Pound gaining on the Euro - V slowly

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Wayne, Couldn't agree with you more.

All banks - without exception - have no ethical motivation or sense of responsibility whatsoever, however much they try to convince you with rose tinted advertising. They will screw you for all they can, however they can, when they can and they get away with it, because... where you gonna go? To another bank? They're all the same. The business model that banks were originally built on is still in place 300 years later.

They'll give you an umbrella when the sun is shining and demand its return if it starts raining.

They are all profiteering b'stards. (wanted to use a stronger term but it appeared as 'ladies bottom')

Rant over.

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jzBun, actually you are quite right, I have seen some shocking decisions by banks in withdrawing or not extending credit to companies, forcing them to fail and then the bank simply sells the assets at 50p in the pound so that they can get their loan investment back - all without being too bothered that their 'client' has lost 50p in the £ and been made bankrupt. The banks were a big part of all of this and are now carrying out some sharp practice to regain their losses at the expense of fundamentally sound businesses.

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Ahh so what you are saying is...

Banks are unethical because they only lend for profit.
And if the profit is taken away because they lend to people who can't afford it, they know that they will be bailed out. So they lend to people who can't afford it.

And therefore the banks (and by extension the bankers) are to blame for all our ills.

So anyone who over-borrowed, over-spent, didn't consider the consequences, and gambled that it would all be fine, without a moments thought for their own personal responsibility for their own financial situation, is completely absolved of any blame whatsoever because the nasty banks advertised it so.

That's the problem these days, no-one (and yes, I include bankers) takes ANY personal responsibility for ANYTHING that they can blame on others.

OK, it may sound like a race to the bottom, but don't assuage your own guilt (or that of the reckless if you consider yourself well versed in risk analysis) by apportioning blame without admitting it takes two to deal - one to offer, and one accept.

Those now unable to pay back their debts (yes: THEIR debts) have clearly not understood the risks - by which I mean both components, likelihood and impact - have not considered a 'plan B', and are just as culpable as the bankers.

Sorry if that sounds harsh, but I get fed up with people excusing an uncontrolled emotional response to the "I want more, and I think I deserve more, so I'm going to have more" culture we now live in by blaming "the bankers".

(And if you lost a few grand on a holiday that you didn't get because someone else went bust - there is a degree of sympathy. But what have you really lost? - a holiday.
If as a result you now can't afford your rent or repayments on the house, then guess what: you shouldn't have been spending the money on a holiday in the first place. )

</rant> (I think...)

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jzBun, and it is the banks fault that you don't own a raincoat?

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JimW, a local business man had assets of £200 million a few years ago (largely commercial property) and his loan account was $80 million for which he was servicing the interest payments (bank's profit). Property values fell and the bank instigated a revaluation of the asstes by its 'friendly' valuer and those assets were revalued recently at £120 million - this meant that he breached his banking lending covenant so the bank required him to repay his £80 million loan facility (which he could not for obvious reasons) which effectively meant the bank took over the assets. The bank it seems has set up a sale to a 'friendly' purchaser in the sum of £80 million (the debt). Effectively a company has picked up the assets for £80 million that were recently worth £200 million (they will rise to that in a few years in accordance with the recognised cycle of peaks and troughs of property valuation) or if you like a fire sale valuation of £120 million or probably £150 million of assets if disposed of over a normal period required for such sales.

This is what I alluded to above and is very bad banking practice and a way for the banks to reduce their book debt without giving a poo-poo about the rights or wrongs of it

edit - sorry forgot to mention the friendly purchaser was the bank itself - RBS (or a spin-off) http://www.thisissouthwales.co.uk/news/Property-tycoon-devastated-business-empire-collapses/article-2566368-detail/article.html

Wayne,

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scotia, If you have a raincoat you probably wouldn't need an umbrella (metaphor in overdrive now).

