The UK's Q4 2023 banking crisis.

[sancho panza]

jsut discussing this issue in other thread sna dn though better psot for psoterity here

Whats jkey is that PRA CHair Sam Woods is saying arrears rates currently low at 1% but that is a backward lloking stat by it's nature.

We're looking at 2.4 mn fixes resetting before year end 24 which means almost certainly that arrears are going to go higher,although that might be affected by external factors such as fuel costs rising.

UK finance data

 

 

gross lending is down and expanding gross lending is needed to keep some of the more marginal balance sheets solvent.by that I mean that when looking at BS/Banks ,a lot have seen higher legacy stage 2/3s than more recent years.which stands to reason as most recent loans will be unaffected by job changes/ill health in the mortgagor

yoy decent drop.looks like asset prices will see an impact espceailly as second chart shows how clearly some borrowers are overly leveraged going into a period where their mortgage rates could treble.

https://www.fca.org.uk/data/commentary-mortgage-lending-statistics-q2-2023

[jamtomorrow]

Now what's going on here? 8% savings interest being offered by NW with the limitation it's only on up to £200 paid in pcm and for a fixed term -

https://amp.theguardian.com/money/2023/sep/21/nationwide-launches-8-account-as-battle-for-uks-savings-intensifies

But there must be a reason why NW management decided to make a big splash with a headline-grabbing (and presumably: loss leading) rate.

Edit to add: I wonder if this is ultimately more about overall volumes. There's supposedly a price war going on in mortgages and loans at the same time, so it would make sense in an oversupplied industry if the immediate result of that was margin compression (followed ultimately by a reduction in oversupply).

Edited September 23, 2023 by jamtomorrow

[sancho panza]

On 23/09/2023 at 08:30, jamtomorrow said:

Now what's going on here? 8% savings interest being offered by NW with the limitation it's only on up to £200 paid in pcm and for a fixed term -

https://amp.theguardian.com/money/2023/sep/21/nationwide-launches-8-account-as-battle-for-uks-savings-intensifies

But there must be a reason why NW management decided to make a big splash with a headline-grabbing (and presumably: loss leading) rate.

Edit to add: I wonder if this is ultimately more about overall volumes. There's supposedly a price war going on in mortgages and loans at the same time, so it would make sense in an oversupplied industry if the immediate result of that was margin compression (followed ultimately by a reduction in oversupply).

It's only loss leading if they're able to borrow commerically at a cheaper rate.For my moeny,high rates are a major red flag from a BS/Bank.Remember the Icelandics in 08........

If I was in commercial markets running a corporate bond book,and knowing what anyone can read in Nationwide's annual report,I'd not touch NW under double figures and even then I'd struggle.

There's also the possiblitiy that the media buzz attracts some 'dumb' money into lowerIR accounts.

[AWW]

I've moved all my money out of Nationwide now and only keep a few quid in there to pay for their packaged account, which is well worth the money IMHO. I don't actually use it as a bank account though.

[spygirl]

Meta pays £149mn to break London office lease

Facebook owner scales back space as more employees work from home

https://www.ft.com/content/37e61194-bbc0-4b99-928b-9064f2493907

 

British Land, which owns the building at 1 Triton Square, on Tuesday flagged a short-term hit to earnings as it will now have to find a new tenant for the eight-storey building in a challenging London office market.

prob one for Death of London thread.

 

[belfastchild]

On 23/09/2023 at 08:30, jamtomorrow said:

Now what's going on here? 8% savings interest being offered by NW with the limitation it's only on up to £200 paid in pcm and for a fixed term -

https://amp.theguardian.com/money/2023/sep/21/nationwide-launches-8-account-as-battle-for-uks-savings-intensifies

But there must be a reason why NW management decided to make a big splash with a headline-grabbing (and presumably: loss leading) rate.

Edit to add: I wonder if this is ultimately more about overall volumes. There's supposedly a price war going on in mortgages and loans at the same time, so it would make sense in an oversupplied industry if the immediate result of that was margin compression (followed ultimately by a reduction in oversupply).

