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Is Lloyds doing enough for UK?

Robert Peston | 07:52 UK time, Wednesday, 4 August 2010

As 41% shareholders, it matters to taxpayers that Lloyds makes a profit.

LloydsSo after £13bn of losses over the past two years, it will be hard not to breathe a sigh of relief that Lloyds made a pre-tax profit of £1.6bn in the first six months of this year.

Why the big recovery? Well losses on loans and investments going bad have halved to £6.6bn and the ongoing running costs of the business have been reduced by £1.1bn, largely through job losses.

But it also matters whether big banks like Lloyds are doing enough to support the tentative recovery of the British economy.

There the evidence is more mixed. Lloyds says that it has provided £4.1bn of credit to small businesses, and says that it is ahead of targets agreed with the government.

But its total net loans to all households and businesses have dropped 1% to £368bn and it is charging more for that credit relative to what it pays for funds (the next interest margin has widened 24% to 2.44%).

By the way, this is only my first take on Lloyds' figures, and I will be filing more when I have time between interviewing Lloyds chief executive, Eric Daniels, and doing assorted live broadcasts.

Update 0848: In his interview with me, Eric Daniels insisted Lloyds is making ample funds available to small businesses.

But - and this is what other bank chief executives also say - many borrowers are choosing to repay their debts.

Which is why Lloyds net lending figures are flat.

Now there is a contradiction between what Mr Daniels and his peers say and the complaints of many small businesses that they can't get credit at the right price.

As I've pointed out before, the only way to reconcile this contradiction is on the basis that banks' assessment of whether a small business is credit worthy is harsher than the wannabe borrower's view of its own prospects.

PS I pointed out to Mr Daniels that the fall in the bad debt charge was greater than the swing from loss to profit. He nonetheless maintained that there has been an across-the-board improvement in the bank's basic operational performance.

Comments

Page 1 of 2

  • Comment number 1.

    Surely Lloyds TSB has already done enough for the country - the bank was strong-armed by former PM Gordon Brown a couple of year back to take over an ailing HBOS, which otherwise would have ended up on the scrapheap.

    Let the people tasked with running these banks now do so - and stop this incessant nonsense about how companies can't get loans. Creditworthy clients can - the problem is, we don't want to borrow. Why should we risk our businesses when the economy is so uncertain, taxes are too high and regulation / employee rights are too onerous ?

    And it's about time everyone stopped complaining about UK bank profits - don't taxpayers want their money back ? We should be celebrating success, not moaning about it!

  • Comment number 2.

    When will you stop lambasting banks for the unsatisfactorily low level of their lending? If there was one one main cause of the current (relative)recession it was a build up of excessive consumer credit, enabled by some wilfully unwise lending by investment banks to the providers of retail and housing credit. If we are going to take the pain of the economic turn around with equanimity then let us at least look forward to a day when domestic credit is a fraction of the present level, and when a managed growth economy is producing lower carbon consumption, lower inflation and negative population growth. That would really be something to make the pain worthwhile.

  • Comment number 3.

    From my initial review of the Lloyds results, this is great news for the UK as a whole. We'll all feel a bit richer with the improvement in Lloyds share price. What is important now is that the BoE hold their nerve and keep interest rates low. Mervyn King has done an excellent job to date and long may he continue. This would support the fragile recovery and allow SMEs (Small and Medium sized Enterprises) whose borrowing is linked to Libor, to flourish and create jobs. The EY Item club forecast suggests that Bank base rate will remain on hold until the end of 2013, http://www.ey.com/UK/en/Issues/Business-environment/Financial-markets-and-economy/Economic-Outlook,I hope they are right.

  • Comment number 4.

    I believe I have heard this record before, around ans around we go!!!

    If I could buy billions of things for a pound each and sell them instantly for £7 i am pretty confident that I would make a profit

    They have not reduced thier lending by 1%, the consumer has started to pay down their debt to the bank

    They are not consuming why they do this

    Next subject?

  • Comment number 5.

    Lloyds says that it is lending and wants to lend more (why wouldnt it given the return it can make on loans just now) but that people who would normally have the credit rating to get a loan are paying down their debt rather than taking on more.

    The problem is the noise the government makes (this one and the old one) about the current level of lending and where they want it to be. Brown and Darling were flogging the need to get lending to 2007/08 levels at the height of the crisis and the uncovering of all the toxic assets. A lot of which were incurred in the days when Brown and his spiv economy was turning a blind eye to borrowers ability to repay their loans.

    The other contradiction is the need for the banks to salt away money from earnings to boost Tier One Capital Ratios, using the very money the banks would previously have been lending to all and sundry.

    The trick is surely to keep lending money to future wealth makers, accepting that some of them will fall by the wayside? The banks have gone back from six times earnings to three times, and from self-certification to rigid assessment of accounts or business plans. That probably means that the government has to accept that we will never see lending back to 2007/08 levels, and rightly so.

    Incidentally, in early trades LBG touched 75p, which is more than double what shareholders, including the government with its 41%, paid for the last rights (no pun intended) which was 1.34 new shares for every share held at 37p (Dec/Jan 2010) and almost double the earlier rights in June 2009 of 0.6213 shares for each one held at 38.43p. So while Daniels and the Board were chumps to buy HBOS from a LTSB share price of over £3 in 2008 the future does look much brighter for all those 2.8m shareholders who have stayed the course.

  • Comment number 6.

    Is Lloyds doing enough for UK? Silly question Robert because you already know what the answer is which is a very large "NO".

    Go back and ask Daniels how many start-ups or small or early stage companies they invited in or visited pro-actively to see what they could do for them and how many university R&D depts they went to visit to see what technologies they might be working on and in which they might like to consider taking an interest and getting a part of the action.

    I can give you the answer now if you like but it would be interesting to see how Daniels might answer the question.

  • Comment number 7.

    It's never wrong to make a profit. It's the way you make that profit that can be Very wrong!

    But that's not the point with Lloyds - it should have gone bust, with all the ghastly consequences. Those who consider themselves to be the fabulous elite in Britain saw they would be ruined by this and so demanded and got taxpayer bailout.

    Lloyds, "back in profit" - slow handclap, big deal! Back to asset bubbles, funny money and bust then......

    Can we please just have NO MORE taxpayer bailouts?

  • Comment number 8.

    Same old, same old. Government targets, high interest rates, parsimonious attitude to loans; it sounds just like an old fashioned independent bank to me. They axe jobs too, or, more likely, they outsource them and let someone else bear the brunt of a high turnover, fixed term, part-time, low paid hell.

    But what have banks ever done for economies? Was there ever a time when their eyes were on altruism rather than profit? And we still haven't begun to deal with size and scale.

    Crooked accountants led us to the first Mountain of Doom. Foolishly we are letting them lead again. Bankruptcy must be preferable to this outrage.

  • Comment number 9.

    Robert, Why carp about 'charging more for that credit relative to what it pays for funds (the next[?] interest margin has widened 24% to 2.44%)'. Surely this is one way banks make a profit and any of us who has a mortgage and is a saver understands the mechanism. Your sticks to beat the banks are becoming pretty thin. By the way 24% of a small number is a small number. Playing with statistics to re-inforce your views?

  • Comment number 10.

    As others have already said the main reason that Lloyds needed help was because the Government encouraged them to take over HBOS, a lot of shareholders in Lloyds lost lots of money because of this.
    The banks were criticised for lending money to people they shouldn't have, as it was the bad debts that were at least partly responsible for the credit crunch. Who can blame the banks for being very careful now, as they need to improve the financial strength of the bank, and only lend to businesses and individuals who can actually afford to repay any loan that the bank gives.
    Additionally both individuals and companies have actually cut back on their spending. One of the reasons that both the housing and car market for example have suffered over the last few years is because consumers have been careful with their money. From experience all the businesses I have had any dealings with have significantly cut back on capital expenditure, preferring to pay down debt rather than acquire any more.

  • Comment number 11.

    Lloyds has already done its fair share by bailing out the taxpayer when HBOS was about to collapse. This incessant spin coming from politicians on all sides needs to stop. It was poor quality lending and the greed for credit that got us into the mess we are in. How can banks be expected to return to previos levels of lending. This was what caused the problem in the first place. Credit is available to SME's etc but only to the credit worthy ones. Nothing wrong with that. The argument is about what is creditworthy. Why is it wrong for an entrepeneur to take some of the risk by putting his house up as colateral?

  • Comment number 12.

    "costs of the business have been reduced by £1.1bn, largely through job losses"
    so the state owned bank makes a profit by shoving a cost onto the taxpayer in unemployment benefit, reduced tax revenue from the newly unemployed and the other social costs.

    Thats great.

  • Comment number 13.

    We bailed out the banks and now hope they will support business. We should have bailed out business and hoped they would support the banks.

  • Comment number 14.

