Consumer grief at the Rock
IT HAS taken a long time and has been a ghastly journey, but former Northern Rock impresarios, chairman Matt Ridley and chief executive Adam Applegarth, may now be able to claim that they were prudent lenders after all.
The offloading of the Granite loan book, or a chunk of Northern Rock’s ‘bad bank’, has been made possible because some 96pc of the 125,000 loans, including some of the notorious 125pc ‘Together’ advances, are being paid back on time.
Contrast this with the sub-prime mortgages in the United States which went so horribly wrong and have left the big banks, including Royal Bank of Scotland, with huge penalties and compensation to pay.
It also demonstrates that while the state may still be profligate, with debt levels close to 80pc of total output, individual citizens regard hanging on to their homes as important and have kept up debt repayments.
This is very different to the previous residential mortgage crisis of the early 1990s, when mortgage providers and estate agents would return to their offices to find piles of returned keys on the doormat. The critical difference is the interest rate subsidy. The prolonged six years or so of record low interest rates has been the biggest gift of all to people in their own homes.
At a time when real incomes have been squeezed, it has been the most significant contributor to well-being. You might not know it from the cries of foul, inequality and poverty that still carry so much resonance in parts of the political forest. If there are questions to be raised about the Granite sale, they are about the buyer Cerberus.
It has been something of a good fairy to Europe’s banks, picking up eight loan portfolios valued at £5.5bn many of them at knockdown prices.
Indeed, even though it has paid a fuller price for Northern Rock’s portfolio, the indications are that with some smart refinancing and some disposals – Spanish owned TSB is to pick up a £3.3bn portion of the £13bn portfolio – the New York private equity firm stands to make healthy returns.
George Osborne is patting himself on the back for a job well done.
It is in the interests of the Government to use asset disposals to help pay down the national debt and be rid of its bank holdings as quickly as possible.
There is also a responsibility to the consumer. Buyers of financial assets, whether they be mortgages or zombie life and pension policies, do not do expend funds out of love.
Cerberus is also taking over the entity which administers Granite loans, but this could be up for sale too and promises to maintain service levels that have to be taken with a pinch of salt.
One also has to question the future pricing of mortgages. Next month the Federal Reserve is likely to begin the process of normalising interest rates, and one must assume, even with a reorganised debt structure, that is going to put up Ceberus’s financing costs.
This will have to be recouped from somewhere and borrowers will be in the firing line – as they will be when the Bank of England acts to raise rates next year or early in 2017. Granite borrowers are a captive market and refinancing complicated. Cerberus, or whoever buys bits of the portfolios, will have exceptional power to raise borrowing costs, which is disturbing.
The Government rightly should be out of the banking business as soon as possible. But it shouldn’t abrogate its responsibility to citizens.
Crime watch
AS THE Serious Fraud Office fights for its independence in the face of an assault from Theresa May and the National Crime Agency, the conspiracy to defraud charges, brought against a slate of ten Deutsche and Barclays Bank interest rate setters, will come none too soon.
The fixing of the Euribor and Libor benchmark interest rates was a betrayal of the ‘social licence’ which comes with trading in free markets. The costs of the alleged cheating fell on ordinary consumers and corporations.
One can’t help feeling, however, that prosecutors ought to be more ambitious and aim higher, at the senior bankers who put in place the incentive schemes and failed to curb the abuses on their watch. Maybe that is what will happen next…
Farming today
WHAT possible British interest, one might think, could there be in the rejected £27.8bn approach by the state-owned China National Chemical Corporation for Swiss agri-chemical and life sciences group Syngenta?
Quite a lot, as it happens. Syngenta has a British history dating back to 1928 and the foundation of the Jealott’s Hill research station by Imperial Chemical Industries (ICI). It fell into Swiss hands in 2000 when ICI spin-off Zeneca merged its agri-business with Novartis to create Syngenta. The latter employs 1,500 in Britain and does a large amount of R&D here.
That is the kind of intellectual property which it would be absolute madness to cede to Beijing.