How safe are UK Banks?

purch

The HBOS speculation is overblown in my view

Hopefully.........seeing as I hold some HBOS Prefs :eek:


HBOS is probably the weakest of the larger UK Banks, and most likely to get into difficulties if things pan out badly.

I have felt for a while that a large European Bank will get into 'major' trouble at some stage this year

ianmr65

jsmethven wrote: »

erm...so if one had a fixed rate mortgage with HBOS and they did tank, what are the risks for the mortgage holder?

The debt would be ALWAYS be picked up by another institution, as part of the assets, if the bank were bought out. Or thru a firesale by the BoE.

At best you would be on the same rate, and terms. At worst they would foreclose. IE ask for their money or the property back.
I assume the middle way would be to change the terms of the mortgage, to something a lot more profitable to the new bank. I expect that the FSA and the governemet would also take a view, to curb the new owner's natural exceses, to be too aggresive.

The pecking order when it comes to being treated with some degree of fairness or morality when an organisation fails is

-Creditors (+ depositors in a banks case) are top of the heap. Both in terms of financial protection, and contract law. And why the FSA back stop is there in the case of bank failure. The administrator's first duty is to the creditor.

- Shareholders are 2nd in line. Normally cos they sue, the new owner, or the adminsitator, or the goverment en masse.

-Employees are 3rd in line. Mass lay-offs normally follow a failure.

-The debtors (loans and mortgages), are last in line for any favourable treatment, as they will be leaned upon to try to satisfy the creditors demands

This is pretty much what's happening at Northern Rock at the moment. Mortage holders who are unable to find a bettter deal somehwere else, are being squeezed to pay off the banks debts, as the shareholders get ready to sue, and a 're-stucturing' is announced.
Ditto Bear stearns.

This follows for most company failures, Enron and the like. Though creditors, rarely get paid anything like what they are owed, in these cases. Once the assets are sold they tend to only get a percentage.

Meltdown_2

MoneyWeek may be a "respected financial publication" (as edwardnoel says) but am I the only one to think that the article referenced by edwardnoel and rafter is a piece of garbage ...

I am the first to admit that I am no expert in this field, but unfortunately I don't think you need to be to find glaring problems with the article.
The gist of it seems to be thus :
"We can get a view on this by looking at the interest rates the banks offer to us on their savings accounts - the higher the rate clearly the more desperate they are for cash."
... Oh, yeah, right. :rolleyes:

So we should all put our money in the banks which offer the worst rates? :rolleyes::rolleyes:
But since most banks offer a number of accounts, how do we establish which banks are offering the best and worst rates? Halifax for example are simultaneously offering some good fixed rates, mostly average instant access rates and some truly awful rates on longstanding accounts (Liquid Gold).

It is said elsewhere that Northern Rock are offering best rates in something like 12 out of 19 categories surveyed by the BBA - I'm not sure that is true, but that's another story.
If it were true, does that mean depositors should avoid NR? - I don't think so!

And Iceland banks are risky because their CDS values say they are ...
To me a bank is risky if it can't pay me back what money I have put into it - and generally when I want it (though in my case, I could live with a delay).
Has Kaupthing got the funds to do this over the next year at least? - Yes.
Has Landsbanki? - probably, based on their ability to acquire deposits.

Rafter states that :
"The likes of Kaupthing are having to pay 12% or more to get funds from the financial markets which suggest they are far more likely to go bust." (my italics)
Whilst this might be the rate open to Kaupthing based on CDS values, they clearly DON'T have to get funds this way, as their recent 1.1 billion euro deal proves.

Rafter also states :
"Regardless of any guarantee - I'd rather have my savings underwritten by a large UK bank than the prospect of waiting for a country with a population the size of wigan or bristol to pay up their share of the guarantee."

Sorry Rafter, but this makes no sense. The guarantee in question is essentially the UK FSCS one - just that for Kaupthing (at the moment), whereas Landsbanki has an additional Icelandic guarantee. What about Heritable Bank? Are they OK? Well, they don't sound Icelandic ...

Savings are not generally "underwritten" by any bank (in the sense that they have ready funds to pay back all savings) - that's why there is a guarantee scheme (which is strictly speaking a compensation scheme, but I think we all understand what is meant) - you are guaranteed to get £35,000 back if your bank (or any that takes it over) is unable to return your deposits. It is NOT a guarantee that your bank will not go bust - having sufficient liquid funds to pay out all those (individual & corporate) who could request them is the only way to do this. It is NOT a guarantee that you will get back all the money you have saved with a UK High Street bank - that only applies to NR, and that is a separate guarantee.

And what does the size of the population have to do with it?
Iceland is one of the world's richest per-capita countries.
Would Rafter be happier to have funds with ICICI, since India has a population about 20 times that of the UK? And Nigeria has a population twice that of the UK (I think).

