Consumers to foot bill for Bradford & Bingley bailout in higher bank charges

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.

eTN Executive Talk: Fannie Mae VP speaks the truth [www.eturbonews.com]

Full article can be found at www.eturbonews.com

By Hazel Heyer, eTN Staff Writer | Sep 29, 2008


Formerly called the Federal National Mortgage Association or FNMA, Fannie Mae was established in 1938. Its initial goal was to stimulate the housing industry following the Great Depression. It also created the first secondary market for residential mortgage loans. In 1968, Fannie Mae became a private, stockholder-owner, government-regulated corporation whose shares are traded on the New York Stock Exchange.

Fannie Mae kept low-cost capital flowing to mortgagees across the nation and does not lend directly to homebuyers; it instead do business with lenders to ensure they don’t run out of mortgage funds. Fannie Mae provides large builders and real estate companies master commitments in the amounts of $25 million and more for funds for up to 12 months in advance.

As the market has seen recently, both Fannie Mae and Freddie Mac experienced trouble. In the last weeks, the government decided to put Fannie Mae in conservatorship to provide the association liquidity at a time of unprecedented stress. More importantly, the government addressed its issues on capital, treasury and Fannie’s regulator, Federal Housing Finance Agency which agreed to set up a preferred stock purchase agreement to fund up to $100 billion of each above-mentioned entity, according to Kenneth Bacon, executive vice president of Housing and Community Development for Fannie Mae.

“As we have experienced a lot of losses, an investor with debt in a mortgage-backed securities, would feel confident about capital available and the staying power of our agency. The second step they took was create a new secured lending facility not only for Fannie Mae and Freddie Mac, but also for the Federal Home Loan Bank System, because the government was concerned that if the agency goes out to issue debt, and the debt markets overflows, we cannot access funding anymore,” said Bacon, explaining that due to these events, Fannie Mae now has sources of capital, assured liquidity, and the promise from the government to buy up their mortgage-backed securities, from time to time, if the agency would price them right in the marketplace.

Since the government put up the funds, it has now decided to have managerial control over Fannie Mae. To the investor, this means the agency is very much in business, said Bacon. “We would like to see our portfolio grow this year. More importantly, how the market has reacted, tightening its spread on our debt is the key. We were able to save $7 billion of debt with the issuance, over-subscribed to $9 billion -- the biggest offerings we’ve ever done. Initial indications say this is working,” said Fannie Mae’s VP.

According to the mortgage bankers association, the delinquency rates with single-family homes stand at 64 percent of all loans outstanding at the end of June 2008, up 129 points up from last year. Loans on foreclosures this year reached 2.75 percent, double of last year’s rate. Fannie Mae’s single-family foreclosure rate was lower at 1.36 percent at the end of the second quarter, but rates are still double the rate of last year. “Clearly, the market is in trouble. We initially expected to see prices decline 7 to 9 percent, but after some follow-up, we see the upper-ended range climb to 15 to 19 percent. If it did, it is still critical that credit might freeze up. More needs to be done with liquidity and that Fannie’s underwriting is done right. We also see that the era of ‘no-money down or little money down on mortgages’ is over. Also putting layers of risks on single-family loans, when they had a second loan, or adjustable rate mortgage or interest only, and so many things consumers did not understand, are a thing of the past,” said Bacon.

He added they will spend more time on weeding out fraud.

It is equally important to shed light likewise on the rental market, a huge market which had a multifamily debt outstanding at $850 billion at the end of 2007. Its dominant player was the commercial mortgage backed securities (CMBS) with $36 billion in multi-family mortgages financed. Fannie Mae expects the amount to be less than $2 billion this year.

“This market has fallen off the face of the earth because with delinquency rates on multifamily loans of CMBS about 120 basis points; the delinquency on Fannie Mae’s portfolio $170 billion business is only 11 basis points. While overall volume is up, since Fannie and Freddie have dominated this market, our volume is up. This year, we did $22 billion on multifamily financing on the first half of the year. Other players like Wachovia, Deutsche Bank, Wells Fargo or PNC, delivered $18 billion of that $20 billion - they considered it to be a good business model; they have recourse on the loan and shared the risk with us. Since there were enough commercial mortgage market blow-ups, people adjusted the system to avoid that from happening,” said Bacon addressing the fact that since many had been burnt by the commercial mortgage problem in the past, they were prepared for this event. Whereas the single-family market, people relaxed their underwriting because people have no memory of 1990 when similar events took place. The reason why delinquency rates have been so low is because the average loan-to-value was 67 percent on new originations; debt service coverage ratios are north of 120. “And the way we underwrite at Fannie Mae, we don’t look at rent but past collections. We’ve very conservative as our programs started from the ashes of the 1980s, keeping the portfolio running,” he said.

