Banking Guide Blog

Stress tests see how banks would cope with worst recession since WW2

Fri, 03 Jul 2009 13:12:09 BST

The FSA (Financial Services Authority) has carried out a series of stress tests on UK banks in a bid to see how they would cope if the economic situation continued to deteriorate. To do this, the FSA assumed the conditions of a recession that was the worst since World War II. Part of the reason behind the testing of the banks was to measure how well they would be able to withstand severe losses in the near future.

Many of the big names were tested, including Royal Bank of Scotland, Lloyds and Barclays, and a few of the harsh hypothetical conditions that they were tested on included:

an unemployment rate of 12%
a 50% drop in house prices
a 6% drop in gross domestic product
a 60% decline in commercial property prices

The FSA based the tests on hypothetical five-year models, but it wanted to make clear that these were not actual forecasts of where it saw the economy heading, but rather just a selection of worst-case scenarios to see how far the banks could handle the conditions. However, some economists have said that the conditions were actually quite similar to what could become the reality in the near future.

There has been a certain degree of secrecy surrounding the results of the tests, and the only bank to reveal its results so far has been Barclays. The FSA has stated that it will not release the results of any individual bank because the results will be used to determine their decisions surrounding future regulation. This has frustrated a lot of people working in the financial sector who want more details of how individual banks performed.

Challenging times ahead, according to HSBC

Fri, 26 Jun 2009 15:26:16 BST

The economic situation of the past year has seen a number of large banks go under, but HSBC, the biggest bank in Europe and one of the biggest in the world, has announced that it was able to withstand the worst of the crisis due to its conservative positioning.

Michael Geoghegan, the chief executive, said that “the rest of 2009 and probably much of 2010 will be challenging”, but the bank claimed that it is in a good position to deal with the challenges, due to its focus on fast-growing markets such as Asia. He also said that the bank did not perform too badly over the downturn because it took early preparations and positioned itself well in numerous markets, which helped it to “avoid the worst of the excesses.”

However, the bank also stated that it will continue to pay quarterly interim dividends and that signs of stabilisation were now beginning to show in the industry, as well as investors displaying a greater appetite for risk. But whatever the outlook for HSBC, it is still certain to feel some of the negative effects of the recession, simply because of the state of the economies in which it is operating.

HSBC has proved its ability to withstand the financial storm through its status as one of the most profitable banks in the world last year. It also announced that its first quarter profits were much higher than last year.

However, it’s not all good news as one of its weakest areas was the US consumer finance business where the bank lost billions of dollars over the last few years on sub-prime loans.

Huge change on the high street as big names vanish

Fri, 19 Jun 2009 14:47:02 BST

Three big names are set to vanish from the high street forever as the Santander brand grows ever larger. The three companies that will disappear completely are Abbey, Alliance & Leicester, and Bradford & Bingley, which will all be replaced by the Santander name.

There are a total of 13,000 branches across Britain between the three companies, and all are set to go in the next few years. The changes will come in at a cost of £12 million, and they will include getting rid of the logos as well, including Bradford & Bingley’s famous bowler hat.

The move is going to be a shock for many because of the long history that all three institutions have enjoyed in the country. Bradford & Bingley dates back to 1851, Alliance & Leicester goes back to 1852 and Abbey goes back to 1874.

However, the changes have been on the cards for a while. First, Abbey National changed its name to Abbey and now the names will disappear completely in a major re-branding exercise.

Reacting to the expected outcry from the loyal customers, Santander said that the changes would have numerous benefits for the customers, as their network will be expanded considerably and they will be able to use any Santander branch in the country.

At the top of the list of people’s worries were branch closures, and these will be inevitable. However, new branches are also set to open to counteract this. But job losses are certain to occur, and 1,900 jobs have already been lost during the combining of the banks.

Santander has said that “our banks are seen as a safe haven”, but whether this will make up for the loss of three major names on the high street is yet to be seen.

Credit ratings damaged by identity theft

Mon, 15 Jun 2009 15:25:04 BST

Identity theft is one of those anxiety-inducing events which many of us believe will never become a reality in our own lives. It’s a murky issue; most people are unaware of how it happens and only have a vague awareness about the tell-tale signs that may have occurred. However, the home insurer, LV=, recently revealed the worrying extent of this issue.

