The UK's Q4 2023 banking crisis.

[sancho panza]

Relatively MSM outlet as well

via alex groundwater

https://finance.yahoo.com/news/close-190-banks-could-face-163717073.html

US banking crisis: Close to 190 banks could collapse, according to study

After the demise of Silicon Valley Bank and Signature Bank in March, a study on the fragility of the U.S. banking system found that 186 more banks are at risk of failure even if only half of their uninsured depositors (uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run) decide to withdraw their funds.

Uninsured deposits are customer deposits greater than the $250,000 FDIC deposit insurance limit.

Regional banks are failing because the Federal Reserve’s aggressive interest rate hikes to tamp down inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities.

Most bonds pay a fixed interest rate that becomes attractive when interest rates fall, driving up demand and the price of the bond. On the other hand, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, thus driving down its price.

Many banks increased their holdings of bonds during the pandemic, when deposits were plentiful but loan demand and yields were weak. For many banks, these unrealized losses will stay on paper. But others may face actual losses if they have to sell securities for liquidity or other reasons, according to the Federal Reserve Bank of St. Louis.

Edited May 5, 2023 by sancho panza

[Talking Monkey]

20 hours ago, sancho panza said:

Credit risk section-where the intersting stuff is.Point to note NatWest Market cap is circa £27bn

Page 196-details of their modelling which is a tad more sophisticated thatn the likes of the BS's but still contains clear and present risks of confirmation bias

 

Page 207-MC-we get details of stage 1/2/3 and get an idea of the trend

From 2021-2022,we get a 58% increase in stage 2 in the retail segment.private banking sees a drop,commercial rises 30%.So basically the bulk of the deterioration in it's loan book is in retail.

There's obviously a possiblitiy these laons can be moved back to stage 1 but given the current macro backdrop that seems unlikely

Page 210-MC- we get a breakdown of stage 2 which shows that as of year end 22 ,the bulk of the retail changes weren't related to missed payments but ot other criteria but collectively £5 billion are in stage 3 already which is default stage.

Also worth noting that the total amount of loans in stage 2 £46billion

Also a 60% rise in retail laons being mvoed to stage2

Page 211-MC-data on stage 2 including breakdown by loan type.Interestingly Mortgages have gone up from 11,543 Stage 2 to 18,787 a 63% increase

Page 221-MC-key thing here is to look at the size of

1) that BTL book-£20.5bn,t

2) the interest only loan book at £21.5billion

3) anotehr £9bn mixed ie part IO.

Now obviously many of these may have equity but I would suspect they are legacy laons from back in the day.That's a substantial exposure to a hosuing downturn right there.

What's also surprising is that the average LTV's of mrotgages in stage 1/2/3 is relatively similar apparently indicating it not being a predictor of deterioration.

Page 220-what's surpising here is that Stage 2/3 ratios are actually generally higher in the lower LTV sections eg stage 2 in <50% LTV is 10.2% and stage 3 is 1.3%.for >70%<80% it's 8.3% and 0.003% which is not what you'd expect.

Page 221-40% exposure to teh Sotuh East in terms of mortgages,which you'd expect from a High St bank.Makes you wonder how the likes of the Cov etc have ended up with more exposure to Londinium than NatWest

Page 234-gives a break down of the stage 2 data and why laons have been moved from Stage 1,the clear growth in stage 2 is evident(PD=probabaility of default )

 

Page 250-Details of tier 1 and risk weighted capital..Worth consdiering this in the light of the size of their market cap and stated equity. of circa £33bn.NatWest are stating the rise in RWA's due to changes in IRB

That looks well bad SP, I can't see it levelling out from here for them, rather most likely going to get worse, maybe even a lot worse. What have the regulators been doing this past decade.

[DoINeedOne]

Just finished reading this thread

Now I need a beer how depressing the state of it all

Whilst I doubt I would ever invest in banks one that I read a report on and added to the further research pile (with all the rest) 

Bank of N.T. Butterfield & Son - Bank that operates in Bermuda, Cayman, Jersey Channel Island and Guernsey

 

Also not a UK bank so I don't want derail the thread just found the ratios mentioned interesting

 

 

Great thread 

Edited May 5, 2023 by DoINeedOne

[leonardratso]

terrible bank, never took any risks by the look of it, how can they hope to make any headway without pissing it all away;

[HousePriceMania]

 

Another Northern Wreck

 

 

[sancho panza]

10 hours ago, HousePriceMania said:

 

Another Northern Wreck

 

 

from the article -

quite incredulous so I am.If you can't savea 5% deposti then you likely can't afford a rate rise at the end of a 2 year fix.

Even worse is the logic underpinning that a two year fix will avoid the risk of negative equity.......

