After the snarls from the gutter about two excellent banks and their success in a time of great trial now a dose of realism.
First, here’s one of the culprits and the first to collapse. It still has on its books mortgages it should never have made many of which are now in negative equity territory, These are steadily defaulting and running in arrears. THIS is what crassly idiotic management can do. Brown didn’t sack the executives when he bailed it out. No, it was based in Labour’s core support area and at all costs (literally) had to be kept going to keep the votes flowing.
Then secondly there is the thorny question of the Icelanders for whom we are expected to feel remorse and solidarity. But it seems that not everything is that straightforward. It boils down to extremely dodgy lending practices on the part of the Iceland financiers combined with slovenly and incompetent practices by Gordon Brown at our own Treasury.
After those two, aren’t you glad of some good banking from Barclays and from HSBC (to whom you could have added Lloyds-TSB had Gordon Brown not cajoled that excellent bank into taking over the basket case that was HBOS)
Now wait for the reports from RBS and from Lloyds. But the gutter press (that 's ALL of it) have vented their spleen on the good banks. They won't notice the bad ones.
Christina
TELEGRAPH 4.8.09
1. Northern Rock bad debts push loss to £724m
Northern Rock made a £724m loss in the six months to June as its bad debt soared to £602m and warned that its £14.5bn taxpayer loan “will increase” once a planned restructuring is complete.
By Philip Aldrick
The nationalised bank also confirmed that (it) is in breach of its regulatory requirements but that the Financial Services Authority “does not currently intend to restrict the activities of the Company while the legal and capital restructuring is completed”.
Its core tier-one capital – the key measure of financial strength – is £794m. It would need core tier-one capital of £2bn to be in line with the FSA’s current requirement for a ratio of about 8pc.
The specialist mortgage is splitting into a “good bank” and a “bad bank” under its planned restructuring and stressed yesterday that it would not require any more than the £3bn of capital from the taxpayer already earmarked.
Although the loan from the taxpayer will rise, the distinction is important as capital is loss-absorbing and the state would stand very little chance of recovering any more capital injected into the lender. The additional loan facility will charge interest and will be repayable.
The underlying loss at the bank improved from £443m to £270m, largely due to higher interest rates being charged to customers. Last year, Northern Rock also had far higher costs in association with the nationalisation process.
Net interest income recovered from £51.9m loss to a £74.2m gain as the underlying interest margin jumped from 0.41pc to 1.12pc. This “primarily reflects the interest rate environment and the changing nature of the book as fewer customers remortgage to other mortgage lenders following the end of their product term”.
Fewer customers are remortgaging because they are unable to find a borrower to take on their debts. This is largely because about a third of the book is already in negative equity, trapping borrowers with Northern Rock.
As a result, problem loans at the bank have rocketed. Arrears rates are running at 3.92pc against the industry average of 2.39pc, with the book of controversial 125pc mortgages running with 6.47pc arrears rates – a tripling of the level last year. However, repossessions are down from 3,620 to 2,522 due to efforts to help homeowners.
Bad debts rose to £602m in the half from £191.6m in the first half of 2008 but below the £702.8m in the six months to December.
Northern Rock withdrew £4.2bn from the mortgage market in the past six months – equivalent to the amount HSBC revealed yesterday that it provided in credit to homeowners. In total, Northern Rock lent just £1.3bn, excluding the money recovered from repayments, and is on course to make just £4bn available this year.
The bank has also lost £1.2bn of retail deposits, with savings levels falling to £18.4 in the six months due to “increased market competition, along with a more normalised customer view of the savings market and Northern Rock’s place within the market”.
In total, its loan from the Government is now £14.5bn. It paid the state £309m in interest and fees in the half, compared with £1.21bn in the 11 months between February and December last year. The fall was due to a reduction in interest and a decline in the loan level by £6bn.
The numbers also showed that costs to advisers in relation to its nationalisation totaled £32.4m last year, but “professional fees” in the first half totaled just £2.8m.
Chief executive Gary Hoffman said: “We anticipate receiving [EU] state aid approval [for the restructuring plan] in the autumn and the legal and capital restructuring of the Company completed by the end of the year. This ultimately prepares for a return to the private sector.”
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2. Kaupthing leak exposes loans
Kaupthing, the bank at the heart of the Icelandic financial collapse, lent billions of pounds to companies linked to a key director and top shareholders, according to leaked internal documents.
By Rowena Mason
Kaupthing was one of three Icelandic banks that collapsed last October
The papers appear to cast light on Kaupthing's highly unusual lending practices just two weeks before the Icelandic system failed last October, wiping out millions of pounds of savings deposited by UK local authorities and charities.
It reveals that its highest loans, totalling more than €6.4bn (£5.45bn), was given to companies connected to just six clients, four of whom were major shareholders in the company. Kaupthing granted some of these loans with partial or no collateral, the largest of which was given to Exista, its biggest shareholder with a 22pc stake.
The bank, which had a huge retail depositor base in the UK, was also lending millions of pounds to individuals and holding companies so that they could buy shares in Kaupthing itself – effectively propping up its own share price.
It is understood that the 205-page document, published on the internet over the weekend, was presented at an internal meeting at Kaupthing on September 25 last year. It details the loans to companies and high-profile individuals such as Kevin Stanford, Robert Tchenguiz, the Candy brothers and Simon Halabi.
Among some of the bank's biggest borrowers, were companies connected to:
• Lydur Gudmundsson, who founded the Bakkavor food empire that employs 20,000, many in the UK. Mr Gudmundsson, who sat on the board of Kaupthing and Exista, was granted loans worth €1.86bn for companies linked to him and his brother, Agust. One note detailing a €791.2m loan to Exista itself admits that "bulk of the loans are unsecured and with no covenants".
• Robert Tchenguiz, the London-based property entrepreneur and board member of Exista, was loaned €1.74bn to finance his private investments. Last night, Mr Tchenguiz confirmed that he had been the bank's biggest client, but declined to comment further.
• Kevin Stanford, the retail entrepreneur and director of House of Fraser, who emerges in the document as Kaupthing's fourth largest shareholder. He was given a €519m loan to buy shares – of which €181m were in Kaupthing itself, using those same shares as collateral. [!!!]
There is no suggestion that any of the shareholders acted illegally. [What ? -cs]
Tony Shearer, who was chief executive of the 100-year-old British bank Singer & Friedlander when it was taken over by Kaupthing in 2006, expressed his deep concern that the Financial Services Authority had not examined the Icelandic bank's books more carefully. [Is it any wonder that the Tories want the FSA put under the control of the Bank of England -cs] .0
"The leaked document shows absolutely appalling practices," he said. "Anybody reading that document could see it is a totally unbalanced loan book. You just cannot lend money for someone to buy shares in yourself."
Kaupthing was one of three Icelandic banks, along with Glitnir and Landsbanki, that collapsed last October, forcing the British Government to pay out £7.4bn to 460,000 savers who had lost their money. [These savers were greedy for Icesavers was paying OTT rates, but our govretnment was recommending the Icelanders to local authorities here. -cs]
One banking analyst said. "It is inconceivable that this could go on in the UK. But the bank was allowed to set up here and take deposits from customers."
Mr Gudmundsson and Mr Stanford did not return calls for comment.
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