Assessing the current market, Bacon thinks multifamily market vacancy’s below 7 percent. “We feel good about the market, thinking that the US population is still increasing birth rates and immigration. Fannie Mae sees a demographic profile moving into rental status more and more in the next two years. We will also see a lot of older people sell their homes and accept to move in independent-living facility which has less maintenance and less wear and tear issues for them as they get older,” he added.

What concerns Fannie Mae the most are the “questionable” job growth at times like these, more “acts of God” such as hurricanes, recession, and the rates of transaction (the great divide between buyers and sellers due to capitalization rates which had been extremely low between 6-7 percent which were unsustainable). “We’re beginning to see the reverse into the mean, that is cap rates edging lower than debt rates, making a huge difference between buyer’s and seller’s perspectives of values sometimes reaching 15 percent difference in price due to the gap. There’s lot of equity capital out there, for all the BRIC (Brazil, Russia, India, China) booming countries, that investors would rather go for overseas equity better than what the US can offer. That is why investors think twice,” he said.

It is sort of surreal to see high delinquency in people’s houses. “But when you look at offices and apartments, it is not as bad. In essence, multi-family homes are performing well but we expect to see a smaller market where people look at a common ground for cap rates. With the credit crunch, we would see cap rates outside of New York running up to 6 to 6.5 percent at the end of the year,” said Bacon.

There is a real reason to be concerned about the state of the American credit market. “But I believe, if you dissect the market, all the statements/generalizations are not quite true. We have single family markets that are bad, but some segments are doing alright in some parts of the country. Long-term fundamentals in terms of population growth are in place. There are lot of positives out there including the government deciding to act on our issues in a forceful and clear way. Hence, I believe there will be strong liquidity to come in the housing mortgages through Fannie Mae,” he said.

In closing, the Fannie Mae VP said, “I hope this ignites the attitude that we saw after 9/11, because at the end of the day, markets move by people’s emotions. If people are gloomy and negative, markets are never going to get better. Hopefully, people rekindle their optimism in the true characteristic of the American market and lead people to step back in and start doing transactions."

Al-Qaeda planning to bomb Atlantis - report [arabianbusiness.com]

For full article at arabianbusiness.com


by Dylan Bowman on Monday, 29 September 2008

The Atlantis hotel’s grand opening party is at the centre of a terrorism scare after British spies uncovered plans to target the lavish event in Dubai, to be attended by 2,000 VIPs.

There are fears Al-Qaeda is planning to bomb the event on Nov. 20 because it is seen by Islamic extremists as a symbol of decadence in a Muslim country, according to the UK's Sky News television.

Business leaders, politicians, actors, musicians and members of the Dubai royal family have all been invited to the grand opening, which is estimated to be costing $28 million and will be headlined by pop princess Kylie Minogue.

British spies are reportedly monitoring talk of an attack in internet chatrooms and have a number of suspects who pose a credible threat under surveillance.

Neither Atlantis or the British embassy in Dubai were immediately available for comment when contacted by Arabian Business.

The resort, located on the Palm Jumeirah, officially opened on Sept. 24, despite a recent fire on Sept. 2 that destroyed the hotel lobby roof and caused smoke damage to the outside of the main hotel building.

The launch of Atlantis has become one of the most talked about events on the Dubai calendar, with several global superstars linked with the grand opening, including Michael Jackson and Madonna.

The 1,539-room resort encompasses a 46-hectare site with 17 hectares of water-themed amusement parks, an open air marine habitat, beaches, boutiques and restaurants.

The UK's Foreign and Commonwealth Office (FCO) in June raised its terrorism threat level in the UAE to "high", warning that terrorists could target places frequented by expatriates and foreign travellers such as residential compounds, military, oil, transport and aviation interests.

"We believe terrorists may be planning to carry out attacks in the UAE," the FCO said.

"Attacks could be indiscriminate and could happen at any time," it said.

The FCO said people should "maintain a high level of security awareness, particularly in public places".