Financial Services Authority chief executive, Hector Sants has warned the financial services industry to be wary of the City regulator, claiming the new regulatory regime will be more intrusive than before.

The new rules will even include how much case banks can hold in reserve.

Chancellor Alistair Darling is backing these new regulations, pointing out the importance for “backstop” powers to stop banks overstretching themselves.

He told Channel 4 News: “Banks took on too much risk. RBS for example buying the Deuch bank ABN – they took too much risk.”

The aim of “backstop” power is to limit banks lending and will “make sure that banks have got adequate capital against times when things are tough, I think that is very, very important,” he added.

‘People Should be Very Frightened’

Mr Sants comments were part of a speech he gave on the lessons of the banking crisis, in which he also added that society was demanding aggressive intervention in order to prevent banks taking unnecessary risks that bring the financial system down further.

He also said: “There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.”

City regulator has been criticised for its lack of intervention in its role as UK banks supervisor in order to stop huge liabilities building up, which has lead to the massive credit crisis we are currently facing.

Last month, the new chairman of the FSA admitted that the FSA was also guilty of not performing its role as well as needed, and that it had not focused on the “excessive risks” that banks had been taking.

He told the BBC: “the FSA at that time was more focused on the processes, the structures, the reporting lines, rather than simply saying ‘when I look at this whole business model…it’s all too risky’.”

It won’t be long before the FSA publishes the full extent of their plan to change the financial services industry regulations, which will include a new system controlling the pay of bankers.

Intensive Supervision Needed

Mr Sants has advised for more “intensive” supervision of banks in order to prevent a “similar crisis” in the future.

He also said that the FSA would take action if it decided actions of senior bank managers were too risky, even at the risk of stifling innovation.

He said: “This is a fundamental change. The revealed preference of society says that this is, and possibly always will be, what society as a whole expects regulators to be doing. Indeed, it was what they thought we were doing.”

Sir Nigel Rudd, deputy chairman of Barclays bank has also shown his disapproval of banks actions, going so far as to call other banks “lunatics”.

He said: “we couldn’t compete with these lunatics who were throwing money at the market: 125% mortgages; self-assessment; it was madness.”

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Forbes magazine’s “rich list” of billionaires has suffered 332 casualties due to the credit crisis.

Now, only 793 people are eligible for a spot on the list, but even they have lost an average of 23% of their wealth.

Bill Gates, founder of Microsoft has reclaimed the top spot on the list, even after his overall wealth has decreased by roughly £13.06 billion.

Warren Buffet, who owns Berkshire Hathaway, knocked Bill Gates off the top spot on the list after 13 years last year, but due to a $25 billion decline in profits, and 50% share value shrinkage in that last year, Mr Gates has stolen the number-one slot again.

656 Billionaires Have Lost Money in Last Year

Another to suffer the effects of the crisis, is Indian businessman Anil Ambani, who has slipped from number 6 to number 34 in 12 months after his net worth decreased by two thirds, to  £10.1 billion.
Overall, last year, the net worth of the top 20 on the list was $21 billion last year, this year it is closer to $14 billion.

Also, the last 12 months has seen only 44 people on the list managing to increase their fortune, while 656 lost money in total.

For example, Michael Bloomberg, Mayor of New York is one of the few that managed to increase his wealth this year, and is in fact the only member of the top 20 to do so. His wealth is thought to have increased by about $4.5 billion.

US Flying High

Discount retailing has helped keep many of the top 20 in their places on the list.

Founder of budget retailer Uniqlo, Tadashi Yanai entered the list for the first time despite the economic depression, at number 76, and is worth $6 billion. Meanwhile Aldi owner Karl Albrecht moved up four places to number 6 despite the fact his net worth increased by $55 billion.

When it comes to world regions, regions like India and Russia lost a lot of their wealth to the US, which now claims half of the top 20 spots, and generally has the most billionaires.

Along with this, New York beat Moscow with the most names on the rich list reaching 55 billionaires. Moscow therefore came third, with London sneaking into second place with just one more billionaire, making 28 in total.

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Average interest rates on savings accounts that allow instant access to savers money is barely above zero, at 0.17% at the end of last month, therefore not taking into account interest reductions that came into force at the beginning of March.

Those with variable or tracker mortgages have seen the benefit of the reduction in interest rate, but savers and pensioners in particular are feeling the pinch.

Those with branch-based notice accounts are also seeing little reward on their savings. At the end of February, the average rate was 0.18%, which is half the figure at the end of January.