I signed up for it after taking all my isa money out of the nw a year or so ago after reading the reports.
Ive still my current account and credit card with them and have more than the yearly subscription in my current account anyway...
Will be interesting to see how long they keep this one open, usually this sort of thing gets fully subscribed quite quickly. Ive seen ones in the past where by the time Ive finished up the application the rate is less than when I started (did make a cuppa in the middle though).
Initially thought it would be limited but if they keep it open might be a pointer. Didnt work in my case though as its just money that was in there anyway.

[sancho panza]

Sasha,number of people who can't pay mrotgages up 29%,BTLers up 126%

I jsut can't see how banks like Nat West will make it through this without an equity raise

 

below is the chart for estimating the extent of the mrotgage shock as people come off fxes at 12 mins.innovative work imho

[sancho panza]

11 hours ago, spygirl said:

Meta pays £149mn to break London office lease

Facebook owner scales back space as more employees work from home

https://www.ft.com/content/37e61194-bbc0-4b99-928b-9064f2493907

 

British Land, which owns the building at 1 Triton Square, on Tuesday flagged a short-term hit to earnings as it will now have to find a new tenant for the eight-storey building in a challenging London office market.

prob one for Death of London thread.

 

Only jsut seen your psot down here.I put this in main thread.

Only some of the big banks are exposed to CRE.I think it's mainly a pension fund type investemnt in the UK.Havign said that,there's a lot of empty CRE knocking about and with how poorly cpaitlaised some of the big banks are,it's not gonna take much .

for me the below,whilst about the USA, typifies the newslfow here in teh UK.

https://uk.finance.yahoo.com/news/top-economist-mohamed-el-erian-173618954.html

Top economist Mohamed El-Erian warns of commercial real-estate pain as 'massive' refinancing looms

Top economist Mohamed El-Erian warned of looming pain for the commercial real-estate (CRE) industry, with the sector facing "massive" debt refinancings at a time when interest rates are at their highest since 2001.

"If you look at high yield, if you look at commercial real estate, there's massive refinancing needs next year. Massive," the chief economic adviser at Allianz said during a Bloomberg interview.

"So that's the point of pain which starts to happen," he added.

The CRE industry has come under mounting stress this year due to a combination of high interest rates, tightening credit conditions, and work-from-home trends that have led to high office vacancies.

The Federal Reserve has raised benchmark rates by more than 500 basis points since early 2022 to tame inflation - the steepest increase since the 1980s.

A measure of US office vacancies recently surpassed highs seen at the peak of the 2008 global financial crisis.

 

 

 

also WOlf St artciles

[reformed nice guy]

1 hour ago, sancho panza said:

Sasha,number of people who can't pay mrotgages up 29%,BTLers up 126%

I jsut can't see how banks like Nat West will make it through this without an equity raise

 

below is the chart for estimating the extent of the mrotgage shock as people come off fxes at 12 mins.innovative work imho

hmmm, so the next election is going to be during the peak of this....

 

[Sugarlips]

Considering putting an offer in on a tired but solid detached 3 bed to live in. The offer will be 36.5% under original asking price and is likely to be accepted as its to fund care home fees.

My only concern right now is is the offer still too high!  It went u/o at full asking when it was put on 6 months ago but a subsequent fall through has the vendor panicked.

General market conditions have deteriorated so fast I’m left wondering if we are heading to 60% off by next year 😬

[wherebee]

2 hours ago, Sugarlips said:

Considering putting an offer in on a tired but solid detached 3 bed to live in. The offer will be 36.5% under original asking price and is likely to be accepted as its to fund care home fees.

My only concern right now is is the offer still too high!  It went u/o at full asking when it was put on 6 months ago but a subsequent fall through has the vendor panicked.

General market conditions have deteriorated so fast I’m left wondering if we are heading to 60% off by next year 😬

On one place I bought in the UK I told the agent 5% off my offer every day the vendor deliberated.  Really made the agent work his magic.

[Stuey]

4 hours ago, Sugarlips said:

Considering putting an offer in on a tired but solid detached 3 bed to live in. The offer will be 36.5% under original asking price and is likely to be accepted as its to fund care home fees.

