The UK's Q4 2023 banking crisis.

[wherebee]

17 hours ago, Democorruptcy said:

PRA think Metro don't know enough to be able to model future losses.

Metro Bank has suspended its bid to secure regulatory sign-off on risk models that it previously said would turbocharge profitability.
The UK challenger bank has quietly shelved work on its attempt to persuade the Bank of England to allow Metro to use its own internal calculations to model for risk, according to people familiar with the situation. Some added that the project would probably be abandoned as the possible benefits waned.
Metro’s attempt to use internal models became headline news in October when fears about delays to the initiative triggered a sharp fall in the bank’s share price, which was only stabilised by an urgent £925mn funding deal.
At the time, Metro would not say whether it was continuing with its five-year-old campaign to move to sophisticated models that would cut the capital charges for its mortgages. It currently uses models set by global regulators that are generally viewed to be more expensive for banks as they tend to be required to hold more equity.
Metro would make big gains if the BoE’s Prudential Regulation Authority allowed the lender to follow its larger rivals in using its own models to prove that their mortgage loans were less risky than the “standardised” risks implied by frameworks set by the Basel Committee on Banking Supervision.
But supervisors at the PRA have been sceptical about whether newer banks have enough data to predict losses on their loans, leading watchdogs to order banks to be more conservative if they do not have enough of their own data to build robust models.

 

NONE of the Banks have models that reflect the real risk on their books.  Anybody highlighting the real risk during boom times is sacked.  Anybody highlighting the real risk during a downturn is told to shut up and told to sign a NDA.

Go see 'margin call'

[sancho panza]

21 hours ago, Democorruptcy said:

PRA think Metro don't know enough to be able to model future losses.

Metro Bank has suspended its bid to secure regulatory sign-off on risk models that it previously said would turbocharge profitability.
The UK challenger bank has quietly shelved work on its attempt to persuade the Bank of England to allow Metro to use its own internal calculations to model for risk, according to people familiar with the situation. Some added that the project would probably be abandoned as the possible benefits waned.
Metro’s attempt to use internal models became headline news in October when fears about delays to the initiative triggered a sharp fall in the bank’s share price, which was only stabilised by an urgent £925mn funding deal.
At the time, Metro would not say whether it was continuing with its five-year-old campaign to move to sophisticated models that would cut the capital charges for its mortgages. It currently uses models set by global regulators that are generally viewed to be more expensive for banks as they tend to be required to hold more equity.
Metro would make big gains if the BoE’s Prudential Regulation Authority allowed the lender to follow its larger rivals in using its own models to prove that their mortgage loans were less risky than the “standardised” risks implied by frameworks set by the Basel Committee on Banking Supervision.
But supervisors at the PRA have been sceptical about whether newer banks have enough data to predict losses on their loans, leading watchdogs to order banks to be more conservative if they do not have enough of their own data to build robust models.

 

The big issue here is that teh PRA are moving BS's off the IRB approach to risk weighting(where they use their own data) to the Standardized approach (where they are forced to use BIS rules)

If we look back over the thread if i remember correctly, we'll see that instos like Cov BS have been forced off IRB and focred to use Standardized approach  which has led to an increased need for cpaital and thereofre less lending

If they're pulling the Cov then a newcomer like Metro market cap £244mn and loan book £22bn is going to get fuck all off the PRA.

Just to empahsize that gives a Dowd Buckner ratio of 90/1.................90/1!!!!!!!!!!!!!!!!!

Their stated equiuty on the balance sheet is £956mn at year end 22..........Mr Marekt saying  '''Helloooooo'''

https://www.bis.org/basel_framework/chapter/CRE/20.htm?inforce=20191215&published=20191215

Introduction

20.1

Banks can choose between two broad methodologies for calculating their risk-based capital requirements for credit risk. The first is the standardised approach, which is set out in chapters CRE20 to CRE22:

(1)

The standardised approach assigns standardised risk weights to exposures as described in this chapter, CRE20. Risk weighted assets are calculated as the product of the standardised risk weights and the exposure amount. Exposures should be risk-weighted net of specific provisions (including partial write-offs).

