EU SET TO SCORE OWN GOAL ON BANKERS BONUSES

The EU seems set to approve a new cap on bankers’ bonuses, limiting them to no greater than the amount of the basic salary. This is set to not only hurt the EU, but particularly the UK interests. 

London is a major world financial centre, with the UK benefiting from the enormous amount of international trade flowing through. 

As it stands, the proposed new rules don’t just affect the European employees of EU domiciled banks but also their employees worldwide. This would hand such a competitive advantage for banks based outside the UK. For example, JP Morgan (an American bank) would only have to apply this rule to their EU employees and not for their employees outside the EU. So, long term, what’s the point in London based banks, with substantial activities outside the EU staying in the UK?

Banks don’t have to be in Europe to conduct successful business in Euro denominated finance. There are plenty of alternatives that would welcome the opportunity to take London’s place – New York, Hong Kong or Singapore, for example.

Michael Fallon, the Enterprise Minister said ”There is a very special risk we have here in the UK, which does not apply to any other European country, which is that we have major international banks that are based in London but have branches all over the world..…we need to make sure that any regulation that applies across Europe is flexible enough to allow those banks to continue to compete from London”.

Don’t the Lawmakers of the EU get it? We’re in a global economy – yes, legislate about bankers bonuses, but make sure the rules are fair.

Tim Corfield

Straightalkdebt

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If you are Ambitious – Tidy your Desk!

The resident life coach for NHS online, Jayne Morris has recently reported how much of an impact a simple operation like keeping a tidy desk can have on a business.

Ms Morris reports “having an untidy desk covered in clutter could be stopping you achieving the business success you want”. She recommends that anything that it no longer used should be thrown away completely. It is no good just moving the mess around – unwanted items need to be thrown away.

Tim Corfield

Straightalkdebt

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Weakness in Economy Continues

Disappointing figures have recently been issued showing continued weakness on the High Street. The volume of sales fell 0.6% in January (compared to January 2012).

The Governor of the Bank of England, Sir Mervyn King has recently said that spending will have to shrink before the economy corrects itself. “There is no point trying to persuade people to spend in the way that they were spending before the crisis”.

Sir Mervyn has also warned that inflation will also remain high for at least another three years. Average earnings are back to 2003 levels according to the ONS (office of National Statistics) and in the last three years real incomes have declined as inflation has risen faster than wages.

This is inevitably going to put pressure on retailers. The decline in January’s sales was affected significantly by a sharp 2.6% fall in food sales – the lowest level in almost nine years.

Tim Corfield

Straightalkdebt

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Bankers Warn of EU Backlash

George Osborne has been warned by top bankers that anti EU rhetoric that pushes the UK further from the core of Europe could well harm the city.

Any new deal to be negotiated between the EU and the UK repatriating powers could risk retaliatory moves against the financial services particularly by France and Germany.

Any deterioration in trading relations with the EU may put pressure on international banks to move jobs and operations to mainland Europe damaging the UK.

One banker commented, “You have to be worried, generally, about Britain distancing itself from core Europe and what the ramifications are for the financial services sector”.

Other major business leaders, including the president of the CBI, have recently highlighted the dangers that any confrontation with the EU poses and long term damaging effect it may have on the UK’s economy.

Tim Corfield
Straightalkdebt

HOUSEHOLDS BRACED FOR 2013

Happy New Year! 

A survey carried out by Markit last month showed that 43% of households expect their finances to worsen this year against 24% who expect their finances to improve.

Without a strong rise in consumer spending it is unlikely there will be much real growth in 2013. Businesses held back investing in plant and machinery throughout 2012 and this is likely to continue if consumer spending remains subdued. 

Begbies Traynor have highlighted that around 140 high street shop chains could go out of business in 2013 without any increase in high street spending. These stores remain highly geared and will be seriously affected by the consumer continuing to bargain hunt and shop on-line.

A spokesman for Markit said ‘Households are bracing themselves for yet another year of squeezed personal finances in 2013. The vast majority of households anticipate that their financial wellbeing will either worsen or stagnate in 2013. With three quarters of all households not expecting any improvement in their finances, the latest survey suggests that domestic consumer demand will remain under pressure in the near term, especially since inflation perceptions remain elevated and job insecurities are prevalent’.

Tim Corfield

 

NEW RULES FOR FINANCIAL ADVISERS

With effect from 1^st January 2013 IFA’s (Independent Financial Advisers) will no longer be able to draw commissions from customers. These new rules are being introduced under the Retail Distribution Review (RDR). Instead, IFA’s will only be able to charge on a fee basis – very much like an accountant or solicitor. Under the commission basis payments are made (which can be worth thousands of pounds) on the sale of various life insurance, pension or other investment policies.

