Full article can be found at www.timesonline.co.uk
Patrick Hosking, Gary Duncan and Miles Costello
Bank charges and insurance premiums are set to rise after high street banks and insurers were ordered to pay up to £14 billion under the terms of Bradford & Bingley’s nationalisation.
Some analysts suggested that the bailout could hasten the end of free banking for current account customers as banks attempt to pass on the cost to their customers.
All banks face huge increases in the levy they pay to the deposit lifeboat, the Financial Services Compensation Scheme, after it borrowed £14 billion from the Government to underwrite Bradford & Bingley deposits transferred to Banco Santander.
Banks and building societies will be asked to chip in £900 million a year just to pay the interest on the bill. That works out at more than £100 million each for large banks such as Royal Bank of Scotland and Barclays.
“The banks will be in a militant mood after this,” Alex Potter, a banking analyst with Collins Stewart, said. They had already had their arms twisted by regulators to support an earlier £400 million capital raising by Bradford & Bingley last month.
Stephen Hadrill, head of the Association of British Insurers, said that premiums would have to go up. “Insurers are livid at the way that this has been handled. If it’s going to fall on the companies in due course, insurers are going to have to try to find that money from somewhere,” he said.
The anger erupted after the Government confirmed yesterday that it was nationalising the bulk of Bradford & Bingley, seizing £50 billion of assets and bankrolling the Financial Services Compensation Scheme. Banco Santander, the Spanish bank that owns Abbey, has bought the £20 billion deposit business and the network of 200 branches.
The remaining assets and liabilities of the former building society, including its £41 billion mortgage book, personal loan book, Yorkshire headquarters, treasury assets and wholesale liabilities, will be taken into public ownership by the transfer of all shares to the Treasury, Alistair Darling said.
Shareholders look likely to be almost entirely wiped out, although the Treasury is expected to appoint an independent valuer to set compensation, if any. Trading in the shares, which last changed hands at 20p on Friday, was suspended.
The victims include more than 800,000 Bradford & Bingley customers who received free shares when Bradford & Bingley became a listed company in 2000.
Branches opened normally yesterday under Santander. Borrowers were urged to continue making their repayments in the normal way.
The Chancellor disclosed that the immediate cost to taxpayers would be a £4 billion payment to Abbey together with the £14 billion loan to the Financial Services Compensation Scheme.
The Government had acted on the advice of the Bank of England and the Financial Services Authority, “to maintain financial stability and protect depositors, while minimising the exposure to taxpayers”, the Treasury said.
The Financial Services Authority, which supervises British banks, concluded on Saturday that Bradford & Bingley no longer met threshold conditions for operating as a deposit taker, the Treasury said. “Savers’ money remains absolutely secure,” it added.
The nationalisation could push government borrowing this year to levels not seen since the mid-Nineties, adding to the possibility of huge tax rises after the next general election.
The Treasury insists that it expects to recoup all, or the vast bulk, of the £18 billion paid directly, and indirectly via the Financial Services Compensation Scheme, to Santander within months rather than years, through disposal of Bradford & Bingley assets. The Government has first call on this money as it becomes available.
While most of the £18 billion may well be recovered, the exposure nevertheless adds to already intense stress on the Government’s finances.
The £4 billion paid directly to Santander will have to be added to total government borrowing for 2008-09 – already set to soar far above the Chancellor’s £43 billion forecast as the downturn hits tax revenues. Officials remain uncertain whether the £14 billion transferred to Santander through the compensation scheme also count against borrowing but admit that it may have to. The decision will rest with the Office for National Statistics.
Even before the latest costs, economists expected public borrowing to climb to as much as £60 billion.
The initial impact of Bradford & Bingley may now drive this to £78 billion, which would put the Government’s deficit at more than 5 per cent of GDP. In future years, the Treasury will have to add to its borrowing the cost of any defaults on Bradford & Bingley mortgages. With £1.3 billion worth of Bradford & Bingley’s £41 billion in mortgages already in arrears, those losses could pile up quickly as the housing market slumps and unemployment rises.
Eventually, with the Government so deep in the red, taxes will have to rise to bring down public borrowing to more manageable levels.
In the meantime, Bradford & Bingley’s debts will add to those of Northern Rock in swelling the national debt, lifting this by a further £30 billion or so, Capital Economics estimates.
The impact is likely to push total debt up to some 45 per cent of GDP - smashing the 40 per cent ceiling imposed by the Treasury, which looks set to be formally abandoned by Mr Darling in his autumn PreBudget Report.
Banco Santander will strengthen its position among the giants of British savings and mortgages, becoming No 3 in savings, outsized by the planned Lloyds TSB/HBOS combination and Royal Bank of Scotland. Thanks to the acquisitions of Abbey and Alliance & Leicester, it is No 2 in mortgages, with 13 per cent of the home loans market. It will have 1,300 branches under the Abbey, Alliance & Leicester and Bradford & Bingley brands and will employ 23,000 people in Britain. Yesterday it declined to rule out job losses or branch closures, though none was planned immediately.