The worrying thing is that he's a CEO of a £25bn balance sheet mrotgage lender.

 

'Skipton Building Society is to launch loans for first-time buyers who do not have a deposit. Precise details on the mortgage remain under wraps, but borrowers will need to demonstrate a history of paying rent comparable to mortgage repayments for up to two years. The deal will be fixed for over two years to guard against the risk of borrowers ending up in negative equity.

Last month Skipton’s chief executive, Stuart Haire, told The Times the building society wanted to launch a new mortgage “that can help those people trapped in rents.” He said: “We recognise that ultimately, if you are going to end up paying more in rent than you would on a mortgage, that feels like a good mortgage loan.”

Although he did not confirm if the mortgage would be up to 100 per cent of a property’s value at the time, he said the lender was trying to find its way around the “orthodoxies” of borrowers who had regularly paid rent but who could not get a mortgage because they could not save even a 5 per cent deposit.'

 

Neal Hudson nails it

 

Edited May 8, 2023 by sancho panza

[sancho panza]

hattip @Long time lurking

https://www.theguardian.com/money/2023/may/09/uk-households-missed-rent-mortgage-payment-which-loans-credit-cards?CMP=share_btn_tw

About 700,000 UK households missed rent or mortgage payment last month

Which? figures show Britons struggling with loans, cards and bills as interest rates and inflation soar

An estimated 700,000 UK households missed or defaulted on a rent or mortgage payment last month, according to data issued days before another expected rise in the cost of borrowing.

Missed housing payments were “particularly high” among renters, said Which?, the consumer body that issued the figures, affecting one in 20 tenants surveyed.

Mortgage holders’ and private renters’ finances are under more pressure, with the Bank of England widely expected to increase the cost of borrowing for households and businesses on Thursday for a 12th time in succession. Financial markets predict a quarter-point rise to 4.5%. At the same time, average rents have soared to fresh record highs, according to data issued last month by the property website Rightmove.

Overall, an estimated 2 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill payment in April, according to the latest Which? monthly consumer insight tracker, based on an online poll of about 2,000 people.

It said the 7.3% missed payment rate was in line with the level this time last year but higher than in April 2021 and April 2020.

However, the figure for April this year is lower than that for March, when an estimated 2.5 million households – or 8.8% – missed or defaulted on a payment.

Which? said “a significant number” of people missed mortgage payments last month – 3.1% of the home loan borrowers surveyed – as Bank of England interest rates continue to climb.

Bills – including energy demands and council tax – remained the most common type of missed payment among the population as a whole.

Three-fifths (59%) of those surveyed – equating to an estimated 16.6 million households – reported making at least one “adjustment” in order to cover essential spending last month.

[Bear Hug]

39 minutes ago, sancho panza said:

Three-fifths (59%) of those surveyed – equating to an estimated 16.6 million households – reported making at least one “adjustment” in order to cover essential spending last month.

That is surprisingly high! There'll be some pensioners and benefit claimants on inflation linked income.

That means almost everyone else is adjusting! 

[spygirl]

‘Stranded assets’: investors reckon with obsolete offices 

Older commercial real estate out of major UK cities is struggling to attract demand

https://www.ft.com/content/b9fae82d-2612-4d24-971e-ef610d5c701a

[sancho panza]

5 hours ago, spygirl said:

‘Stranded assets’: investors reckon with obsolete offices 

Older commercial real estate out of major UK cities is struggling to attract demand

https://www.ft.com/content/b9fae82d-2612-4d24-971e-ef610d5c701a

Fascianting data there spy

'The Atrium is not alone: a quarter of the office space in the commuter town near the M25 motorway sits vacant.

BlackRock bought the Atrium block from insurer Aviva in 2015 for £55mn. The US investment giant has been marketing the property recently for as little as £16mn, according to sales documents.

 

More than 100mn sq ft of office space is now vacant across the UK, the highest in nine years, according to CoStar, which analyses commercial real estate. The amount of empty space has climbed steadily since Covid-19 struck, and is now 65 per cent higher than March 2020. '

 

Makes you wonder whether NatWests Commerical loan book is as stated in terms of Stage 2.Also makes you wodner about the direction of travel for the London mortgage book of mnay companies if people dont need to be at the office?

 

 

[Chewing Grass]

2 minutes ago, sancho panza said:

More than 100mn sq ft of office space is now vacant across the UK, the highest in nine years, according to CoStar, which analyses commercial real estate.

Ties in with my observations and another two blocks on a small park have become vacant in the last 6 weeks near me on top of the ones I mentioned weeks ago, non of which have been let.

