UK Banking Report UPDATE & the outlook for UK Property
Since subscribing to the view in my previous report of 20th January 2009 the state of UK banking as predicted has indeed got worse. Not only have Cattles Finance (see previous report) been forced to withdraw their application to FSA (extraordinary that the regulator is responsible for new applications in the first instance) for a retail licence but the Sir James Crosby fiasco has arisen dwarfing any other issues. In essence the former HBOS architect was recruited as Deputy-Chair of the City regulator, FSA even after HBOS apparently received criticism of its handling of risk some years ago. The revelations of HBOS’s former Head of Regulatory Risk, Paul Moore, are poised to expose Gordon Brown’s involvement in the Lloyds TSB/HBOS merger. In addition to the impending failure this week of Lloyds Banking Group after the continuing worsening property and lending climate it has emerged that RBS, the main provocateur in the banking crisis, has involved itself with tax-payers money in £200m of sports sponsorship. Furthermore the revelation in the Mail on Sunday last weekend that Barclays had secreted nearly £700m bonuses for its executives has only cemented the extraordinary level of corruption and greed within the UK banking industry. Despite unprecedented losses the ‘guaranteed bonus culture’ is still with us. There seems to be a total disconnect between the legal responsibilities that Directors of banks have and the rights of shareholders (many of whom now are the UK tax-payers indirectly). The repurcussions for the future of the City of London are indeed frightening if these bankers are not brought to book and held account for their actions. In essence the bankers have turned into ‘Dick Whittington-esque’ characters with no morals and as it turns out with no idea of their responsibilities or any ideas of how to retreat from this mess.
As I have suggested repeatedly one cannot expect the architects of the global financial crisis to sort out the problems that they themselves have created. I was reminded this week of Albert Einstein’s quote; “Never expect the people who caused a problem to solve it.”
Much has been said of the ineffectiveness of the UK regulator, the FSA in all of this and it should be remembered that it was the Conservative Party under Margaret Thatcher who created the concept of external regulation for City firms. There were many (and my former stockbroking colleagues in small private firms I worked with were in unison on their views in this at the time) who believed that having non-practitioners regulating City traders brokers and financiers would just create more havoc eventually and indeed this has been the result. The case for better investor protection and improved professional conduct from City employees has not transpired and personally I find it absurd that I should need to have to constantly prove to regulators the level of my own ‘integrity’. The new bonus culture within the FSA shows that like the very bankers previously aforementioned the regulators themselves have disconnected from their responsibilities. Just this week the FSA made public its economic forecast. Time and again the FSA has proved that it no longer aspires to regulatory status but to a dictatorial policy status that at times is more than just a little Stalin-esque. In my view the whole application process for corporate membership of FSA and London Stock Exchange needs to be re-examined before entrepreneurial practitioners move elsewhere. After all in a global interactive financial world (as I’ve proved myself) the domicile of practitioners can be pretty elastic as investors flock to the global online universe.
Well what is the solution to the banking crisis? There is no easy fix but a responsible government working with the regulators could encourage new banks and brokers to be formed; certainly the rules (see Cattles experience and those of private stockbrokers since Big Bang) could be fast-tracked to do this but what probably is required first and foremost is for the government’s banks to hive-off the customer lists, trading names (TSB, Bank of Scotland, Coutts, National Westminster, etc) and staff as quickly as possible. I really do believe that brokers and funds would rather invest in purer banks and avoid having to analyse derivative exposures that RBS etc have. We’ll see what transpires but in this environment where so many people seem to have forgotten what their roles are as well as the raison d’etre for these businesses in the first place I think it may take some years for confidence to return. Certainly as every small businessman knows full well that unless the City encourages entrepreneurs from within to form new banks and brokers the outlook is even more Stalin-esque with MiFID and other EU regulations knocking on the doors of City firms.
My views on property have not changed. I still believe that a top to bottom depreciation of up to -70% in values throughout the UK is still possible. At this juncture official statistics seem to have disconnected from reality. Land registry and building society statistics showing executed transactions since August 2007 probably indicate a -15/20% decline to date but looking at www.propertysnake.co.uk a near -40% fall in values is being experienced by many who cannot simply sell at any price. Obviously with a malfunctioning banking system, a failing credit checking operandi, a liquidity crunch in the money markets and new stricter lending criteria then the outlook is truly dismal. Whilst looking at www.primelocation.com this week it is clear that many developers have buried their heads in the sands and that estate agents are walking around completely dazed by economic and financial events that they simply don’t understand. The outlook for £sterling is truly dire (gold and precious metals investments are the only sound areas to consider at the moment) and the need to arise £200bn in the gilt market is going to rear up in the not too distant future. In my view the property market is on the edge of a cliff and if RBS and Lloyds do join Northern Rock and Bradford & Bingley in the government bank (has anyone got a brand name that suits yet?) then the prices could collapse dramatically as estate agents and valuers enter a ‘no bid’ universe where intrinsic or build value is the only way to evaluate property values going forward.
As I write this banking blog I have just heard Lord ‘Roy’ Hattersley on Sky News call for more tighter regulation in the UK financial services suggesting that regulation has been far too light. Well Roy can I suggest that you visit any private client stockbroker and try and do his job for a day.
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