Barclays' new "Confirmation of Payee" service.

Email received from Barclays today:

Hi Customer,

What's new?

I'm sure they'll tell me...

A new service called Confirmation of Payee has been designed to help protect your payments from scams, fraudsters and payments going to the wrong account.

From March, when you pay a new person or business using Faster Payments (including standing orders) or CHAPS, we'll match their account name as well as the sort code and account number to make sure you're paying the right person. If someone makes a new payment to you, their bank may do the same.
[and so on]

Your Barclays Business Team

They appear to have learned the lesson from this debacle.

You do wonder, why on earth didn't banks always check the name of the recipient? What was the point of asking for their name if they're not going to check it?

Couple who used New Labour government financing model as template for their own lifestyle mystified and angry at Judge declaring it to be "completely stupid" ....

Says Bob E in response to this article from The Telegraph:

The judge, who heard the High Court trial last year, said the Gatts had been successful property developers who "lived the lifestyle of prosperous, indeed wealthy, people".

They sold their £2 million home in Kent in 2004 and moved to Melksham Court, a medieval manor house with substantial grounds and outlying cottages [which appears to have cost £4 million]. There, they had space for Mrs Gatt's stable of quarter horses, a £240,000 mobile home, as well as Mr Gatt's Ferrari and collection of Harley Davidson motorcycles.

"Plainly, they were not afraid of borrowing, as some people are, but regarded being overdrawn for business and living purposes as a normal condition, confident of being able to repay when their ship came in," continued the judge.

Disaster struck for the couple in April 2008 when they were refused remortgage finance by RBS on their home, which they needed to plough into development projects. They soon learned that Barclays had provided reports to credit reference agencies stating that Mr Gatt's account was "delinquent", since it was £260,000 overdrawn when the agreed limit was only £1,500.

[Beyond satire] "We're all in this together"

From the BBC:

Hector Sants, the former chief executive of the Financial Services Authority, is joining Barclays bank.

He has been given a new top job to improve the bank's reputation with governments and regulators internationally. His salary is not being disclosed, as he will not be a board director.

Barclays chief executive Antony Jenkins said Mr Sants would ensure that all staff met the spirit and letter of the law and regulators' expectations.

"Relationships with our regulators and governments around the world are obviously also of critical importance to us," Mr Jenkins said. "With a huge wealth of private and public sector experience, and having most recently led one of the world's pre-eminent regulatory authorities, I can think of no more suitably qualified person than Hector Sants to take on these challenges."

Words fai

Propaganda fail

Now I genuinely am a bit puzzled. Barclay's previous three advertisements had a simple message: "If you don't own a big house then you are scum. How high the mortgage is doesn't matter", which is fair enough,

Today's advertisement, instead of breezily saying "We can help you save for your retirement and for your children's deposits", appears to be conceding that with house prices as high as they are, there is a stark choice between one and t'other. I also like the fiery red colour, suggesting that we are all going to Hell. Which we are, in a handcart of Barclays' making:

They went with the creepy blue colour again for today's brainwashing

This is getting too subtle for me. What are Barclays driving at?

Yeah, but they lend to buy-to-let landlords as well, so what's their point?

Ooh! I wonder what the subliminal message here is?

They own land! Contracts shouldn't be binding on them!

From The Daily Mail:

As Bob Diamond climbs elegantly into his mink-lined coffin, I wonder if he might spare a thought for Edna Robson, who took out a £15,000 loan with Barclays Bank 14 years ago, and now discovers she owes a staggering and disgraceful £97,000.

She and her husband John had lived in their former council house for 40 years. They wanted a little money to take holidays together, and so went to Barclays for a loan — called a Shared Appreciation Mortgage (SAM). It was an insidious financial product that was on sale at the bank between 1996 and 1998, and was designed to allow home-owners to free up money from the equity in their properties.

The loan is paid back when the property is sold, and at that point you pay back not only the loan but also a proportion of the amount your home has risen in value. So if your house price rose sharply, the bank would demand a much larger sum in return than you borrowed.

