rate cut failure

Alistair Darling summoned the chief executives of Britain’s biggest banks to Downing Street today to demand that they immediately pass on the Bank of England’s interest rate cut to their customers.

Treasury sources confirmed to The Times that the Chancellor told the heads of all Britain’s big high street lenders – including HSBC, Barclays, Lloyds TSB, HBOS Nationwide and Abbey – to implement rate cuts immediately.

Yesterday, the Bank of England slashed interest rates by 1.5 per cent to 3 per cent, the lowest level in 54 years, and today, the shock reduction helped to ease the strain in nervous money markets.

Libor, which is the rate at which banks lend to each other and is key for pricing mortgages, fell by more than one per cent from 5.561 per cent to 4.496 per cent.

However, the figure remains almost 1.5 per cent higher than the official interest rate.

The spread between the Bank of England’s borrowing cost and the rate that banks charge to borrow money over a three-month period – a key measure in the wholesale money market – is the widest since October 22. The day before, Mervyn King, the Governor of the Bank of England, publicly acknowledged for the first time that a recession in the UK is now likely.

Read moreDarling summons bank chiefs over rate cut failure

Euro banks spread gloom as profits, forecasts fall


NP Paribas Chief Executive Officer Baudouin Prot speaks during a news conference to announce the bank’s third-quarter results in Paris November 5, 2008.

PARIS (Reuters) – A raft of European bank results did little to lift gloom around the sector on Wednesday, with a recurring trend of falling profits and rising bad debts stemming from the global financial crisis.

France’s biggest bank BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) posted a 56 percent fall in third-quarter profits, Allied Irish Banks (ALBK.I: Quote, Profile, Research, Stock Buzz) cut its earnings forecast, and Greece’s Emporiki Bank (CBGr.AT: Quote, Profile, Research, Stock Buzz) swung to a loss.

Capital rebuilding continued in the face of a tough outlook as Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) looked to raise up to 3 billion pounds ($4.7 billion) from a government-backed bond, and Austria’s Raiffeisen Zentralbank said it may ask the government for 2 billion euros ($2.6 billion).

By 7:15 a.m. EST the DJ Stoxx banking index was down 0.7 percent, led by 4 percent falls for BNP and Allied Irish.

Profits have tumbled across the sector, and several banks have warned of more writedowns and rising bad debts this year, though there is optimism that government rescue packages have left balance sheets strong enough to withstand more losses.

Read moreEuro banks spread gloom as profits, forecasts fall

RBS unveils capital plan as writedown hits £6.1bn

Royal Bank of Scotland (RBS) today revealed that the value of its assets has fallen by £6.1 billion this year as it “regretfully” laid out plans to raise £19.7 billion to prop up its balance sheet.

Related article: Rescued RBS to pay millions in bonuses

RBS hopes to raise £15 billion through offering new ordinary shares to investors at 65.5p each, above today’s share price, which fell slightly to 64.8p.The offer is fully underwritten by the Government so, if investors choose not to buy stock, the Treasury will buy the shares, using taxpayers’ funds.

The lender, which raised £12 billion through a rights issue only four months ago, also said today that it will issue £5 billion in preference shares to the Government, which will buy the stock using taxpayers’ money.

Preference shares mean the Government must be repaid before the bank may pay dividends to shareholders.

RBS revealed this morning that it had written down the value of its assets by a further £206 million in the third quarter, adding to the £5.9 billion it declared in the first six months of 2008. The potential third-quarter writedown of £1.2 billion was reduced to £206 million by an accounting change.

Read moreRBS unveils capital plan as writedown hits £6.1bn

Rescued RBS to pay millions in bonuses

RBS ‘making monkeys’ out of the government, says Vince Cable


Royal Bank of Scotland. Photograph: Newscast

Royal Bank of Scotland, which is being bailed out with £20bn of taxpayers’ money, has signalled it is preparing to pay bonuses to thousands of staff despite government pledges to crack down on City pay.

The bank has set aside £1.79bn to cover “staff costs” – including discretionary bonuses – at its investment banking division for the first six months of the year alone. The same division caused a £5.9bn writedown that wiped out the bank’s profits for the same period.

The government had demanded that boardroom directors at RBS should not receive bonuses this year and the chief executive, Sir Fred Goodwin, is walking away without a pay-off. But below boardroom level, RBS and other groups are preparing to pay bonuses to investment bankers who continue to generate profits.

Read moreRescued RBS to pay millions in bonuses

EU Nations Commit 1.3 Trillion Euros to Bank Bailouts

Oct. 13 (Bloomberg) — France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.

The announcements came as Britain took majority stakes today in Royal Bank of Scotland Group Plc and HBOS Plc. The coordinated steps followed a pledge yesterday by European leaders to bolster market confidence as the global economy slides toward recession.

“What it should do is stabilize the banking system,” said Peter Hahn, a fellow at London’s Cass Business School and former managing director at Citigroup Inc. “Will it stop us from having a recession? No, nothing is going to stop us from having a recession.”

Read moreEU Nations Commit 1.3 Trillion Euros to Bank Bailouts

Fed Lets Europe Central Banks Offer Unlimited Dollars, Removes Swap Limits

Fed Releases Flood of Dollars, Market Rates Fall

Oct. 13 (Bloomberg) — The Federal Reserve led an unprecedented push by central banks to flood the financial system with as many dollars as banks want, backing up government efforts to revive confidence and helping to reduce money-market rates.