This time last year, interest rates on instant access accounts were 2.69%, much higher than the current 0.17% average.

‘Savers Being Punished’

Moneysupermarket.com’s Kein Mountford said: “savers are being punished for the mistakes of others, and that so many are looking to find better rates at a time when you would imagine security and service would be paramount, shows just how badly savers are being squeezed.”

ISA interest rates also dropped to an average of 0.96% from 5.06% this time last year.

On the other hand, interest on fixed rate bonds has risen a little, from 2.49% at the end of January, to 2.56% at the end of last month. Although, this is still around half the amount they were at this time last year.

Savers may be suffering, but mortgage borrowers are looking at lower repayments on their loans.

Customers with a standard variable rate (SVR) deal are currently looking at an interest rate average of 4.41%, nearly half what it was a year earlier at 7.5%.

Does Anyone Really Benefit?

This shows that neither borrowers nor savers have really been seen the benefit of recent interest rate cuts.

Experts are saying that interest rates can’t really fall any further, and are suggesting a longer-term fixed-rate mortgage deal could benefit mortgage borrowers more over time.

Though it has to be born in mind that it is hard to determine how many people in the UK are borrowing and how many are saving their money at the moment, it is fairly safe to assume that overall, there are more savers, but most UK householders are net borrowers.

The stats show that overall, total household savings are about £987 billion with banks and building societies, on top of £90 billion of National Savings. On the other hand, borrowing reaches £1,225 billion in mortgage debts, plus £233 billion in other consumer debts.

The funding gap – the difference between these two figures is the amounts banks are borrowing in wholesale markets, much of which comes from abroad.

What Do You Think?

Have you been badly affected by savings interest rates crashing? Do you have any advice for other people? Leave your comments here.

As the Bank of England injects £75billion into the economy, this could have an adverse effect on annuities of those retiring.

Annuities – regular income from a retiree’s pension pot – are paid by insurance companies, the amount of which is based on the yields made from government bonds or gilts, which have dropped dramatically after it announced on Thursday it planned to create £75billion to buy these gilts.

The annuity of a £100,000 pension pot now stands at up to £6,488 per year, nearly £400 lower than the average of a joint life annuity last year. However, this is still higher than when it dipped below £6,000 in 2006.

Annuity rates reached a 6-year high in the summer of last year, but have dropped 8% since.

Retiree’s at the peak last summer would be able to convert their pension savings into a much higher income for the rest of their life than someone planning on retiring now.

17-Year High for Bonds

The announcement about the plan to use quantitative easing has meant that price of government and corporate bonds has hit a 17-year high.

However, the interest from these bonds has also significantly fallen, which has reduced the amount made by pension funds, therefore cutting the amount that will be paid out to retiring investors in annuities.

Representative of Hargreaves Lansdown said: “annuity rates have been falling quite substantially in the last four of five months.

“However, the £75billion, which is a huge sum of money, is only going to add to the retiring investors’ woes.”

He also recommended that those planning on retiring in the near future shop around to find their annuity, or possibly even split their pension pot and spend some now and some in annuities later.
He also advised that he expects the annuity rate to fall further still before it gets better.

Chancellor Alistair Darling has given the Bank permission to extend the £75billion cash injection up to £150billion if needed in the future, with the idea that commercial banks will find it easier to lend money to consumers if the amount of money in the system in the first place is boosted.

Great for the Young, A Potential Disaster for the Old

Deputy governor of the Bank’s Monetary Policy Committee, Charlie Bean has said the effect of the policy will be closely monitored, admitting to a “a good deal of uncertainty” over the impact it will have, including  a chance of inflation in the future.

However, the Institute of Fiscal Studies has reported that inflation for pensioners is already rising.

The director general of Age Concern has warned: “as younger people enjoy the benefits of the lowest levels of inflation for decades, older people still find much of their income is swallowed up by high food and fuel bills, forcing many to make drastic cutbacks.”

He added that it was important for pensioner to claim back all benefits they are entitled to, to see them through this period.

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‘Deliberately Misled’

The Office of Fair Trading (OFT) is taking action against over a dozen of debt management businesses online repayment plans that it thinks are deliberately misleading consumers by using web addresses similar to non-profit organisations.

The OFT believes many consumers have been mislead to believing their advice comes from non-profit making sites, and has therefore written to 13 companies who run between them 27 websites, telling them to shut them down.