(2)

To determine the risk weights in the standardised approach for certain exposure classes, banks may use assessments by external credit assessment institutions that are recognised as eligible for capital purposes by national supervisors. The requirements covering the use of external ratings are set out in chapter CRE21.1

(3)

The credit risk mitigation techniques that are permitted to be recognised under the standardised approach are set out in chapter CRE22.

20.2

The second risk-weighted capital treatment for measuring credit risk, the internal ratings-based (IRB) approach, allows banks to use their internal rating systems for credit risk, subject to the explicit approval of the bank’s supervisor. The IRB approach is set out in chapters CRE30 to CRE36.

Edited December 14, 2023 by sancho panza

[sancho panza]

If they merge now it'll save the Bundesbank the trouble in a year or two's time

DB Dowd Buckner ratio=1358272/24=56/1 market cap E24.

I think shrinking the number of banks here makes a lot of sense

https://uk.finance.yahoo.com/news/commerzbank-merger-talk-resurfaces-germany-203828739.html

Commerzbank merger talk resurfaces as Germany mulls company sales-sources

LONDON (Reuters) - Five years after Deutsche Bank and Commerzbank aborted an attempt to merge, an uncertain outlook for bank profitability and Germany's need to plug a hole in its budget are rekindling speculation about a potential deal.

Germany has said it is looking at all options to raise funds by selling stakes in some of the 100 or more companies it owns.

 

Though a sale of its remaining 15% holding in Commerzbank isn't imminent, Finance Minister Christian Lindner is open to a disposal and ultimately would prefer the government exiting the stake, according to a person familiar with his thinking.

A merger with Commerzbank would allow Deutsche Bank to further diversify away from volatile investment banking earnings, bolstering the lender's longer-term stability, another factor that could sway the German government, said the person, speaking on condition of anonymity.

Deutsche Bank, which has completed the bulk of a multi-year restructuring plan, has recently stepped up internal discussions on deals, including possible purchases of banks such as Commerzbank and ABN Amro, Bloomberg News reported on Friday, without naming sources.

[sancho panza]

Shrewd move imho

https://uk.finance.yahoo.com/news/sainsbury-plots-exit-banking-division-102333450.html

Sainsbury’s plots exit from banking division

Sainsbury’s is plotting an exit from its banking business as the supermarket giant steps up its focus on food.

The retailer said it was planning a “phased withdrawal” from its core Sainsbury’s Bank division after conducting a strategic review.

It said the exit would be gradual and there would be no immediate changes to the products or services it provides to customers.

As part of the plans, Sainsbury’s is looking at a range of options, including outsourcing the business to a financial services provider where it would continue to offer banking products under the Sainsbury’s brand.

It already does this with its insurance products.

The announcement comes weeks before Sainsbury’s is due to unveil the next phase of its “Food First” strategy.

As part of the changes announced on Thursday, Sainsbury’s said its bank boss Jim Brown is retiring and being replaced by Robert Mulhall, former chief executive of Allied Irish Bank’s (AIB) UK division until 2022.

The news of the planned phased withdrawal comes just months after Sainsbury’s announced the sale of its £480m mortgage book to Co-op Bank.

Under the deal, which will be complete this year, Sainsbury’s is offloading 3,500 customers to Co-op.

It follows years of questions over the financial services division, which the supermarket tried to sell in 2020.

However, it subsequently ended talks after concluding a sale did not offer good value for shareholders.

[Democorruptcy]

Hunt wants to boost bank shares

Quote

 

Jeremy Hunt has called in Britain’s largest banks to discuss why they remain so poorly valued compared with global peers, as ministers seek feedback on how to help boost the sector and the competitiveness of the City of London.

The meeting arranged by the chancellor will be held on Tuesday and include top executives from Barclays, HSBC, Lloyds, NatWest, Santander UK and the London Stock Exchange Group, according to three people with knowledge of the plans.