My only concern right now is is the offer still too high!  It went u/o at full asking when it was put on 6 months ago but a subsequent fall through has the vendor panicked.

General market conditions have deteriorated so fast I’m left wondering if we are heading to 60% off by next year 😬

Go for it. This is probably only a short term blip when buyers have the upper hand. You won't regret it. 

[spygirl]

3 hours ago, wherebee said:

On one place I bought in the UK I told the agent 5% off my offer every day the vendor deliberated.  Really made the agent work his magic.

Again, as I keep saying -

mortgage approvals

The UK housing market collapsed in 2008.

A market = number of sales x price achieved.

Its only ZIRP and low sales that have kept prices up.

Its been a total false market.

Ability to exit/sell a property under pressure has not been tested.

You have to be v careful buying into this - leverage low, massive overpayments.

 

 

[Stuey]

47 minutes ago, spygirl said:

Again, as I keep saying -

mortgage approvals

The UK housing market collapsed in 2008.

A market = number of sales x price achieved.

Its only ZIRP and low sales that have kept prices up.

Its been a total false market.

Ability to exit/sell a property under pressure has not been tested.

You have to be v careful buying into this - leverage low, massive overpayments.

 

 

On the contrary there's a lot of cash sloshing about. It's piled into 4% interest savings (2.4% after tax) but high interest rates won't last forever and the cash will need a home...literally...

[onlyme]

2 minutes ago, Stuey said:

On the contrary there's a lot of cash sloshing about. It's piled into 4% interest savings (2.4% after tax) but high interest rates won't last forever and the cash will need a home...literally...

There's a ton of other factors, I can't think of a time with so much uncertainty relating to possible taxes (EPC, other environmental taxes), regulations, imposed limits to movement, re-zoning, dispersal towns uterly changing a place in a a short number of years, LTA's, inheritance tax and captial grabbing for care, absolute minefield now in terms of deciding on a fixed location. Don't get me wrong the rental situation often sucks, but the owning side could suck so much harder going forward if the govt have a mind to make it so.

[Stuey]

2 minutes ago, onlyme said:

There's a ton of other factors, I can't think of a time with so much uncertainty relating to possible taxes (EPC, other environmental taxes), regulations, imposed limits to movement, re-zoning, dispersal towns uterly changing a place in a a short number of years, LTA's, inheritance tax and captial grabbing for care, absolute minefield now in terms of deciding on a fixed location. Don't get me wrong the rental situation often sucks, but the owning side could suck so much harder going forward if the govt have a mind to make it so.

Yes my main concern with a second or third house tbh is getting totally rinsed by double or triple council tax

[onlyme]

Just now, Stuey said:

Yes my main concern with a second or third house tbh is getting totally rinsed by double or triple council tax

Exactly, zero certainty in regards what might or might not be imposed. All self control and accountability from government has gone, they are the worst combination of incompetence, ideology  and self serving control freaks we have seen. Another factor is even the day to day running maintenance, repair costs and general bills have rocketed the last few years too. No aspect in terms of risk / carrying cost has improved.

Not even got into huge factors like general market / jobs market and the possibility of not being able to find gainful employment at the same level having tied yourself to one location. 

[sancho panza]

here we go,marginal player raises equity-whoooooda thunk it?

can't say I'll be in the queue.

heads they lose,tails they lsoe.

https://uk.finance.yahoo.com/news/metro-bank-considering-raising-hundreds-200216974.html

Metro Bank considering raising hundreds of millions from investors

Metro Bank is considering raising hundreds of millions of pounds from investors, weeks after the high street lender failed to convince regulators it could be trusted to hold less cash against its mortgage risks.

The high street lender, which became the first new chain in the UK for more than a century when it was launched by the American billionaire Vernon Hill in 2010, had applied to use its own internal models to assess the risks of its mortgages, but that request was denied in early September.

Metro Bank has seen its share price tumble more than 50% this month after the Bank of England’s decision. If Metro’s plan had been approved, it would have significantly reduced the lender’s capital burden.

