British Banking/Housing

rffrydr · Posted: Sat Sep 22, 2007 10:20 am Post subject: British Banking/Housing

From the broker:

Looking at the UK Housing Market
With the problems brewing in the UK banking system, some are questioning the stability of the British financial structure and furthermore the possibility of on going rate hikes. Going forward, the situation in the housing market will remain instrumental in determining future monetary policy.

UK home prices remain at their all time highs. According to the BBC, the average cost of a home is Stg.210,578, up 9.25% from last year. Furthermore, the Rightmove Asking Price index hit all time highs in August. Though these gains have been consistent, they have been decelerating. The Y/Y growth rate in the Nationwide House Prices index has fallen off its 2003 highs. The graph below exhibits the trend since 1992.

Nationwide House Prices: Monthly 1992-2007

While the index did pick up some steam at the end of 2006, there has been some recent consolidation around 9.5%. The pick-up in housing prices was a function of the growing business in innovative mortgage products. According to a Halifax press release distributed in 2001, “UK borrowers benefit from having a wide choice of mortgage products, including variable rate loans, discounted, fixed, tracker, capped, and 'cap and collar' mortgages. In contrast, over two thirds of mortgages in Europe are fixed rate loans.” It is estimated that from 2002-2005 over ¼ of the loans made were adjustable. Lower loan standards and a diverse array of mortgage products encouraged aggressive lending. Loans for house purchases increased to Stg. 9.192B in July of 2007 from Stg. 3.431B in January of 2000. The data on mortgage approvals also expresses how the changes in lending standards encouraged the boom in the real estate sector. Approvals surged from 1.7B in mid 2001 to 6B by December of 2006. The changing housing climate in the UK however has since depressed approvals to under $4B.
UK borrowers will soon face the consequences of these loose standards. By the end of the year, 800K mortgage will be subject to re-set to significantly higher rates. The fixed mortgage average has risen from 3.99% in 2003 to 5.71 by July of 2007. Going forward, the market is left to grapple with the UK’s ability to digest these higher rates. The higher mortgage rates and resets will create major financial obstacles in the UK. One of the main indications of the continued deteriorating housing market is the large value of home equity withdrawals. The chart below shows the relationship between the per quarter value of home equity withdrawals.

According to this chart home equity withdrawals have stayed robust. Though there was a precipitous decline in the metric from 2004-2005, the most recent spike could likely be due to the rebound in home prices. The increasing value of home equities withdrawals suggests that the consumer is becoming overleveraged. Considering the upward trend interest rates, credit for the individual may face unmanageable levels. The growth in income in relationship to HEW argues for a contraction in the UK economy. According to the Bank of England data used in the above graphic, yearly income growth is approaching negative levels. Notice on the graph that in the later portion of the data set declines in income growth correlate with expansions in home equity withdrawals. This in mind, it is arguable that falling income levels forced consumers to borrow on their homes to fund purchases. Looking back to home prices, low income growth coupled with high mortgage rates suggests and affordability problem in addition to an over-leveraged housing market.
These statements in mind, it is unlikely that the BOE will hike at their next meeting. Though money supply growth and inflation do argue for the continuation of the tightening cycle, the BOE will recognize the deflationary pressures and economic stresses extending from the housing market.[/code]
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Today is the Tomorrow you worried about Yesterday!

HenryTo · Posted: Mon Apr 02, 2012 3:05 am Post subject:

UK housing prices rise for the first time in 21 months.

http://www.bloomberg.com/news/2012-04-01/u-k-home-prices-underpinned-by-tax-holiday-rush-hometra.html

HenryTo · Posted: Wed Mar 28, 2012 9:30 pm Post subject:

Richard Branson and Wilber Ross purchase Northern Rock--and makes a sizable, initial splash in the British retail banking industry.

http://www.bloomberg.com/news/2012-03-28/branson-s-virgin-money-seen-disrupting-u-k-retail-banks.html

HenryTo · Posted: Tue Mar 27, 2012 9:37 pm Post subject:

Still tons of liquidity out there--and more important, the appetite for global financial institutions has not totally diminished.
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Abu Dhabi eyes $16 billion investment in RBS: FT

LONDON (Reuters) - Abu Dhabi investors have discussed a 10 billion pound ($15.97 billion) investment into Royal Bank of Scotland (LSE:RBS.L - News), the Financial Times reported on Wednesday.