[sancho panza]

Banking sector seems to be on fire at the mo

From yesterday

https://finance.yahoo.com/news/pacwest-stock-plunges-30-after-losing-95-of-deposits-last-week-134045057.html

[Castlevania]

On 12/05/2023 at 14:28, sancho panza said:

Banking sector seems to be on fire at the mo

From yesterday

https://finance.yahoo.com/news/pacwest-stock-plunges-30-after-losing-95-of-deposits-last-week-134045057.html

Conversely my Brazilian banks have been doing well the past few weeks.

[spygirl]

On 12/05/2023 at 13:15, sancho panza said:

Fascianting data there spy

'The Atrium is not alone: a quarter of the office space in the commuter town near the M25 motorway sits vacant.

BlackRock bought the Atrium block from insurer Aviva in 2015 for £55mn. The US investment giant has been marketing the property recently for as little as £16mn, according to sales documents.

 

More than 100mn sq ft of office space is now vacant across the UK, the highest in nine years, according to CoStar, which analyses commercial real estate. The amount of empty space has climbed steadily since Covid-19 struck, and is now 65 per cent higher than March 2020. '

 

Makes you wonder whether NatWests Commerical loan book is as stated in terms of Stage 2.Also makes you wodner about the direction of travel for the London mortgage book of mnay companies if people dont need to be at the office?

 

 

When I started work 31ish years ago the big pink office block attached to Reading had these cheap God awful vinyl signs saying xxx affect available. Classy.

For the rest of my working life so far, these signs have been there, almost 40 y from when the block was planned.

I've nit stepped outside Rdg Station for prob 4y now - I meet my last remaining mate in the concourse then we head to London.

I'd guess they are still there.

Coof brought on 10y changes in 2y.

I'm profoundly pleased as it fits in my plan. And my kids won't have to work in shithole places like Thames valley/London exurbs/teriary office space.

 

[sancho panza]

you really couldnt make this up.The way to avoid a banking crisis is to water down the reforms to the leverage that led us into the crisis

https://12ft.io/proxy?q=https%3A%2F%2Fwww.telegraph.co.uk%2Fbusiness%2F2023%2F05%2F14%2Fbank-of-england-to-water-down-lender-capital-rules-to-boost%2F

 

The Bank of England is preparing to water down changes to its post-crisis rulebook after lenders warned plans to raise bank buffers will strangle small businesses and harm the economy.

It is understood that regulators are examining ways to lower the burden on banks when the UK adopts new international capital rules from 2025.

The Prudential Regulation Authority (PRA) published a consultation in November that suggests British lenders will be forced to hold back billions of pounds more than their EU rivals because of the UK's strict adoption of the rules.

While the PRA is still insisting on a robust implementation, regulators are seeking a “middle ground” on small business lending involving a transition period from the current framework.

It is also considering grandfathering existing loan arrangements and adopting a common sense approach towards risk that high street banks say will tie-up less money on balance sheets that they will use to boost the economy.

Ensuring UK banks and businesses are not left at a competitive disadvantage is one of the most politically sensitive issues as the Bank finalises its implementation of the next stage of so-called Basel rules introduced in the wake of the 2008 financial crisis.

It follows a bruising battle with the Government and financial services sector over insurance rules. Regulators were accused of strangling the City in red tape and stopping investment in high-growth assets.

The latest tussle over Britain's regulatory future has seen Barclays and Natwest, two of Britain’s biggest lenders, warn in March they could be forced to set aside an extra £50bn to comply with the standards.

Smaller banks fear they will be hit even harder. Some believe the changes will lead to a 1pc increase to the cost of small business lending, while lender Allica has warned that up to £44bn of SME lending is at risk unless changes are made to the current proposals.

Banks have asked the PRA to remove its “illogical” approach to the so-called "SME support factor", an EU legacy rule that allows banks to reduce capital requirements for credit risk on exposure to small and medium-sized enterprises.

The PRA proposed removing the support to comply with international standards, even though Brussels intends to retain it.

Bank lobby group UK finance has led the backlash against the PRA's approach, warning that the changes "nearly always result in higher requirements in the UK" compared with US and EU rivals.

It warned that by removing the special treatment of small business lending "the cost of lending to a critical component of the UK economy will increase and lending appetite reduce”.

UK Finance is urging the PRA to rectify a quirk in the Basel framework that means secured lending to small businesses is currently deemed more risky than its unsecured equivalent.

"You would have thought that if you've got some sort of security, like a mortgage tied to your shop or warehouse, that will be less risky. And so you should have to hold less capital," said one banking official who has written to the PRA.

The changes are being considered after regulators were ordered by the Government to promote the financial sector through a secondary competitiveness and economic growth objective. Ministers are likely to pile pressure on the PRA to go further.