    "Why the big recovery? Well losses on loans and investments going bad have halved to £6.6bn and the ongoing running costs of the business have been reduced by £1.1bn, largely through job losses. "

    There you have it folks - in black and white - in order for your bank to make profits for you, some had to be sacrificed - and now guess who's paying for that now? - that's right, you are.

    "I pointed out to Mr Daniels that the fall in the bad debt charge was greater than the swing from loss to profit. He nonetheless maintained that there has been an across-the-board improvement in the bank's basic operational performance. "

    Ouch, I bet he didn't like that!

    While there's a lot of back slapping going on and the BeeB are determined to talk this one up as a potential 'profit for the taxpayer' - has anyone considered that since we took on this stake in 2008 we're sitting on a net loss

    ...or doesn't that matter anymore in today's fantasy financial land?

    It's hard to establish (thanks to funny accounting rules) - but I understand Lloyds made a £6.3 Bn loss in 2009 - the first full years return for our 41% stake - oh and those preference shares.

    You see by making it ridiculously complicated it's easier to cover your tracks and hide the losses for the taxpayer.

    Rest assured folks, we will not come out of this episode with a profit - even if all these banks returned and stayed at profit - their downsizing means their value is much reduced as they are now much smaller banks and have lost purchasing power and economies of scale making them less attractive to the market.

    ...or doesn't that count anymore? I'm sure we'll get some banking apologists on here claiming this is a coup for the Government coffers - well one thing that's for certain, if there was a sniff of profit - the private sector would have been happy to take on the burden of lloyds - and yet they were strangely quiet at the time...

  • Comment number 15.

    > As I've pointed out before, the only way to reconcile this
    > contradiction is on the basis that banks' assessment of
    > whether a small business is credit worthy is harsher
    > than the wannabe borrower's view of its own prospects.

    You have to remember that bankers are very stupid people. They have no sense of their own, so they copy the behaviour of other bankers, like children. When the fashion is for wild spending sprees and random deal making, they are all up for it. When they get burned, the fashion is to hoard their money, so they all clam up, copying the behaviour of other, stupid bankers.

    Bascially, they are involved in the madness of crowds. The answer is to break them up, make them cohesive, reduce thier coupling, force them to have higher reserves, cut thier wages, tax them, punish them when they screw up and make them submit.

    Sadly, that's the only language they can understand. So we must never again hesitate to use it.

  • Comment number 16.

    Expecting a bank to carry out a role in society - eg supporting business with loans - is an unrealistic expectation.

    Banks have only one purpose: to make a profit.

    If that means trashing the society they parasite off, then so be it. The way in which they took trillions out of the wealth of the UK over the last couple of years is a clear example. Failure to support real, productive businesses is another.

    The tax payer needs regulation which at least forces them from parasite to symbiotic relationship (they continue to selfishly look after their own interests, but coincidentally that also helps others). Don't hold your breath with the tories in office - snooty and wooster are bankrolled by the parasites in the city and they will not bite the hand that feeds them.

  • Comment number 17.

    1. At 08:34am on 04 Aug 2010, vicdaniels wrote:

    2. At 08:35am on 04 Aug 2010, waldsax_j wrote:

    -------------------------------------------------------------------------

    I shall answer both your comments together and clear up a few things. LLoyds was not strong armed into a shotgun marriage with HBOS. LLoyds itself received bailout money and part of that deal was to merge with HBOS. Without this merger/bailout, both HBOS and LLoyds would have collapsed.

    Now for the issue about lending, the BoE is keeping interest rates at 0.5% so that people and businesses can borrow (I personally don't agree with this policy), however the interest isn't kept low so a part nationalised bank can increase it's interest margins. This is what all banks are doing! The encouragement to lend is to stimulate growth and demand in the economy, not for banks to quickly get into a position where they can pay whopping great big bonuses again. Nor is anyone saying to the banks that they should lend to people with poor credit history.

  • Comment number 18.

    Before commenting on Lloyds profits one should look carefully at page 104 of the 132 page report and read the following

    During the first half of 2010, the Group implemented a change to the terms of its principal UK defined benefit
    pension schemes. As a result of this change all future increases to pensionable salary will be capped each year
    at the lower of: Retail Prices Index inflation; each employee’s actual percentage increase in pay; and 2 per cent of
    pensionable pay. The effect of this change was to reduce the Group's retirement benefit obligations recognised on
    the balance sheet by £1,019 million with a corresponding curtailment gain recognised in the income statement.

    This loss to bank employees is far greater than any bonuses they may have had.

    Of course the reason for the pension fund showing losses is because of the terms on which the government acquired shares in Lloyds and RBS. That action bankrupted many pension funds.

  • Comment number 19.

    Robert your focus is all wrong today - this is a red herring about lending. The real issue is whether the bank is in good enough shape to be able to roll-over if funds in the market next year. If it is, then now is a good time to sell - what does Eric Daniels think is the best route to a sale?

  • Comment number 20.

    As has been said before, unless there is evidence to the contrary, Lloyds TSB was coerced by a panic-stricken Gordon Brown to shoulder the burden of HBOS trading strategy, one that was so dubious that the man in charge of the risks was fired when he pointed out it was so risky.

    They were yet another innocent victim of Gordon Brown's premiership, and should deserve sympathy in your analysis.

  • Comment number 21.

    Impairment

    Bank valuations are still essentially fraudulent as the bad debt charge is only a function of the absurdly, insanely and just plain daft base rate. If base rates were at a rational level then the impairments would rocket. However sooner or later the base rate will rise and the latent avalanche of impairment changes will be only too apparent. The Bank of England is driving the depression with an absolute certainty - and it knows it is.

    The question is: Is there another way?

    I have always maintained there is, and that is to take the impairment hit - sort out the over pricing of assets through the courts and then and only then get the economy motoring again. At present, to continue the metaphor, we are an economy running a car on furniture castors rather than properly inflated car wheels. The inevitable will happen and we will crash disastrously until we fix the problem!

  • Comment number 22.

    1. At 08:34am on 04 Aug 2010, vicdaniels wrote:

    "Surely Lloyds TSB has already done enough for the country - the bank was strong-armed by former PM Gordon Brown a couple of year back to take over an ailing HBOS, which otherwise would have ended up on the scrapheap. "

    Welcome newbie - hope you stick around.

    You must stop reading those Lloyds propoganda leaflets - they were not strong-armed into anything. The Lloyds board were taken by greed - the greed of seeing arival in trouble and expecting to make a packet from it.
    Sadly they didn't realise how much trouble HBOS was in, nor did they realise how much trouble they were in themselves.

    Until one of the board publicly accuses the Government of blackmail or forced purchase using legal means - I would suggest you stop making things up.
    If you search in google for "LLoyds strongarmed" - the first few results are this blog - and the rest are other blogs.

    There is no evidence that Lloyds were pressured into the purchase of lloyds. I am surprised the moderators allow such rumours to be spread - are they not concerned with legal action? - I guess it's OK to lie about Government actions - it's the corporate suits you have to worry about.

    ....and that just about sums up how the balance of power has shifted. Fascism - here we come!

  • Comment number 23.

    9. At 09:09am on 04 Aug 2010, Stoke_City wrote:
    Robert, Why carp about 'charging more for that credit relative to what it pays for funds (the next[?] interest margin has widened 24% to 2.44%)'. Surely this is one way banks make a profit and any of us who has a mortgage and is a saver understands the mechanism. Your sticks to beat the banks are becoming pretty thin. By the way 24% of a small number is a small number. Playing with statistics to re-inforce your views?

    -------------------------------------------------------------------------

    Computer says no... Actually more like the calculator says no.

    LLoyds TSB has £368bn loans outstanding which it recieves interest on. Its interest margin has increase from roughly 1.97% to 2.44% an INCREASE of 24%. What may be a small number to you, may not be a small number to others, assuming the loans outstanidng remain the same for a year, then LLoyds will earn £1.73bn extra interest... still a small number?

    And yes everyone understands that banks are a spread business, they borrow at one rate and lend at another. However when the BoE is keeping the rate at its historical low on purpose and the banks widen their margins, then this is outright unfair. This is why banks shouldn't be allowed to become such behemoths that suck every penny out of the general public who rely on them for access to credit.

    Also StokeCity, are you happy with the legal loan sharks charging above 1000% interest? I mean surely everyone knows a payday loan is exorbitant, so caveat emptor perhaps? Get real.

  • Comment number 24.

    #17 - actually Lloyds wouldn't have collapsed. It didn't buy into the toxic debt like the other banks. Unfortunately it bought HBoS though which did, big time.
    Glad to see the group returning to profit, which I do believe will be of benefit to the taxpayer.

  • Comment number 25.

    I heard Mr Daniels comments and was totally underwhelmed by his explanations. The bank is a net receiver of loan repayments not a net provider as Robert correctly pointed out.
    Second, the banks' collective view on "viable" businesses" has almost reached the point of cartel-style business. Margins have, across the board, been increased by some 2 %age points. Credit committees have a collective stranglehold on decisions and NEVER, repeat NEVER, do members of Credit committees dain to meet would-be borrowers. Business is about judging people's ability / expertise not just numbers but that aspect of bank business has ben shelved as it costs money.

