Help . . . Is The £ Going Into Free-fall?

[thecatman]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

Edited November 7, 2008 by thecatman

[beginner]

There's a strong case to be made suggesting that UK banks/building societies who offer deposit rates that are way over base, are in trouble. Offshore deposit takers in the Isle of Man were all the rage for a while there but as others have pointed in this forum, the top rate payers are all now out of business or government owned/backed.

HSBC in trouble? Anything is possible in this market but they managed to raise capital without taking help/loans from the UK Treasury.

how risky the market thinks these banks are in terms of five year senior debt CDSs:

Provider

Parent Company

Maximum Level of protection

CDS of Parent Company

HSBC, First Direct

HSBC Bank PLC

£50,000

64.3

Lloyds TSB, Cheltenham and Gloucester

Lloyds TSB Group PLC

£50,000 (in total)

77.7

Alliance and Leicester

Banco Santander

£50,000

83.0

Abbey, Asda, Bradford and Bingley, Cahoot

Banco Santander

£50,000 (in total)

83.0

Barclays, Woolwich

Barclays Bank PLC

£50,000 (in total)

100.7

Nationwide

Nationwide Building Society

£50,000

102.6

This is what HSBC wrote to me when I asked about a compensation scheme.

We regret that there is no compensation scheme for your funds.

HSBC is one of the World's largest banks, serving over 100 million customers in 85 countries and territories.

The Group's financial strength is built on maintaining a solid capital base, ensuring strong liquidity (including holding over USD1,000 billion customer deposits worldwide), a conservative appetite for risk and well diversified earnings both by geography and business type.

This primary focus on maintaining financial strength throughout our long history means that we are well-placed to navigate periods of economic and market instability.

Nationwide International has the usual limited UK government guarantee but also a further guarantee from the Nationwide Building Society to cover offshore depositors.

Does the UK interest rate differential with Singapore rates reflect the lack of a full deposit guarantee? Is a guarantee worth .5% on the deposit rates?

[Naam]

BOE cut the rate BY 1.5% to 3%, this should be interesting. There must be a chance here that GBP will strengthen instead of fall as the world sees that the UK is serious about taking action. Oh bugger!

That's an interesting turn of events, I must say. As usual, I'm not sure what to make of it.

unfortunately it will teach a harsh lesson to our british friends who thought that 6%+ yield for cash GBP will be paid till pigs will grow wings and fly and the cows come home to roost in the chicken coop.

How about our friends who invested in Turkish Lira?

one does not invest in a high yield currency and leave the investment unsupervised or without an automatic stop loss sell order. besides... the Turkish Lira held steady versus the Pound, the AU-Dollar as well as the Kiwi-Dollar. the big difference is the interest rate. TRY bonds ~20-24% (AAA rated debtors such as European Investment Bank) , TRY cash (until recently) 17-18%. so the "friends" who did not get out of TRY temporarily are still faring much better than those holding GBP, AUD or NZD.

any additional questions?

[Naam]

Does the UK interest rate differential with Singapore rates reflect the lack of a full deposit guarantee? Is a guarantee worth .5% on the deposit rates?

i don't understand your question. Singapore is guaranteeing all deposits.

MINISTRY OF FINANCE (MOF) AND MONETARY AUTHORITY OF SINGAPORE (MAS) JOINT PRESS STATEMENT (Oct 16, 2008):

The Singapore Government has therefore decided to guarantee all Singapore Dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the MAS.

The guarantee will take immediate effect and will remain in place until 31 December 2010.

