LIBOR Scandal Holds Key to £24 Billion Llyods TSB Shareholder Case

Interesting news article suggests: a low borrowing rate gave false impression of HBOS solvency

Angry Lloyds shareholders say the Libor scandal is more proof they were mislead into voting to take over HBOS.

They have instructed lawyers to incorporate in their claim against Lloyds TSB directors the allegation that they knew that HBOS’s real interest rates were not being quoted at the very time that the directors of Lloyds TSB were recommending a merger with the stricken bank.

Lloyds Action Now (LAN) has been campaigning for the past three years for compensation for the 800,000 private shareholders who lost up to 90 per cent of their investment as a result of the deal.

LAN says the declaration by HBOS of interest rates lower than banks that were not in nearly as dire a financial state as itself was a deliberate attempt to hide the depth of the crisis from shareholders and that Lloyds TSB directors ought to have disclosed this.

“On 18th September 2008 HBOS posted figures for LIBOR that were clearly completely false and misleading. We now know that HBOS was not able to borrow from other banks and had to be the recipient of loans of last resort from the Bank of England and the US Federal Reserve in staggering sums,” said Sir Andrew Watson, LAN chairman.

“Despite this HBOS pretended that it was able to borrow money from other banks on an unsecured basis at rates more favourable than, for instance, HSBC Bank could.

“Lloyds TSB directors closed their eyes to this, did not disclose the true position and even hid the fact HBOS had received massive secret loans to keep it afloat in the run up to the takeover.

“In fact we now know that on that very day, 18th September 2008, HBOS was in danger of not being able to open for business because it had run out of cash, could not borrow money and was only saved by staggeringly large secret loans of last resort”, Sir Andrew added. “It is a scandal of breathtaking dimensions.”

According to former Barclays Chief Executive Bob Diamond, questioned over Barclay’s own manipulation of interest rates, the Emergency Liquidity Assistance to HBOS was not £25.4 billion but a staggering £62 billion.

This money was secretly loaned to HBOS between the announcement of the merger in September 2008 and its completion in January 2009.

It was in addition to publicly known loans given to all banks to assist with cash flow during the banking crisis and only revealed by the Bank of England a year after the event.

Lloyds Action Now has nearly 9,000 members and is in final negotiations with litigation funders to bring its claim for a total of around £2 billion compensation to court.

The HBOS merger cost Lloyds shareholders up to £4 a share, according to LAN’s latest calculations. With 6 billion shares in issue the total value of the claim could therefore be £24 billion.

LAN is writing to members of the Treasury Select Committee this weekend suggesting they raise the issue of Libor and Lloyds at their hearing into the banking scandal.

“Bob Diamond gave the impression that ‘low-balling’ the interest rate hurt no-one. In actual fact it hurt 800,000 Lloyds TSB shareholders, the majority of them pensioners, who have lost their life savings,” a LAN spokesman said.

Lessons in Investing

Investments – always good to look on with hindsight:

  • If you had purchased £1,000 of shares in Delta Airlines one year ago,   you would have £49.00 today
  • If you had purchased £1,000 of shares in AIG insurance company one year ago, you would have £33.00 today.
  • If you had purchased £1,000 of shares in Lehman Brothers five years ago, you would have nothing today.
  • If you had purchased £1,000 of shares in Northern Rock three years ago, you would have nothing today

But, if you had purchased £1,000 worth of beer one year ago at Tesco’s, drunk all the beer, then taken the aluminium cans to the scrap metal dealer, you would have received £214.00.

Based on the above, the best current investment plan is to drink heavily & recycle.

Further supported by:

A recent study found that the average Briton walks about 900 miles a year.

Another study found that Britons drink, on average, 22 gallons of alcohol a year.

That means that, on average, Britons get about 41 miles to the gallon!

The Ins And Outs of a Secured Loan

If you are thinking about taking out a secured loan it is important to make sure that you have a clear understanding of exactly what is involved. Secured loans have a number of advantages and disadvantages and whether or not they are the right product for you will depend on your circumstances.

If you do decide to opt for this kind of borrowing then you can compare secured loans by using a comparison website to help you determine which lender and product best meet your needs.

How Does a Secured Loan Work?

You can only get a secured loan if you have some kind of asset with equity in it, usually your home, that can act as collateral for the loan. Lenders like secured loans as they are less risky for them.

When you take out a secured loan you agree with the lender that in the event of you defaulting on repayments they can legally take possession of the asset that you have used to secure the loan.

What Are the Benefits of a Secured Loan?

Secured loans are usually for large sums of money and are repayable over a long term. This can make them beneficial to those looking to fund major home improvements or big purchases.

Because the lender has the security of your home if you do not meet the loan repayments, a secured loan can be easier to obtain than alternative products. This means that they can be useful for those who are self-employed or who have had a problem with their credit history in the past.