 

The lender is now considering a number of options to shore up its balance sheet before £350m worth of debt comes up for refinancing in October 2024.

Metro Bank may also consider raising money by selling shares, and has hired bankers at Morgan Stanley to work on the fundraising, Sky News reported, adding that investors could be tapped for upwards of £100m. Metro Bank is worth less than £100m, having been worth £3.5bn at its peak in 2018.

The lender has worked to revive its reputation after an accounting scandal in 2019, which sent shares plunging and sparked panic among its customers, causing a mini bank run that spring.

News that Metro Bank misreported the assets used to calculate how much capital it needed to hold prompted the biggest single-day collapse in a UK bank’s share price since the 2008 financial crisis, and resulted in the resignation its chief executive Craig Donaldson months later.

The Financial Conduct Authority eventually fined Metro Bank and two of its former executives – including Donaldson – more than £10m for misleading investors last year.

The Bank of England’s regulatory arm, the Prudential Regulation Authority, declined to comment.

[sancho panza]

I can't imagine they're going to be overrun with bidders paying fair value.

I can't imagine why anyone would sink any more equity in unless there was a chance of getting some upside.I'll dig through the books tmrw if I get a chance

Interesting they're claiming £956mn shareholder equity as at year end 22.WHich jsut goes to show you how accurate and forward looking that figure is.

Total assets £22bn.I suspect they're selling off the best bits and the new equity will be buying a bigger share of teh crud......it was ever thus.

WOnder who they can hose get to invest this time?

https://news.sky.com/story/troubled-metro-bank-kicks-off-3bn-mortgage-book-sale-12977581

Troubled Metro Bank kicks off £3bn mortgage book sale

The troubled high street lender has begun sounding out bidders for a substantial chunk of its mortgage assets in a bid to strengthen its capital position, Sky News learns.

Those sounded out by the London-listed high street lender included Lloyds Banking Group and NatWest Group, according to City sources.

One insider said the sale process for the Metro Bank mortgages was designed to form part of a wider capital-raising exercise.

This, as Sky News revealed on Wednesday, would include raising more than £100m of new equity and refinancing a £350m debt instrument which falls due in 12 months time.

However, the share sale element of that plan has been rendered significantly more difficult by the 30% decline in Metro Bank's stock, which has left it with a market value of well under £100m.

 

https://www.investing.com/equities/metro-bank-balance-sheet

[BurntBread]

6 hours ago, sancho panza said:

WOnder who they can hose get to invest this time?

Those who think that a 2008-style rescue of the system is a real possibility?

Considering how dismally informed people are about the macro-economic risks and realities of the UK, I think there could be a lot of speculators out there ... potentially including some MPC members(!)

[sancho panza]

1 hour ago, BurntBread said:

Those who think that a 2008-style rescue of the system is a real possibility?

Considering how dismally informed people are about the macro-economic risks and realities of the UK, I think there could be a lot of speculators out there ... potentially including some MPC members(!)

Point taken BB but I think you'd have to be very naieve to think that's avaialable this time and more improtnantly ref small banks like Metro,they're not systemic.The powder has hsitrocially always been kept dry for the systemic banks-cough,cough,Natiownwide(with its £40bn BTL loan book that 91% IO).

I think what they may do here is squeeze one of the big boys into picking up the laon book on a nod and a wink.

Big issue here will be how this affects money markets with regard to smaller BS's some of which we've looked at via their annual accounts.Some of these had been moving away from retail deposits to commercial funding lines iirc.

If I was in the commercail lending game,I wouldn't be touching any of the non systemic banks with someone elses bargepole,let alone my own.

[Sugarlips]

38 minutes ago, sancho panza said:

Point taken BB but I think you'd have to be very naieve to think that's avaialable this time and more improtnantly ref small banks like Metro,they're not systemic.The powder has hsitrocially always been kept dry for the systemic banks-cough,cough,Natiownwide(with its £40bn BTL loan book that 91% IO).