This change is likely to have a significant impact on an industry already under pressure from changes in recent years. There are presently close to 50,000 people selling investment products in the UK which includes those employed by the banks and building societies. Around half of these operate as IFA’s, often as sole traders.

It is likely that for many of the smaller IFA businesses this will result in a sale or retirement and there will be fewer IFA’s in future. Inevitably this will result in the larger organisations surviving as smaller firms are taken over or go out of business.

Tim Corfield commented “Whether intended or not, this will leave much of the industry in the control of the banks and building societies and fewer people will receive financial advice in future”.

Tim Corfield - August 2012

DEBTS SOAR FOR OVER 55’s

Recent insolvency statistics make grim reading for the older generation.

In the second quarter of 2011 the typical debt level for the over 55’s was just over £17,000. By the second quarter of 2012 the figure is now nearly £25,000 – an increase of over 30%.

Tim Corfield commented “Yes, the figures are worrying. Research also shows that the cost of living for pensioners has risen by 20% due to food inflation and the increasing cost of household utilities. This is the wrong time of life to have financial problems. Let’s hope the insolvency and debt industry can make a better job of assisting these people than their lenders ever did”.

Tim Corfield - August 2012

Are our MP’s pro - business?

Yes, G4S got things seriously wrong with their Olympic security shambles.

But, I am sympathetic to the comments made by Neil Woodford, Investment Manager at Invesco Perpetual which owns around 5% of G4S’s shares.

Woodford said the verbal dressing down of Nick Buckles (Chief Exec of G4S) at the select committee meeting last month was like watching “a medieval persecution….if this is the way Parliament wants to treat business, please Parliament, don’t be surprised when businesses decide this isn’t the country for them”.

He went on to say that the behaviour of MP’s was “incredibly damaging for the economy and this country…..Companies will be thinking twice about bidding for any government work”.

It’s just too easy for politicians to have a cheap sound bite swipe at business which they think will go down well with the majority of the electorate. We’ve seen it so many times before. It would be so refreshing to see politicians recognising that we need to send a message to the global economy that the UK is open for business and looking for more.

Domestically, it is ultimately down to business to get the UK through this economic mess that has been created by the politicians! – A little bit of support from time to time wouldn’t be a bad thing.

Tim Corfield - August 2012

WILL THIS BANKING INITIATIVE WORK?

The latest Government initiative to get the banks to lend money has recently been announced by the Bank of England and the treasury under the “Funding for Lending Scheme”.

Under this scheme UK banks and building societies will be able to raise funds for about 1% less than they currently can in the market.

The thinking behind this is that this cheap money should be passed on the households and businesses in lower borrowing costs bringing a quicker end to the recession. The scheme will work by incentivising lenders to compete.

George Osborne said it would “inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy – showing that we are not powerless to act in the face of the Eurozone debt storm”.

The banks have always said that the major stumbling block for lending money was that businesses presently do not have the appetite to borrow.

However, any credit easing has to be welcome.

Add to this the relaxation of the banking liquidity rules and the additional £50bn of QE and the measures could add up to a helpful package.

With the worsening Euro crisis lending has fallen and borrowing costs risen - uncertainty associated with the problems in the Euro area have simply exacerbated the problem.

According to a Bank of England report “some firms were unable to obtain credit at any costs” and resorted to raising money “wealthy individuals”. This is clearly a very difficult situation for small business’s to operate within.

The scheme will let UK banks and building societies swap difficult debts for treasury bills at a fee starting at 0.25%. This fee will increase if lending is reduced so therefore the more lending the bank does the bigger its interest margin and the easier it is to outprice competitors – easy!.

Tim Corfield says “any initiatives in this area have to be welcome. However, I suspect that until confidence is resorted many businesses will not have the appetite for investing. Bank credit decisions also would not have changed and given that the balance sheets of many small or medium size companies have deteriorated over the last few years the banks may not see sufficient security for their lending”.

Tim Corfield - July 2012

FRENCH PRESIDENT TO CARRY OUT HIS PLEDGE

The new French President, Francios Hollande has recently raised taxes by 7.2bn Euros for this year, and more to come next year as he laid out in his election pledge.

The wealth tax is to be increased with a one off levy this year. Under the wealth tax anyone worth more than 1.3m Euros pays further tax.

Inheritance taxes are also set to rise.

There are also new taxes aimed at banks, dividends, bonuses and big business.

Properties owned by foreigners are also going to be further taxed. Any income above 1m Euros is now set to be taxed at 75%.