    The banks must stop defending the indefensible about not lending and admit that demand has fallen because their lending terms are now so severe.

  • Comment number 26.

    I remember when Lloyds Bank shares where over £10, now they are 73p! Doesn't sound like a very good deal to me?

  • Comment number 27.

    5. At 08:48am on 04 Aug 2010, majorroadaheadagain2 wrote:

    The whole thing is built on a contradiction - you could go back further and ask why did banks ramp up to 6x lending in the first place - especially when it was cited as their downfall in the 90's.

    The answer is diminishing profit which can only be offset by wage reduction or increased market share. To increase the market share you have to offer 'more than the others' - which is competition after all - and hey presto we have the 125% mortgage.

    With the increase in technology in banking this diminishing profit is going to get worse. Improved technology only gives a competitive advantage until your rivals have it - and the additional profit is lost as competitive pricing forces the equalisation across rival (unless they're operating a cartel). The banks don't realise that eventually the whole banking system will be automated - and those of you with logical minds will know it's going to be difficult to charge for a service which is essentially 'free' to run. Only intitial setup costs will be involved - which if you run that over time, means costs wil be paid back with the first few years of running - from then on it's free to provide.

    I mean who pays to use the internet? - we pay for access, but that's because there's a physical line to maintain (a cost) - if you live in an area with free wi-fi access then the cost is 0 (or as close as damitt), both to you and the busienss providing it.

    Banking is dead, technology will finish it off - they're just too dumb in the banking industry to realise this.

  • Comment number 28.

    Robert,

    'As I've pointed out before, the only way to reconcile this contradiction is on the basis that banks' assessment of whether a small business is credit worthy is harsher than the wannabe borrower's view of its own prospects. '

    In other words, in order to qualify for a loan you have to first demonstrate you don't need one.

    As for selling our shares at a profit Robert:- remember the blog you wrote last month about credit crunch 2? Banks are still on life support and need to pay back £800 Billion in 30 months - which is never gonna happen.

    Can someone explain to me, why we NEED to sell our shares in the banks?

    If I am wrong, and all is well again, surely 41% of a large, profit- making bank is worth keeping?

    Or is the plan to sell asap before the proverbial really hits the fan?

  • Comment number 29.

    9. At 09:09am on 04 Aug 2010, Stoke_City wrote:

    Another newbie defending the banks - hope you stick around!

    You may feel it's perfectly acceptable to fleece customers in order to pay back the money that was lost through greed and incomeptence - but I disagree. We stopped operating like this about a hundred years ago when people would have their essentials restricted for the benefit of a profiteer.

    ...and if you do come back (which I suspect you won't) - don't think about that 'competetion' nonsense and 'customers can move elsewhere' - because those of us who know the credit scoring system know that moving banks is not an easy task - even the efforts of moving (applying) can damage your credit record and reduce your chances of moving.

    I can't even get a bank account without an overdraft at the moment - strangely they all decline "for reasons they do not wish to disclose" - even though I just want to put money in - not borrow it!!!

    Even the building society - who I specifically joined to avoid charges when withdrawing cash abroad - have now removed this benefit - the last bank / bs to do so.

    ...so where's the competitiveness in that then???

  • Comment number 30.

    My tiny business is currently at around 250,000 pa. It is cash positive and we rarely borrow. We make a modest profit of around 50k. We have a 10k overdraft which is there as a cushion only, not working capital. We dip into it occasionally at holiday times. That is only 2 weeks turnover. At the beginning of the year that facility was reduced to zero on the basis of accounts filed at Companies House. It was over-turned by my manager but nevertheless that shows how we are valued by Lloyds and what their true policy is. If we can't get a mere 10k what chance do small businesses have who are closer to the wind.

    The banks got burned by assuming US (not even UK) housing was gold and they should all the time have been investing in British business, starting at the bottom.

  • Comment number 31.

    10. At 09:17am on 04 Aug 2010, David wrote:

    "As others have already said the main reason that Lloyds needed help was because the Government encouraged them to take over HBOS, a lot of shareholders in Lloyds lost lots of money because of this."

    Unless you can prove this - please stop repeating it. It's simply not true - if it were don't you think lloyds would be saying it???

    ...better still - don't you think shareholders would have taken legal action if there were any evidence?

  • Comment number 32.

    Robert,

    You state "the only way to reconcile this contradiction is on the basis that banks' assessment of whether a small business is credit worthy is harsher than the wannabe borrower's view of its own prospects."

    This hits the nail on the head - the main issue is how the bank views whether a business is credit worthy - there seem to be 2 elements to this :-
    1) whether the business will be capable of repaying the loan
    2) how the loan can be secured
    As the market picks up the big sticking point seems to be 2) as many businesses/individuals have used up their reserves supporting the business during the recession so their ability to secure the loans have deminished.
    This is certainly the case with my construction business - we have had a good few months and now have orders from large reputable businesses in excess of pre-recession levels. We have gone to the bank to help fund the increase in working capital - but without the ability to secure these loans are struggling.....there must be a role for Government here.

    In many previous posts you have stated that banks have lent recklessly in the past - The frastrating thing for SMEs are that the banks have not appeared to be reckless in their lending to us - they never appear to give you credit without securing it against something and my understanding was that these arms of the banks continued to make profits throughout the recession.
    Maybe in a future post you could explore where the majority of the banks losses have been .... so in extension what we as taxpayers have ended up supporting - the banks have suffered these massive losses by lending to the wrong people and my worry is they will do it again ... funded by us!!

  • Comment number 33.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 34.

    11. At 09:18am on 04 Aug 2010, turkish1990 wrote:

    "Lloyds has already done its fair share by bailing out the taxpayer when HBOS was about to collapse."

    Oh that's just ridiculous - so Lloyds 'bailed out the taxpayer'? - don't make me laugh - this is a wind up, yes?

    "It was poor quality lending and the greed for credit that got us into the mess we are in."

    ...of which I presume you believe Lloyds played no part in.

    "How can banks be expected to return to previos levels of lending. This was what caused the problem in the first place. Credit is available to SME's etc but only to the credit worthy ones. Nothing wrong with that. The argument is about what is creditworthy. Why is it wrong for an entrepeneur to take some of the risk by putting his house up as colateral?"

    I don't think it's the offer of lending that's the problem - it's the rate at which that lending is being offered

    Only foola cannot see what's going on - banks are offering loans as the Government instructed, but at rates which are completely unworkable for SME's. As a result they would rather downsize or not expand than take on that debt, especially as they cannot see the return being greater than the bank is charging for the loan / extension.

    It's a pathetic and childish game being played by the banks - and the politicians are idiots for not realising what's going on. The banks can claim they are 'making the offeres - but it's SME's who are not interested'.

    Absolutely moronic - they don't want to lend, they cannot afford to lend, but they don't want to admit it.
    Sometimes I wonder if I'm born of the same material as those in charge - I mean you only have to ask a handful of businesses why they're not lending and the answer is blindingly obvious.

  • Comment number 35.

    15. At 09:22am on 04 Aug 2010, Jacques Cartier

    I've been saving this for you - you do realise this is all your fault Jacques

    You've been a very, very bad boy - now leave those bankers alone - all they want to do is leech of others - it's not much to ask is it?

    http://www.businessinsider.com/business-school-in-london-blames-banker-bashing-for-dwindling-applications-2010-8

  • Comment number 36.

    19. At 09:26am on 04 Aug 2010, Cityunslicker wrote:
    Robert your focus is all wrong today - this is a red herring about lending. The real issue is whether the bank is in good enough shape to be able to roll-over if funds in the market next year.
    =========================================================================
    Exactly.
    Robert, remind us all of the volume of wholesale funding Lloyds (and the other banks for that matter) have to refinance over the next couple of years.

    The bank also said it was "well positioned to deliver strong financial performance over the coming years".
    Which translates as;

    The bank is well positioned to stiff its retail and corporate customers over the coming years.
    Same old, same old.


  • Comment number 37.

    26. At 09:39am on 04 Aug 2010, WastingMyLifeatWork wrote:

    I remember when Lloyds Bank shares where over £10, now they are 73p! Doesn't sound like a very good deal to me?

    It's called 'bouncing along the bottom'.

    Any chance of RBS or Lloyds share price returning to that of 2007?

    Ever?

    Maybe taxpayers should stay in the banking business a while longer?

    Maybe a 100% state owned (healthy) bank would be a good thing?

    Am I starting to sound like Dempster?



  • Comment number 38.

    13. At 09:20am on 04 Aug 2010, nicmason wrote:

    "We bailed out the banks and now hope they will support business. We should have bailed out business and hoped they would support the banks."

    Hear, hear - we should have printed off that £200 Billion and sent a share in the post to every registered SME in the country.

