MPC: Britain on the Brink of Recession

Britain could well be back into recession – warns a senior member of the rate-setting committee, Monetary Policy Committee (MPC). He said the economy’s recovery had been sluggish in the previous six months of last year.

David Miles states, “There is a risk the economy could fall back into recession, though I do not believe this is the most likely outcome.”

Official data shows very little growth in the country’s GDP – a mere 0.2% in the second quarter of last year – after a stagnant growth in the last six months.

Analysts are estimating a 30% chance of raising interest rates this year by the Bank of England (BoE). The economy’s recuperation is so fragile that they assume the possibility of the bank renewing its printing program in the hopes of boosting growth.

A study by leading British Trade Body, Confederation of British Industry (CBI) that polled British manufacturers showed a slump in confidence in the economy; factories are now preparing to axe jobs in the coming months.

The outlook was the most depressing; CBI chief advisor Ian McCafferty states, “The combination of political and economic uncertainty is sapping confidence” referring to the endless bickering over the United States’ debt ceiling and the eurozone’s financial crisis.

The British Retail Consortium confirms the absence of economic trust; 3,100 jobs have been cut in UK stores just in 2010. The manufacturing sector, which was the major performer in the first days of the economy’s recuperation, stooped down 0.3% in the second quarter.

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Virgin And NAB Pull Out Of Lloyds Purchase

Virgin Money and National Australia Bank are have pulled out of the race to purchase 632 Lloyds‘ branches, leaving the troubled bank with only two formal bidders NBNK and Co-operative Financial Services.

Both potential bidders are concerned over the quality of the assets being put on the market.  It seems that enthusiasm Sir Richard Branson, the boss of Virgin Money, shown earlier this year has turned into skepticism as the company is asking for more details regarding the process of its sale. It has also given the impression that it is more interested in Northern Rock’s assets rather than Lloyds.

Analysts point to another important factor that has lead to Virgin’s (as well as other potential bidders’) major turn off: the funding gap costing £20-30bn. The bailed-out bank is believed to have told future bidders about the expected loss amounting to about £10bn.

This isn’t the end of the matter though as Lloyds has until 2013 to finalize the sale and according to sources, Lloyds is mulling over de-merging the brands into separate units and floating on the stock market.

Earlier this year, the banking crisis lead to the sale of Lloyd’s branches including its TSB and old Cheltenham & Gloucester brands which were initiated to be put on sale by the European Union as a solution to the boost competition.

Lloyd’s boss, Antonio Horta-Osorio, faces some difficult options that are currently in hand: de-merge the business or agree to a low bail offer. Whichever he chooses, the financial industry will be watching.

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HSBC Survey Indicates Saver Apathy Among Under 25s

A survey headed by HSBC to cultivate personal finance among young adults, has shown that younger people know little about their savings compared with other age groups.

The study polled 1,000 respondents and concluded that 89% of people below the age of 25 have no knowledge at all of the interest rates on their savings accounts.

HSBC is partnering with Personal Finance Education Group (PFEG) which aims to educate youngsters with their finances by improving the quality and quantity of monetary teaching in schools.

The world’s third most profitable bank believes “that it is never too early for young people to begin to learn the basics of managing money and the importance of budgeting and saving.”

Despite saver apathy the study had shown a number of depositors under 35 showing importance in saving for their future.

Younger savers are not alone when it comes to a general disinterest in savings; 84% of depositors belonging to the 34-44 age bracket were also unaware of the interest rates on their savings accounts.

The think-tank knows people with savings can stand in the midst of crisis compared to those don’t and get trapped in debt.

As a panacea to this impassiveness, the Social Market Foundation came up with an incentive to re-awaken people’s interest in saving: a “no lose lottery” system which automatically adds 50% to a depositor’s savings with a chance to win a prize fund.

It also proposed a savings smartcard that would allow people to put small amounts into savings accounts at various locations, such as supermarket checkouts, and for tax relief on pensions to be scrapped.

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Financial Advisers Allegedly Switching Pensions to Boost Commissions

Financial Advisers are allegedly switching pensioners from one plan to another in order to gain commission, a report by Consumer Focus reveals.

According to the study, consumers are being told to shift to different pension products with considerably high risk or charges. These fees rip thousands of pounds off a pensioner’s fund.

Consumer Focus calls this trend of charging ongoing fees “trail commission,” which financial advisers seem to be taking advantage before stringent rules on financial advice will be implemented next year.