[wherebee]

I did a laugh enojji, but to be fair the Basle and other capital ratings are shit, and shit piled on shit.

You want to stop bank collapses and bad lending?  make all directors personal assets, and their families, at risk from capital shortfalls.  I guarantee that bad lending would almost disappear.

[sancho panza]

42 minutes ago, wherebee said:

I did a laugh enojji, but to be fair the Basle and other capital ratings are shit, and shit piled on shit.

You want to stop bank collapses and bad lending?  make all directors personal assets, and their families, at risk from capital shortfalls.  I guarantee that bad lending would almost disappear.

you're right.In the face a run by 10% of bank depsoits,most banks are done for.And there's abasolutely no pain suffered by the people who run banks into brick walls at high speed besides being taken from the salary trough

What I find really sickening is the way many BS's were set up for the benefit of their members ,have spent their members money on serving vested financial interests(mainly those of their salary chasing management) in working in such a way as to actually undermine their members interests.It's truly perverse that Labour haven't called this out.You expect it from the party of Hancock because generally-on the day rates they charge-they're on the other side of the trade anyway

[sancho panza]

Leeds BS,my comments in Italics

Must say some really super graphics in their results,lovely pie charts shwoing things simply.Which does beg the question that given the general quaility of the data is high,then why are certain statistics witheld (that must be to hand).The report is noticeably light on detail when it comes to stage 2 provsions and the rather substantial increase -67%- in them yoy to £3.18bn from just under £2bn. A 250 page report,a 67% rise in stage 2's and no break down....meh!!!!

Also ,9% of mrotgage lending is classed as 'Other'.I did have a scan as to what that meant but found no explanation or break down @spygirl could this include FHL?.I would suspect so.Any ideas gratefully welcomed.

I would also like to see the impiarments relating to this as well,as 9% is not an inconsiderable sum of a £20bn loan book

All in all ,chunky exposure to BTL,significant duration mismatch that interest rate swaps may cover for some time but if/when these laons revert to the SVR,what's the plan.Final thought would be that what they've left out is probably more interesting than what they've put in.

https://www.leedsbuildingsociety.co.uk/_resources/pdfs/your-society-pdfs/agm/2023/annual-report-accounts-2023.pdf

Page 20-My comments: Worrying that they've levered into the bubble peak with record FTB ratios based on shared ownership.Sub prime lending in all but name.Also lifting the balnce hseet higher into the peak.

Page 33-MC-Shared ownership 12%,BTL23%.The rationale for BTL lending in such a high risk regulatory environment is something to behold.

Page 35-MC:mangement expenses rising nicely thank you very much.

Page 37-MC: 29% BTL speaks for itself in terms of risk going forward.shared ownership 12%, 9% other(I hope we'll find out what that is).INtersting to see them assess 70% under 70% LTV

 

Page 38/39-MC:Savings at £17.5bn.Interesting to see the size of it's ISA balance sheet at 53% of savings.Also worth noting that 74% of the wholesale funding is under 3 years maturity which begs question of how their loan book is positioned

 

 

Page 40-MC:significant rise .....30%...... in RWAs.Looks like the PRA has struck again ref Leeds IRB data set.Makes you wonder what they found

 

Page 87 MC-interesting that laon book is circa 30% exposed to SE and London.Low by BS standards but still way too high given the ongoing risk of London hosue price salary multiples tanking

Page 94-MC-fair amoutn of duration risk apparent,loans are skewed over 5 years£19bn-liabilities under 5 years=£21bn

page 98-MC-interest rate exposure-interesting data shwoing hwo much of the laon book is coming up for renegotiation within 5 years.

Page 158-MC-there's a lot of mutualitry in those salaries

Page 186 and on-MC-finacial statements

 

Page 200-MC-same four factor modelling being deployed as elsewhere in teh BS sector-

Page 208-MC-Stage 2 impairments rising 67% yoy to £3.18bn out of a £20bn loan book.No break down as ot where those are in the loan book

 

[spygirl]

37 minutes ago, sancho panza said:

Leeds BS,my comments in Italics

Must say some really super graphics in their results,lovely pie charts shwoing things simply.Which does beg the question that given the general quaility of the data is high,then why are certain statistics witheld (that must be to hand).The report is noticeably light on detail when it comes to stage 2 provsions and the rather substantial increase -67%- in them yoy to £3.18bn from just under £2bn. A 250 page report,a 67% rise in stage 2's and no break down....meh!!!!

Also ,9% of mrotgage lending is classed as 'Other'.I did have a scan as to what that meant but found no explanation or break down @spygirl could this include FHL?.I would suspect so.Any ideas gratefully welcomed.