At the time Edna took out the loan — when her house was valued at £65,000 — it was predicted prices would rise by five per cent a year. In fact it was far more — leaving Edna, and others like her, facing a massive bill when the time came to sell their houses.

The reason Barclays are claiming the money back now is that Edna, 88, is suffering from Alzheimer’s and needs to go into a home to be looked after. One of her children, Barry Taylor, of Chedgrave, Norfolk, contacted me to say he has been forced by Essex County Council to sell his mother’s three-bedroom semi — for £183,000 — to pay for her care. The council insists on the sale because Edna has more than £23,000 in assets, and thus those assests — as the law demands — must go towards her care.

As Barry told me: ‘No wonder Bob Diamond and Co earn such huge bonuses if they can exploit people like my mother with such schemes.’ Once Edna’s care bills were taken into account, the rest of the sale value of her home would have been the basis of her legacy to Barry and his two siblings. Yet around half that money went straight to the bank.

Hang about here.

Edna bought her council house at a massive discount, and probably paid less in mortgage repayments than the council rent would have been, so effectively it's cost her nothing. So that entire £183,000 is pure unearned windfall gain, or free gift from the taxpayer or the next generation (some poor bugger now has to pay off a £183,000 mortgage instead of getting an affordable council house).

Yes, the bigger sharks Barclays have collected more than half that windfall gain, but that was the deal; twenty years ago, how many people knew that house prices would treble, so at the time she signed up, it was probably a fair bargain.

And if her house were still valued at £65,000, so that Barclays are only repaid £15,000, would that somehow make it fairer? That's how spiteful the Homeys are, if they can't have it, then nobody else can have it either.

Spotter's badge: Robin Smith.

The LIBOR fixing "scandal" was just a normal day at work

It is surprising that anybody is surprised about any of this, here's a good list of some of the financial scandals of the past two decades, I'm sure there are plenty more. It never seems to dawn on people that this is all part of the plan, it's just that every now and then they either cross the line or get found out.

What doesn't raise any eyebrows at all, is that when The Powers That Be became aware that Barclays et al were deliberately pushing down LIBOR to make the banks look more credit worthy than they were, instead of The Powers That Be doing something to stop it, they just turned it into official government policy - bailing out banks via Credit Guarantee Scheme and Special Liquidity Scheme, investing £66 billion in the most bankrupt two, reducing the base rate to 0.5% (well below inflation) etc etc.

The stuff going on at EU level is even more insane, the banks and the governments have merged into one huge cartel sloshing money back and forth at each other with absolutely no plan of how any of it is ever going to be repaid.

Even ignoring all these "scandals", there is a view that the whole nature of banking - being allowed to split the zero into a loan and a deposit and to earn money from the interest margin - is fraudulent, as this enables them to take a slice of output ("rent") without actually producing anything.

This is just how bankers work, they will never stop doing it, because they - and the landowners - are the people for whose benefit the whole country is being run. They are the main beneficiaries of and probably the main drivers behind Home-Owner-Ism; most of the business tax changes introduced by the current lot favour banks in particular and make things even worse for productive businesses. And what it all boils down to is the get-rich-quick culture, which is human nature I suppose, but in this country the get-rich-quick people are those who are worshipped and celebrated most, starting with people who boast about how much money they've made on their house.

Paul Tucker: Corrupt F

Diamond Geezer

How LIBOR works... (2)

Back in 2008, I posted up the following comment by Lola:

Boss of Bank A is looking at its balance sheet and saying: "Bloody Hell! If ours is that bad his (Bank B) must be even worse. So sod that for a game of soldiers, I am not lending to him at any price, well unless I can get a silly rate. Fred? Jack up the LIBOR rate by 500 bps."

Fred: "OK Boss."