Franck Petitgas — the former London-based Morgan Stanley executive who was appointed prime minister Rishi Sunak’s business and investment adviser in April — will also attend the meeting, two of the people said.

Hunt and Petitgas will ask the executives how ministers can help them improve their perception among international and domestic investors and boost market valuations, they said.

The government is also seeking reassurance that banks will continue to meet lending demand to galvanise economic growth, a top priority for Sunak ahead of the UK general election this year.

Bank stock prices have continued to stagnate despite an earnings windfall from a rapid series of interest rate rises that have allowed more generous dividends and share buybacks.

There has also been little tangible market impact so far from the so-called Edinburgh reforms to boost the City announced in December 2022. The measures included removing the cap on bankers’ bonuses inherited from the EU, relaxing ringfencing rules and offering companies incentives to list on the UK stock market.

The FTSE 350 bank index has fallen 9 per cent in the past 12 months and all major UK-listed banks trade below the book value of their assets, indicating investors do not believe in their long-term strategies.

The sharp drop in share prices of some of the country’s largest lenders is of most concern to investors.

Barclays, which is preparing a strategic review next month amid criticism of its performance in investment banking, has fallen 23 per cent in the past year. NatWest, which is part-owned by the government, has plunged 31 per cent over the same period.

Privately, bank executives place much of the blame for the declines on the loss of EU market access after Brexit and policy mis-steps such as Liz Truss’s ill-fated “mini” Budget, which undermined the UK’s reputation for sound economic management in the eyes of investors.

They also point to the Bank of England’s 2020 decision to ban banks from paying dividends during the pandemic — which enraged shareholders in the US and across Asia — and additional levies on profits on top of normal corporate taxation.

Investors were spooked by the announcement last week that the Financial Conduct Authority, the top financial regulator, is investigating historical misconduct in car lending.

While little information is available so far, analysts estimate that the sector could be forced to pay more than £4bn in compensation. The FCA’s probe has echoes of the payment protection insurance scandal, which eventually saw banks pay out more than £50bn.

https://www.ft.com/content/b35e0516-765b-4c7c-a72b-f4cef9f7dea2

 

 

 

[sancho panza]

24 minutes ago, Democorruptcy said:

Jeremy Hunt has called in Britain’s largest banks to discuss why they remain so poorly valued compared with global peers, as ministers seek feedback on how to help boost the sector and the competitiveness of the City of London.

in simple terms they remain poorly valued because they're a bad risk.

Vritually all balance sheets in the sector are overloaded with loans into Londinium and the South East on resi houses at 10-15 times ave salary.

and thats before we get to the IO BTL/FHL loan books which are liekly a dog poo sandwich

24 minutes ago, Democorruptcy said:

The government is also seeking reassurance that banks will continue to meet lending demand to galvanise economic growth, a top priority for Sunak ahead of the UK general election this year.

Bank stock prices have continued to stagnate despite an earnings windfall from a rapid series of interest rate rises that have allowed more generous dividends and share buybacks.

which sort of hints at teh root of the rpoblem as Hunt perceives the solution to the leverage in the baking sytem to be more lending.,

24 minutes ago, Democorruptcy said:

Privately, bank executives place much of the blame for the declines on the loss of EU market access after Brexit and policy mis-steps such as Liz Truss’s ill-fated “mini” Budget, which undermined the UK’s reputation for sound economic management in the eyes of investors.

excessive leverage in real estate loans resi& Commerical are the financial cancer we're suffering from.

Blaming Truss/Brexit is like blaming the rain for revealing there's a hole in the roof.

[sancho panza]

nicked unsahemdly from sashas latest vid.

one of the things we did sort of get right.,

the pain is begging to hit the middle of the mrotgage market.

https://youtu.be/8pASpV1XlGA

[Democorruptcy]

1 hour ago, sancho panza said:

in simple terms they remain poorly valued because they're a bad risk.