In addition to the details, consumers don’t have a clear understanding of the purpose of the remuneration whether it was for ongoing service or deferred commission. Worse of all, half of consumers who are paying for the life of the product – some even decades (and paying trail commissions in that span of time) never had any real service from an IFA. The consumer watchdog reports that consumers are not happy with the additional fees it charges on their pension pot.

Consumer Focus calls for the city watchdog to “get a grip on this market and tackle consumer detriment as soon as possible.”

Independent Financial Advisers receive between £200 million and £800 million in commission annually from pension providers, a quarter of that commission included trail commission.

The IFA industry commented on the other hand, that the claim that was based on 31 cases that came with “no attempt to assess the value of the advice given” which all did not validate the conclusion. It pointed its finger instead to banks who “are by far the worst offenders disguising charges and commissions” and “use poorly performing internal funds” to gain profit.

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Commission Based Renumeration Under Reform

The Treasury Select Committee (TSC) and the Financial Services Authority (FSA) are reforming rules on financial advisers and their commission-based remuneration, ahead of their 2013 deadline in a attempt to tackle root cause of the mis selling of financial products.

One such change, would be stricter qualifications for an IFA like having a certificate in Higher Education. The FSA’s Retail Distribution Review (RDR) whose aim is to “fix persistent problems in the retail investment industry by implementing higher industry standards”, will start banning commission for IFAs – the root cause of bad advice and improper selling – and replacing it with a “Consumer Agreed Remuneration” instead.

New regulator Financial Conduct Authority (FCA) stated that the reforms needed to be implemented as soon as possible, since its improper selling scandals, practiced in recent years, along with an absence of consumer trust, had crucially damaged the investment industry’s name.

The Treasury Select Committee (TSC) chairman reiterates the regulator, saying that its predecessor, the FSA, “is right to reform the financial advice market… Given the past problems of mis-selling we welcome the banning of commission and the introduction of a clear market price for advice.”

Meanwhile financial firms like Cooperative Financial Services (CFS) and HSBC have axed several of their IFAS in response to the stern changes on commission-based advice.

HSBC, who holds the strongest capital during last week’s stress test, had cut 700 jobs in

preparation for a fall in financial advice demand and Cooperative Financial Services (CFS) a subsidiary of the Co-operative group, trimmed 670 of its door-to-door sales team.

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Huge £32,799 Payout for Mis Sold PPI and Unfair Credit Card Charges

Leading PPI Claims Company, PPI Refunds UK, has successfully reclaimed a whopping £32,799.63 for a customer for mis sold PPI and unfair credit card charges.

The customer, Mr William Robb, made a speculative inquiry about reclaiming PPI in August 2010 after hearing about the mis sold Payment Protection Insurance scandal in the news, and hoped that PPI Refunds would be able to assist him in recovering PPI on his MBNA credit card.

After the initial inquiry, the PPI Refunds UK team contacted MBNA and asked for a copy of the Mr Robb’s credit agreement and also a copy of all credit card statements with a view to claiming back any unfair credit card charges as well as the mis sold PPI.

After many months of negotiating the perseverance and expertise of PPI Refunds UK paid off as Mr Robb was awarded

£9,671.95 –  for PPI repayments made to MBNA

£18,732.86 – for interest charged on the PPI premium

£4,352.85 – for statutory compensation at 8% per annum

£41.97 – for unfair credit card charges

£32,799.63 – TOTAL RECLAIMED

Upon hearing the news, Mr Robb was delighted with the result and even offer to take claims manager Rex on holiday!!

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British Banks Pass Stress Test

The Financial Services Authority (FSA) is happy British banks have passed the stress test held last week.

HSBC holds the strongest among the group, while Royal Bank of Scotland (RBS) passed a little over the passing score, just a 0.4 above percentage point. RBS came near to being put in the danger list.

Their Spanish and Greek contemporaries were not so lucky; 8 out of 90 European banks including five Spanish, two Greek, and an Austrian firm, failed to meet the European Banking Authority (EBA)’s criteria for withstanding an economic downturn from falling short of €2.5bn of shareholder reserves.

European Union stress tests were performed to discriminate those financial institutions who can stand in the middle of an economic meltdown through their capital reserves (which amounts to at least 5% of their assets) from those who can not.

5% was the minimum score that makes banks pass and those that fell under that mark were put under the watch list where UK bank RBS thankfully escaped.

