U.K. Banks Try Harder After Reaching the Brink

Includes: HBOOY, RBS
by: TradingHelpDesk

HBOS (OTC:HBOOY), Royal Bank of Scotland (NYSE:RBS) Were Closer to Collapse than Previously Reported
Mervyn King took the opportunity this week during his whirlwind tour of interviews to shed more light on the banking fiasco of Autumn 2008. It was well documented at the time, via round the clock press coverage, that HBOS and RBS were in serious trouble after the Lehman collapse but King’s latest comments - that both banks could not be confident “they could get to the end of the day” on Tuesday 7th, October 2008, are disturbing.

For two such large banks to come within hours of disintegration is a damning indictment of the lack of risk controls, regulation and political oversight of the sector.

King also stressed that if the banks did collapse, the UK economy would have ground to a halt. “Individuals would not have had access” to their money, “their deposits would have been frozen” and “many people would not have been paid their salaries”.

As the one year anniversary of the Lehman Brothers collapse passes, significant players like King are naturally inclined to reflect on the past 12 months, but the contents and growing regularity of King’s interviews seem to be designed to deflect the growing criticism of the BoE’s failure to stimulate a strong economic recovery. The strategy of reminding the public just how bad the situation was one year ago and the progress made since then in rescuing the banking sector is a more upbeat subject than the ongoing failure of the quantitative easing program.

UK Remortgage Market Continues to Fade
Home owners have fallen out of love with remortgaging. During August, only 26,124 remortgages were approved compared to 49,687 in the same month a year earlier. The July figure was 30,414. Commentators suggested the low base rate had reduced the interest rate differential between mortgage products, removing the opportunity for consumers to switch mortgage providers and save money.

Conversely, mortgage approvals for new home purchases continued to strengthen, year on year, with August 2009 seeing 38,095 approvals up 81% on August 2008. Stamp duty data identified total 83,000 house sales in August, roughly twice the number compared to six months ago and almost 20% higher than a year ago.

The data reinforces the view that the housing market has stabilized and the trough in house prices seen earlier in 2009 will not be revisited.

Banks Cut Charges on Consumer Borrowing
Continuing the theme of consumer borrowing, hundreds of thousands of bank customers are set to enjoy lower bank charges on authorized and unauthorized overdrafts and missed loan repayments.

The Office of Fair Trading is successfully grinding down the will of the banking sector. Even the PM, Gordon Brown, senses victory for the consumer and has written to the participants of the long running dispute encouraging them to seek a quick compromise, thus preventing the need for the OFT to execute an investigation under the Unfair Terms in Consumer Contracts Regulations 1999.

Halifax (NASDAQ:HX) and Bank of Scotland, both part of the Lloyds Group (NYSE:LYG), have already announced a reduction in charges as have Nat West and RBS. Some fees will be cut from £38 to less than £10.