Vritually all balance sheets in the sector are overloaded with loans into Londinium and the South East on resi houses at 10-15 times ave salary.

and thats before we get to the IO BTL/FHL loan books which are liekly a dog poo sandwich

which sort of hints at teh root of the rpoblem as Hunt perceives the solution to the leverage in the baking sytem to be more lending.,

excessive leverage in real estate loans resi& Commerical are the financial cancer we're suffering from.

Blaming Truss/Brexit is like blaming the rain for revealing there's a hole in the roof.

The net proportion of mortgage defaults has dropped:

Quote

 

UK lenders’ expectations for mortgage demand rose sharply at the end of last year, according to official data published on Thursday, as falling borrowing rates fuel a rebound in the property sector.

The index for expected mortgage demand for house purchases rose to 21.9 per cent in the final three months of last year from minus 28.4 per cent in the third quarter, according to the Bank of England’s quarterly survey of banks and building societies.

The index tracks the proportion of lenders forecasting an increase in demand over the next three months minus lenders predicting a decrease.

Although the index for demand for mortgage lending in the fourth quarter was still negative at minus 31.6 per cent, it was up sharply from the minus 54.9 per cent reported in the previous three months.

Over the same period, the net proportion of lenders reporting rising mortgage defaults eased to 23.6 per cent from 43.3 per cent.

The BoE data adds to growing evidence that the property market is improving as mortgage rates have fallen from their summer peaks on the back of falling interest rate expectations, on which fixed deals are based.

In December, estate agents expected house sales to expand in the year ahead, according to separate figures published on Thursday by the Royal Institution of Chartered Surveyors, a professional body.

Mortgage approvals hit a six-month high in November, according to BoE data published this month, while Nationwide’s house price index increased in November and December.

https://www.ft.com/content/fba476b0-8e46-4294-ba6c-c42f8be0be09

 

 

[Boon]

Reported defaults, so by changing what they default the rate of them could come down right? 
I can see more forbearance and reclassificiation as to what is bad debt.

The min LTV is there so the bank can get their money back, but in such a market repo'ing something and then selling it 'as is' might lead to hefty losses, so is that the way forward?

Like in the case of @sancho panza's BTL friend, if the tenants are still paying why not swap debt for equity? In effect the man becomes a caretaker of the banks properties with a tiny bit of skin in the game and the threat of the stick (enforcement of loans) if he doesn't comply. 

[One percent]

3 hours ago, sancho panza said:

in simple terms they remain poorly valued because they're a bad risk.

Vritually all balance sheets in the sector are overloaded with loans into Londinium and the South East on resi houses at 10-15 times ave salary.

and thats before we get to the IO BTL/FHL loan books which are liekly a dog poo sandwich

which sort of hints at teh root of the rpoblem as Hunt perceives the solution to the leverage in the baking sytem to be more lending.,

excessive leverage in real estate loans resi& Commerical are the financial cancer we're suffering from.

Blaming Truss/Brexit is like blaming the rain for revealing there's a hole in the roof.

I was listening to the radio this morning and the bus driver’s son was on. It was a q&q phone-in.  I can’t remember exactly what he was defending as they covered a few things. He blamed Truss.  Do they think we are all stupid?   

[sancho panza]

2 hours ago, Democorruptcy said:

The net proportion of mortgage defaults has dropped:

 

I wouldnt read too much into that stat as @Boon says it doesnt measure much.Bnaks have reduced stage 3 loans and therir may be multiple ways they can do that,most likely by extending laon terms.

stage 3 loans were minsiucle anyway as a proportion of msot big bank mortgage books.

I suspect when one bank repoes,they will all repo in a swarm.

Better read on things owuld be assessing stage 2 growth becasue extedning the loan term to 35 years would effectively be marking the loan at stage 2(deteriroation in either borrowers creditworthiness or the in the value of the collateral)

landlord repoes are rising but genreally I dont think there's if its IO laons,theres little interest in avoding stage3

[GTM]

5 hours ago, sancho panza said:

in simple terms they remain poorly valued because they're a bad risk.