Patrick Hosking, Gary Duncan and Miles Costello
Bank charges and insurance premiums are set to rise after high street banks and insurers were ordered to pay up to £14 billion under the terms of Bradford & Bingley’s nationalisation.
Some analysts suggested that the bailout could hasten the end of free banking for current account customers as banks attempt to pass on the cost to their customers.
All banks face huge increases in the levy they pay to the deposit lifeboat, the Financial Services Compensation Scheme, after it borrowed £14 billion from the Government to underwrite Bradford & Bingley deposits transferred to Banco Santander.
Banks and building societies will be asked to chip in £900 million a year just to pay the interest on the bill. That works out at more than £100 million each for large banks such as Royal Bank of Scotland and Barclays.
“The banks will be in a militant mood after this,” Alex Potter, a banking analyst with Collins Stewart, said. They had already had their arms twisted by regulators to support an earlier £400 million capital raising by Bradford & Bingley last month.
Stephen Hadrill, head of the Association of British Insurers, said that premiums would have to go up. “Insurers are livid at the way that this has been handled. If it’s going to fall on the companies in due course, insurers are going to have to try to find that money from somewhere,” he said.
The anger erupted after the Government confirmed yesterday that it was nationalising the bulk of Bradford & Bingley, seizing £50 billion of assets and bankrolling the Financial Services Compensation Scheme. Banco Santander, the Spanish bank that owns Abbey, has bought the £20 billion deposit business and the network of 200 branches.
The remaining assets and liabilities of the former building society, including its £41 billion mortgage book, personal loan book, Yorkshire headquarters, treasury assets and wholesale liabilities, will be taken into public ownership by the transfer of all shares to the Treasury, Alistair Darling said.
Shareholders look likely to be almost entirely wiped out, although the Treasury is expected to appoint an independent valuer to set compensation, if any. Trading in the shares, which last changed hands at 20p on Friday, was suspended.
The victims include more than 800,000 Bradford & Bingley customers who received free shares when Bradford & Bingley became a listed company in 2000.
Branches opened normally yesterday under Santander. Borrowers were urged to continue making their repayments in the normal way.
The Chancellor disclosed that the immediate cost to taxpayers would be a £4 billion payment to Abbey together with the £14 billion loan to the Financial Services Compensation Scheme.
The Government had acted on the advice of the Bank of England and the Financial Services Authority, “to maintain financial stability and protect depositors, while minimising the exposure to taxpayers”, the Treasury said.
The Financial Services Authority, which supervises British banks, concluded on Saturday that Bradford & Bingley no longer met threshold conditions for operating as a deposit taker, the Treasury said. “Savers’ money remains absolutely secure,” it added.
The nationalisation could push government borrowing this year to levels not seen since the mid-Nineties, adding to the possibility of huge tax rises after the next general election.
The Treasury insists that it expects to recoup all, or the vast bulk, of the £18 billion paid directly, and indirectly via the Financial Services Compensation Scheme, to Santander within months rather than years, through disposal of Bradford & Bingley assets. The Government has first call on this money as it becomes available.
While most of the £18 billion may well be recovered, the exposure nevertheless adds to already intense stress on the Government’s finances.
The £4 billion paid directly to Santander will have to be added to total government borrowing for 2008-09 – already set to soar far above the Chancellor’s £43 billion forecast as the downturn hits tax revenues. Officials remain uncertain whether the £14 billion transferred to Santander through the compensation scheme also count against borrowing but admit that it may have to. The decision will rest with the Office for National Statistics.
Even before the latest costs, economists expected public borrowing to climb to as much as £60 billion.
The initial impact of Bradford & Bingley may now drive this to £78 billion, which would put the Government’s deficit at more than 5 per cent of GDP. In future years, the Treasury will have to add to its borrowing the cost of any defaults on Bradford & Bingley mortgages. With £1.3 billion worth of Bradford & Bingley’s £41 billion in mortgages already in arrears, those losses could pile up quickly as the housing market slumps and unemployment rises.
Eventually, with the Government so deep in the red, taxes will have to rise to bring down public borrowing to more manageable levels.
In the meantime, Bradford & Bingley’s debts will add to those of Northern Rock in swelling the national debt, lifting this by a further £30 billion or so, Capital Economics estimates.
The impact is likely to push total debt up to some 45 per cent of GDP - smashing the 40 per cent ceiling imposed by the Treasury, which looks set to be formally abandoned by Mr Darling in his autumn PreBudget Report.
Banco Santander will strengthen its position among the giants of British savings and mortgages, becoming No 3 in savings, outsized by the planned Lloyds TSB/HBOS combination and Royal Bank of Scotland. Thanks to the acquisitions of Abbey and Alliance & Leicester, it is No 2 in mortgages, with 13 per cent of the home loans market. It will have 1,300 branches under the Abbey, Alliance & Leicester and Bradford & Bingley brands and will employ 23,000 people in Britain. Yesterday it declined to rule out job losses or branch closures, though none was planned immediately.
Posts
0 comments:
Post a Comment