The European Central Bank, the Bank of England and the Swiss National Bank will offer European banks unlimited dollar funds with maturities of seven, 28 and 84 days at fixed interest rates against “appropriate collateral,” the Washington-based Fed said today. The Fed had capped at $380 billion the currency it would swap with the three central banks.

Global economic leaders have redoubled efforts to unfreeze credit markets and avert the worst worldwide recession in thirty years after last week’s 20 percent slide in the MSCI World Index. Policy makers from the Group of Seven nations are committed to taking “all necessary steps” to stem a market panic, and European and U.S. governments today outlined plans to avoid banks failing.

Read moreFed Lets Europe Central Banks Offer Unlimited Dollars, Removes Swap Limits

UK: Government to save HBOS and RBS

Government set to become biggest shareholder in top banks as Japanese weigh bid for Morgan Stanley

THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline.

The unprecedented move will make the government the biggest shareholder in at least two banks.

Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call.

Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion.

Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants £7 billion, while Barclays needs £3 billion.

The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.

Read moreUK: Government to save HBOS and RBS

Remember 1929 – what seemed to be the end was only the beginning


Dick Fuld, former Lehman Brothers’ chief executive Photo: AP

The dismemberment of Dick Fuld, Lehman Brothers’ former chief executive, before a Congressional committee on Monday was a compelling, albeit brutal, event.

His televised humiliation was orchestrated by a veteran Democrat, Henry Waxman, whose simple question about Fuld’s alleged $480m of earnings – Is that fair? – hit the banker like a haymaker, rendering him speechless.

As the cameras focused on Fuld’s haunted stare, there was a sense of action replay. Hadn’t we seen this freak show, or at least something remarkably like it, long before Lehman went under – a display of furious inquisitors wiping the floor with Wall Street’s loftiest reputations?

Yes, history was repeating itself: “As the ghosts of numerous tyrants, from Julius Caesar to Benito Mussolini will testify, people are very hard on those who, having had power, lose it or are destroyed. Then anger at past arrogance is joined with contempt for present weakness.

“The victim or his corpse is made to suffer all available indignities. Such was the fate of the bankers. They were fair game for Congressional committees, courts, the press and comedians.”

These are the observations of economist J K Galbraith in The Great Crash, 1929. First published in 1954, his analysis of the greed and self-delusion that led to the unravelling of America’s stock market and the subsequent Depression is undimmed by time.

Replace 1929 with 2008 and the story, I’m afraid, is eerily familiar: a speculative orgy, crescendo, climax and crash. As this plays out, important people – business and political leaders – rely on “the power of incantation” to keep the rest of us calm. Their efforts are doomed to fail.

Read moreRemember 1929 – what seemed to be the end was only the beginning

Bank shares plunge again in panicky trading

Shares in Britain’s banks plunged again amid panicky trading following emergency talks with the government over a possible injection of billions of pounds of taxpayers’ money into the banking sector.

Royal Bank of Scotland nosedived by almost 40% to 90p in morning trading – its lowest point since the recession of the early 1990s. Barclays, Lloyds TSB and HBOS were also hit, as the lack of a coordinated rescue plan for the banking sector alarmed the City.

By 3pm RBS shares were 32.5% lower at 112p, giving it a market capitalisation of £15.98bn – down from over £75bn a year ago.

HBOS was 23% lower at 124p and Lloyds TSB had lost 13% to 225p. Barclays had recovered most of its early losses following Varley’s comments this morning.

Last night Britain’s bank bosses met with chancellor Alistair Darling, to discuss a possible £50bn injection of equity. They are due to meet again at the Treasury this afternoon.

The talks centre on the idea of a part-nationalisation of the banking system through the injection of capital into the banks via preference shares, which take precedence over ordinary shares during a liquidation, but do not give the holders any voting rights.

Read moreBank shares plunge again in panicky trading

Coca-Cola to buy Huiyuan in largest China takeover

HONG KONG (Reuters) – Coca-Cola Co (KO.N), the world’s largest soft drinks maker, offered to buy juice maker China Huiyuan (1886.HK) for a hefty premium, marking the biggest takeover in China by a foreign company.

The all-cash deal of $2.5 billion, which still requires regulatory approval, values Huiyuan at nearly three times its closing price on Friday.

Coca-Cola, which has offset flat sales at home by expanding globally, dominates a growing Chinese diluted-juice market and now hopes to make inroads into an untapped pure-juice sector.

Read moreCoca-Cola to buy Huiyuan in largest China takeover

Big CFTC data revision raises oil traders’ eyebrows

“There may have been multiple ‘positions’ which were reclassified … but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else,” noted John Kemp of RBS Sempra Commodities.
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NEW YORK (Reuters) – A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community.

Read moreBig CFTC data revision raises oil traders’ eyebrows

Royal Bank of Scotland poised for biggest loss in UK banking history

Britain’s second largest bank expected to reveal it has lost £1 billion in first half

THE Royal Bank of Scotland is poised to unveil the biggest loss in UK banking history after taking a hit of almost £6 billion from the credit crisis.

Britain’s second-largest bank is this week expected to reveal a pre-tax loss of at least £1 billion for the first six months of the year, with analysts warning it could slide to as much as £1.7 billion in the red.

The loss would be roughly five times higher than the deficit racked up by Barclays in 1992 at the height of the last recession.

RBS chairman Sir Tom McKillop is already under pressure from investors after the bank’s recent £12 billion rights issue. His chief executive, Sir Fred Goodwin, who marks 10 years at the bank this weekend, also faces shareholder scrutiny.

Read moreRoyal Bank of Scotland poised for biggest loss in UK banking history