Vritually all balance sheets in the sector are overloaded with loans into Londinium and the South East on resi houses at 10-15 times ave salary.

and thats before we get to the IO BTL/FHL loan books which are liekly a dog poo sandwich

which sort of hints at teh root of the rpoblem as Hunt perceives the solution to the leverage in the baking sytem to be more lending.,

excessive leverage in real estate loans resi& Commerical are the financial cancer we're suffering from.

Blaming Truss/Brexit is like blaming the rain for revealing there's a hole in the roof.

More Government props to try and keep the creaking edifice upright even as it crumbles around previous Government props.

Edited January 19 by GTM

[sancho panza]

recoirding thsi for reference/posterity as it highlights many relevant issues/facts.if/when HPI unwinds,UK banking sector will liekly have lsot it swimming trunks in the sea/.

via @snaga in tut property thread

1 min----rates gone from 1% to 4% on a £250k mortgae 2 years ago repayment would have been £965 pcm now same repayment is £1389 pcm

1 min 40 ---40% of take home pay spent on mortgages 2 years ago,wages have risen 17% since,mortgage up 44%,now tkaing 50% of take home pay.same monthly payment can only buy you a hosue 30% less.hosues have only fallen 2%

4 mins-transactions plummeting

5 mins 53-value of new mrotgae lending down 27.6%,

mortgage lending that has already been agreed but not copmpleted are down 41.4%

 

6 mins 45- arrears balances rising,low but rising 45% yoy that £18.8bn is only 1.14% of total marekt.But adjusting for loan size eg multimillion hosue,likely lower end is suffering more

8 mins-sales registered in Nov would likely have been people who bought the hosue in june/july.Means data on HPI is 6 to 7 months old.

8 mins 50-

10 mins 28- Sasha was working at Capital One during GFC and saw credit card defaults spike.Why? Because credit card debt servicing is not essentail like food/fuel/phone/mortgage bill.CC detb is the first thing people stop paying.

People currently incresing credit card spending but amount of missed payments is rocketing by eeven more.3 missed payments are up 18.9% yoy

 

[sancho panza]

Santander hal;f year report June 23. As per discussion with @jamtomorrow.

full year due in march

page 30 is the wtf moment,recorded for psoterity

https://www.santander.co.uk/assets/s3fs-public/documents/santander_uk_plc_2023_half_yearly_financial_report.pdf

Page 4,Santander is indeed expanding commerical loan book which appears to be driving profit growth via rising net interst margin ie they're making more profit on commercial laons

in fact the profit on commerical has comepnmsdated for a drop in retial.

page 5,loan book is similar size to nationwide,using the shareholder equity as a proxy for amrket cap would give a Dowd Buckner ratio of 20/1. I have my doubts More likely 30/1 in the real world much like Lloyds,HSBC etc

 

 interestingly they appear to have shrunk their loan book by £8bn yoy.......circa 3.5% drop. meaning a drop in customer depostis and drop in capital buffers.bascially keeping the profitable business and ditching the low margin stuff.If I were a bank and in a postion to drop the laon book I would.

 

page 6

 

Page 17-Ive not seen this before.Santander grade loans 1-9(9 lowest risk) then we get the stage 1/2/3 grades.Whats interesting is you can see how the laon book deterirorates from the bottom up(makes sense really)

near 100% of their grade 1-3 laons are in stage 2 or 3.Even at grade 5 nearly 40% is tage 2.Likely they haev cleansed their balance sheet of some dud loans this past year.

 

Page 19 and here's the proof of Santander dropping mrotgage exposure,£8bn in 6 months...........read into that what you will

Page 20-even with the dropping of £8bn in mrotgages,stage 2+3 laons are 100% of stated equity and it looks like of the £8bn theyve dropped,they havent been able to offload any of the dog poo sandwich loans.Stage2+3s are simliar to Dec 22

 

page 23.Interesitng change in the description at top of column.Bascailly,this is where the bank is querying loan affordability in terms of outgoings versus incomings..it's a substantial number where there are queries.

page 24-new BTL lending is slow.FTBer lending strong but as we've seen with otehr mrotgage books,this often has the effect of 'cleansing' the overall portfolio

 

page 27-intersting how the volume in fixes stops bulging at year 4.Whether thats due to consumer demand(Santanders story) or down to derisking time will tell.

worth noting the geogrphical break down.yikes.....

 

page 28,another interesting stat is that teh <50% LTV book is struggling proportionately more than the higher LTV stuff.IWhilst still low overall,likely reflects historical loans souring and more recently written buisness holding up better.

page 30-the wtf moment arrives.IO/partila IO  book(likely the bulk of their BTL I suspect) is circa £50bn............take that in......and staed equity is £14bn....!!!!

mix that with the fixed term data and there might be a problem

Edited January 31 by sancho panza

[sancho panza]

 

Call me contrarian but I think UK banks are extremely expensive for what they are and the returns they offer.

Daily Wail 2/2/24

Shares in Britain's big banks are cheap, argue the value fund managers who hold them

But are they cheap for a reason and due a bumpy ride in 2024 due to interest rates falling, as the broad market consensus holds, or undervalued and primed to bounce back, as some contrarian stock-pickers believe?

Analysts believe that outperformance of UK, European and Japanese banks seen in 2023 is set to reverse this year.

Nonetheless, the managers of Temple Bar Investment Trust, Nick Purves and Ian Lance, remain bullish on the case for UK big banks and believe they still make good investments.

The pair back two of the UK's biggest banks, Barclays and NatWest, which they see as seriously undervalued, 

NatWest occupies a 5.1 per cent allocation in the trust's portfolio and Barclays has a 4 per cent allocation. 

Purves says: 'We would argue that banks have never been 'uninvestable'.

'Warren Buffett's Berkshire Hathaway has in the past owned banks such as Wells Fargo, JP Morgan, Citigroup, Bank of New York Mellon and USBancorp. Bank of America is currently its second largest position after Apple.

'So if banks are uninvestable, it would appear that one has bothered to tell the Sage of Omaha.' 

Most UK banks are trading at very low valuations. NatWest's and Barclays are both on a price-to-earnings ratio of 4.3 looking at trailing 12 months actual earnings

[leonardratso]

uncle terry agrees with you

 

[darkmarket]

Bookmarking a company tangential to the UK's banking woes, Wise formerly known as TransferWise. The sector hasn't come in for as much scrutiny as you may have expected since the Wirecare fraud, and Wise had a very good 2022 and 2023.

https://www.londonstockexchange.com/stock/WISE/wise-plc/company-page

Obviously, its operational capacity depends on access to US banking. Despite its best efforts, it has failed to acquire any licences there. As a user, you'll find the USD account bank name listed as Wise under its NYC address. In reality, the entire operation depends on a partnership with Community Federal Savings Bank, an abscure and tiny bank located in a much less salubrious part of NYC.

Recently, Wise was forced to take two serious steps: stop issuing new USD accounts and close all USD business banking accounts. EU business account openings are also suspended. All measures were implemented with zero notice and very little transparency or explanation.

https://wise.com/help/articles/1Rygn0gaetjmjGcOvyjRZm/were-temporarily-deactivating-wise-business-cards-in-the-us

My guess is its business model depends critically on the Biden administration's immigration policy, Mexican cartels and their monopoly of the US Southern border human trafficking industry, and that it has been under increased supervision since the election of 2022.

[sancho panza]

Bank results calendar

NatWest 16/2/24

Barclays 20/2/24

HSBC 21/2/24

Lloyds 22/2/24

Coventry BS circa 23/2/24

Santander UK circa 1/3/2024

Nationwide May 24

 

 

[sancho panza]

 

Lessons were learned.....

https://www.telegraph.co.uk/business/2024/02/08/emma-crystal-replace-coutts-chief-kicked-out-nigel-farage/

Diversity champion to replace Coutts chief who debanked Farage

Lender poaches UBS sustainability boss in wake of scandal

NatWest has hired a sustainability banker and diversity champion to run its private bank Coutts after its chief executive was ousted in the aftermath of the Nigel Farage debanking scandal.

Emma Crystal, who leads UBS’ sustainable finance unit, will become chief executive of NatWest’s wealth management division, which includes Coutts, later this summer.

Ms Crystal, who was also an executive sponsor of UBS’s LGBT & Ally network in Switzerland, will also sit on NatWest’s executive management committee.

[sancho panza]

Its a simple view,but I think this is the beginning of the CRE retial apocalyspe in tut UK,not the end.

I was in Leicester today,taking the youngest Panza on his learning curve at Leicester market.

The centre has laods of enmpty shops........They can't even rent the 'High St' High St ones.

Losses loom more broadly across the banks methinks

https://uk.finance.yahoo.com/news/body-shop-collapses-administration-131928362.html

Landlords brace for wave of closures as The Body Shop collapses into administration

Landlords are bracing for a wave of closures after The Body Shop collapsed into administration, putting more than 2,000 jobs at risk.

The UK arm of the ethical cosmetics chain, which covers around 200 stores, was put into administration on Tuesday by its owners, the private equity house Aurelius, a matter of weeks after it was acquired in a £207m deal from previous owners Natura & Co.

Administrators at FRP Advisory will now consider all options to find a way forward for the UK business and will update creditors and employees in due course.

 

It raises the prospect of a hit to the chain’s landlords, which include numerous independent landlords, local authorities and large-scale property groups.

Land Securities Group, which owns the Westgate Shopping Centre in Oxford, is one of the Body Shop’s biggest landlords. Others include Network Rail and Nuveen Real Estate, one of the largest investment managers in the world.

Edited February 14 by sancho panza

[sancho panza]

Record profits,record leverage to the real estate cycle,record levels of UK national debt,record elvels of UK peeps on disability etc etc.'Whooda thunk it?'

Reality is that UK banks are leveraged to the fiscal cycle and thats heading for a contractioanry pahse

 

 

https://uk.finance.yahoo.com/news/britains-big-five-banks-prepare-155022316.html

Britain's 'big five' banks prepare to deliver record-breaking total profits

Britain’s five biggest quoted banks are on course to deliver record combined profits when they reveal their financial results for 2023 over the coming days.

Analysts forecasts suggest NatWest, Barclays, HSBC, Lloyds and Standard Chartered will announce total pre-tax profits of £51.6 billion in this reporting season, more than the GDP of an economy the size of Serbia. That is well above the previous high water mark of £35.8 billion immediately before the finacial crisis.

HSBC, the biggest of the quintet, and Lloyds are expected to have made record profits, while the other three are forecast to have made strong profits slightly below the highs.

 

NatWest, which kicks off the reporting season on Friday, is on course for £6 billion profit, the highest since the financial crash. But that isstill well below the £9.9 billion reached in 2007 when the over zealous expansion drive of the bank then known at RBS drove it to the brink of disaster.

Long memories of thre near death experience experienced by the banking sector in 2008 and 2009 mean that their share prices remain well down on pre-financial crisis levels. The FTSE All-Share banks index is currently languishes 70% below its all-time high of early 2007.

[BurntBread]

10 hours ago, sancho panza said:

That is well above the previous high water mark ... immediately before the financial crisis.

Hmm....

Record bank profits sounds like another "tallest building in the world" indicator.

[darkmarket]

Quote

 

Close Brothers faces uncertain future as FCA motor finance probe sparks crisis

Close Brothers, one of the UK’s oldest merchant banking groups, is in the throes of a crisis.

Its shares collapsed on Thursday after it cancelled its dividend for the current financial year and announced that 2025 payouts would be placed under review amid a City watchdog probe into motor finance – a major part of its business model.