If the businesses do not comply to the letter, the OFT says they will lost their consumer credit licences, and could thereafter face prosecution.

Ray Watson, director of credit at the OFT said: “there is a danger that with increasing unemployment, more people could run into financial difficulty and we are concerned that at the point where they are most vulnerable and seeking advice, they are being deliberately misled by people who are trying to gain a commercial advantage from them.

“We believe they are misleading consumers by holding themselves out as free advice agencies such as Citizens Advice, the Consumer Credit Counselling Service, the Money Advice Trust and Advice UK.”

OFT Taking Action

The regulator has not named any names, but Citizens Advice has admitted that it has been worried that something along these lines would happen for a while.

“We are very pleased the OFT is now taking action,” were the words of the director of policy at Citizens Advice, Teresa Perchard.

“For several years now, we have been getting reports from people approaching the CAB who have been worried about sites and telephone calls they have had from people operating advice sites who have names very similar to ours. The action should mean that we see an end to that,” she continued.

As debt among the general population grows, so will the number of businesses that offer advice and solutions.

Don’t Be So Trusting, Do Your Research First

Even now, there are numerous legal debt management companies advertising online who have consumer credit licences and stick by the OFTs guidance. Many of these companies do charge for their advice, which is within their rights.

However, the Money Advice Trust has said that it should be made clear which companies charge for their advice, and that consumers should be careful and do some research before enlisting help.

“If people aren’t sure if the advice really is free and independent, they should look carefully at the website. An easy way is to look at the ‘About Us’ section to find out who funds it and who is behind it,” advises Money Advice Trust’s Joanna Elson.

What Do You Think?

Have you been caught out by one of these sites?  Do you have any advice on how to tell a good debt management site from a bad one? Leave your comments here.

The Royal Bank of Scotland and NatWest has announced they will not be passing on the latest bank interest cuts their variable rate mortgage customers.

The bank, primarily taxpayer owned, admitted they had considered not passing the new 0.5% interest rate to their savings customers as well, saying its standard variable rate was already competitive, at 4%.

Other big UK mortgage lenders, including Nationwide and Lloyds TSB, have announced they will change their interest rates accordingly, some with more choice about it than others, and therefore, most of the 4 million people in the UK with tracker mortgages will reap the rewards of the cut.

What about Savers?

However, some banks are finding themselves obliged to cut their rates after promising their SVRs would only deviate a certain percentage from the Bank rate. For example, Abbey, refused to cut its rates last month, but has had to cut interest by 0.45% this time from April 1st.

Chief Executive of RBS retail banking, Paul Geddes said: “the continued downward trend to Bank of England base rate has had a significant impact on customer savings rates. It is more important than ever to consider both our savings and mortgage customers when determining any rate changes.”

The bank has made clear that interest rates for its savings accounts will fall by less than 0.2% on average, and many would go unchanged.  On the other hand, those who want to be familiar with banking trends may refer to websites such as lovemoney.com to aid them in their financial decisions.

It’s decision comes after the RBS last week announced its huge losses for 2008, and that it would receive another taxpayer cash injection, on top of the scandal of former boss, Sir Fred Goodwin’s pension.

Average Current Interest Rate

This is now the sixth Bank rate cut, and the average SVR now stands at 4.77%. this is probably partly due to the fact that only 41% of mortgage lenders passed on last months rate cut to their borrowers.

The director general of the Council of Mortgage Lenders (CML) said: “the latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further.

“Savings are the lifeblood of mortgage lending, and unless lenders can offer competitive rates to savers, their ability to offer new mortgages is restricted.”

A representative of mortgage brokers John Charcol, has predicted that many lenders that failed to pass on the February Bank cuts will have to do so this time. On the other hand, he suspects that many who did pass on the last rate cut will not change their rates this month.

What Do You Think?

Is RBS right to refuse to cut its rates this time? Should all banks be made to change their rates? Are interest rate cuts getting out of hand? Have your say here.

Prime Minister Gordon Brown has received encouragement from the US Congress after calling for renewal of “the special relationship for our generation”.

Mr Brown is one of only five UK prime ministers, to ever address both houses on Capitol Hill in order to try and enforce his ideas that the US and UK should push “essential” economic changes.

Standing Ovation

There was a standing ovation at the beginning of the speech, which was therefore frequently interrupted by over a dozen pauses for applause.

Among the many requests he made, Mr Brown called for the banking sector to have “rules and standards for accountability, transparency and reward.”