What Are the Disadvantages?

The main disadvantage to a secured loan is that your home is at risk if you do not keep up repayments. As a result, it is important to ensure that you can comply with the terms of the loan both now and in the future.

Are There Any Alternatives?

There are alternative financial products available if you are looking to take out a loan. An unsecured loan is not backed by any assets so can be a less risky option. Failure to repay will still have an impact on your credit rating, however.

If you are looking for a loan to cope with a cashflow difficulty then a payday loan may be an option. However, these loans are only suitable for short-term borrowing if you need a small amount.

When you decide to take out a loan it is important to make sure that the product that you opt for is the most appropriate for you. Whichever type of loan you are interested in, it is always a good idea to compare the products offered by different lenders so that you ensure that you get the best deal available.

The Rotten Core of CitiGroup

If you want to know why the world is currently in financial turmoil then this is a very insightful read: http://www.bloomberg.com/news/2012-05-31/woman-who-couldn-t-be-intimidated-by-citigroup-wins-31-million.html

To summarise, Citigroup (a whopper of a US bank with all sorts of questionable ties and one that received a massive bailout from the US Government) sold mortgages and they also bought mortgages from other financial institutions.

It then sold on these mortgage debts to other lenders and that alone is enough to make some people’s head spin.

The debts were sold on because they had value because the people who actually owed the money were paying interest.

Lenders often sell off their mortgages, it’s quite common.

The problem with Citigroup is, it was doing so much of this it failed to identify bad debts.

They did at first but then the volumes became so high they couldn’t check them all.

Citigroup got greedy (what’s that? a greedy bank? Who would have thought…)

It turns out people did identify some of these bad debts but not only did Citigroup try to brush them under the carpet, they also asked some of their staff to falsify documents to make some of the bad debts look good!

The link above is all about one woman who refused to participate and who blew the whistle on the whole fiasco resulting in a large settlement being paid to the US Gov’ment and her in turn receiving $31 million dollars as a kind of reward.

The more I read, the more I got the feeling that Citigroup may have been hugely responsible for much of the aftermath of the financial crisis.

Here’s the link again: http://www.bloomberg.com/news/2012-05-31/woman-who-couldn-t-be-intimidated-by-citigroup-wins-31-million.html

 

Ah, Facebook. You line ’em up…..

I came across something about Facebook that made me laugh and it inspired me to go ahead and write something I’ve been mulling over for a while now.

Ever since MZ (Mark Zuckerberg) was slated for wearing his hoodie to meetings with investors and the much publicised IPO I’ve been itching to write something but this is a bit of a fail because I’m going to re-post something someone else did.

But first, so what if he wore a hoodie! I’m more interested in what he said in the meetings! But I couldn’t find much about that in the press… Why do they focus on the banal!

I imagined that, if he talks as slick as he did in ‘The Social Network’, the discussions would have been smart, concise and succinct (I know that was scripted ad acted but one wants to believe!).

Personally, at his age he probably thought he was a teensy bit invincible and life was going as well as anybody could have dreamed (what with being a multi-billionaire and about to get married to a very pretty woman).

Oh how the mighty fall! So the share value has plummeted. People are actually suing FB for their losses and where’s MZ? On his honeymoon? Maybe he should sell his holiday snaps to OK?

What a mess.

Personally though I think Facebook advertising has much better ROI than Google and I’ve dropped some Google Adwords in favour of FB ads because the ads are more targeted and the clicks are soO much cheaper!

Still, Facebook, you did it to yourself you did, and that’s why it really hurts…

The following was originally posted here: http://allthingsd.com/20120529/please-give-generously-to-facebook-comic/ (just getting that in so folks know I’m not very good at drawing).

All you need is love, love....

TV Life Insurance Ads

A little while ago Aviva launched a series of life insurance ads on TV to try and raise awareness and so they should because apparently the UK population is grossly under-insured.

Having been in the industry for but a few short years these were the first TV ads I’d seen for life insurance.

It turns out (and it’s not a major revelation if you think about it) TV ads for life insurance have been around in other parts of the world for quite some time and while searching the interweb for ideas and information I came across one from late 2010.

The Aviva ads tried to address the issue with a direct but emotive message.

This one however, used humour! Enjoy…!

The Impending Doom of the Interest Only Mortgage

Interest only mortgages first came to our attention alongside the infamous endowment policy (but that’s another story), but whilst endowments are no longer popular because of their poor returns and inflexible properties, interest only mortgages have remained a firm favourite with homeowners, mostly because it is cheaper to pay interest only instead of capital and interest.

Now they are coming of age and lenders as well as borrowers are beginning to realise that the monthly savings have been a false economy.

Many borrowers who said they had an investment vehicle such as an ISA or a pension were not telling the truth and as the mortgage expiry date approaches panic is setting in because there is no way that the capital can be repaid on time.