    Instead, by effectively handing it to the banks to distribute - we have made an imbalanced system more imbalanced!!

  • Comment number 39.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 40.

    24. At 09:37am on 04 Aug 2010, Fay fae Fife wrote:

    "#17 - actually Lloyds wouldn't have collapsed. It didn't buy into the toxic debt like the other banks. Unfortunately it bought HBoS though which did, big time."

    Oh really - so why does Lloyds have figures for impairments / bad debts?

    I guess it comes down to your definition of 'toxic', but I can assure you, that without even looking at the holdings of Lloyds that they had exposure to CDO's (which is what I presume you're referring to) - just not as much as HBOS.

    If you wanted to be really cynical - you could argue that Lloyds purchase of HBOS gave them cover for their own disasterous book - I mean who's going to know where the losses originated from. It's much better PR to ask for Government assistance after 'trying to take over a rival' than simply going bust and having to go cap in hand.

  • Comment number 41.

    In many of your previous posts you have made the point that the era of cheap easily available credit has gone forever. Therefore I do find it odd when you then go on in other posts to question why credit is no longer cheap and easily available. Its perfectly possible for a person to have run a business for 10 years plus and know nothing other than it is their right to cheap credit on demand, so when these people complain to you about the price of loans maybe their expectations are just unrealistic, and you should tell them so. What do these people think is going to happen when interest rates rise and banks have to start paying more to savers? Its not going to get any cheaper is it? There must be small business owners from the 1970s who can remember having to sit down with the local bank manager and put their whole lives on the line for a bit of credit who, even today, would marvel at the availability and affordability of credit. We were all spoilt in the boom years, it was never either realistic or sustainable, the trouble was it went on for so long we thought it was reality.

  • Comment number 42.

    Concern re the volume of lending to the assist the recovery of the UK economy is valid, but is a concern which also needs some intellectual context.

    1) Overseas banks - from Iceland, USA, mainland Europe, Ireland - used to be big competitors in the UK. Many have totally withdrawn, all have significantly scaled back. Expecting UK-based banks to fill the hole left by these previous over-generous lenders is silly.

    2) The UK-based banks themselves were dragged into unsafe lending throughout the 90s-00s. No-one in their right mind would want them to return to the absurdly lax lending practices seen in this period. They don't need to, given competition is now weaker. The people calling for them to do so - step forward Mr Cable - seem determine to cause yet more crisis a few years down the line.



    Contrary to early posts, Lloyds was strong-armed into buying HBOS. Even 10 Downing Street confirmed that the then PM was directly involved in contacts with Lloyds to encourage the merger to proceed. Inconvenient, to the Lloyds and bank bashers on here, but true.


  • Comment number 43.

    Robert why do you always have to put a negative spin on everything? We, the UK public, own a lot of shares in this company and RBS. We should be happy that our investment is doing well, share prices are rising and looking forward to a time when these companies start paying dividends. We can make out of the bailout.

    Corporate lending, by double glasing/car salesmen type "bankers", caused the banking crisis, so we should be glad that this has stopped and not calling for a return to the past.

    I long for the time when Robert Peston says something good for a change.

  • Comment number 44.

    9. At 09:09am on 04 Aug 2010, Stoke_City wrote:
    > 24% of a small number is a small number.

    Then they won't mind reducing the margin by 24%, will they!

    > Why carp about 'charging more for that credit relative to what it pays
    > for funds (... margin has widened 24% to 2.44%)'. Surely this is one way
    > banks make a profit and any of us who has a mortgage and is a saver understands
    > the mechanism.

    To favour the customers, the margin must be reduced to the smallest possible (while leaving just enough profit to allow bankers to eat ). That way, we keep our own money.

    > Your sticks to beat the banks are becoming pretty thin.

    Use any stick you can to flog those guys – it's the only language they know.

  • Comment number 45.

    35. At 09:59am on 04 Aug 2010, writingsonthewall wrote:
    15. At 09:22am on 04 Aug 2010, Jacques Cartier

    I've been saving this for you - you do realise this is all your fault Jacques

    You've been a very, very bad boy - now leave those bankers alone - all they want to do is leech of others - it's not much to ask is it?

    http://www.businessinsider.com/business-school-in-london-blames-banker-bashing-for-dwindling-applications-2010-8

    -------------------------------------------------------------------------

    It might also be the fact that people have wised up to the fact that it takes a certain breed to be a banker, not just the subject you matter. The amount of people I have come across in the City that don't have a clue about simple finance yet applaud themselves as great masters of the business is truely astounding.

  • Comment number 46.

    #3. Sam_From_Hendon wrote:

    "What is important now is that the BoE hold their nerve and keep interest rates low. Mervyn King has done an excellent job to date and long may he continue.

    Mervyn King is only doing a good job for his banking friends - but NOT the country.

    Mervyn King and his predecessor have been disastrous for the economy and the country. Their lack of attention to the real needs of the country's economy caused the bubble which in-turn caused the crash. If the bubble had not been created then HBOS and NR, B&B would not have become insolvent. Mervyn King and his predecessor failed in their fundamental duty to maintain sound money. How on earth can you absolve them of this economic crime? They also failed to support NR, B&B etc. with bridging finance causing them to collapse. He has made the Bank of England a joke.

    On rates - we are at a over 300 year low! This completely distorts the price of money making it almost impossible for a real recovery to start. The real base rate is, even today, about 3.5%. (Savers getting upwards of 2.5% and borrowers paying 5 to 7 % secured and 17 to 20% unsecured.) Mervyn King is a disaster and must go. He has let the Bank of England lose control of interest rates and is destroying the Bank of England.

  • Comment number 47.

    #27 Once again i find myself again agreeing with wotw

    But you ended by saying

    Banking is dead, technology will finish it off - they're just too dumb in the banking industry to realise this.

    I agree traditional banking has long gone (although i must take the opportunity to plug Credit Unions who will provide ethical saving and loan products, the clue is in the name by the way.)But do you not think that the lemmings have run into casino banking to justify their bonus'and their 'profits'.

    I remember a fellow Man City fan by the name of Nick Leeson, he brought down a 'small' long established bank called Barings (HM the Queen was a customer of their,s) a few years ago. At the time he alone was generating 90% of their profit from his 'activities'. His board of directors didn't have a clue how he was doing it at the time-but they still kept sending the funds when he needed them, that is until the penny dropped.The film of the events is a really good laugh !!

    You might have thought that our most highly paid (you have to pay the going rate to attract and keep the best people) might have learnt from this????? and plenty of other examples. But they still become hypnotised when the £ and $ sign light up in front of their eyes.What goes around comes around.History is not just about what happened in the Great Depression. It's also about what happened 10 or 5 years ago and also what happened last week and yesterday.

    Sometimes you have to be careful what you wish for-PROFIT??????

    Nothing lasts for ever, well apart from me hoping Man City might win some silverware. I like Nick Leeson in his hay-day am an eternal optimist

  • Comment number 48.

    @ 35. At 09:59am on 04 Aug 2010, writingsonthewall wrote:

    > You've been a very, very bad boy - now leave those bankers alone - all
    > they want to do is leech of others - it's not much to ask is it?

    Thanks – it's perfectly understandable for young people to avoid pariah occupations. Just imagine being asked the “what do you do?” question at a diner party, when you work in a bank! What a funky chat-up line that would be, eh?

  • Comment number 49.

    heard the interview this morning small businesses are paying off their overdrafts he forgot to add that this was usually after a visit from their account manager telling them they were converting it to a term loan a nil option in our case obviously the current account had to remain in credit which meant that we were paying interest on our own money bad for us good for lloyds bottom line when we eventually paid the 20k loan a offer of a 25k overdraft was offered at 5.6% which they for which they required extra security other than the personal guarantees of the directors they offered us 5k with the guarantees with a setup fee of a £100 which we declined

  • Comment number 50.

    #46 continued

    #3 Sam_from_Hendon wrote: "This would support the fragile recovery and allow SMEs (Small and Medium sized Enterprises) whose borrowing is linked to Libor, to flourish and create jobs."

    Wrong again....If this were true SME would be flocking to borrow - they aren't. Because they can't borrow linked to LIBOR that 'privilege' is only now for very large companies. Small companies get stung with far far higher rates and then only with personal guarantees.

    Where are all these job? They haven't been created - please get your facts straight and live in the real world you sound just like a previous irrational poster (KevinB).

    I think you work for the Bank of England and have been specifically set up to counter criticism of Mervyn King. To date you have argued for 0% interest rates - which itself is insane and not you think the Mervyn King is some sort of god - absolute rubbish - tell you paymasters that they have been seen through - not by me, but by the facts! So see here, Smanatha, you are damaging the good name of Hendon and its reputation for rational thought and economic analysis informed by history and the facts!

  • Comment number 51.

    37. At 10:02am on 04 Aug 2010, newblogger wrote:

    "Am I starting to sound like Dempster?"

    Don't worry - we'll all be sounding like Dempster in the end!