All depositors, big and small, corporates and individuals, including those under the current Deposit Insurance Scheme administered by the Singapore Deposit Insurance Corporation will now enjoy protection from the Government on the full amount of their deposits for the duration of the guarantee. The Government guarantee will also be extended to deposits placed with credit co-operatives registered with the Registry of Co-operative Societies

http://app.mof.gov.sg/news_press/pressdeta...asp?pressID=336

[chiang mai]

I do not suggest that HSBC is in trouble and I doubt that it is. When I referred to institutions that pay deposit rates far over base I refer to Allied Irish, Halifax, Scarborough, B & B etc, all were the highest payers in the offshore market and all you had to do was look at the Moneyextra tables to identify them. Once you got past the top tier, all of whom seem to have died a death or been taken over etc there is a second group that pays "sensible" rates that are more closely aligned with the current base rate. Having said all of that we are now in uncharted waters because the base rate is so low and I do not expect the banks/building societies to now offer 2.5% or 3% deposit rates just because base is at 3%. Indeed, Abbey sent me an email this morning stating that in light of the rate cuts announced by the BOE yesterday they had now reduced their deposit rate from 5% to 4.20% - ditto the situation with mortgage lending rates, rates are at a level now where the rules change or else the banks will go out of business. The one institution that makes me a little nervous at present is Nationwide. Whilst I regard Nationwide very highly and I have a bunch of money in their offshore operation I am concerned if they are still offering 6% when base is now 3%, unless of course they are making use of derivatives for this purpose - but that was how we got into this mess in the first place.

Edited November 7, 2008 by chiang mai

[thaimate]

I do not suggest that HSBC is in trouble and I doubt that it is. When I referred to institutions that pay deposit rates far over base I refer to Allied Irish, Halifax, Scarborough, B & B etc, all were the highest payers in the offshore market and all you had to do was look at the Moneyextra tables to identify them. Once you got past the top tier, all of whom seem to have died a death or been taken over etc there is a second group that pays "sensible" rates that are more closely aligned with the current base rate. Having said all of that we are now in uncharted waters because the base rate is so low and I do not expect the banks/building societies to now offer 2.5% or 3% deposit rates just because base is at 3%. Indeed, Abbey sent me an email this morning stating that in light of the rate cuts announced by the BOE yesterday they had now reduced their deposit rate from 5% to 4.20% - ditto the situation with mortgage lending rates, rates are at a level now where the rules change or else the banks will go out of business. The one institution that makes me a little nervous at present is Nationwide. Whilst I regard Nationwide very highly and I have a bunch of money in their offshore operation I am concerned if they are still offering 6% when base is now 3%, unless of course they are making use of derivatives for this purpose - but that was how we got into this mess in the first place.

just baught 50k of nationwide bonds at 6.1% so hope they are ok ,pretty sure they are but on checking i see they have reduced their interest rates this morning.

[gennisis]

I do not suggest that HSBC is in trouble and I doubt that it is. When I referred to institutions that pay deposit rates far over base I refer to Allied Irish, Halifax, Scarborough, B & B etc, all were the highest payers in the offshore market and all you had to do was look at the Moneyextra tables to identify them. Once you got past the top tier, all of whom seem to have died a death or been taken over etc there is a second group that pays "sensible" rates that are more closely aligned with the current base rate. Having said all of that we are now in uncharted waters because the base rate is so low and I do not expect the banks/building societies to now offer 2.5% or 3% deposit rates just because base is at 3%. Indeed, Abbey sent me an email this morning stating that in light of the rate cuts announced by the BOE yesterday they had now reduced their deposit rate from 5% to 4.20% - ditto the situation with mortgage lending rates, rates are at a level now where the rules change or else the banks will go out of business. The one institution that makes me a little nervous at present is Nationwide. Whilst I regard Nationwide very highly and I have a bunch of money in their offshore operation I am concerned if they are still offering 6% when base is now 3%, unless of course they are making use of derivatives for this purpose - but that was how we got into this mess in the first place.

just baught 50k of nationwide bonds at 6.1% so hope they are ok ,pretty sure they are but on checking i see they have reduced their interest rates this morning.

Remember that Nationwide is primarily a morgage lender that has sensibly also entered other fields..ie credit cards. They do not need to rely on inter-bank funding to the extent other banks do and I guess that speculating on currencies is not their line..They have a good influx of morgages being paid and they say that they are not anticipating any high risk defaults. Being a Building Society they also do not have to be concerned with their share price and to pay dividends to shareholders.