The city watchdog was pleased to see the fruits of their labor; Britain was the first to initiate a capital raise back in 2008, putting fresh capital worth billions of pounds into Lloyds and RBS.

“The results support out own stress tests and we are pleased that the major UK banks have capital above the minimum with a 25% reduction in ratios. Only Greece, with a 40% fall, was worse affected under the scenarios.”

Meanwhile, weakest scorer RBS criticized the examination for “not being fully consistent with internal results and may not reflect business changes for groups in transition” like the bailed-out bank.

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Banks Should be Held Accountable for Selling Flawed Financial Products

Former deputy chair Dame Deirdre Hutton spoke at the city regulator’s meeting on the Financial Conduct Authority insisting the banks that first created these “flawed” products should be held responsible, believing that issues on liability always lie between the consumers and the financial adviser who sells these products. Stating “If an IFA is given a duff product to sell then I think the manufacturers bear some liability.”

She raised her comments after the subject of consumer responsibility was brought up and continued that she “would like to see customers taking responsibility” but points to how much an obstacle it would be on putting the liability on the consumer who does not want any responsibility.

However, the matter was rejected by the FSA’s panel vice-chair Kay Blair, saying that consumers should at least own some responsibility for choosing the products and acquiring them.

She continued, “The financial services industry is very keen to heap additional and often hidden risk on to consumers through hidden charges and now it wants to heap additional responsibilities on them.”

Blair states that “living in an age” of “very complex and sophisticated financial services industry can run rings around consumers”… dismissing any added blame being put on consumers.

I think consumers need to be better educated on how financial products are structured and are aware that the banks, like any other business, will sell you anything (whether you need it or not) in order to make money. The banks have taken advantage of the consumers trust for long enough… and without punishment, however, consumers do need to take some responsibility, especially if they continue to be pressured into taking products they don’t understand – research, understand, compare similar products and most importantly don’t be afraid to say “NO”.

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New Economics Foundation Criticizes Reforms on Ring Fencing Banks as Not Enough

Research organization, New Economics Foundation, has criticized the reforms on ring fencing banks as “not enough” to cure the problem of Britain’s financial services industry which operations and its impact on the economy and its players (small businesses, taxpayers and consumers) is not thoroughly addressed.


At the recent Good Banking Summit, it labeled the proposal of separating the firms’ reserves and loan operations from their risky investment banking as simply “too narrow” of an approach in trying to revise the financial industry’s operations.

It said the proposed reforms do not give solution to the problem which was “too big to fail,” and that it was the taxpayers who often pay a costly price for their failure, to point the bailed out Royal Bank of Scotland (RBS).

Not only that, the think tank also criticizes the lack of reforms on the banks’ “culture of excessive remuneration” and tells wage process should be framed after John Lewis’ remuneration framework – even distribution and collective endeavor-based.

In addition, Britain’s over dependence on its overweight or ballooned financial industry (which makes more money than its government) continually exposes the country “to financial frailty and economic collapse”

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RBS Chiefs Waste £8000 of Taxpayer Funds in Lavish Spanish Restaurant

Part tax-payer owned Royal Bank of Scotland‘s chiefs have been spotted eating at an extravagant ?200 per- person restaurant at Costa Brava, Spain, spending ?8000 of taxpayer funds on a 30-course meal… another example of unashamedly extravagant spending in by the bankers in times of austerity and economic uncertainty for the rest the us.

Apparently insensitive to how much the taxpayer is being squeezed on their budgets, the lavish spending received protests from taxpayer group, TaxPayer’s Alliance, which stated that it was simply preposterous that the bank, who is on taxpayer support, would even continue exorbitant spending where “they have lost their rights to treats like this when they got taxpayers to bail them out”, the group’s chief executive Matthew Elliott says following up with  “They should be working to get out of public ownership, if they want the freedom to dine where they like”

News of the feast surfaced following the bailed-out bank’s whopping ?260,000 hospitality spending for its senior staff and clients at Wimbledon.

RBS defends that they were only trying to win more clients and new contracts for the bank so it was their “duty to entertain powerful business people” even if it had to “unwittingly” spend a lavish portion of their supporter’s money.

It should be a point to look at, too, that the famous El Bulli Restaurant at Costa Brava, Spain only books limited persons to dine in with their restaurant – in fact, one out of the 50 visiting diners, which would total to 500 – would have been refused – making those big fat cats (and their guests) among the fortunate few.


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