A recent poll of the French showed that 75% were in favour of these increases in taxes for the wealthy.

Jean-Philippe Delsol, a French tax lawyer said there is a “considerable increase” in wealthy clients who are prepared to leave France. There was particularly an increase in younger entrepreneurs interested in moving to London.

Delsol calculated that some high net worth taxpayers would pay tax at marginal rates in excess of 90%. He went on to describe the measures as “scandalous” and compared the regime to “pre Thatcher” UK under Harold Wilson.

“The more you tax the rich, the less it brings in”. This is because the rich adapt, they leave, transfer their money into capital, sell their affairs, work less, and move. This is a punitive tax, not productive tax” Delsol said.

It will be interesting to see what effect this has in France. It should at least stimulate the industry of tax avoidance!

Tim Corfield July 2012

WHAT CAN WE LEARN FROM SPAIN’S BANKING CRISIS?

Spain’s banking problems lie with the regional banks (the cajas) that lent all the money to property developers to fuel the boom times.

In theory, the cajas sound good – they are small, local and focus entirely on retail and commercial banking, lending to local businesses.

Almost all of these banks were controlled or influenced by one of Spain’s local governments. The politicians in power would have voting rights in its local cajas and would also sit on the board of the bank and nobody in Madrid bothered too much about it whilst all was well.

There were about fifty cajas – now reduced to ten. It is now becoming clear that the local developers were in cahoots with the local politicians. Public sector construction works would be won by ‘favoured’ contractors who would receive loans from the bank.

Investigators are trying to get to the bottom of the value of all of the loans – but don’t hold your breath – this is likely to take years. And this is the problem at the root of the banking crisis – nobody seems to know the extent of the losses on the bank books. The practice in Spain has been for the banks to largely provide their own valuations!

We’ve seen recently George Osborne unveil the final details of the reforms to the UK banks proposed by the Independent Commission on Banking. Essentially, the retail arms of the banks are to be separated from investment banking. But, won’t these new ring-fenced banks look a bit like the cajas of Spain?

The UK banks that have failed, Northern Rock, Bradford & Bingley and HBOS were all pure retail banks.

The real security lies in making the banks stronger – holding more capital and liquid reserves which they now do.

Tim Corfield June 2012

UK OUTLOOK JUST GOT GLOOMIER!

The UK’s hopes of rapidly escaping the recession were dealt a series of blows last week.

Producer output prices rose by larger than expected at 0.7% on the previous month according to Office for National Statistics (ONS) data.

A contraction is the construction industry was also stated to be considerably worse – 4.8% compared with the previous 3 months, rather than the 3% initially reported.

The ONS said this revision is likely to increase the originally reported contraction of the economy for the first three months from 0.2% to 0.3%.

An economist at the RBS said “As a number of large scale construction projects, such as work on the Olympics have come to an end and public sector cuts have begun to take their toll.”

The level of activity going forward could remain low.

There is also an index from Nationwide which show that consumer confidence has declined in April as people became more worried about their jobs.

Tim Corfield - May 2012

YOU TELL ‘EM CHRISTINE!

In a hard hitting recent interview with the Guardian, Christine Lagarde, head of the IMF insists its payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country’s austerity package.

She says Greek parents have to take responsibility for their children being affected by spending cuts. “Parents have to pay their tax” she says.

Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and The European Central Bank.

“I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens”.

“As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time”.

Legarde says she thinks equally about Greeks deprived of public services and Greek Citizens not paying their tax.

In recent days the caretaker Greek Government has met to discuss sharp fall in tax revenues – down by one third in a year. Under the terms of the country’s bail out, Athens has agreed to improve Greece’s poor performance for tax collection in order to reduce its budget deficit.

These comments come at a time when most recent polling in Greece is pointing in favour of the anti-austerity parties.

Tim Corfield comments ‘all the problems of Greece were known before the Euro adventure started. Politicians have a lot to answer for here – and what about Spain?.’

Straightalkdebt.com

LOSS OF INCOME TOP REASON FOR DEBT PROBLEMS

Figures from DEMSA (Member of Euro Debt Financial Services) have carried out an annual survey showing the reason why people get into debt problems. The top reasons are as follows;

• Loss of income (i.e. one breadwinner losing their job or having a pay cut or reduction in hours) - 23%
• Spiralling debts – where one credit card or loan is used to pay off another - 23%
• Poor financial management - 15%
• Divorce or separation - 10%

A spokesman for DEMSA said “There is no doubt that many consumers need help managing their finances and taking control of their debts”.