    Have a look at the Lloyds, RBS, HSBC and Barclays share price in google over 5 years. When you look at the graph of the first two - 'bouncing along the bottom' is incredibely accurate.

    If you compare it to the other two banks - who do you think got the 'good deal' out of this banking fiasco? - The private sector or the public sector?

    The RBS graph looks like the bank was literally shot - and apart from a few twitches of life - doesn't look like it's returning to 'the norm' anytime soon.

    The pictures tell a thousand words...these banks will have their valuable assets sold of piecemeal to the markets as and when they show recovery - and the remaining carcass will be swept under the Treasury carpet as the Government distracts us all by starting a new war somewhere.

  • Comment number 52.

    Newblogger

    It is true that Lloyds TSB traded at £10 on 1 May 1999. However, unless you were unlucky enough to have bought them at that price the current price of 73p has to be compared with an average which includes two rights issues at 38p and 37p, the last of which was based on 1.34 shares for each one owned. Nobody took up the first rights at £1.73 in Dec 08, as the shares were trading at less than £1 at the time. I suspect that most shareholders will be close to at least break-even or better. Including even the government, which trousered over £2bn from Lloyds for the APS (which Lloyds didn't use).

    Hopefully, one day the full story of who did what in 2008 will be told so that those who doubt any government pressure (or silver-tongued persuasion) on LLoyds TSB can be made clear. And the true extent of our financial gain or loss out of the stupid and most corrupt bid in our history can be told.

  • Comment number 53.

    As I read the headline results the FIRST thing that was obvious was to quote Robert Peston in his PS



    "PS I pointed out to Mr Daniels that the fall in the bad debt charge was greater than the swing from loss to profit. He nonetheless maintained that there has been an across-the-board improvement in the bank's basic operational performance."

    So the PROJECTED bad debt provision was reduced by many billions as it is PROJECTED to fall.

    Hang on a minute; wasn't it the fact that the banks totally underestimated the reality of the credit risk on existing lending that CAUSED the credit crunch?

    So if someone else decided that due to the coalitions savage cuts and the consequent unemployment and cessation of building works and run downs in supplier inventories the growth scenario peters out and more peoples loans go bad then is it not highly likely that impaired lending will actually start to rise again.

    So if someone with a more pessimistic view point were preparing these accounts and decided to only reduce the PROJECTED bad debt by a few billion then wouldn't we be talking about a P/L figure of an almost exactly the same as last years 1.6 Billion loss?

    The problem (unsolvable) is that ALL company and sovereign bodies accounts are no more than PROJECTIONS when external credits or accruals are involved. Its all " Well thats my opinion".

    Or as the world famous (and just as valid) economist Clint Eastwood said " Well Punk! Do Ya Feel Lucky?"

  • Comment number 54.

    41. At 10:09am on 04 Aug 2010, muggwhump wrote:

    In many of your previous posts you have made the point that the era of cheap easily available credit has gone forever. Therefore I do find it odd when you then go on in other posts to question why credit is no longer cheap and easily available.

    ...but it is cheap - for the banks! It's only expensive for you and me!
    The Government wants to provide cheap credit to stimulate the Economy and the banks think the cheap credit is so they can continue to pay bonuses!

  • Comment number 55.

    24. At 09:37am on 04 Aug 2010, Fay fae Fife wrote:
    #17 - actually Lloyds wouldn't have collapsed. It didn't buy into the toxic debt like the other banks. Unfortunately it bought HBoS though which did, big time.
    Glad to see the group returning to profit, which I do believe will be of benefit to the taxpayer.

    -------------------------------------------------------------------------

    In the politest way possible, I think you don't fully understand how these toxic assets come about. Banks issue mortgages, the bank then transfers these mortgages to an off balance sheet entity that repackages the mortgages into various structured products (CDO/RMBS etc). These products are sold to pension funds, hedge funds, insurance funds, other banks etc. The off balance sheet entity that repackages the mortgages also borrows in the short term commercial paper markets to fund the mortgages that the bank is issuing, so the bank can start the cycle by originating further mortgages, which is why they threw money at the whole world at its dog.

    All the major banks in the world were involved in this, its not just a matter of buying and holding the toxic assets, they created them and were left holding them when the demand dried up. This included Lloyds, if you believe that Lloyds was a rose amongst thorns, then you are quite simply uninformed.

    Google 'Arkle Master Issuer plc' and click on the 4th link which takes you to a PDF file on the LLoyds TSB website, highlighting their involvement in repackaging mortgages back in 2006! - when we were all paper millionaires :p

  • Comment number 56.

    An absolute definition of Toxic debt in the UK would be helpful, are they in fact Government Initiatives gone wrong?

  • Comment number 57.

    11. At 09:18am on 04 Aug 2010, turkish1990 wrote:

    Lloyds has already done its fair share by bailing out the taxpayer when HBOS was about to collapse.

    ________________________________________________________________________

    Really need to have a look at this again turkish. Lloyds Directors believed they were being clever, thinking that they had spotted a fantastic one-off opportunistic chance to pounce on a weakened competitor, buy it up cheap, and assume their shareholders would glorify them 'til kingdom come for the extra profits that would be generated.

    So what went wrong? As the directors had to embarrassingly admit, 3 months after the takeover, they hadn't done the "Due diligence" properly. (I mean you just have to laugh.)They'd bought a dog for billions and managed to take themselves from a strong position to basket case overnight. Got it so wrong that they had to take taxpayer bailout!

    Talk about shooting yourself in the foot! Barclays nearly did the same with ABN Amro, only luckily for Barclays, RBS employed Directors that were even dafter than those at Barclays!

    Bankers should not be allowed to run anything. Let alone something important, like a bank! A state running banks is thought of as being far from ideal. But look what happens when they're in private hands, they just self-destruct!

  • Comment number 58.

    I have been a Lloyds investor since privatisation of TSB and until 2008 was happy with its progress. As a commercial undertaking, surely it should be the focus of Mr Daniels and the board to re-build the value of the bank to its 2008 level and to reinstate dividend payments to shareholders at the earliest opportunity. Turning what was an ill-judged and almost catastrophic acquisition into a value-generating asset must be the only priority, and the policy on business loans will be determined by this.

  • Comment number 59.

    As you point out Robert, some interesting accounting behind these results.

    Money set aside for bad debts reduces from £13.4 Billion to £6.5 Billion.

    That is a credit of £6.9 Billion which will boost results !!!!!!

  • Comment number 60.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 61.

    42. At 10:19am on 04 Aug 2010, Wunch wrote:

    "2) The UK-based banks themselves were dragged into unsafe lending throughout the 90s-00s."

    Which version of Economic history does that come from? I was actually around in that crisis and I seem to recall the problems arose from banks trying to retain their profit margins - which were diminishing at the time - and the MIRAS tax relief which contributed to the boom.

    You'll have to explain how they were 'dragged' into unsafe lending.

    I realise you're dedicated to your task of defending the banks, but one thing is for sure - banks voluntarily lend excessively - nobody forces them to - unless you can cite a law which decrees it.

    Yet more mis-information being spread by the banking fraternity - now it seems the defence is "someone made us do it" - without saying who that someone was.

    It's also noticeable that these 'poor banks' who get 'bullied' into lending excessively - didn't really have a problem defeating a real law when defending their right to overcharge us - did they?

    Seems that the bullying only occurs when banks want to cover up their mistakes - when the law and the people want them to do something (like not chargind excessively) - they seem to pull out all the stops.

  • Comment number 62.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 63.

    45. At 10:27am on 04 Aug 2010, RiskAnalyst wrote:

    It might also be the fact that people have wised up to the fact that it takes a certain breed to be a banker, not just the subject you matter. The amount of people I have come across in the City that don't have a clue about simple finance yet applaud themselves as great masters of the business is truely astounding."

    What "simple finance" are you suggesting the people you have come across do not know? Examples and context please.

  • Comment number 64.

    Will you ask him whether he sees any likely changes to policy in the areas of:
    1. Taking equity rather than loans in a business. Does LTSB set targets in this regard for different sizes of business and, if not, why not??
    2. Lending more flexibly e.g. with a 3 year repayment holiday up front if appropriate.
    3. Payment of coupons now that HMG is a major shareholder?

  • Comment number 65.

    I would have to say, that Lloyds in particular are not lending as they should with regard to residential loans, and like most are behaving in a fashion designed to make profis galore at the expense of there customers.
    The return to growth, along with other banks and recent substantial profits noted by HSBC and others shows that with what they choose to lend, when you look at base rates and the cost of money, in comparison to what they are lending, they are making so much profit it is unreal.
    The vast percentage of residentiallending is also on terker products so as soon as rates do increase they will suprise, surprise make even more at the xpense of those simply trying to keep their home, or trying to buy in a market where in essence all accpetable lending is retsricted to those with 25% equity or deposits.
    We need lenders to lend at reasonable rates up to 90%, so that first time buyers can start to return to the market.

  • Comment number 66.