Turns out we were wrong, the conversation actually goes something more like this:

Boss of Bank BARC.L is looking at its balance sheet and saying: "Bloody Hell! If ours is that bad his (Bank X) must be even worse. But we know that he knows that we know. If it gets out, we can sod this for a game of soldiers and nobody will lend to any of us at any price, well unless I can get a silly rate. Fred? Knock down the LIBOR rate by 500 bps. Right now, we don't care what it costs us."

Fred: "OK Boss."

Boss: "Oh, and find out if the fixed interest guys have offloaded some of the stuff they bought last month, there's got to be a few quid in it by now."

Fred: "They're already on it, Boss."

"Buying beats renting by almost £200,000 over lifetime"

Here's the original Barclays press release which has been re-hashed by most newspapers over the past two days:

Stepping onto the property ladder has enormous financial benefits over a person's adult lifetime. According to a new study from Barclays, owning your home rather than renting it will save you £194,000 over a fifty year period. And this figure doesn't even account for the value of the home the buyer will own at the end of it.

While the total cost of mortgage repayments, maintenance, and other costs associated with owning the average home would come to £429,000 over fifty years (a person's adult lifetime since a typical buyer purchases in his early thirties) renting a similar home over the same period would cost £623,000. Recognising that getting on the housing ladder, or trading up is still a substantial barrier to many, Barclays has created a new mortgage scheme (Helpful Start) which has a Family Affordability Plan incorporated into it, that lets parents help their children with loan affordability...

"Well, they would say that, wouldn't they?" you might think, but at least they explain why:

Over a fifty year span, roughly 50 per cent of the cost of occupying your own home comes in the form of mortgage payments - £210,000 out of the £429,000. Two fifths of that £210,000 is interest cost, while the rest is capital repayment. The next largest outlay is maintenance at £170,000. The initial purchase deposit is the next biggest cost, while insurance, stamp duty and other costs associated with buying the house in the first place make up the rest.

Yup, you "save" £194,000 and the bank earns £84,000 interest, of which it pays half to depositors and the rest is pure profit. Fag packet says £129,000 x 2% margin (rent) x 25 years, minus a third because mortgages are reducing balance = £43,000.

Only the "saving" is nowhere near what they claim, is it? They explain their assumptions (rents rise by 2% inflation and the tenant earns interest on the money he would have used as a deposit etc) and the total figure of £623,000 spent over the next fifty years looks about right - but they do not then discount this figure backwards to give the net present value. If you discount these payments backwards at Barclays' assumed savings rate net of tax (for want of a better discount rate), the total cost of renting in today's money is £310,000 and the total cost of buying is £277,000.

In relative terms, buying is more expensive because payments are front loaded, at a time when you might have other things to spend money on, like having children etc. For completeness; if you use a higher discount rate of 3.8%, the cash cost is exactly the same for renting and buying.

So there's not that much difference in the cash cost, the difference is that you will (hopefully) end up with a mortgage-free house*, the value of which will almost certainly have gone up faster than inflation and probably faster than wages. But I see no great urgency to "step onto the property ladder".

* Or maybe not.

Barclays Bank's £100 million tax bill: Rules is rules

The Righteous are now a-wailin' and a-moanin' that this is retrospective legislation, ooh, how horrible, end of the world etc, but it is nothing of the sort, and what puzzles me is that Barclays Bank ever thought they would get away with it.

The basic rule, subject to lots of exceptions, was always that if Company A owes Company B money and does not/cannot pay up, Company B claims a deduction (bad debt relief) and Company A is taxed on the saving. So if BB owes people £2.5 billion in bonds and buys back those bonds for a lot less than £2.5 billion (and this was all public knowledge at the time) then the discount/underpayment counts as a profit for BB, shows up in BB's accounts as a profit and BB has to pay tax on that profit.

HMRC's explanatory note explains the background in more detail. It appears, that BB were trying to play clever buggers, and instead of buying back their own bonds (which would trigger a tax charge), they arranged for a friendly entity to buy it back instead. Then, under the cover of darkness and while HMRC weren't looking (they hoped) BB would obtain control of that entity and quietly cancel the bonds (you can't owe yourself money).

I would have assumed that s362 CTA 2009 would have caught that anyway; HMRC seem to have admitted that on a narrow reading it didn't, but all HMRC have done is to make it clear that if it is pre-planned that the borrower is going to obtain control of the other entity, then this is sufficient to trigger a charge.

All seems fair enough to me, to the extent that you think incomes and profits should be taxed in the first place. What is spiteful is that in many cases, the creditor gets no tax relief for his loss, even though the debtor is taxed on his gain, separate topic.

A former chief executive of Barclays Bank spills the beans...

From a splendid article which appeared in the FT in late 2009

There are three types of bankers: those that can count, and those that can’t...

Observers of financial services saw unbelievable prosperity and apparently immense value added [in the years leading up to the crash]. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth? First, spreads on credit that took no account of default probabilities (bankers have been doing this for centuries, but not on this scale). Second, unrealised mark-to-market profits on the trading book, especially in illiquid instruments. Third, profits conjured up by taking the net present value of streams of income stretching into the future, on derivative issuance for example.

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

Via HPC, who got it from a link from a link this article, which went back to this article, which in turn links to the one in the FT.

"Skyscrapers linked with impending financial crashes"

From the BBC:

There is an "unhealthy correlation" between the building of skyscrapers and subsequent financial crashes, according to Barclays Capital. Examples include the Empire State building, built as the Great Depression was underway, and the current world's tallest, the Burj Khalifa, built just before Dubai almost went bust.

China is currently the biggest builder of skyscrapers, the bank said. India also has 14 skyscrapers under construction.

"Often the world's tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction," Barclays Capital analysts said. The bank noted that the world's first skyscraper, the Equitable Life building in New York, was completed in 1873 and coincided with a five-year recession. It was demolished in 1912...

That all seems perfectly plausible to me.

By and large, the height and density of buildings are primarily an indicator of relative land values in towns and cities. So you get the highest and densest buildings in the town centre* and then it gets lower and sparser as you move out into the suburbs.

The other thing which sky scrapers indicate is over-inflated egos, and credit bubbles inflate people's egos in the same way as they inflate the selling price of land.

So it's clear why credit bubbles mean more skyscrapers being built; credit bubbles always burst; hey presto, there's your correlation between skyscrapers and recessions.

Or the theory might be complete bunk, who knows?
--------------------------------
* UPDATE, prompted by JT's comment, I refer you to Jason Barr's empirical research looking at the economics of skyscrapers in Manhattan:

One also notices that within the skyline there are distinct “waves” of building heights, with height rising toward the "center". These waves reflect the endogenous relationship between strategic height, land values and agglomeration economies. Corporations need to be near each other to lower their business costs and increase demand, yet they also desire to stand out in the skyline.

Being close is valuable, which is reflected in property values in the center; large land costs, in turn, drives developers to build even higher if they are to get a return on their investment, as well as have their buildings stand out.

He explains that on the one hand, builders want to build as high as possible, to maximise rental income, fair enough. By and large, rental values decline slightly with height (longer lift journeys etc) and construction costs rise disproportionately with height. So there is a cut-off height above which it makes no sense building, but hubris (esp. during a credit boom) makes people want to add a dozen floors too many, and credit booms also lead builders to underestimate the cost of capital tied up in those extra floors.

He can thus identify the "too tall" buildings, and lists the top fifteen "too tall" buildings on page 27. As you'd expect, their construction dates match peaks of the eighteen-year credit cycles, two in 1908-13; seven in 1926 - 1933; then a bit of a gap for WW2 which threw the cycles out of kilter (or dampened the one which would have happened in the late 1940s); two in 1960 - 61; three in 1972 - 77; and an odd one out in 1987.

Debt-for-equity swaps of the week

From today's City AM

BARCLAYS has made a £2.5bn offer to buy back its debt in order to bolster its capital levels. If taken up by holders of the bank's bonds, the move could book Barclays a profit and reduce the amount of its debt that is non-compliant with new Basel III capital rules*.