The newspaper cited people close to the discussions as saying talks have taken place over the course of the last three years into a potential investment in two of Britain's two big part-nationalized banks, RBS and Lloyds (LSE:LLOY.L - News).

Reuters reported on Tuesday that the RBS talks are being held at the level of the Abu Dhabi ruling family and it could end up with a stake of more than a third in RBS.

Abu Dhabi investors could invest up to 5 billion pounds in RBS stock - potentially equivalent to a 14 percent equity stake, the FT said.

The remainder would be injected as contingent capital, funds that would be available under pre-negotiated agreement, which could convert from debt to equity on a pre-agreed basis, the FT said.

People familiar with the talks, cited by the FT, said a deal was more likely in 2013.

Neither RBS nor Lloyd's could be reached immediately for comment.

rffrydr · Posted: Wed Jan 18, 2012 3:10 pm Post subject:

These guys are going to make out just fine (if not like bandits they were):

http://www.economist.com/node/21542417

Crises of confidence and structural change will not dissuade this (literally) mecca of high finance. No, the City of London did not begin with the displacement of maritime--it is the EXTENSION of same by other means. In other words, "empire."

Culture comes first (and time zones still work).
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Today is the Tomorrow you worried about Yesterday!

HenryTo · Posted: Mon Jan 16, 2012 3:31 pm Post subject:

The shrinking of the UK banking sector and bank jobs continues.

http://www.bloomberg.com/news/2012-01-16/lazard-gets-five-weeks-to-find-rbs-buyers-before-bankers-depart.html

rffrydr · Posted: Tue Nov 08, 2011 9:13 am Post subject:

Lloyd's CEO soap-opera looks to have marked the low in this poor bbasterd. The negativity remains:

rffrydr · Posted: Tue Nov 01, 2011 8:03 am Post subject:

BARC getting killed today as, apart from market bloodletting, it is revealed results are flattered by derivatives hedges. This practice would have been accepted as matter of course a few years back--and now bank investor's, of all people, volta face on their own products is truly a sign of the times.

Beware all banks bearing the "Diamon(d) Label" Embarassed

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Today is the Tomorrow you worried about Yesterday!

rffrydr · Posted: Mon Oct 31, 2011 9:27 am Post subject:

Evo on BARC:

rffrydr · Posted: Sun Oct 23, 2011 9:01 am Post subject:

rffrydr · Posted: Thu Oct 13, 2011 12:20 pm Post subject:

Via Alphaville:

Euro recaps: Complex calculations, simple conclusions
JC

The simple conclusion was (and remains) that, unlike their European
peers, no UK bank needs to raise a penny of additional capital through
fresh issuance. (Core tier 1 ratios at 30 June 2011: Lloyds 10.1%, HSBC
10.8%, BARC 11.0%, RBS 11.1%, STAN 11.8%.) Given that this fact is
not yet fully recognised, grudging acceptance will in itself be sufficient to
drive the UK bank sub-sector still higher over time. BARC (Buy) and RBS
(Buy) have been the top performers over the past month. We expect this
to continue. They remain our top picks. HSBC (Sell) has been the worst
performer over the past month, and we expect it to continue to lag
JC

(Not) raising the capital bar. “9%” is (apparently) the new “must-have” number,
but we don’t yet know for whom, by when, how, subject to what stresses and/or
haircuts, and whether under Basel 2, Basel 2.5, Basel 3 (2013) or a Basel 3 “fullyloaded” basis. When reading yesterday’s self-serving “Communication from the
Commission” in Brussels we didn’t know whether to laugh or cry. However, what we
can legitimately conclude is that the UK banks should not be seen as vulnerable
under this particular exercise. The heavy lifting has already been done
NH
(Fair Bohemia. But what about RBS and Barclays – big exposure to Italy and Ireland. but that’s not tested because it’s not sovereign)
JC