The result in many cases will be a forced sale and possibly a homeless family or elderly couple following that. These regulated loans cannot easily be extended just because it suits the borrower and lenders have already started to show their teeth when faced with this situation.

Not only is the writing on the wall, but it is written in very large letters. The question arises as to where should any blame be laid?  Probably there is no single culprit but it is clear that it will be the borrowers who suffer the most. If only people would review their finances on a regular basis!

Too late – the FSA has woken up to the problem and is warning lenders to be more careful in future when asked for an interest only mortgage. Virtually no lender will allow it if the loan exceeds 75% of the property value and some go no further than 50%.

Lenders now want confirmed evidence of repayment vehicles which in many cases must be existing products, sufficiently well funded to repay the capital at a prudent rate of interest.

Halifax recently made some changes to their acceptable list of repayment vehicles and all new interest only Mortgage Applications must be supported with evidence.

They will no longer accept cash savings as a repayment vehicle for any new interest only lending.

Pensions must have a minimum current value greater than £1 million and up to 25% of the current fund value can be used to support interest only lending. So even if you are lucky enough to have a pension worth £1 million it will still only support a £250,000 mortgage – even if that mortgage is still going to run another 25 years!

How many people do you know with pensions worth £1 million or more?

All other repayment vehicles, or combinations of repayment vehicles, require a minimum current fund value of £50,000 of which up to 80% of the current fund value can be used to support interest only lending. So if you have an ISA with £100,000 in it, you can use it to support borrowing of £80,000.

As you can see, lenders just don’t want the risk on their books so they are making it incredibly difficult for anyone to qualify for an interest only mortgage.

Exceptions are buy-to-let properties where it is still acceptable to pay just the interest and to use the eventual sale of the mortgaged property as a repayment vehicle and any capital gain is considered the return on investment. Whether that is a good idea depends on all the particular circumstances.

Anyone with an interest only mortgage who is concerned about the future should take stock of their current predicament and make in-roads to reducing the debt by switching to a ‘repayment’ mortgage if they can afford it or by making ‘overpayments’.

The majority of lenders allow limited overpayments to be made (usually 10% of the balance per year) and while interest rates are low it seems sensible to overpay within a comfortable budget and so reduce the capital debt.

If in any doubt, consult a professional adviser. Or to put it another way – Don’t take chances – take advice!

Some of these words were kindly donated by a friendly Chartered Financial Planner and I just put them in the right order!

House Prices to Stay Flat for 10 Years! – Oh No!

A bit of a shocker of a headline! House prices to stay flat for 10 years!

That was the headline I read for an article I received today based on discussions from the BSA conference.

I don’t know why I only received this today when the conference took place in April and I’m not sure how ‘on the pulse’ the delegates are at the ‘British Sociological Association’ when it comes to the wonderful world of finance and mortgage lending.

The article didn’t exactly say who had made this claim but it did reference a Mr Robert Parker, head of strategic advisory group at Credit Suisse (and he should know a thing or two).

Mr Parker is said to have commented that we, in the UK, are changing the way we look at property and returning to a frame of mind that regards houses as ‘homes’ as opposed to money making commodities.

Two competing opinions suggest that house prices will remain stagnant for a time due to 1/ Affordability and 2/ Availability of credit

John Cridland, director general of CBI is going with “Until wages catch up, the forecast of flat house prices is probably right” and Peter Griffiths, chief executive of Principality Building Society disagrees insisting that the bigger issue is the availability of credit.

I think the stigma of the crash is still making investors the word over a bit skittish when it comes to investing in property so they are not making the money available to the lenders.

Another reason they don’t want to invest is because they don’t see much in the way of short term ROI due to the lack of borrowing taking place.

People can’t buy houses because they don’t make enough money to save up the percentage deposit required. The average household does not have a great deal of spare cash so saving for a deposit is a mammoth task (or would that be ‘tusk’?)

Less people are in a position to borrow at the moment but if all of a sudden all the major lenders decided to offer 3%, 5 year fixed rate mortgages at 95% LTV something would surely happen.

So both Mr Cridland and Mr Griffiths have a point.

Lenders aren’t going to all of a sudden start offering such great deals because most of them are still trying to convince the market they are on top of their bad debt problems of the past. Not to mention the billions they’ve had to pay back in PPI claims.

Households aren’t about to start putting enough away to quickly come up with the deposit they need.

So is the projection of 5 – 10 years accurate for a flat housing market?

I’d go with closer to 5 but probably not as long as 10.

The economy needs to gain strength before salaries can increase so the country regains stability and creditworthiness. People will be able to save, banks will have more capital and will also be more stable which in turn will attract money for lending.

I could be wrong but it seems the banks are still very much at the heart of the problem but they are not alone. The Government may profess to be doing all it can but the ‘credit crunch’ (dust that off and use it again) left a massive hole which is taking a long time to fill.

I heard the books should balance by about 2015..?

Mortgage News – From the Inside

From the ashes of disaster grow the roses of success. The problem is the ground isn’t very fertile and nobody’s watering the bed.

We’re in a recession again albeit more of an economy that is ‘bouncing along the bottom’ than a sharp drop and I don’t think the title ‘double dip’ is strictly accurate either. Too much time has passed since the last recession and it is barely a ‘dip’ this time around.

It is plain to see however that the outlook is still pretty grim.

National Australian Bank has announced the loss of jobs at Yorkshire and Clydesdale Banks between now and 2015 because the forecast for the European economy isn’t looking good for several years to come.

I guess this means interest rates are likely to be kept low for a few more years, if possible, to try and help households keep their heads above water and to encourage lending to businesses.

But what happens if mortgage lenders end up being forced to pay higher rates of interest on the money they borrow from money markets because of the state of the UK’s economy and the increased risk associated with lending to the UK? This would increase mortgage interest rates despite a low base rate at the Bank of England which would in turn put pressure on households, reduce the amount of disposable income and put more strain on an already fragile situation.

But if interest rates do go up it will actually be good news for – mortgage advisers!

As things stand, interest rates are low. Many home owners are currently sat on their mortgage lenders Standard Variable Rate because there simply aren’t any offers out there that can beat the rate they are on.

I personally know mortgage advisers with hundreds of existing clients who are just sat on their lenders SVR because at the moment it’s the cheapest place to be.

Imagine this, a mortgage adviser has 300 clients and all of a sudden they all want to remortgage. If the adviser makes an average of £1000 in fees and commission from each, there’s a quick £300,000 to be made!

So any mortgage advisers still active in the industry with a good solid client base are itching and twitching at the prospect of interest rate rises.

But every morning they wake up and look out the window only to see that things have not improved and today will not be their lucky day.

Some consolation may come from the fact that active independent mortgage advisers are now a rare breed. I heard (and I need to really double check this) that there are now only about 5,500 active independent mortgage advisers in the UK.

There are more advisers working but they include advisers in banks and building societies who are limited to what they can sell.

So if that figure is true and there are only 5,500 active independent advisers they will all be very busy and very happy when things start to improve – if they can wait that long!

Thinking Differently about Insurance

Many people don’t enjoy spending money on insurance. Car insurance is a legal requirement and can sometimes feel like a financial burden which is one reason people like to shop around for the best deal.

Anyone who has had to make a claim on their car insurance is more likely to appreciate the benefit and may subsequently start to look more closely at what they are buying to make sure they receive the best care when they need it most.

Car insurance comparison sites know this which is why a few years ago they started to display some of the key features like courtesy cars, protected No Claims Discount and add-ons like breakdown and legal cover.

Instead of thinking, ‘I’ve got to spend £300 on my car insurance this year’, consider this line of thought:

‘If someone claims against me after a car accident I’m going to have access to up to £500,000 of legal protection to cover compensation and it’s only going to cost me £300!’

It’s a bit more positive and makes you feel good about what you buy.

I’ve been reviewing other types of insurance and started to see them in a different light.

Take life insurance for example.

I recently helped someone with medical problems get cover of £500,000 for 20 years and it’s going to cost £55 per month.

That person could be thinking, ‘I now have to pay £55 a month for the next 20 years!’

Or, look at it this way.

£55 per month for 20 years will cost in total £13,200.

Seems like a big number but depending on how it’s put it can make the cover sound very positive.

E.g.: ‘If I give you £13,200, my family will get £500,000 (half a million pounds) if I die at some point in the next 20 years?’

‘Yes, and you can pay that monthly with no interest on the payments!’

This is why life insurance quotes now display the total amount you’d pay over the term.

It helps people put it into perspective.

When it comes to Buildings & Contents insurance it’s a little difficult to for most of us to appreciate having cover that will give us enough money to rebuild our house if it falls down. I mean, how many people do you know who’s house has fallen down?

Things that can be more important are cover for things like  flood damage or subsidence but for the majority of people the real seller should be the contents cover!

Aside from a house falling down you are more likely to hear friends and family say things like: ‘I spilt coffee on my laptop and got a brand new on on the insurance!’ or ‘One of the toddlers put jam in the DVD player and we got a new on our insurance!’

This is ‘Accidental Damage’ in action and if you said to someone you could get them a new computer, a new stereo or TV, sofa etc. if they are accidentally damaged and it’s only going to cost £100 per year then all of a sudden it seems like a good idea.

It is the benefits that make the difference with insurance and you sometimes really have to read all of the documentation or talk to an adviser to understand what you are going to get for your money.