I would also like to see the impiarments relating to this as well,as 9% is not an inconsiderable sum of a £20bn loan book

All in all ,chunky exposure to BTL,significant duration mismatch that interest rate swaps may cover for some time but if/when these laons revert to the SVR,what's the plan.Final thought would be that what they've left out is probably more interesting than what they've put in.

https://www.leedsbuildingsociety.co.uk/_resources/pdfs/your-society-pdfs/agm/2023/annual-report-accounts-2023.pdf

Page 20-My comments: Worrying that they've levered into the bubble peak with record FTB ratios based on shared ownership.Sub prime lending in all but name.Also lifting the balnce hseet higher into the peak.

Page 33-MC-Shared ownership 12%,BTL23%.The rationale for BTL lending in such a high risk regulatory environment is something to behold.

Page 35-MC:mangement expenses rising nicely thank you very much.

Page 37-MC: 29% BTL speaks for itself in terms of risk going forward.shared ownership 12%, 9% other(I hope we'll find out what that is).INtersting to see them assess 70% under 70% LTV

 

Page 38/39-MC:Savings at £17.5bn.Interesting to see the size of it's ISA balance sheet at 53% of savings.Also worth noting that 74% of the wholesale funding is under 3 years maturity which begs question of how their loan book is positioned

 

 

Page 40-MC:significant rise .....30%...... in RWAs.Looks like the PRA has struck again ref Leeds IRB data set.Makes you wonder what they found

 

Page 87 MC-interesting that laon book is circa 30% exposed to SE and London.Low by BS standards but still way too high given the ongoing risk of London hosue price salary multiples tanking

Page 94-MC-fair amoutn of duration risk apparent,loans are skewed over 5 years£19bn-liabilities under 5 years=£21bn

page 98-MC-interest rate exposure-interesting data shwoing hwo much of the laon book is coming up for renegotiation within 5 years.

Page 158-MC-there's a lot of mutualitry in those salaries

Page 186 and on-MC-finacial statements

 

Page 200-MC-same four factor modelling being deployed as elsewhere in teh BS sector-

Page 208-MC-Stage 2 impairments rising 67% yoy to £3.18bn out of a £20bn loan book.No break down as ot where those are in the loan book

 

Yes.

Leeds BS are major FHL player.

 

[spygirl]

Thw 2023 banking crisis is still the 2008 crisis.

I keep seeing the odd sign.

Bear with me ...

A quick cross reference and you can work out whats happening.

Todays example -

Vacant Scarborough restaurant to be converted into holiday let for up to 12 guests

The former CoGonis restaurant in Scarborough is to be converted into a holiday let for up to 12 people following approval from North Yorkshire Council.

https://www.thescarboroughnews.co.uk/news/politics/council/vacant-scarborough-restaurant-to-be-converted-into-holiday-let-for-up-to-12-guests-4150638?fbclid=IwAR10MyLYYnDR56BDWo8y6rMVw0RjhQNipdRY0oeM10pko287WCfwXwqOvtw

Now there isnt a lot of demand for FHL in Scabby, less so in that road, which is flophouse central.

And a commercial eatery used to generate more cash than a FHL - or did.

This is desperate last throw of die to generate some cash - any cash.

The bloke who owns is Italian - I dont know him. Rocked up in Scabby area in 86. Operated a few v successful eateries during the 80s booms.

Id have guess theyd have generated loads of money/laundered loads of cash.

In the 2002+ credit boom UK banks - well RBS -  lent loads to efnic eatery owners - BDs, Italians (though eyeties are pretty late/long i nthe tooth by the 00s) , etc etc  to buy commercial real estate in the towns they were operating in the town.

If you get chatting to people renting eateries theyll always go - Oh the LL is the bloke who has XXX. Hes a cunt - or whatever cunt is in their language.

Theres a tendency where a local BD curryhouse operators tends to have bought up loads of other eateries in the 00s then not let them open other curry houses - pushing for Turkish/ME seems popular.

Two reasons -less competition for their own, which are being hammered by higher hurdles on BD workers. And relative easier access for Nepali and Turkish/ME workers.

Anyhow back to the example. Quick look on LR -

36 North Marine Road
Scarborough
YO12 7PE

This is the address held by Royal Mail

Property description

36 North Marine Road, Scarborough (YO12 7PE)

This is how HM Land Registry have described the property in the register

What is the difference between address and property description?

Tenure type

Freehold What's freehold?

Last sold for

£145,000 on 31 August 2007

 

Right on the nose of the bust.

I think the place has been empty 5/6 years.

Even ZIRP and the OTT splurge of UKGOV bennies spending could not keep it open.

Now IRs are shooting and is all capital to the decks.

 

[sancho panza]

Next up the Nationwides prelims for year end 4/4/23.