[chiang mai]

I do not suggest that HSBC is in trouble and I doubt that it is. When I referred to institutions that pay deposit rates far over base I refer to Allied Irish, Halifax, Scarborough, B & B etc, all were the highest payers in the offshore market and all you had to do was look at the Moneyextra tables to identify them. Once you got past the top tier, all of whom seem to have died a death or been taken over etc there is a second group that pays "sensible" rates that are more closely aligned with the current base rate. Having said all of that we are now in uncharted waters because the base rate is so low and I do not expect the banks/building societies to now offer 2.5% or 3% deposit rates just because base is at 3%. Indeed, Abbey sent me an email this morning stating that in light of the rate cuts announced by the BOE yesterday they had now reduced their deposit rate from 5% to 4.20% - ditto the situation with mortgage lending rates, rates are at a level now where the rules change or else the banks will go out of business. The one institution that makes me a little nervous at present is Nationwide. Whilst I regard Nationwide very highly and I have a bunch of money in their offshore operation I am concerned if they are still offering 6% when base is now 3%, unless of course they are making use of derivatives for this purpose - but that was how we got into this mess in the first place.

just baught 50k of nationwide bonds at 6.1% so hope they are ok ,pretty sure they are but on checking i see they have reduced their interest rates this morning.

Remember that Nationwide is primarily a morgage lender that has sensibly also entered other fields..ie credit cards. They do not need to rely on inter-bank funding to the extent other banks do and I guess that speculating on currencies is not their line..They have a good influx of morgages being paid and they say that they are not anticipating any high risk defaults. Being a Building Society they also do not have to be concerned with their share price and to pay dividends to shareholders.

Agreed with all of that and I don't want to appear that I'm talking Nationwide down because that's not the case. But Nationwide, like most other BS, have a potential problem in respect of their loan to asset ratio and the fact that their assets are all secured on UK property. As the value of property falls so does the value of their assets and their risk increases. This is a scenario that has played out fully with a number of smaller societies already including the Scarborough just last week. Potentially this is a time bomb that will explode if property values do not stabilize by a certain point in order to avoid a repeat of the mortgage lender failures we have seen in the US.

[lannarebirth]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

There really isn't much correlation between short term interest rates and mortgage rates. I find these bank announcements suspect.

[Naam]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

There really isn't much correlation between short term interest rates and mortgage rates. I find these bank announcements suspect.

don't use the american yardstick LRB. 30Y fixed rate mortgages are unheard of in Britishland.

[totlanh]

$1.57 GBP appears to be rallying this morning..suprising

[chiang mai]

$1.57 GBP appears to be rallying this morning..suprising

Seems to do quite well during UK trading hours then ex-UK trading hours push it down again. The range seems to be between 1.54 and 1.59 which are the main support and resistance points so it will need to break through one of those two for anything decisive to occur. My read is however that the trend remains downwards.

[Mosha]

Should I bring a spare begging bowl next month. . Seriously it looks like my darling wil be paying more tax come 12 month extension time. She won't like that.

[Addicted2Pattaya]

Maybe we should of joined the Euro after all.

Look where being independent gets you !!!!

[lannarebirth]

Maybe we should of joined the Euro after all.

Look where being independent gets you !!!!

I would be willing to place a small wager that you'll get another chance.

[Marvo]

Maybe we should of joined the Euro after all.

Look where being independent gets you !!!!

I would be willing to place a small wager that you'll get another chance.

Yep, when the Pound reaches parity

[Addicted2Pattaya]

How much do you think 6000 baht will cost in March ?

I hope no more than £110

[chiang mai]

Maybe we should of joined the Euro after all.

Look where being independent gets you !!!!

I would be willing to place a small wager that you'll get another chance.

And I'll wager that whilst we may get another "chance", the likelihood of success is akin to the USA adopting the Peso as its national currency.

[LaoPo]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

I would be very pleased if you could supply me with some links where the above has been said. A Lady friend in London would be extremely happy with this news.

LaoPo

[samui04]

Maybe we should of joined the Euro after all.

Look where being independent gets you !!!!

I would be willing to place a small wager that you'll get another chance.