    One point I feel I should make is that small businesses don't want to or can not borrow from Banks, there are other sources of capital. Lots of Venture capitalists have money to invest, and are more than willing to do so provided they get a decent return. If the owners of SME's are so confident in their businesses future they should go down this route of funding as it is a win win situation for the owner and the Venture capitalists.
    If the Venture Capitalists aren't prepared to invest, it is little wonder a bank won't lend as they are more risk adverse.

  • Comment number 67.

    #6 wrote:

    "Go back and ask Daniels how many start-ups or small or early stage companies they invited in or visited pro-actively to see what they could do for them and how many university R&D depts they went to visit to see what technologies they might be working on and in which they might like to consider taking an interest and getting a part of the action. "

    A fair point - but if you'd asked the same question to his predecesser in 2007 you'd probably have got a similar answer. High street banks are simply not in the business of high risk investments like you describe - and many would argue nor should they be. Creating an culture of venture capital in this country is a quite different matter, and not one we should expect banks like Lloyds to participate in - its simply too risky for them to punt retail depositors money in this way.

    The sort of SMEs who generally get finance from the high street are stable ones looking to grow. Its not suprising that there are not many of these about. The rhetoric of cuts we hear from our government, and from Europe, are sapping peoples confidence. There are probably few business that are confident of growth in this atmosphere. And those that are confident of growth are possibly more confident than the banks think they should be - and hence aren't getting finance either.

    Whether this because the banks are stupid, over cautious or whatever is probably too hard to disentangle - but until ordinary people and business start to believe the recession is over it won't be.

  • Comment number 68.

    I'm really disappointed about this negative article, and disappointed that someone with such minor financial experience (three years as a junior stockbroker) continues to command such a key role. Lloyds was strongarmed into the HBOS purchase, everyone knows that. Lloyds was saddled with colossal debts from the previous regime, hence the losses in 08 and 09. Now that a UK business delivers a profit, you all still want blood. Remember, the losses were also incurred by the man in the street signing up to debt he couldn't afford. We should all live within our means.

    This company will, in time, be terrific for the UK. Delivering value for the tax payer, shareholder and pension funds. The company now has a prudent approach to lending...good! It was poor lending that got the world into the mess in the first place.

    Bank bashing is lazy journalism. I can't help but think that envy forms the basis for some of his scurrilous reporting in the past two years.

  • Comment number 69.

    Is Lloyds doing enough for UK? Good question.

    Is anyone among the banking, legal, political, media and bureaucratic structure doing enough for the UK?

    From where I stand the answer can only be certainly not.

    Perhaps I should rephrase my question.

    Why is everyone in the banking, legal, political, media and bureaucratic structure doing more than enough for themselves?

    Aren't we all supposed to be in this together?

  • Comment number 70.

    Our banks are in profit.
    Lets all bank with our nationalised banks.
    Our national debt will be paid off in no time.

    Of course what will happen is that Lord Snooty will sell the bank to his pals at a knockdown price.

    What a wheeze!

  • Comment number 71.

    Hmmm.

    Let's correct a few inaccuracies first. Firstly, I disagree that Lloyds were strongarmed into a merger ... I think the board were greedy, and saw a once in a lifetime opportunity to get round the Monopolies and Mergers Commission and swallow up HBoS. The trouble is, the global financial tide worsened after the decision, and they were left with a very bitter pill to swallow. That was not the end of the story though ... shareholders in both companies still had the right to say no ... but chose not to. Were they all 'strongarmed' by the government too? Hardly. Secondly, I doubt that Lloyds are making a 'real' profit at all. The accounting for bad debts, and a huge reduction in pension liabilities has created what might look like a profit; but if we were to apply the same accounting conventions as last year, they'd probably still be losing money.
    Which brings me to my answer to Robert's question ... due to the 'artificial' nature of this profit, I don't see how they can lend more than they are currently doing. They are already charging 3% over the 3M LIBOR and the BoE overnight rate; if they can't make a 'real' profit with that level of return, then sadly there will probably need to be even more job losses ...
    Having said that, capitalism at its very core needs organisations/individuals to lend capital to businesses. If banks like Lloyds cannot afford to lend at a level that businesses see as attractive, then who can? And if the answer is noone, then without the necessary capital to grow, business in the UK will inevitably start to shrink ... and we all know what we call that don't we ... Double Dip anyone?

  • Comment number 72.

    43. At 10:22am on 04 Aug 2010, Graham wrote:

    "Robert why do you always have to put a negative spin on everything? We, the UK public, own a lot of shares in this company and RBS. We should be happy that our investment is doing well, share prices are rising and looking forward to a time when these companies start paying dividends. We can make out of the bailout."

    Then he wrote

    "Corporate lending, by double glasing/car salesmen type "bankers", caused the banking crisis, so we should be glad that this has stopped and not calling for a return to the past."

    So what do you think the difference betweeen the bankers reckless investment and the Governments reckless investment? (apart from the size)

    The Governments investment is more reckless as the private sector wouldn't touch it with a barge pole at the time. (not that I'm saying they had a choice mind you - another debate, another day)

    I don't understand how you can talk about 'profit' when the bank has lost more than it's made in the time we've held the stake - and the market cap and revenue has declined due to downsizing - and both are likely to remain there for the foreseeable future.

    There is a fundamental problem with people's understanding of the stock markets - they always presume there will be an upward trend - that's because they have never experienced anything else.

    Try looking at the Nikkei 225 over 10 years - now tell me - does that look like an 'ever rising' stock market?
    Your whole promise of a profit is based on the assumption that this economic reality can never occur here.

    http://www.google.co.uk/finance?q=INDEXNIKKEI:.N225

  • Comment number 73.

    Can someone please explain why a government owned bank is a bad thing? I know it won't happen, but I fail to understand why?

  • Comment number 74.

    45. At 10:27am on 04 Aug 2010, RiskAnalyst wrote:

    > it takes a certain breed to be a banker

    That's a stunning thought! Perhaps we can use physiognomy to assess a banker's character from his looks. For example, a banker might have a sly, greedy face, long fingers for counting our money (and keeping some) and a stooped posture from being told what to do by his "superiors" at the bank! On second thoughts, that does sound a lot like Ebenezer Scrooge, eh? I think you're onto something there.

  • Comment number 75.

    45. At 10:27am on 04 Aug 2010, RiskAnalyst wrote:

    "The amount of people I have come across in the City that don't have a clue about simple finance yet applaud themselves as great masters of the business is truely astounding."

    Now that's funny, because you and I both work here and have the same opinion - but it's the opinion of people who don't work in banking that often seems to place them on a pedestal - how odd.

  • Comment number 76.

    59. At 11:08am on 04 Aug 2010, Upthebarns wrote:
    As you point out Robert, some interesting accounting behind these results.

    Money set aside for bad debts reduces from £13.4 Billion to £6.5 Billion.

    That is a credit of £6.9 Billion which will boost results !!!!!!

    -------------------------------------------------------------------------

    Its all hypothetical jiggery pokery, to be able to set money aside they need to understand the risks. If banks were good at understanding their risks, then we wouldn't be where we are now, would we?

    The whole concept of setting aside capital is flawed, its a cleverly crafted process that paints a distorted picture of the bank's risk undertakings. When was the last time a bank publicly said, we have taken more risk than our capital allows, so we are reigning it in? They always project a solvent picture yet they still blow up! Do you see the dislocation here?

    Lehmans, AIG, Northern Rock, Landsbanki, Kaupthing, IKB Deutsche, Fannie Mae, Freddie Mae, Bear Stearns, Bradford and Bingley, Fortis, Citigroup, RBS, Lloyds, HBOS (+hundreds of smaller banks in the US that I do not have the energy to list).

  • Comment number 77.

    Rewriting history is a bad mistake. Firstly Lloyds were not strong armed into buying HBOS. They saw a huge opportunity to substantially increase their market share for a knock down price (as they perceived it at the time), then did next to no due diligence on HBOS and guess what- it all fell apart-totally due to Lloyds ineptitude-not the Government's fault.
    My second point is that Lloyds have not really made a profit. All they have done is reduce the bad debt provision from one year to another.And this reduction more than swamps the declared profits. All that needs to happen for this to be reversed is for the economic position to deteriorate a little and a different provisioning arrangement will come into place. I would be seriously questioning these numbers.
    Thirdly as for the nonsense about lending, I have spoken to two Regional directors of banks recently and they have told me that they are effectively closed for lending. No risks whatsoever are being taken until the capital adequacy ratios look secure. No hope there for small business then!

  • Comment number 78.

    52. At 10:43am on 04 Aug 2010, majorroadaheadagain2 wrote:

    "Including even the government, which trousered over £2bn from Lloyds for the APS (which Lloyds didn't use)."

    errr - didn't use? - what is your definition of 'didn't use'?

    You have home insurance - right?