JimW I'm not referring to mortgages (I agree with what you say) I'm referring to business and the imbalance of power. I hear time and again that a bank has agreed to a small loan/overdraft (maybe £10k) for a small business but only if the owner of the business secures the loan against his/her property. Most owners, wisely, said no but it just illustrates the banks' attitude to lending and their no-risk strategy. If the business they lend to does well they get a healthy chunk of interest; if it goes belly-up they get the house.

If the banks were up front about their lending policies I'd have no problem. We all work to make money. But they don't. They lie. Banks spend many millions of pounds trying to persuade us that they care: they don't. If you're an SME they don't give a shite as long as they make money. It makes me want to throw-up when I see the endless 'Business banking' adverts extolling the virtues of the ethical, caring, expert, matey business advisor. They're not business advisers, they're known as profit centres.
,

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jonty, You make some valid points- there was a book written by a guy called Ron Chernow (I think) called death of a banker- It's a historical look at real realtionship banking annd the story about John Pierpont Morgna the founder of JP Morgan and deatils how he founded his bank and empire on realtionships. Too many banks now rely upon credit scoring and points totals rather than seriously analysing whether a deal/puchse/transaction is actaully feasable. The French, far from perfect do a lot of theri banking based upon cashflows -i9f the cashflows do not work they will not lend. This is a good place to start Cool

Personally I blame a herd instinct for banks to over compete, under margin and over charge together with a suicidal tendency to pander to city analysts who who seek short term gains at the cost of long term performance.

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jzBun, rayscoops, I do hear what you are saying , and yes I don't want to come across as a defender of certain immoral practices of the banks. Lying isn't a good place to start any relationship.

But tell me: why did example (1) have a loan of $80m in the first place that he couldn't service? He took a risk - perhaps he'd even calculated the odds of the economic circumstances turning against him, and the likely consequences. So when it hit the fan, time to pony up.

Now I'm not going to disagree that the rules for lending of the money were all one sided - but I would argue that that was a known factor before he signed the deal.

We can't have it both ways - if the banks lend money without risk assement and to all and sundry, they get it in the neck when the defaults happen and are accused of being cheating lying scum.
If they DON'T lend the money because they assess the risk at a certain price (and the business/individual they are lending to probably asseses it differently and says no thanks, the price is too high) then they are accused of holding back growth potential and opportunities. And being cheating lying scum.

Where I think they do get it very wrong is the fact that they vaciliate between extremes - either lending to everyone, or to no-one: I agree with Jivebaby that most 'bankers' now are nothing of the sort, and rely on generic and inappropriate scoring sheets to make decisions rather than have any relationship or knowledge of risk based assement. "Computer says nahh".

And so they just do what they are told, under whatever rules are put in place at the time.

But that still doesn't mean caveat emptor no longer applies, and one would hope that having seen what happens when you borrow without planning, people will be more circumspect, and only spend what they can earn, or risk what they can lose.

And on that note, can I borrow half a million to build a runway for the pig squadron? wink

You know it makes sense.

Otherwise you'll just go on seeing the one name:

Any views on the pound vs. euro guys? rolling eyes

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sideslip1, that's what comes of editing your posts during typing - what I wrote to start with was " .... couldn't service when the going got tough".

what I guess I meant was: It appears from Rayscoops post that yon businessman hadn't factored into his loan of 80m that the asset he was borrowing against may reduce in value, and hence may have caused him to breach his convenant.

I.e. a simple pause, and check the small print "hmm what happens if the banks think my assets aren't worth what they are now?"

- and of course we don't know the details, so it is hard to say if the so-called 'bank friendly' valuer was accurate (in which case the bank had every right to protect its shareholders - that's why they set the deal up that way) or if he was being overly pessimistic, then raising 80m from the sale of part of the estate would have proven the point (and yes, I know, it isn't that simple to arrange a sale ...)

On a lighter note:
The old saw used to be: "If you owe the bank a thousand pounds, you've got a problem. If you owe the bank a million pounds, they've got a problem".
They seemed to have factored that out these days...