Tim Corfield comments “These statistics reflect what we find in practise. The important thing for any person who feels they are struggling with debt is take professional advice. We suggest they call a local Insolvency Practitioner and have a no obligation discussion, preferably face to face as soon as possible to see what their options are “.

WHO SAYS FOOTBALLERS ARE THICK?

John Carew, the former Aston Villa player has recently been on the wrong end of a bankruptcy order in the High Court following a petition from HM Revenue and Customs.

Last year, Carew reportedly had a tattoo misspelled on his neck. It was meant to say, in French - “My Life, My Rules”. Unfortunately, for Mr Carew there was a misplaced accent and what was actually tattooed was written as “My Life, My Menstruation”!

Tim Corfield

Business Failure Rates Expected to Rise 10% Over the Next 2 Years

Business failures are set to rise by up to 10% over the next 2 years according to a study by BDO LLP recently.

Some 23,600 businesses collapsed in 2011. This is expected to hit over 25,000 in 2012 and nearly 26,000 in 2013 according to a BDO survey.

The pessimistic forecast is based on lower levels of consumer consumption arising from weaker earnings growth and rising unemployment.

Construction and property, business services and retail and wholesale are the three sectors to suffer the most during 2012.

Technology, media and telecoms and manufacturing are ear marketed as the sectors likely to grow.

A spokesman for BDO said, “Businesses that develop innovative products, distribution channels and a strong customer proposition will gain significant competitive advantage – irrespective of sector. Those who do not respond to the new normal are at a greater risk of falling into difficulty”.

The report also predicts that after 2013 failure rates will start to decline.

Tim Corfield May 2012

MIND THAT ELEPHANT IN THE ROOM!

Spain’s King Juan Carlos has recently shown his complete inability to grasp the crisis at home by taking a holiday in Botswana to shoot elephants and other exotic animals.

“We all have to tighten our belts a bit because of the difficult times for the economy” the King told his subjects a few months ago,

The holiday was estimated to cost £8,000 a day while he as on his hush, hush, all expenses paid, hunting trip.

Unemployment has reached 24 % in Spain and the economy is heading towards a double dip recession. The monarch claims he lay in bed worrying at night about the plight of the jobless….

Tim Corfield May 2012

UK’S AAA RATING CONFIRMED

Standard and Poor have recently confirmed the UK’s AAA credit rating but have also warned that the Government’s austerity drive would continue to drag on growth for years to come.

S&P said the outlook for the UK’s AAA rating was “stable”.

George Osborne said S&P’s decision was a reminder that without austerity the UK would be lead into “an economic catastrophe”.

S&P acknowledged that household spending would be hit by weak wage growth, rising unemployment and a weak housing market.

Tim Corfield - May 2012

EUROZONE HEADS FOR ANOTHER CRISIS

“The problem is solved” said French President Nicholas Sarkozy just five weeks ago but we have seen recently that Spain is the next Eurozone country facing a crisis.

Spain is the fourth largest Eurozone economy and the twelfth largest in the world.

• Spanish GDP last year was almost five times that of Greece.

• Unemployment in Spain in March hit a record of 24% which is by far the highest in the industrialised world and more than doubles the 10% Euro average.  

• Almost one half of Spain’s young people are unemployed.

• Over 8% of banking loans are not being sustained.

In a bid to boost employment the Spanish Government passed new laws making it easy to cut wages and lay people off. The Spanish Unions have responded with a general strike and there have been serious political protests.

Spain has now tipped back into recession with GDP shrinking in the first quarter. The Government predicts a 1.7% contraction in 2012 which many analysts consider optimistic. As the economy slows, tax revenues fall and welfare payments rise which makes the fiscal position worse. The Government admit that the public debt will hit 80% of GDP by the end of the year.

Spain must repay nearly 12 billion Euro Bonds by the end of April and another 13 billion Euro loan at the end of July.

I hope Sarkozy has this all under control. The King of Spain obviously isn’t too bothered – he’s managed to get away from it all with a bit of elephant hunting!

Tim Corfield - May 2012

TASKFORCE WARNS OF BUSINESS FUNDING GAP

Business may face a £190 billion funding gap within 5 years unless more is done to stimulate lending - a Government backed taskforce warned recently.

Many small businesses are struggling as banks rein in loans. The committee, lead by Legal & General boss Tim Breedon warned that problems will intensify when demand for credit increases as the economy expands in recovery.

The report predicts that demand from businesses for credit will outstrip supply by at least £84 Billion and up to £190 Billion over the next five years.

This report comes at a time when George Osbourne has intensified his efforts to make funds more accessible to SMEs.

Tim Corfield April 2012