    Well you probably don't have enough cash in your bank to repurchase all your contents in there were a fire. That cash is being used elsewhere, possibly to invest, possibly to spend - but it's not being held as a safety net.

    Therefore you are using your house insurance - even though you're not claiming. The opportunity cost (or benefit) is that you are able to utilise that money elsewhere - without risking the loss of all your contents.

    This is no different to Lloyds use of the APS. Yet another piece of propoganda released in the world without actually undergoing some logical thought.

    Why do I think like this? - because that's how bankers think when they invest. The biggest consideration for any bond investor is opportunity cost.
    It's funny how the world of finance likes to forget these rules when they go against them - but remember them when they're on the upside!

  • Comment number 79.

    Robert hasn't pointed out the mid term issue that the banks face. The UK banks have to find £390 billion of refinancing by the end of next year. Around £200 billion worth of maturing bonds and mortgage securities will need to be refinanced. The withdrawal of government grants account for the remaining £190 billion of the funding black hole.

    On top of this, HSBC's profits are "interesting". The main boost to profits was the fact that impairment charges for loans not being repaid on time almost halved, falling by $6.5bn on last year. Also, "small firms hold a record £56bn on deposit". HSBC's corporate overdraft utilisation rate has fallen to 42% from 44%." In other words, people aren't taking advantage of existing facilities. Lloyds are in a similar boat.

    As employment prospects in some parts of the country are poor, a lot of people have turned to saving in order to build a cushion. We could be seeing an end to rampant consumerism as people seek a better return on money spent. Once people have turned into relative savers rather than net debtors, and the baby boomers retire, government finances could become of concern again especially if they have to provide further financing to the banks again, if they cannot find the replacement £390 billion during next year.

    A grade "A" mess all round. May be we should default on our debt so that no future politicians can borrow so much on our behalf ever again. No further profligate politicians need apply.

  • Comment number 80.

    "Now there is a contradiction between what Mr Daniels and his peers say and the complaints of many small businesses that they can't get credit at the right price."

    There is no contradiction only wishful thinking by borrowers. The 'right price' is decided by the lender not the borrower and it has now risen so businesses must get used to the new environment. Firms that were created or survived only on ultra low credit costs will be purged as part of the new lower risk banking economy (rightly) insisted upon by governments.

    It amuses me though that some government ministers talk of a less risky banking environment at the same time as demanding more lending for a faster recovery. The two are mutually exclusive aims.

    I have heard of daft firms wanting to be judged on their past cash flow when of course lenders need to be sure of future cash flow. I heard one company owner who objected to using his house as collateral but was quite happy to ask the bank to risk its customers' money instead. A business that claims to be ‘viable’ if it gets cheap credit is not a viable business at all yet many borrowing companies seem convinced otherwise.

    Expectations of a return to the woefully under-priced credit of the past are unrealistic. Global governments in 2008 all decided they wanted a lower risk banking system and the direct result of that is more expensive credit.

    One cannot have less risk in the system at the same time as lower credit costs and there is no point in hand wringing or blaming banks for that fact of life.

  • Comment number 81.

    53. At 10:44am on 04 Aug 2010, moncursouthernreiver

    Classic - but that's what the BBC based all their morning reports on! They claim there's profit on it's way.

    ...and for those criticising Robert for being negative - you should have seen his performance on the news last night.

    He was so convincing I went out and spent £100 in expectation of our 'profit' coming from the Northern Rock sale!

    I mean the clock graphic used to demonstrate the passing of time wasn't in months, years or decades - so I presume we can see that profit by the end of next week Robert?

    Paper profit doesn't exist - only when the cash is in the hand can we truly state there has been a profit. So don't get the bunting out yet folks - when they say "should be a profit one day" - they're talking decades, not years.

    In order for just lloyds to pay us back (and their probably our best 'investment') - it would take another 10 years before it's paid back through dividends.
    Therefore our best option is to sell the stake - but we require a price of over 74p (the treasuries average purchase price) - and we would also need to account for the 4% or so we've forgone on our half a billion pound investment - roughly the price we've been paying in interest to bond holders to raise the cash for this very bad joke.

    Most people are only being given half the story - a simplified mathematical equation of "we spent x and we will get back y"

    The lack of understanding of this, inflation and opportunity cost is how millions of people are ripped off each day by the banks.

  • Comment number 82.

    #48. Jacques Cartier wrote:

    "Just imagine being asked the “what do you do?” question at a diner party, when you work in a bank! What a funky chat-up line that would be, eh?"

    Indeed. Almost as embarrassing as having to admit that you're a computer programmer...

  • Comment number 83.

    Today the weather is showery. Why does Mr P always concentrate his articles on the rain rather than the sunny periods?

  • Comment number 84.

    58. At 11:05am on 04 Aug 2010, Ian Wright wrote:

    "I have been a Lloyds investor since privatisation of TSB and until 2008 was happy with its progress."

    Now does that mean you were happy with the dividend - or did you actually bother to look into the companies direction, ethos and balance sheet? As a shareholder how much responsibility did you take for the monitoring of the bank's practices? I mean the treasury and the BoE didn't know what lloyds were proposing - so was it covered in your prospectus?

    "As a commercial undertaking, surely it should be the focus of Mr Daniels and the board to re-build the value of the bank to its 2008 level and to reinstate dividend payments to shareholders at the earliest opportunity."

    Is this the same Mr Daniels whose responsibility it was to make sure that the bank did not reauire state aid at the cost to shareholders? - seems like you have a right "good 'un" there my friend - haven't you sacked him yet???

    "Turning what was an ill-judged and almost catastrophic acquisition into a value-generating asset must be the only priority, and the policy on business loans will be determined by this. "

    I admire your honesty (unlike other Lloyds shareholders) - but this 'making profit for the shareholders' doesn't quite fit into the scenario at the moment which is 'pay back the biggest shareholder' (the Government).

    It also ignores the big picture - I don't know how many shares you hold in lloyds, but the increase in dividend (if there is one) comes at a cost of higher taxation to pay for the unemployed who were created in that profit making.

    ...so it's a clear choice - higher dividends - higher taxes, lower dividend - lower taxes. Either way you're paying fella - just like the rest of us.

  • Comment number 85.

    60. At 11:15am on 04 Aug 2010, SmilingEdBalls wrote:

    "I see you are busy at work again WritingsOnTheWall"

    I felt embarrasment for you yesterday - ever heard of 'multi-tasking'? - or is it strictly one thing at a time for you?

    Now go and read up on your derivatives son - this is an adults blog.

  • Comment number 86.

    65. At 11:30am on 04 Aug 2010, Murphy65

    There is more than one way to restrict lending...

    http://www.guardian.co.uk/money/2010/aug/01/abbey-mortgage-application-lending-criteria

    ...but apparently "based on the findings of an independent valuation of the property conducted by a third-party firm, rather than any specific change in lending criteria"

    ...and note the problems with the credit score and repeated applications - competition indeed - no wonder they're all reporting profits - they're screwing us over!

  • Comment number 87.

    66. At 11:37am on 04 Aug 2010, David wrote:

    "One point I feel I should make is that small businesses don't want to or can not borrow from Banks, there are other sources of capital. Lots of Venture capitalists have money to invest, and are more than willing to do so provided they get a decent return. If the owners of SME's are so confident in their businesses future they should go down this route of funding as it is a win win situation for the owner and the Venture capitalists.
    If the Venture Capitalists aren't prepared to invest, it is little wonder a bank won't lend as they are more risk adverse."

    What do you mean like the Dragons on Dragons den with their "I'll give you half the money for half the equity"?

    Yeah - so you have to sell your promise of a pound of flesh to a rich man before you can fulfil your dream of running a business.

    So it's sharks or pirana's then is it?

  • Comment number 88.

    68. At 11:42am on 04 Aug 2010, BluePG wrote:

    Welcome newbie - my there are a lot on here today. Someone's PR department must be busy - luckily I can type far faster than you can think up weak defences for the banks.

    "I'm really disappointed about this negative article, and disappointed that someone with such minor financial experience (three years as a junior stockbroker) continues to command such a key role."

    What are the combined qualifications in finance of the RBS, Lloyds and Northern Rock boards?
    I wouldn't criticise Robert's qualifications considering the poor record of the people you defend.

    "Lloyds was strongarmed into the HBOS purchase, everyone knows that."

    Do they? - who are they? - where are they? - why haven't Lloyds taken legal action?
    Strong-arming is illegal by Governments - so where is the court case. Can you name one single valid news source who can confirm this story? - just one, I'm not fussy.

    "Lloyds was saddled with colossal debts from the previous regime, hence the losses in 08 and 09. Now that a UK business delivers a profit, you all still want blood."

    A profit this year - but we've held our stake for nearly 2 - is this how you see profit, on a year to year basis?
    I'd love to be your financial advisor - is he on holiday at the moment per chance?

    "Remember, the losses were also incurred by the man in the street signing up to debt he couldn't afford. We should all live within our means."