Carry on shrinking. As UK banks have demonstrated, (notably LLOY/RBS), the
key to capital ratio repair lies not only in zero dividends (and the 2008/9
recapitalisations), but a long (and continuing) programme of balance sheet
shrinkage, thereby reducing the denominator of the capital ratio calculation. For
clarity, LLOY/RBS will continue to shrink regardless of what comes out of Brussels
– it is key to fixing their structural funding issues as much as any notion of further capital strengthening. As for BARC/HSBC/STAN, they are peculiar entities that actually make profits, most of which are retained to support growth (yes really), as well as further balance sheet strengthening in order to absorb the impact of transition through Basel 2.5/3. And even RBS and LLOY will be making modest profits in 2012/13
JC
What does the UK need to worry about? Aside from the absence of growth, it
remains possible (likely?) that the methodology of any future stress test will again
be flawed leading some to conclude that RBS and others need fresh capital. We
have been living with this argument for a long time now – the answer remains “no”.
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Today is the Tomorrow you worried about Yesterday!

rffrydr · Posted: Sun Sep 11, 2011 9:28 am Post subject:

The ICB and UK banks

Six months ago, the suggestion that the UK Independent Commission on Banking might opt for ringfencing universal banks’ retail arms was seen as a cop-out. Amid calls to dismantle banks deemed too big to fail or reintroduce a Glass-Steagall division between commercial and investment banking, it seemed like an attempt to do the minimum. Now the optics are different. A last-ditch battle is under way to avert ringfencing, thanks to a deepening eurozone crisis and a sell-off in UK bank stocks that has seen them underperform even their eurozone peers. Sir John Vickers’s commission has become a fascinating test case for the rest of the world.

There are two plausible arguments against ringfencing: that it would force banks to raise yet more capital, and inhibit their ability to raise funding. The first depends on what is being ringfenced. If only deposit-taking, which requires very little capital, is to be ringfenced, then the issue does not arise. If small-business and mortgage lending are included, then Lloyds Banking Group, Royal Bank of Scotland and Barclays would see almost all of their excess capital gobbled up but would not need to raise any extra, according to calculations by Berenberg Bank.The funding argument is stronger: divisions outside the ringfence would be denied cheap funding from bank deposits. The cost of alternative funding would be passed on in higher lending rates.

But Berenberg points out that the funding costs for Morgan Stanley and Goldman Sachs, investment banks with no access to deposits, are similar to those of Lloyds and RBS (although higher than Barclays). And Barclays steadfastly denies that it uses retail deposits to fund Barclays Capital in any case. There are good arguments, then, for clarity. Much rides on exactly what is ringfenced. But that does not justify abandonment or delay.
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Today is the Tomorrow you worried about Yesterday!

rffrydr · Posted: Mon Aug 01, 2011 8:05 am Post subject:

And the world goes on, underneath all the pale macro:

rffrydr · Posted: Fri May 06, 2011 8:27 am Post subject:

Whisper it quietly, but Q1 2011 could yet mark the low point for RBS’ tNAV per share
of 50.1p since the UK taxpayer subsidised existing shareholders with the final tranche
of its GBP45.8bn investment at 50.53p-per share – on which it is currently c.GBP9bn
underwater. RBS has fallen sharply – down 17% since our downgrade report, Take
the money and run, 18 February 2011, but encouraging underlying trends, notably in
UK Retail and UK Corporate should prevent further decline today. We anticipate that
RBS may take a c.GBP1bn charge for PPI redress in Q2 2011.
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Today is the Tomorrow you worried about Yesterday!

rffrydr · Posted: Wed Apr 13, 2011 7:17 am Post subject:

Lloyd's forced to buy HBOS and now forced to sell it Embarassed

http://av.r.ftdata.co.uk/files/2011/04/Overview-of-potential-branch-sales-Morgan-Stanley-e1302621911916.jpg
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Today is the Tomorrow you worried about Yesterday!

rffrydr · Posted: Tue Mar 22, 2011 8:32 am Post subject:

....and Merrill continues with the thumbs-up, 1-year delayed: