Scandalised!

Generali

Thought this would be of interest to some:

http://www.lrb.co.uk/v35/n13/john-lanchester/are-we-having-fun-yet

It's absolutely fascinating IMHO.

As an aside this paragraph seems to make both Graham Devon and Hamish MacTavish right and wrong at the same time which is a good effort!

The simplest of these stories concerns HBOS. This is another familiar narrative in that it involves a British bank growing too fast and pursuing a catastrophic series of mergers. The company was formed in 2001 by the fusion of Halifax, the UK’s biggest mortgage lender, with the Bank of Scotland, thus, in the words of the parliamentary report which rolled over this particular rock in April this year, ‘turning the “big four” banking groups into the “big five”’. The bank grew by taking on unsustainable levels of risk and by lending money too recklessly. It is part of the strangeness of banking that when a bank lends money, it creates assets for itself: your mortgage appears on the bank’s accounts as one of its assets, and so does all the other money the bank lends. So a bank can grow with enormous speed – can create large quantities of assets for itself – simply by lending money much too freely. This HBOS did. The parliamentary report found that in the three years after the crash, £25 billion of UK corporate loans, mostly involving commercial property, had gone wrong; the figure amounted to 20 per cent of the loan book. Even without all the other things that went awry, of which there were plenty – another £15 billion of loans down the plughole abroad, failed joint ventures and equity investments etc – the corporate loans by themselves would have been adequate to destroy the bank.

So HBOS was brought low by bad loans but not bad mortgages.

The piece is very eloquent on LIBOR too:

In a large open-plan office with windows on all sides, a roomful of shouting, swearing, meat-eating traders would be able to make enormous amounts of money by betting on Libor if only, if only, they had some way of finding out that day’s rate. If they had some way of actually influencing the rate, it would be even better. They could bet big on it going up, and then help it to go up. So a sweary, red-meat-eating trader picks up the phone, or fires up his email, or strolls down the hallway towards the submitter’s office and … but wait! The traders are not allowed to talk to the submitters! That would be wrong! And dividing them is an impenetrable barrier, that sacred and potent thing, profoundly respected inside banking, a ‘Chinese wall’. So nothing like this can ever happen! Except that here we would all do well to bear in mind something an experienced Wall Street investor told Michael Lewis: ‘When I hear “Chinese wall” I think “you’re a f...... liar.”’

HAMISH_MCTAVISH

Generali wrote: »

As an aside this paragraph seems to make both Graham Devon and Hamish MacTavish right and wrong at the same time which is a good effort!

I read it twice.

Which part am I wrong about?

So HBOS was brought low by bad loans but not bad mortgages.

Absolutely.

No UK bank was brought down by defaults on UK residential mortgage lending. The overall quality of those books, even Northern Rock's, was actually pretty good.

They did some pretty dumb things overseas (75% of losses) and some more dumb things with commercial lending (most of the other 25% of losses), but they managed to remain quite prudent overall with UK residential mortgage lending.

gazzabboi

Don't worry, Graham will be along shortly to continue the b!!ch fight

michaels

HAMISH_MCTAVISH wrote: »

I read it twice.

Which part am I wrong about?



Absolutely.

No UK bank was brought down by defaults on UK residential mortgage lending. The overall quality of those books, even Northern Rock's, was actually pretty good.

They did some pretty dumb things overseas (75% of losses) and some more dumb things with commercial lending (most of the other 25% of losses), but they managed to remain quite prudent overall with UK residential mortgage lending.

Doesn't it say 15bn abroad and 25bn UK which isn't quite the proportions you suggest.

I guess a bank quickly expanding market share suggests they are pricing risk more cheaply than the established players and the question has to be why with the default conclusion being that they are underpricing the risk.

Generali

HAMISH_MCTAVISH wrote: »

I read it twice.

Which part am I wrong about?



Absolutely.

No UK bank was brought down by defaults on UK residential mortgage lending. The overall quality of those books, even Northern Rock's, was actually pretty good.

They did some pretty dumb things overseas (75% of losses) and some more dumb things with commercial lending (most of the other 25% of losses), but they managed to remain quite prudent overall with UK residential mortgage lending.

I thought your position was that losses had come from RMBS rather than domestic lending. My apologies if that misreprents you.

Generali

michaels wrote: »

Doesn't it say 15bn abroad and 25bn UK which isn't quite the proportions you suggest.

I guess a bank quickly expanding market share suggests they are pricing risk more cheaply than the established players and the question has to be why with the default conclusion being that they are underpricing the risk.

I believe RBS had the same problem with their expansion into Australia: the losses on their Aussie corporate lending were immense whereas domestic banks lost very little.

HAMISH_MCTAVISH

Generali wrote: »

I thought your position was that losses had come from RMBS rather than domestic lending. My apologies if that misreprents you.

Nah, close enough.:)

My position is that on mortgage lending, UK banks lost £15 on overseas lending for every £1 lost in the UK.

That around 75% of UK banks total losses were overseas.

And of the 25% lost here, the vast majority was in commercial lending.

Where RMBS comes into it is really a bit more specific, as it was the global collapse of the securitisation and wholesale lending markets (thanks primarily to non-performing and incorrectly risk-profiled American RMBS issuance) which caused the liquidity crisis that brought down Northern Rock.

As opposed to non-performing Northern Rock mortgages, which had nothing to do with bringing down Northern Rock, despite repeated inferences to the contrary from some on here.

purch

It is part of the strangeness of banking that when a bank lends money, it creates assets for itself: So a bank can grow with enormous speed – can create large quantities of assets for itself – simply by lending money much too freely

In the early 1980's Banco do Brasil was the largest Bank in the World by assets, by the end of the decade many of the Japanese Banks (names like Tokai Bank and Sanwa Bank) had taken over at the head of that ranking.

It's one of those clubs that you should refuse to join if they want to make you a member :eek: (apologies to Groucho)

HAMISH_MCTAVISH

michaels wrote: »

Doesn't it say 15bn abroad and 25bn UK which isn't quite the proportions you suggest.
.

I usually quote the research paper by Ben Broadbent of the BOE's MPC.

Which says 75% overseas, 25% UK, for all UK banks combined.

I would expect individual banks to vary within that however.

neverdespairgirl

What about the Britannia, Hamish? Wasn't the hasty sale to the Co-op arranged because of buy-to-let mortgages going bad?

http://www.ft.com/cms/s/0/2bfa51c0-bbcd-11e2-82df-00144feab7de.html#axzz2XiGzFyBN

Why were lending decisions evidently so weak, not just at Co-op Bank but also at Britannia, the building society at the heart of the ill-fated bid to create a "super mutual"? It turns out it was up to its eyeballs in "self certification" mortgages, more commonly described as "liar loans", many now riddled with arrears

http://www.guardian.co.uk/money/blog/2013/jun/22/co-operative-bank-bailout-blow-mutuality

CLAPTON

neverdespairgirl wrote: »

What about the Britannia, Hamish? Wasn't the hasty sale to the Co-op arranged because of buy-to-let mortgages going bad?

http://www.ft.com/cms/s/0/2bfa51c0-bbcd-11e2-82df-00144feab7de.html#axzz2XiGzFyBN

Why were lending decisions evidently so weak, not just at Co-op Bank but also at Britannia, the building society at the heart of the ill-fated bid to create a "super mutual"? It turns out it was up to its eyeballs in "self certification" mortgages, more commonly described as "liar loans", many now riddled with arrears

http://www.guardian.co.uk/money/blog/2013/jun/22/co-operative-bank-bailout-blow-mutuality

well if you read the guardian article that you have referenced it says

But as I wrote in an online blog earlier this week, this doesn't excuse Co-op from explaining how it got into this mess. It could start by telling us something about the commercial loans that have caused such misery. The bank has effectively been laid low by 12 big loans which account for £900m of the £1.7bn of "impaired" loans on its books. But who were these to?