...Auto lending makes up around a fifth of Close Brothers’ loan book at £1.95bn as of last July. Its website claims that every year it helps more than 100,000 Britons pay monthly for their vehicle.

 

https://www.cityam.com/close-brothers-faces-uncertain-future-as-fca-motor-finance-probe-sparks-crisis/

The subprime asset-backed securities bubble is bursting too.

[sancho panza]

47 minutes ago, darkmarket said:

https://www.cityam.com/close-brothers-faces-uncertain-future-as-fca-motor-finance-probe-sparks-crisis/

The subprime asset-backed securities bubble is bursting too.

I was literally coming on here to have a look at this DM

https://www.telegraph.co.uk/business/2024/02/15/car-finance-investigate-force-close-brothers-scrap-dividend/

One of Britain’s oldest merchant banks has been forced to scrap a £100m dividend over a City watchdog investigation into the possible mis-selling of car finance.

Close Brothers said investors would receive no payouts this financial year owing to “uncertainty” surrounding the Financial Conduct Authority (FCA) review.

Shares in the FTSE 250 listed group fell as much as 30pc following the announcement. Close Brothers’ share price is now down more than 60pc so far this year over fears about exposure to the FCA investigation.  

The FCA is currently reviewing possible consumer harm over the historic mis-selling of car finance used to fund the purchase of second hand motors.

The regulator is due to decide whether compensation is owed to thousands of drivers by September.

 

 

As a significant player in the motor finance market, Close Brothers is bracing for a hit if the FCA finds that customers are owed redress.

The company sold motor finance through a network of 4,000 dealerships across the country.

The FCA investigation is going back to as early as 2007, leaving lenders uncertain about the size of the potential impact. 

Loans made to people buying second hand cars at dealerships boomed from 2011 onwards, rising to over £40bn by 2022.

 

 

Close Brothers, along with other banks like Lloyds, Barclays and Santander, were involved in the sale of these loans via dealerships.

These loans often allowed the car dealerships to get paid commissions if they inflated the interest rates on the loans sold to customers to buy a car.

According to an 2019 FCA study, a £10,000 loan paid back over four years would have led to the consumer paying £1,100 more in interest than if the commission structure had not been in place. 

[darkmarket]

8 minutes ago, sancho panza said:

I was literally coming on here to have a look at this DM

https://www.telegraph.co.uk/business/2024/02/15/car-finance-investigate-force-close-brothers-scrap-dividend/

One of Britain’s oldest merchant banks has been forced to scrap a £100m dividend over a City watchdog investigation into the possible mis-selling of car finance.

Close Brothers said investors would receive no payouts this financial year owing to “uncertainty” surrounding the Financial Conduct Authority (FCA) review.

Shares in the FTSE 250 listed group fell as much as 30pc following the announcement. Close Brothers’ share price is now down more than 60pc so far this year over fears about exposure to the FCA investigation.  

The FCA is currently reviewing possible consumer harm over the historic mis-selling of car finance used to fund the purchase of second hand motors.

The regulator is due to decide whether compensation is owed to thousands of drivers by September.

 

 

As a significant player in the motor finance market, Close Brothers is bracing for a hit if the FCA finds that customers are owed redress.

The company sold motor finance through a network of 4,000 dealerships across the country.

The FCA investigation is going back to as early as 2007, leaving lenders uncertain about the size of the potential impact. 

Loans made to people buying second hand cars at dealerships boomed from 2011 onwards, rising to over £40bn by 2022.

 

 

Close Brothers, along with other banks like Lloyds, Barclays and Santander, were involved in the sale of these loans via dealerships.

These loans often allowed the car dealerships to get paid commissions if they inflated the interest rates on the loans sold to customers to buy a car.

According to an 2019 FCA study, a £10,000 loan paid back over four years would have led to the consumer paying £1,100 more in interest than if the commission structure had not been in place. 

Very grateful to the FCA for their helpful market interventions. Few are better at opening and closing barn doors, not to mention their extraordinary timing.