The reason these are particuarlly interesting is that they will give us an idea of how much further or not , the banking system has deteriorated.

Of particualr note is teh fact that 91% of tehri £40bn BTL laon book is IO and imho,the risks to that loan book are being massively understated

Huge run up in stage 2's as well yoy reflecting that this reprot includes 7 months of higher IRs not 3 months like most others we've covered so far.

https://www.nationwide.co.uk/-/assets/nationwidecouk/documents/about/how-we-are-run/results-and-accounts/2022-2023/2022-23-preliminary-results.pdf?rev=ff1670fee74643a6a0735197c8be2728

Page 5-My comments-nice performance summary,cost to incoem ratio looks reasonable,sizeable rpofit increase yoy which understates how rising rates drive net interest margin hgiher.

page 10-low growth in balance sheet compared to many other smaller BS's yoy,page 11 stating they pulled back a bit from the market in new lending

 

page 11-interesting that the rsie in deposits outwieghed the chunky repayment of Term Funding scheme(circa £4.5bn)
Residential mortgages
Total gross mortgage lending was lower than in the prior year at £33.6 billion (2022: £36.5 billion) and our market share of gross advances decreased to 10.8% (2022: 11.8%). Net lending in the
year was supported by our continued focus on retention through highly competitive products provided to existing members, whilst also continuing to focus on first time buyers. Prime mortgage
balances increased to £157.6 billion (2022: £154.4 billion) and buy to let and legacy mortgage balances increased to £44.1 billion (2022: £43.7 billion).
Arrears remain low and have improved slightly during the year, with cases more than three months in arrears representing 0.32% (2022: 0.34%) of t

Page 12-MC-NW drove depostis higher via increasing their rates,which might explain why the likes of the Cov/Leeds etc had to increase whoelsale funding

Member deposits
Member deposit balances grew by £9.1 billion (2022: £7.7 billion) to £187.1 billion (2022: £178.0 billion). Nationwide’s market share of deposit balances increased to 9.6% (4 April 2022: 9.4%). This
increase is due to growth in savings balances of £11.1 billion (2022: £4.7 billion) supported by competitive fixed rate online bond products. Our market share of accounts increased to 10.4% (2022:
10.3%)10. Credit balances on current accounts reduced by £2.0 billion (2022: £3.0 billion growth).

 

Page 13

 

Page 22

Credit risk – Residential mortgages
Summary
 Since 2008 buy to let mortgages have only been originated under The Mortgage Works (UK) plc (TMW) brand. Legacy mortgages are smaller portfolios in run-off.
Arrears rates on the residential mortgage portfolios remain low. However, higher inflation and rising interest rates are placing greater pressure on household finances, increasing the potential for
future arrears.
There have been signs of a slowdown in activity in the housing market over the year with a reduction in house prices driving an increase in the average LTV of the residential portfolios to 55% (2022:
52%). Further information is included on page 30

 

Page 22/23-MC-Stage 2 laons are £35.5bn for 2023,up from £16.4bn a crica 110% increase on the year before.For context natWest sawa  rsie in stage 2's from £33bn to £46bn yoy.....this is possibly some evidence of deteriroation since Jan 1st 2023 that wasn't captured in NatWests full year to Dec 31st 2022.The bulk of the increase is due to rising rates crimping affordability criteria

NW states credit perfomance is still strong.

Worth noting from NW

Stage 2 loans total £35.5 billion (2022: £16.4 billion), which includes £16.6 billion (2022: £4.6 billion) of loans where the PD has been uplifted to recognise the increased risk of default in a period of
economic uncertainty. The total stage 2 increase is largely due to increasing affordability risks because of higher mortgage interest rates, in addition to the implementation of models which are
more responsive to the risks in the economic scenarios.

Credit performance continues to be strong. Stage 3 loans in the residential mortgage portfolio equate to 0.5% (2022: 0.6%) of the total residential mortgage exposure. Of the total £1,066 million
(2022: £1,224 million

Page 24-MC- jsut a chart here detailing why loans have been moved to stage 2

Page 29-MC-gives a hint of where NW is going to have rpoblems going forward.Huge proportion of FTB laons which will be high LTV in the main and still running and aggressive BTL book.

Page 30-MC-confimed here-28% over 80% LTV new business

Page 31-MC-only 30% exposure to London and South East,which is a postive in my eyes.

Page 34/35-MC-here's some humdinging revelations about their BTL book.91% of their BTL is Interest only...................wtf......