    Who sold that debt? - Did I ask the banks to send me thousands of leaflets offering to consolidate my outstanding loans? Did I ask the bank to hise it's harshest realities deep in the small print? Did I ask the banks to oversharge me on my overdraft? - I think not.

    "This company will, in time, be terrific for the UK. Delivering value for the tax payer, shareholder and pension funds."

    Is that directly from the cover of the shareholders prospectus?

    "The company now has a prudent approach to lending...good! It was poor lending that got the world into the mess in the first place."

    ...oh but wait a minute - I thought you said less than 2 paragraphs ago that it was our fault for borrowing too much
    Make up your mind fella - which is it? Confused are we? - That's what happens when you try to peddle lies as the truth - it gets very confusing.

    "Bank bashing is lazy journalism. I can't help but think that envy forms the basis for some of his scurrilous reporting in the past two years. "

    Sorry - I thought we came close to financial armageddon (as quoted by Hank Paulson) - which bit of the reporting of that was lazy?
    It seems there's only one jealous person in this camp - lets see if you reply before I start explaining how the 'jealousy of Capitalism' actually works...

  • Comment number 89.

    Up the barns 59...your post demonstrates exactly what too many others show here in many guises and formats - founded and based on myths , misunderstandings and lack of knowledge...

    I can't be bothered to explain...I'll leave you to stew in your own pool of "knowledge"

  • Comment number 90.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 91.

    76. At 11:56am on 04 Aug 2010, RiskAnalyst wrote:

    "Its all hypothetical jiggery pokery, to be able to set money aside they need to understand the risks. If banks were good at understanding their risks, then we wouldn't be where we are now, would we?"

    I bet you get told to "shut up" a lot at work don't you.

    Ah the life of the Risk Analyst - pointing out the dangers only to be ignored by those who believe they understand the risk they are taking and who are clouded by the greed which drives them and the lack of responsibility they face if it all goes wrong.

    Dare we tell anyone that 99% of the risk modelling only work effectively in rising markets?

    Whoops - don't want to let that cat out of the bag.

    What about stress testing - does the world know that they're all based on previous crises - and as one has never been like the next this is a pointless excercise?
    (I'm talking about the original stress testing - not the fakery of the EU stress testing)

  • Comment number 92.

    79. At 12:09pm on 04 Aug 2010, Nickwh wrote:

    A grade "A" mess all round. May be we should default on our debt so that no future politicians can borrow so much on our behalf ever again. No further profligate politicians need apply.

    -------------------------------------------------------------------------

    Hear hear... That'll also teach the bankers for basing everything against a risk-free yield curve, one that isn't as risk free as it seems!

  • Comment number 93.

    Nickwh
    LeoPanthera

    Both very clever people - for they spotted that the £1.6 Billion in 'profits' has come as a result of the reduced impairment forecast (i.e. we expect to have less bad debts)

    Does this mean I can report a £1bn profit to the taxpayer for my accumulator I placed at the bookies this morning?
    If the UK cleans up at the 2012 olympics and finishes top of the medal table - then I stand to win a fortune. This expectation has as much reality to it as the Lloyds expectations for bad debts.

    Nickwh and LeoPanthera - please stick around - we need people like you who can analyse better than our own business journalists.

    Robert - any comments on this? Perhaps you'd like to update us.

  • Comment number 94.

    51, WOTW

    Iran, North Korea?

  • Comment number 95.

    #82 Always amuses me when someone has a pop at Computer Programmers, most good Computer Programmers could easily do the Bankers job and often do, however no Bankers could do the programmers job.

  • Comment number 96.

    20. At 09:28am on 04 Aug 2010, Paul T Horgan wrote:

    "As has been said before, unless there is evidence to the contrary, Lloyds TSB was coerced by a panic-stricken Gordon Brown to shoulder the burden of HBOS trading strategy, one that was so dubious that the man in charge of the risks was fired when he pointed out it was so risky."

    What? - the burden of proof is upon you my friend. For the lack of evidence to suggest the bank was strong armed means the default position of "it wasn't" stands.
    I'd like to see this stand up in court - "M'lud, my client broke the window because he was coerced into it by another man and the prosecution must demonstrate this is not the case"

    There wouldn't be a single prisoner inside today as we speak - all got off with "someone made me do it"

    "They were yet another innocent victim of Gordon Brown's premiership, and should deserve sympathy in your analysis."

    Oh now you're just being silly - I've seen some people try to blame everything on Gordon Brown before - but you're pushing the boat out now.

    Show me the minutes of the meeting where this 'coercion' took place and I shall concede.
    It's just more banking fantasy.

  • Comment number 97.

    82. At 12:22pm on 04 Aug 2010, rbs_temp wrote:
    #48. Jacques Cartier wrote:

    "Just imagine being asked the “what do you do?” question at a diner party, when you work in a bank! What a funky chat-up line that would be, eh?"

    Indeed. Almost as embarrassing as having to admit that you're a computer programmer...

    -------------------------------------------------------------------------

    I waited almost a whole hour for your comment to appear (come on BBC blog moderator, pull your finger out!) and that is all you could muster? What good is a trading desk, credit analyst, securitisation team without a good programmer? There are consultants out there that charge good money for coming in a correcting botched models, ones probably created by yourself and your contemporaries. Where do you think the term spreadsheet risk comes from, or End User Computing risk?

  • Comment number 98.

    80. At 12:15pm on 04 Aug 2010, Paul J Weighell wrote:

    "I have heard of daft firms wanting to be judged on their past cash flow when of course lenders need to be sure of future cash flow. I heard one company owner who objected to using his house as collateral but was quite happy to ask the bank to risk its customers' money instead. A business that claims to be ‘viable’ if it gets cheap credit is not a viable business at all yet many borrowing companies seem convinced otherwise."

    This is probably true, there are lots of non-viable businesses out there asking for credit - but don't stop your history lesson there - who created these businesses which were only 'viable' if cheap credit was available

    The answer was the combination of banks and Governments. You're history lesson only seems to start in 2009 - this has been going on for more than a decade. The loose lending of the past created these businesses - and I can guarantee that SME's taking out loans in 2004 weren't warned of "this cheap credit may not last forever" - because how else do banks make money if they scare their customers off.

    You see - living in a contradiction can be hell.

  • Comment number 99.

    82. At 12:22pm on 04 Aug 2010, rbs_temp wrote:

    "Indeed. Almost as embarrassing as having to admit that you're a computer programmer..."

    Interesting, the reason most people don't admit they work in IT is because the next question is always "I've got a problem, can you come round and fix it"

    However admitting you're a banker doesn't get "can you come round and sort out my finances"

    ...I wonder why that is?

    P.s. The moderators won't let me mention "the mortgage" anymore - so it seems you are merely just discredited - as long as you keep posting jokes that's fine.
    Just don't try to post anything serious as most people are now aware that you're prepared to "bend the truth" in order to support banking and share speculation.

  • Comment number 100.

    Posted on Robert's blog about Banking and Basel 3 but relevant here because under the present system, the only way the economy can get healthy again is for us all to become 'debt junkies' again. As others have said, the banks need to lend to business to get the productive economy going, and not take the easy option of supporting the property bubble.

    192 Up2Snuff
    198 is right about Fractional reserve Banking. Banks do create money from nothing, they created an extra £600 billion between 1997 and 2997 which mainly went into the property boom, and increasing debt levels.
    see http://www.legalforgery.com and http://www.bankofenglandact.co.uk
    The only effective limit on creating money is borrowers ability to repay capital plus interest, and their willingness to take on more debt. M4 money supply has gone up by 100 times since the early 1960s, almost matched by an approx 80 times increase in house prices. Is money destroyed when it is re-paid to the bank? In conventional theory yes, but the bank will wish to lend this money back out again. The original loan will also have ended up in another bank account as a deposit and used as a basis for more lending.

    Very straightforward example of Fractional reserve banking :-
    I deposit £100 with Halifax bank. They lend £90 of the £100 to someone who spends it, and the recipient of the money deposits £90 with Barclays bank. Barclays lend £81 to someone who spends it and the recipient of this money deposits £81 with Lloyds bank. Lloyds lend £73 to someone who spends it and the recipient of this money deposits £73 with Yorkshire bank. Yorkshire bank lend £65 to someone who spends it and the recipient of this money deposits £65 with NatWest bank. This process is known as the multiplier effect or ‘fractional reserve banking’ which are complex terms to describe a straightforward process of legal forgery. In the example above, a £100 initial deposit has generated £309 of new money. In reality more money would be created because the lending cycle would continue, so a £100 initial deposit could create £500 or more of new money. Each loan that is created can be converted into cash or used to buy goods and services so it is real money.
    The existing system can only continue by creating more debt money to pay back the existing debts plus interest. It collapses into bust or depression when we run out of good debtors, or their willingness to take on more. The debt can only be got rid of by paying back at very low interest, default, or inflation which is where we are now in the economic cycle.

    If anyone disagrees with this analysis, please comment.

 

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