Rafter mentions "UK mortgage banks". Well in my opinion, any so-called bank that regards itself strictly as a "mortgage bank" ought to be a building society, operating on sound building society principles, and not getting involved in dodgy financial products. The "real" banks have always taken a rather different approach (it seems to me) - simply making sure that they make a decent margin on all their operations and keeping their shareholders happy. The saver has always been viewed as an "opportunity", in the same way as any other financial transactions are seen.
Building societies see (or used to see) their depositors as a "resource", enabling them to carry out their objective of enabling people to buy houses. (Get money in from depositors at rate x, and if unit costs are y to run the business, charge mortgagees x+y for their funds.)

Well, that's my (simplistic) view anyway - for what it's worth .... :rotfl::rotfl:

ianmr65

Good stuff, meltdown. But here is the killer argument.

A cds at 250 - hbos (tho i think its higher now), and 400, a & l means that they have to pay lenders 2.5% and 4% over libor 5.7%, to borrow money on the credit markets, if the lendor wishes to take out a rapidly becoming worthless cds note.

Sooo HBOS would be borrowing at 8.2%, when the bank rate is 5%, and the svr is 7.5% so to make any money they would have to be giving mortgae rates of 8.5% 30 basis is the min they can effectively make.

This means that HBOS are also shut out of the credit market, unless they write mortages that lose them money. Ditto a & L ditto nearly everyone.

Coupled to the fact that cds has been hijacked by speculators, and is frozen, as counter party insuers are running scared in case there is a default, means that cds is rapidly becoming a sick joke. Which is a pity as most companies and banks depend on it to be able to borrow money.

Normal CDs is 30 basis point. ie a marginal insurance % of 0.3%

which is why many banks are going private.

ianmr65

So HBOS angrily are denying that they need emergency funding, and the BoE are denying they will be having an emergency session to discuss.

So everythings alright with HBOS then. Thats a reilef.

The share price will no doubt rocket up to reflect this.... Hang on it's down 18% on the day.:eek: :eek:

David_Codd

Hi All

Heard the FSA are investigating these rumours and have warned that there is a spate of this type of "rumour" regarding UK banks and that traders are making a killing "Trading off the back" of this.

Check the NEWS the FSA think this could be a deliberate attempt to bring the share price down for profit.

Share price going up - was at 433.25 last time I looked.

Anyone else heard anything on this?

ianmr65

David_Codd wrote: »

Hi All

Heard the FSA are investigating these rumours and have warned that there is a spate of this type of "rumour" regarding UK banks and that traders are making a killing "Trading off the back" of this.

Check the NEWS the FSA think this could be a deliberate attempt to bring the share price down for profit.

Share price going up - was at 433.25 last time I looked.

Anyone else heard anything on this?

Well last week it was 'rumoured' that Bear stearns would go down, and it did.

the problem with rumours is that in bull or bear markets they can be used by traders to make money.

So say i hold stock in a company and start some rumours it is about to be taken over, and so the share price goes up, when i sell, i make a nice profit.

Or in the opposite scenario, called shorting.. say i start a rumour that a company is about to go bust,. i
borrow shares from a brokerage house and sell them to another buyer. Proceeds from the sale go into my account.I must buy those shares back (cover) at some point in time at the lower price and return them to the lender, making a nice profit.

Clearly the buying renting, and selling of shares is not illigal. But starting rumours to make more money as a result is.

This is why piers morgan got into so much trouble when his paper tipped stock that he owned.
Its a form of insider trading, and in the states they send you to a high security prison for a very long time. **

here you can expect a short spell in ford open prison, that's if the serious fraud office manage to bring a succesful prosecution, and the jury understands what the crime is. (very rare)

Having said all this the fact that HBOS have high exposure to property, and has high cds neither of which are as effected by the rumour mill, probably had a great deal to do with the drop as well.

This is another instance, of the toothless fsa trying to close the stable door after the horse has bolted.

Just for the record incase the fsa are reading this. I hold no stock and have no intrest or plans to buy or sell any in any UK or foreign banks HBOS A&L, bear strerns or anyone.
In fact i have no stock holding of any discription i sold them all last summer, when the market was at it's peak.



** One white collar criminal in the USA asked the judge following sentancing when he might expect to be parolled. The judge looked at him with a gleam in his eye and said 'son your parole officer ain't been born yet' :rotfl: :rotfl: :rotfl:

ipri

Is HBOS the same as "The Halifax"??

Flynn_2

ipri wrote: »

Is HBOS the same as "The Halifax"??

HBOS = Halifax Bank of Scotland

Emmalou

Sorry Flynn, just to be clear, so the Halifax and the Halifax Bank of Scotland are two different banks?

I am reading this thread with interest as I have rather more than 35K sitting in a Halifax savings account waiting to pay for my ongoing extension. Just a bit worried it may not be safe!