Yep, when the Pound reaches parity

That will be the starting request....

after there will be mandatory Shenghen entrance and no ban of liquids on flights, or better, everybody going to London must carry a 1 liter bottle of something (no coke and mentos...) and every city in UK will have to put waste basket every 50 meter. In Europe we like clean streets.

[thecatman]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

I would be very pleased if you could supply me with some links where the above has been said. A Lady friend in London would be extremely happy with this news.

LaoPo

No Problem, Check out http://news.bbc.co.uk/1/hi/business/7716086.stm

Looks like Naam is wrong again!!!, as another 3 or 4 banks have done exactly what he/she said they wouldn't do!!!.......another amateur economist's outlook I fear.

Edited November 7, 2008 by thecatman

[LaoPo]

i expect political pressure on the banks to lower their rates for mortgages. but they will definitely NOT pass on the full cuts.

Really??.....Well, Lloyds TSB and Abbey have already said they will pass the cut on in full, others are expected to make announcements later on Friday.

I would be very pleased if you could supply me with some links where the above has been said. A Lady friend in London would be extremely happy with this news.

LaoPo

No Problem, Check out http://news.bbc.co.uk/1/hi/business/7716086.stm

Looks like Naam is wrong again!!!, as another 3 or 4 banks have done exactly what he/she said they wouldn't do!!!.......muppet.

thecatman Thanks a lot for the link.

I almost fell off my chair, reading the -good- news. I couldn't believe my eyes and it's certainly very good news for UK homeowners if their mortgage is due to renew and also a boost for new home buyers.

I have sent the link to our Lady friend and hope she's as surprised as I was.

I have to admit I was with Naam's opinion and also didn't believe the banks would -totally- follow the BoE's rate cut of 1.5% but it seems they're doing so (pressed/forced by the Government...)*

Let's see what happens next with the next cuts as I expect there will be more (needed!).

* I wrote so in another message, meaning it is the highest utmost time and urgency that the Governments start kicking @sses of the banks to keep the economy rolling into the streets again !

LaoPo

[giruz]

I almost fell off my chair, reading the -good- news. I couldn't believe my eyes and it's certainly very good news for UK homeowners if their mortgage is due to renew and also a boost for new home buyers.

I have to admit I was with Naam's opinion and also didn't believe the banks would -totally- follow the BoE's rate cut of 1.5% but it seems they're doing so (pressed/forced by the Government...)*

LaoPo

I doubt this rate cut will do much for FTB. I just checked with two banks and my mortgage rate is still 7.19% or 7.43% (ftb, 12% deposit). The cut seems to be only for those with variable/tracker mortgage...it appears that FTB are excluded.

My guess is that this is just another move reduce defaults (and therofore make a favor to banks). This is done by reducing the amount of interest for people that have a mortgage which is just out of the fixed period and cannot be renewed because property prices are falling and the owner is in negative equity...

giruzz

[LaoPo]

I almost fell off my chair, reading the -good- news. I couldn't believe my eyes and it's certainly very good news for UK homeowners if their mortgage is due to renew and also a boost for new home buyers.

I have to admit I was with Naam's opinion and also didn't believe the banks would -totally- follow the BoE's rate cut of 1.5% but it seems they're doing so (pressed/forced by the Government...)*

LaoPo

I doubt this rate cut will do much for FTB. I just checked with two banks and my mortgage rate is still 7.19% or 7.43% (ftb, 12% deposit). The cut seems to be only for those with variable/tracker mortgage...it appears that FTB are excluded.

My guess is that this is just another move reduce defaults (and therofore make a favor to banks). This is done by reducing the amount of interest for people that have a mortgage which is just out of the fixed period and cannot be renewed because property prices are falling and the owner is in negative equity...

giruzz

Forgive my ignorance but what do you mean by FTB ?....Full term mortgage or something ?

LaoPo

[Naam]

Forgive my ignorance but what do you mean by FTB ?....Full term mortgage or something ?

LaoPo

Mrs Naam claims it stands for "First Time Buyer" but could not give more details. perhaps somebody can enlighten us?