I think what they may do here is squeeze one of the big boys into picking up the laon book on a nod and a wink.

Big issue here will be how this affects money markets with regard to smaller BS's some of which we've looked at via their annual accounts.Some of these had been moving away from retail deposits to commercial funding lines iirc.

If I was in the commercail lending game,I wouldn't be touching any of the non systemic banks with someone elses bargepole,let alone my own.

I believe the US opened swap lines with all the western counties after the March US regional bank crisis, to preempt this kind of contagion scenario. Whether it would work or not, no idea..

[sancho panza]

commetns in italics from me but you can see where the potential weaknesses may lie

current dowd buckner leverage ratio of 323/1................Barclays was circa 63/1...HSBC 48/1

In short metro could be blowing up for a wide range of reasons given how threadbare the capital base is 

1) £3bn BTL IO?

2)£1.3bn loans incl credit cards?

3) retial mortgage book more generally?

4) term funding scheme ending meaning loss of circa £3.8bn assets?

5)loans moving to default dwarfing market cap?

 

we dont get much of a break down of their loan book by laon stage/region/BTL-OO,proba for a reason

https://www.metrobankonline.co.uk/globalassets/documents/customer_documents/business-and-commercial/metro-bank-annual-report-and-accounts-2022.pdf.pdf

My comments-two years of losses during years when zirp/QE was still in play.

Page 173-MC-decent size retial deposits,I'm presuming they'll be trickling out meaning reliance on wholesale.....problem meh!the other issue here is the fourth line down where all manner os sins could be being hidden.£5bn in investment securities held at amortised cost where the amortised cost could bear no relation to current market value of said security

ALso interesting to see deposits from central banks at £3.8bn...which I'm presuming is term funding scheme,the clue being in the title.

 

Page 198-MC-interesting to see £400mn in asset and invoice finance pop up,thats 5 times todays market cap.£1.5bn in in loans/credit cards, and as ever BTL at £2.1bn plus £700mn pro BTL(whatever that is)which I would suspect is IO.

Page 199-MC-items highlighted futehr up page in the balance sheet on display here nad it doesn't fill the heart with warm fluid.there's £1.1bn in MBS, £1.7bn in probably depreciating Soveriegn bonds which would likely sell at a loss, or indeed the mulitlateral development bank bonds which appear to be some sort of EM bank finance

page 204-MC-It appears Term funding is drawing down over next few years £550mn in 2024,£1860mn in 2025 and £1390mn in 2027.

ALso worth ntoing heavy reliance 49% of retail depsoits-£7.85bn on instant access.

page 223-MC-stage 3 laons (ie default stage) down yoy from 2021 meaning either those loans have returned to making payments or they've offlaoded them????? still much higher than market cap of £68mn today and considerably higher than the systemic banks as a proportion of total assets iirc

Page 224-MC-commericals loans souring too.They've shrunk this loan book somehow since year end 2021 but even so £188mn at stage 3 doesnt bode well

page 228-MC-metro has £160mn in retail laons 90+ days in arrears,£188mn in commercial loan book

[sancho panza]

38 minutes ago, Sugarlips said:

I believe the US opened swap lines with all the western counties after the March US regional bank crisis, to preempt this kind of contagion scenario. Whether it would work or not, no idea..

problem is the scale of the problems,see bleow analysis of Metro books at YE 22.Situation likely much worse now in terms of stage 3 loans given rise in interest rates.

49% of Metro retail depsoits is instant access.

THe CB's will need to step in but they'll bail the system not the equity and bond holders this time I suspect.There jsut isn't the CB balance sheet strenght to do more imho

[Sugarlips]

5 minutes ago, sancho panza said:

problem is the scale of the problems,see bleow analysis of Metro books at YE 22.Situation likely much worse now in terms of stage 3 loans given rise in interest rates.

49% of Metro retail depsoits is instant access.

THe CB's will need to step in but they'll bail the system not the equity and bond holders this time I suspect.There jsut isn't the CB balance sheet strenght to do more imho

What’s another trillion or 10, anything to control the press anyway...can’t have folk waking up to real money