 

Interest only mortgages
At 4 April 2023, interest only balances of £6,812 million (2022: £7,824 million) account for 4% (2022: 5%) of prime residential mortgages. Nationwide re-entered the prime market for interest only
lending under a newly established credit policy in April 2020; however, 85% of current interest only mortgage balances relate to historical accounts which were originally advanced as interest only
mortgages or where a subsequent change in terms to an interest only basis was agreed. Maturities on interest only mortgages are managed closely, with regular engagement with borrowers to
ensure the loan is redeemed or to agree a strategy for repayment.
Of the buy to let and legacy portfolio, £40,126 million (2022: £39,591 million) relates to interest only balances, representing 91% (2022: 91%) of balances. Buy to let remains open to new interest
only lending under standard terms.
There is a risk that a proportion of interest only mortgages will not be redeemed at their contractual maturity date, because a borrower does not have a means of capital repayment or has been
unable to refinance the loan. Interest only loans which are judged to have a significantly increased risk of inability to refinance at maturity are transferred to stage 2. The ability of a borrower to
refinance is calculated using current lending criteria which consider LTV and affordability assessments. The impact of recognising this risk is to increase provisions by £45 million
(2022: £46 million).

 

Page 54-MC-worth noting rise in depsoits offset drop in wholesale

 

page 58-MC-lend long borrow short

 

Page 66 RWAs-I think this massively understates their risk postion,especailly with reagrd to IO

 

Page 83-MC-more of the same understatement

Edited May 22, 2023 by sancho panza

[spygirl]

The NYC CRE bloodbath

Rentiers, look away now

https://www.ft.com/content/94ecacff-218d-4f1c-b2bc-a9569eceefde

Now that there aren’t any banks immediately and obviously on the brink of collapse any more, attention is shifting to commercial real estate, the doomed asset class du jour. The current outpouring of angst has felt a little overdone, and belated (swaths of CRE has been cruising for a bruising since the pandemic). And as Alex wrote last month, it’s just hard to see how this becomes The Next Big Crisis. However, this from the WSJ is, well, a little unnerving. Alphaville’s emphasis below: Some of New York’s best known real-estate developers are unloading their least viable office buildings at deep discounts, cracking open a sales market that had all but closed in the first quarter.  RXR defaulted on the $240 million loan on its 33-story office tower in lower Manhattan. The developer, which owns and manages dozens of commercial and residential properties in the New York City area, has said that it will turn over ownership of the office tower at 61 Broadway to whoever buys the defaulted debt. That mortgage is being marketed by commercial real-estate services firm JLL and will likely go for about half the $440 million valuation of the building in 2016, market participants said.  Silverstein Properties, best known for its redevelopment of the World Trade Center, has agreed to sell a 20-story office building on Fifth Avenue near Bryant Park for $105 million, or $66 million less than the amount that Silverstein refinanced the building for in 2020.  Giant investment firm Blackstone also recently sold a 49% stake in One Liberty Plaza valuing the tower at $1 billion, down from the $1.5 billion valuation when Blackstone bought the stake in 2017, according to people familiar with the matter. These cut-rate sales and sales efforts attest to the troubled state of the office market, which is suffering one of its worst downturns since World War II because of the weak return-to-office and high interest rates. Now, NYC is not the US. And not all of NYC real estate will be hit as hard as this (some may be worse). And as the WSJ notes, the fact that some deals are now happening is vaguely positive. A frozen market is even more unnerving. But those markdowns are pretty astonishing.

 

[Democorruptcy]

On 22/05/2023 at 15:41, sancho panza said:

Page 34/35-MC-here's some humdinging revelations about their BTL book.91% of their BTL is Interest only...................wtf......

 

Interest only mortgages
At 4 April 2023, interest only balances of £6,812 million (2022: £7,824 million) account for 4% (2022: 5%) of prime residential mortgages. Nationwide re-entered the prime market for interest only
lending under a newly established credit policy in April 2020; however, 85% of current interest only mortgage balances relate to historical accounts which were originally advanced as interest only
mortgages or where a subsequent change in terms to an interest only basis was agreed. Maturities on interest only mortgages are managed closely, with regular engagement with borrowers to
ensure the loan is redeemed or to agree a strategy for repayment.
Of the buy to let and legacy portfolio, £40,126 million (2022: £39,591 million) relates to interest only balances, representing 91% (2022: 91%) of balances. Buy to let remains open to new interest
only lending under standard terms.
There is a risk that a proportion of interest only mortgages will not be redeemed at their contractual maturity date, because a borrower does not have a means of capital repayment or has been
unable to refinance the loan. Interest only loans which are judged to have a significantly increased risk of inability to refinance at maturity are transferred to stage 2. The ability of a borrower to
refinance is calculated using current lending criteria which consider LTV and affordability assessments. The impact of recognising this risk is to increase provisions by £45 million
(2022: £46 million).

Looking at that 91% IO, 94% of it is "due after 5 years or more". They have time to keep extending and pretending?