Approximately forty per cent of people surveyed by the company have previously been refused credit cards after being targeted by identity thieves. It is thought that half a million individuals in the UK have been treated in this manner after falling prey to identity fraud. On average, victims of this kind of fraud find themselves paying out over two thousand pounds in an attempt to clear their name through legal procedures.

The bad news is that LV= believes a further 440,000 individuals could be affected by identity theft over the next five years. The managing director of the company, John O’Roarke, stated that there has been a “massive increase in the number of people targeted by fraudsters”, a trend which illustrates the “importance of vigilance in protecting personal information and monitoring for any problems” that may indicate identity theft.

On the positive side, there are ways to guard against identity fraud. Personal documents or sensitive data of any kind should be shredded or thoroughly destroyed as soon as possible, PIN numbers should be kept secret, even from loved ones, and bank cards should be kept in a safe place. Furthermore, if you have even the slightest feeling that you may have fallen prey to identity thief, you should act as soon as possible. As with all such situations, it’s far better to be safe than sorry.

NatWest - yet another way

Mon, 01 Jun 2009 16:11:51 BST

Banking and saving when you were a child seemed so simple. You had one account and each week, you paid your one pound of pocket money into it and you saved. It was so easy. Fast forward to adulthood and you are now expected to decipher what seems like a million different solutions to problems you probably never realised you had. We must now compare, contrast and see through various different accounts, special offers and, heaven forbid, financial products.

You need to be clear on what you want, and this is not as easy as it sounds. If you are after a simple second account into which you can put savings, then it seems that you would require a simple solution. This will of course not stop your bank from offering you some alternatives.

Popular schemes include the default e-savings account which most banks now offer, and of course, cash ISAs which all banks offer and by now you will be pretty familiar with these. E-savings are popular because they operate almost as a second current account with a few limited stipulations attached. Nice and straightforward, but the low rate of interest receivable may put you off.

With the current interest rate at its lowest in recent history, it is easy to think that there is absolutely no point in saving whatsoever. Sometimes, simplest is best and if you are planning on using your savings account for rare contributions, but often need to siphon off cash from it to get you out of a mess, then you may be better with just a straightforward secondary account. It will pay next to no interest, but then you will only be receiving peanuts on a proper savings account anyway. For example, you are likely to receive around £42 a year for a full allowance of £3000 invested into a NatWest ISA. This sounds reasonable, but if you wish to receive payments into your account from family members abroad, for example, then this is not possible as a direct transaction.

This is one reason why you may choose not to go for some fancy savings package and just keep it “old school.” With a second account, you will also get a helpful debit card, which a savings account will not give you.

It is perhaps surprising to be treated like an important customer these days when one is seeking to open an account that will offer almost nothing to the issuing bank. NatWest Leamington Spa were most helpful and even offered tea and coffee to customers who were early for appointments. It is this level of customer satisfaction that will keep customers coming back when times become less challenging and money is available once more. Perhaps this is something that parent company RBS could learn from them also.

Recession sees Brits paying off debts

Fri, 22 May 2009 15:59:36 BST

New research has shown that Brits are taking advantage of the economic crisis by making determined attempts to pay off at least part of their debts. New figures show that during 2008, Brits paid back almost £40 billion of non-mortgage debt. This figure is significant, since it represents the first time in the history of the research that a larger sum of money has been repaid than has been recorded as fresh borrowing. It seems as if savings have been sacrificed in this quest to repay debts, with many Brits choosing to change their saving habits at a time of economic uncertainty.

The last few months have forced many individuals in the UK, and indeed across the world, to take a fresh look at the state of their personal finances. Cutting back on non-essential expenses has become the norm for families in Britain and many people are also looking to relinquish control of financial investments which are not providing a stable or reliable return. For example, endowment policies are being cashed in, or indeed sold, in an attempt to impose a greater sense of control over personal finances.

Whilst officials responsible for releasing the results of this new research have not been surprised by the findings that Brits are choosing to pay off debt, they have been shocked by the extent of the trend. It is not unusual to see consumers sacrificing the habit of saving in favour of paying off personal debts but the impact of the credit crunch across the country has been confirmed by the manner in which this pattern has grown over the last few months.