Wednesday 21 July 2010

UK banks and housing market on life support

From The Telegraph:

Nomura analysts in a presentation yesterday, pointed to last month's Bank of England Financial Stability Report [see page 51] as they warned of the funding crunch facing the UK's major banks. While the banks of other major European countries, such as France, Germany and Italy, face their own funding issues next year, none has to refinance anything like the same amount as the UK banks...

"UK banks face significant refinancing requirements over the next few years, as funds raised prior to the credit crisis mature," said Robert Law, co-head of banking research at Nomura, "Lloyds and RBS are undertaking substantial medium-term restructuring of their balance sheets. This target includes targets to reduce assets in nominal terms over five years [i.e. call in as many loans as possible and/or make fewer new loans] In our view, this restructuring is partly aimed at managing their refinancing requirements, as well as reducing wholesale funding an particularly the proportion of short-term financing within that."

... In the FSR the Bank of England admitted that replacing all this funding would be a "substantial challenge", and put the total figure on the amount that UK banks need to refinance by the end of 2012 at between £750bn and £800bn, working out an average monthly fundraising rate for the next two and a half years of more than £25bn. This is double the fund raising rate for the years between 2001 and 2007 of £12bn....


To put those figures in perspective, total UK residential mortgage lending is about £1,200 billion and total loans secured on commercial property are about £250 billion (from memory).

I'll be interested to see what the government does to try and keep the land price bubble inflated. Presumably they will just keep bailing out the banks and so on until the whole economy ends up on life support.

Spotted at Adam Collyer's.

8 comments:

dearieme said...

My guess is that our new government is scared to tell us frankly just how bloody risky everything is. They know it's Labour's fault; they'd love to rub that in; but they think we're too near to the edge of the abyss to risk doing it.

It's my further guess that most of the population hasn't a clue - not only in the general sense of being stupid, lazy and ignorant, because that goes without saying - but in the specific sense of not understanding what a particularly hazardous period this is.

bayard said...

So instead of the banks putting up the interest rates to borrowers and bailing themselves out, they are going to get the government to remove the same amount of money from borrowers and non-borrowers alike in the form of tax (25% VAT anyone?) and give it to them as a "loan".

Mark Wadsworth said...

D, it's quite simple - either bail out banks and try and prop up land prices; or allow the economy to recover.

B, exactly. It's all part of the Home-Owner-Ist ratchet. In good times, potential buyers hand over their money voluntarily, and in bad times taxpayers hand over their money under compulsion. Either way the Home-Owner-Ist Coalition (in particular the banks) come out on top.

James Higham said...

Big change a gonna come.

Steven_L said...

I just watched that 'Money Watch' program on BBC2. They showed that vicar who has started the savers activist group.

They were all banging on about low interest rates, it didn't seem to dawn on them that the low interest rates were propping up their house prices.

One of them reckoned that because the banks had been 'given' lots of taxpayers finest they should be using it to pay him more interest.

It didn't seem to occur to them that the 'taxpayers money' they were on about was all funny money created partly with the purpose of reducing the interest rates on their savings.

Like the guy said in the program, even if base rates do rise a couple of %, I bet short term deposit rates hardly budge. Then they'll be really mad!

Hopefully they'll jump ship and buy Vodafone stock.

Mark Wadsworth said...

JH, or not.

We'll probably choose option a) and go for "bail out banks and try and prop up land prices", to the overall detriment of the economy and birth rates, a bit like Japan has been doing for twenty years.

Mark Wadsworth said...

S_L, that vicar looked exactly like the Real Ale Fanatic from VIZ. Apart from that, his 'savers' were the most miserable bunch of NIMBY Home-Owner-Ists I have ever seen.

I bet if you offered them tax hikes on young people in exchange for Council Tax exemptions they'd jump at the chance - but if old people lose £18 bn interest income, thus effectively paying the Council Tax bills of younger borrowers, they spit feathers.

bayard said...

"until the whole economy ends up on life support."

i.e. everything will be nationalised again, just like after the war, except this time under a "Conservative" government.