The bank is offering a price for the bonds that is above their current market price but less than the cash it raised by selling them, hence the potential for it to make a profit from the deal. (1)

The move will make concrete some of the "own credit" earnings that many banks booked in recent results statements, despite most of them having not actually realised the gain by buying back their debt. (2)

1) This is a kind of debt-for-equity swap via the back door.

At present, the bank has £2.5 billion spare cash (an asset) and (say) £3 billion in bonds it wishes to buy back (liabilities). The bonds are currently trading at (say) 68p in the £, because the bank is a poor credit risk. The bank offers to use the £2.5 billion cash to buy back (redeem) the bonds at 84p in the £, which is a good deal, from the point of view of the investors because it halves their losses.

So the bank gets rid of £2.5 billion in assets and £3 billion in liabilities (if held to maturity, the bank would have to pay £3 billion) and the balancing figure of £0.5 billion can be booked as a profit. Profits are part of a bank's equity, so hey presto, they've done a debt-for-equity swap.

2) This is the really cheeky bit, but it is actually in accordance with accounting standards and does make sense. By the logic of accounting, the fact that a bank is doing badly generates a kind of profit for them, in the same way as if you owe somebody £100 and he tells you he'll be happy to take £60 and waive the rest, he has made a £40 loss and you have made a £40 profit.
---------------------------
UPDATE: I've just noticed that todays City AM covers another example of exactly the same thing:

GERMANY’S second-biggest bank, Commerzbank, said it would buy back €600m (£515m) of its own hybrid equity from investors yesterday in a bid to shore up its capital position to meet tough new Basel III capital requirements* due to take effect in 2013.

Commerzbank said it would buy back the trust-preferred securities, which are a mixture of debt and equity, at only between 40 and 52.5 per cent of their original issue price, allowing it to book a capital gain. The bank will buy back about €1.2bn of a total €2.23bn of its hybrid instruments in issue to increase its core Tier 1 capital ratio, which needs to be nine per cent by 2013.

That looks like they are using €0.6 billion cash to buy back/redeem bonds which were issued for/have a nominal value of €1.2 billion, which means investors are getting 50 cents in the €.

* The relevance of the Basel III rules is that they stipulate a certain minimum equity-to-assets ratio. Let's say that Barclays currently has assets of £100 billion and equity of £5 billion, that's a 5% ratio. Once the buy back is over, they'll have assets of £97.5 billion and equity of £5.5 billion, an equity-to-assets ratio of 5.6%, which doesn't sound like much of an improvement but these banks work on absolutely tiny equity ratios/enormous gearing; you can also express that change as a reduction in gearing of 20-to-1 down to 17.7-to-1.

In the rarified world of banking, that counts as "tough", apparently. In the real world, that means an end to 95% mortgages and borrowers being restricted to 94.4% mortgages instead.

Er ... Vince?

From today's Metro:

HSBC was accused of 'profiteering' yesterday after a senior executive signalled it may not pass on interest rate cuts in full to its customers. The bank's chief operating officer, David Hodgkinson, said there could be 'stickiness' in rates* even if the Bank of England lowered them as expected later this week...

His remarks were seized upon by Liberal Democrat treasury spokesman Vince Cable. He said: 'It is difficult to see the justification for Mr Hodgkinson's comments. When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.'

IIRC, HSBC and Barclays were the only two major banks who politely declined the taxpayers' shilling, along with Nationwide Building Society. Is he perhaps confusing 'HBOS' with 'HSBC'? Tut tut.

* Aka 'pushing a piece of string'.

Barclays to cease charging interest!

Now that Barclays Bank has been more or less taken over by Arabs, will Barclays' mortgage borrowers be able to refuse to pay interest, seeing as of how one of the ground rules of Islamic investing is that you aren't allowed to make a profit from money-lending?

Which considerate mortgage borrower would want the owners of their mortgage lender to go to Hell*?

* Or whatever the equivalent is in Islamic mythology.