[Naam]

No Problem, Check out http://news.bbc.co.uk/1/hi/business/7716086.stm

Looks like Naam is wrong again!!!, as another 3 or 4 banks have done exactly what he/she said they wouldn't do!!!.......another amateur economist's outlook I fear.

i might be an amateur Mr. Catman but i am convinced that my wife draws and of course spends more pocket money than you have disposable income

[beginner]

Robert Peston's blog on the BBC Business pages explains the link between base rate, now 3%, and actual consumer borrowing costs.

• Robert Peston
  
• 7 Nov 08, 10:41 AM
  
• www.bbc.co.uk
  

To save you the trouble here are some key quotes.

To a great extent, what really matters for the banks, when setting the interest rates they charge us, is what all the money raised from all those many different sources actually costs them, when it's all lumped together and averaged out.

Some of that money still costs them nothing or almost nothing. I'm talking about the funds that some of us still keep in current accounts that pay zilch.

So what is the average cost of money for our banks?

Well, it's not the Bank of England's 3% Bank Rate. Apart from anything else, that's a rate for borrowing overnight - and it would be foolish even by their standards for banks to set interest rates on loans to us with maturities of three months, or two years or five years on the basis of what they have to pay to borrow for 24 hours.

A traditional proxy for their average cost of money has been the three-month LIBOR rate, which is what banks pay for unsecured loans from other banks of three-month duration.

But, for what it's worth, those who operate in the market believe that three-month LIBOR will fix at just under 5% this morning.

Which would mean that the Bank of England's 1.5 percentage point cut had reduced the cost of money for banks by around 0.75 of a percentage point, perhaps a tiny bit more.

There is therefore an argument that mortgage rates and loans to businesses should be reduced by at least 0.75%.

The Chancellor understandably took the view that if taxpayers are in a sense insuring the money being borrowed by banks, we should be paid for that insurance.

But the cost of that insurance isn't cheap. It's working out at between 1.2% and 1.7% per annum of the amounts being borrowed for most banks.

That's 1.7% that has to be added to the 4 per cent or so interest-rate cost of the funds being raised.

In other, the price of money for banks under the government's own sponsored scheme is somewhere over 5%.

It's therefore very difficult to see how the banks can charge us less than the 5% that the Treasury is demanding they pay for the vital taxpayer-backed funds they need.

Unless, that is, the Chancellor were to decide that the banks should be transformed into loss-making public utilities.

UPDATE: 13:05

Three month sterling LIBOR has in fact fallen just over 1 percentage point to 4.49%.

[MJP]

I almost fell off my chair, reading the -good- news. I couldn't believe my eyes and it's certainly very good news for UK homeowners if their mortgage is due to renew and also a boost for new home buyers.

I have to admit I was with Naam's opinion and also didn't believe the banks would -totally- follow the BoE's rate cut of 1.5% but it seems they're doing so (pressed/forced by the Government...)*

LaoPo

I doubt this rate cut will do much for FTB. I just checked with two banks and my mortgage rate is still 7.19% or 7.43% (ftb, 12% deposit). The cut seems to be only for those with variable/tracker mortgage...it appears that FTB are excluded.

My guess is that this is just another move reduce defaults (and therofore make a favor to banks). This is done by reducing the amount of interest for people that have a mortgage which is just out of the fixed period and cannot be renewed because property prices are falling and the owner is in negative equity...

giruzz

Banks are now pulling trackers. LTV's are coming down. You'll need at least 20% deposit in this market.

LIBOR spread has actually increased. Came down 1% rather than the 1.5% actually cut. It's one last shot in the arm for the UK economy ready for an early general election, probably April.

Sterling looks to be bottoming out, for now.

[Naam]

Three month sterling LIBOR has in fact fallen just over 1 percentage point to 4.49%.

that is only a published rate. "real" interbank rates are (if an when) much higher. banks still don't trust each other.

Edited November 8, 2008 by Naam

[neil324]

FTB is indeed first time buyer, not many of them in the UK at present, although maybe this rate cut will produce some classic bull trap

Edited November 8, 2008 by neil324