Thursday 28 June 2012

British Banking Association's figures don't seem to add up

There were a few headlines yesterday reporting that the BBA had said that "mortgage lending was falling for the first time since 1997" or similar, which were all suitably vague as to whether they meant monthly lending or total mortgages outstanding.

It turns out that they mean the latter, i.e. last month, repayments exceeded new loans, their blurb is here, what is interesting is the accompanying spreadsheet, Excel.

1. I've bunged the figures for total outstanding (Tab 5, nsa) into a chart, that looks to me as if the total started falling in about May 2008, which is what you'd expect because that is when the 'financial crisis' first hit.

2. It also shows that the total skyrocketed after that, which they explain thusly:

"Following a change in the reporting of covered bonds from April 2009, the mortgage assets, held within such special purpose vehicles, have been added back into their parent banks' reported mortgage lending. These movements have been adjusted out of flows."

In other words, matching assets/liabilities which they had shifted off their balance sheets were shifted back on again. This indicates that about a fifth of mortgages had been bundled into SPVs and the like.

But when it boils down to it, you can add together the £768 billion residential mortgage lending, plus a quarter for commercial, plus a modest £35 billion for unsecured consumer lending (i.e. credit cards and the like) plus a few other bits and pieces, and you end up with a tad more than £1 trillion. This is the true measure of UK banks' assets/liabilities, about two-thirds of GDP.

Their interest margin (i.e. their monopoly rent income) is 2% or so, so by and large, we'd expect bank income net of interest to be a bit less than 2% of GDP. The notion put about by politicians during the bubble years and even today that "the City of London contributes" (or indeed "steals", from my point of view) ten per cent of GDP is infantile.

You often read that UK bank assets/liabilities are five time UK GDP, or ten times, or whatever, but they are not. The rest of it is fluff, double entry bookkeeping, inter-bank lending (which adds not a penny to banks' total assets or liabilities on a consolidated basis) and so on. It's like a little hedgehog putting up its spikes to look scary.

3. What's also irritating is that the columns don't add across. Surely, if gross loans in April were £6,414 bn and repayments were £7,095, then total lending went down by £681 billion, not £543 billion?

3 comments:

Bayard said...

Mark, they're bankers, FFS, you can't expect them to be able to add up. In the bankiverse 2+2=whatyouwantit2.

Mark Wadsworth said...

B, to be honest, banks are normally very good at adding and subtracting, otherwise the whole bank account system wouldn't work. Where they start lying and fabricating is normally at the higher level ("we need bail outs or everybody will die"), not down at nitty gritty level.

Now, we know that those totals look approximately plausible if you multiply reasonable estimates of number of households and number and size of mortgages etc. I just wonder why they didn't check the finer detail, it just makes the whole thing look dodgy. They could have just had a column for 'other differences' and left it at that.

Bayard said...

"Where they start lying and fabricating is normally at the higher level"

That "higher level" is where you start entering the bankiverse, where no-one wants things to add up. Yes, of course the footsoldiers can do their sums, otherwise as you sy, the whole system wouldn't work.

Interesting to hear the standard "it was all done by a few rogue junior employees" defence being trotted out by Bob D. Presumably he's hoping that if he throws enough traders off the sleigh, the wolves will stop chasing him and the other top brass.