[sancho panza]

2 hours ago, Democorruptcy said:

Looking at that 91% IO, 94% of it is "due after 5 years or more". They have time to keep extending and pretending?

The problem is that the balance sheet has the following detailing the liabilites vs assets(the loans)

So assets due after more than 5 years £188bn(out of £268bn),liabilities due in less than 1 month £166bn

For Nationwide to extend and pretend they need depositors to play ball.

3 hours ago, spygirl said:

The NYC CRE bloodbath

Rentiers, look away now

https://www.ft.com/content/94ecacff-218d-4f1c-b2bc-a9569eceefde

Now that there aren’t any banks immediately and obviously on the brink of collapse any more, attention is shifting to commercial real estate, the doomed asset class du jour. The current outpouring of angst has felt a little overdone, and belated (swaths of CRE has been cruising for a bruising since the pandemic). And as Alex wrote last month, it’s just hard to see how this becomes The Next Big Crisis. However, this from the WSJ is, well, a little unnerving. Alphaville’s emphasis below: Some of New York’s best known real-estate developers are unloading their least viable office buildings at deep discounts, cracking open a sales market that had all but closed in the first quarter.  RXR defaulted on the $240 million loan on its 33-story office tower in lower Manhattan. The developer, which owns and manages dozens of commercial and residential properties in the New York City area, has said that it will turn over ownership of the office tower at 61 Broadway to whoever buys the defaulted debt. That mortgage is being marketed by commercial real-estate services firm JLL and will likely go for about half the $440 million valuation of the building in 2016, market participants said.  Silverstein Properties, best known for its redevelopment of the World Trade Center, has agreed to sell a 20-story office building on Fifth Avenue near Bryant Park for $105 million, or $66 million less than the amount that Silverstein refinanced the building for in 2020.  Giant investment firm Blackstone also recently sold a 49% stake in One Liberty Plaza valuing the tower at $1 billion, down from the $1.5 billion valuation when Blackstone bought the stake in 2017, according to people familiar with the matter. These cut-rate sales and sales efforts attest to the troubled state of the office market, which is suffering one of its worst downturns since World War II because of the weak return-to-office and high interest rates. Now, NYC is not the US. And not all of NYC real estate will be hit as hard as this (some may be worse). And as the WSJ notes, the fact that some deals are now happening is vaguely positive. A frozen market is even more unnerving. But those markdowns are pretty astonishing.

 

I think there are real issues in the CRE space not least that the bulkof shopping centre retail is heading for a rebasing of their cost base,as is office leasing.

The downdraft described here will pull all rents down.Movement at the amrgins doesn't affect jsut the margins but the whole pricing structure.

Big banks like Natwest have considerable CRE exposure and very little equity thats facing assaults from mulitple angles

[sancho panza]

Here's a clipping to raise the issue that's pertinent to BS's ike the Nwide with huge IO BTL books

#hereitcomes.....

https://uk.finance.yahoo.com/news/quarter-million-buy-let-landlords-173923305.html

Nearly a quarter of a million buy-to-let landlords face a remortgage crisis over the next 12 months as the cost of borrowing soars.

Lenders have pulled 421 buy-to-let mortgage deals in two weeks as they rapidly reprice deals following large jumps in future interest rate expectations, according to data from Moneyfacts.

Average rates on buy-to-let loans have jumped by 0.45 percentage points in just 11 days, with the cost of a typical two-year fix now at 5.9pc.

 

It means that a landlord taking out an average £150,000 loan will have to pay an extra £675 per year in interest compared to if they had taken out a loan less than two weeks earlier.

Hundreds of thousands of landlords coming to the end of fixed rate deals face much higher leaps in their annual repayment costs as they refinance at double the rates they are used to.

An investor who took out a loan in June 2021 was able to fix at 2.96pc. If they were to remortgage a £150,000 loan today based on the average quoted rate, they would have to pay an extra £4,410 per year in interest compared to their old deal.

There are 231,816 buy-to-let mortgages on fixed rates due to expire in less than a year, according to UK Finance, the lender body.

Adam Kingswood of Kingswood Residential Investment Management, a buy-to-let specialist in Nottingham, said the tight rental market means landlords have so far been able to offset jumps in their mortgage bills by raising rents.

However, many are now hitting the limit of what tenants will reasonably pay, forcing landlords to bear the higher costs.

“We have been having conversations with tenants saying: the landlord’s mortgage has gone up by £300 per month. If you can’t afford a rent increase, the landlord will probably sell up,” Mr Kingswood said.

The buy-to-let sector has been hit hardest by recent financial market jitters. While the pool of residential mortgage deals has shrunk by 9pc, the buy-to-let product count has dropped by 15pc.