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rayscoops,

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JimW, he could service the loan and never failed to make the interest payments, his company was making up to £1million profit after all costs including interest payments - the bank pulled the plug because he broke his specifically set banking covenent 'debt to equity' ratio not because he failed to service his debt. The bank employed its own surveyor firm to value the property portfolio and these guys grossly undervalue the stock because they do not value it on the same basis that it was valued when the loan was originally agreed - they value it on the basis of a fire sale i.e. selling it immediately rather than through a prolonged marketing period of 12 - 18 months; trying to sell anything at the bottom of the cycle of a market is virtually impossible and I expect that his portfolio would now put him back in favour with his banking covenants, if he still had not been shafted. The commercial property market is debt heavy and that is why he had such a large loan - you can not buy office blocks cheaply and it is a long term (20 year +) business and the borrowing mechanisms reflect this.

The bank itself bought all the assets back from the receiver ffs !

In simple terms it is like a bank saying it will lend 70% value for some one to buy a house, some one borrows 60% but the house drops in value and the 'loan to value' ratio becomes 80%, the bank then says 'oh, you are only allowed to have a 70% mortgage so please pay off your loan or the difference and if you can not we will take you house and sell it for the loan value to one of our sister bank companies and you can carry the loss. House then increases in price back up to the 70%.

edit - it would not surprise me if half of the FTSE listed companies are (or have been recently) in breach of their banking covenants - especially the banks themselves !!

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MoodyFFS, no they are all too busy showing off! Laughing

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MoodyFFS, +1

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£ will rise against $ or Euro, then fall, then rise again, depending upon what happens with Pigs and QE in UK ans USA

After all it is free

Here's an attempt to bring the thread back round...

Ray I have a certain amount of sympathy with the businessman you refer us to but the covenants are in place to protect the bank and both the bank and teh lender are clear about what these are. The bank will set a minimum loan to value ratio so that it can get its money back,if the market turns bad. The businessman will accept this LTV or he will reject it when considering the loan offer. The banking crisis began because banks started to believe Gordon Brown in that he had ended boom and bust and all we had now was boom, for ever more. Because the banks failed to address poor LTV ratios is why they ended up with toxic debts. The worst case of this, far, far worse than the housing crash in the US, is what has happened in Ireland. Typical house prices have fallen over 50% since 2008 and there are hundreds of new housing developments that lie empty and almost worthless. The same applies to commercial property.

How could this happen? Simple - joining the Euro resulted in a sudden halving of Ireland's interest rates. This meant that borrowers, especially mortgage borrowers, could afford to borrow much more for the same repayment cost. This fuelled sudden demand for property and caused huge property inflation. The increase in property prices caused people to speculate that the increases could be sustained and suddenly house prices became a way to make money. The problem was obvious to anyone looking at Ireland but the Irish government were powerless to control this bubble in prices as their interest rates were set by the ECB. A friend in Ireland saw his house increase in value from £50k to £250k in just under 4 years. He sold at the top of the market, rented and has now bought a very large house for just under £200k. This house is nearly three times the size of the one he sold.

The problem in the UK was also obvious but in an attempt to show the economy was stable, Gordon Brown removed property prices from the inflation figure calculations. By doing so, he tied the Bank of England's hands and prevented them from curbing property price inflation. They could not set interest rates at a level that did curb property price rises without choking the 2% inflation target it was set for none property inflation.

How this affects the Euro is that when governments have massive debts (Ireland's banks need baling out to the tune of Ireland's entire GDP), one way to reduce the debt is to allow inflation to rise. This causes tax income to rise and when worked forward can reduce the debt repayment period by tens of years. At 10% inflation (not that any would go that far) the value of savings halves in 4 years. Exchange rates track the value of money in a country by the demand there is for investors or traders to buy that currency. If the government prints money, there is over supply and the price will be cheap for buyers. So as an investor, seeking a safe haven for your money (imagine a pension fund rather than an old lady with £50k), you will look for a currency that has a stable money supply, low inflation and a credible banking system that will let you have your money back when you want it.

And if you thought Ireland was bust, I strongly advise you not to look at the books of Portugal and Spain.

Right now, the Euro is looking much less of a safe haven than it used to be and proportionally a less safe haven than the UK. So the £ is rising against the €.

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rayscoops, thanks for that facetious response... look forward to your next one! Laughing

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MoodyFFS, all true though wink

but seriously things are very volatile and no one know what will happen with the PIGS economies/debt and therefore the respective currency movements, the daily/weekly/monthly economic data that will be coming out and all other factors and all of this makes it a lottery at the moment. When Greece was bailed out the Euro strengthened, if others are bailed out the Euro may weaken due to bad sentiment but it may strengthen if Germany stands up and says we are all in this together and we will support the Euro and Eurozone. Until we know what the respective countries will do and how the others will react to it then it is virtually impossible to make a prediction, hence the yo-yoing of the the exchange rate as the dealers/countries push the market they way they want it to go for short term speculative gains based upon their futures bets etc

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The Euro has always been the Deutsch Mark in Disguise and for that reason it will not fail & will remain the Worlds 2nd Reserve Currency.

Ireland will be bailed out, Portugal & Spain if necessary but they will have to abide by German Fiscal Rules.

I personally hold little Euro s, I keep ultra save in Swiss Francs Very Happy

bar shaker, in simple terms the guy over extended himself and got what he deserved and he has nothing to quibble about as he knew full well what he had signed up for, but the reality is that the bank could have shown more flexibility and he would have been able to trade through this exceptionally difficult time - he had a profitable business with assets that exceeded his liabilities. What annoys me is that the bank itself bought those assets at a reduced rate from the receiver !

You know it makes sense.

Otherwise you'll just go on seeing the one name:

Boredsurfing, not quite sure to be honest, they normally de-facto take over the company/debt to mitigate their loss but in this case they dumped the debt (£30million owed to creditors who received 26p in the pound from what was left) and bought the assets cheaply.

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new regs will make banks ever more mean when it comes to loans criterea.. capital requirements, gaurantess LTV's are all going to add ro the cost of finance,, there is another batch of regs coming from the states and the e.u. next year, they wont be cutting costs Shocked

...... the pigs cannot survive in the euro .. they should have defaulted and devalued when iceland did .. icelands economy will out perfrom all the pigs in years to come.. they are merely delaying the inevitable. the germans cant do QE or deval for obvious historical reason.. one size does not, and cannot fit all.. this will drag on and on but its fundamentally flawed.. the longer they prop it up the more it will cost ..

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rayscoops, totally agree.

CANV CANVINGTON, and you too Canv.

Hmmm, no arguements there then.

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near the 1.18 spot

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Around the 1.185 mark at the moment - so the Irish bale out made no different to anything.

More interesting is that the Germans are now saying they can afford to bale out the ECB "only until 2013 and only as long as Spain or Italy do require intervention"
hmmmmmmm - cheap ski hols are "maybe" on the way back

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Not so sure about that, the Euro seems to be happily falling against the Dollar, but the confidence in the Pound doesn't seem to be quite so strong, hence the slow recovery against the Euro - seems to have stalled at 1.18

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Tourist rates seem to range from €1.10 to €1.15 to the pound, depending on where you go. The PO online says €1.15, yet in one of their high street branches today they were only offering €1.10 Puzzled

After all it is free

Currently at 1.17 with my bank, trigger point for transactions is 1.25, should hit that by Thursday next week.

rayscoops, sure although I don't know too much about it, hence my interest in the thread... couldn't see how all the arguing and posturing about the ethical or unethical nature of the banking sector was helping much...

however big bad news from Europe doesn't seem to make a huge impression on the pound vs. euro rate, although by huge i mean more than a few euro cents - it would appear that big bad news, is better than big unknown news...

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MoodyFFS, most on here, expecially me, do not know much either wink

Help!!

Pound gaining on the Euro - V slowly

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