On to the bigger issue of recession, he added: “America and a few countries cannot be expected to bear the burden of the fiscal and interest rate stimulus alone. We must share it globally.

“So let us work together for the worldwide reduction of interest rates and a scale of stimulus round the world equal to the depth of the recession and the dimensions of the recovery we must make.

“An economic hurricane has swept the world, creating a crisis of credit and of confidence.

“History has brought us now to a point where change is essential. We are summoned not just to manage our times but to transform them.”

‘Seize the Moment’

He also said: “Now more than ever the rest of the world wants to work with you… And let me say that you now have the most pro-American European leadership in living memory. A leadership that wants to cooperate more closely together, in order to cooperate more closely with you.”

“So once again I say we should seize the moment – because never before have I seen a world more willing to come together so much. Never before has that been more needed.”

He also awarded the honorary knighthood to Ted Kennedy, saying that: “Northern Ireland is today at peace, more Americans have healthcare, more children around the world are going to school” because of the veteran Democratic Senator. We owe “a great debt to [his] life and courage.”

Waste of Time or Huge Success?

However, other political parties have not been so quick to praise Mr Brown. William Hague of the Conservatives said: “If he’s not prepared to acknowledge that mistakes have been made then he won’t be able to communicate or implement the solutions for the future.”

Vince Cable from the Liberal Democrats also added that: “Rather than trying to shore up his reputation in America, he should be focusing his attention on fixing the mess we face back home.”

But the Prime Minister’s trip seems to have been successful. President Barack Obama described the relationship between the two countries as one that would “only grow stronger”.

Also, in talks with the White House, it was agreed that improvements are needed to be made to the global banking system, and that “inward projection” should be avoided in order to prevent protectionism.

 
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Northern Rock has revealed that it made a £1.4 billion loss last year after large write-offs on mortgage loans.

The bank repossessed around 4,000 of its borrowers homes last year, contributing to overall repossession rate by 10%.

Northern Rock also said that it was ahead on its repayments of its £26.9 billion government loan after the amount owed was cut to £8.9 billion.

On top of this it has verified its plans to increase its mortgage lending over the next couple of years by £14 billion.

It’s chief executive, Gary Hoffman said: “Northern Rock has made good progress against the business plan objectives laid out in March 2008.”

‘Together’ Mortgage Causes Most Problems

Its number of repossessed homes also rose by 63% compared to a year earlier.

The loss was mostly contributed to by write-offs on the banks mortgage loans, especially its ‘Together’ mortgage which guaranteed borrowers up to 125% of the value of their homes.

In the past year, the bank’s arrears have increased to six times the amount they were. This has resulted in 2.92% of mortgage borrowers owing more than three months worth of arrears. 

The bank has now stopped offering its ‘Together’ mortgage, but 4.53% of those who currently have this type of mortgage are more than three months behind on their arrears

The current industry arrears stand at much lower than either of these figures, at 1.88%, therefore the bank has had to write off £894 million from its mortgage book value.

Other losses the bank has made include expenses like redundancy pay and losses on its investments.

Returning to What They ‘Do Well’

After the banks business began to shrink in the last year, the number of mortgage borrowers also dropped from over 750,000 to less than 600,000. Though this also means that those with infamous ‘Together’ mortgages now make up 29% of the mortgages they lend.

Customers on such mortgage schemes have found it more difficult to change lender and therefore the average loan-to-value of its remaining borrowers has increased to 73%, exposing the bank to further potential losses if the recession causes borrowers to lose their jobs and fall further behind on their repayments.

Their plan to increase mortgage lending marks progress in the bank’s lending policy.

After Northern Rock was nationalised just over a year ago, the bank has tried to reduce its mortgage book in order to try and repay its government loan. Now, the bank is going to try to increase its flow of funds to potential house buyers by increasing its lending once again.

Their executive said: “we can now return to what we do well – mortgage lending.”

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635 Incidents Reported Last Year Alone

On average, two cash machines each day are being targeted by criminals, according to cash machine operator Link.

635 incidents were reported to the police last year, a rise of 17% compared to 2007. Figures that have been released have also shown that fraud in cash machines cost £37 million in 2007 alone.

In response to this, rewards of £25,000 are being offered to anyone that has any tip-offs about cash machine crimes.

Most of these crimes involve a skimming machine being fitted to cash machines in order to copy customer’s card details, and miniature cameras being fitted to record people typing in their PIN numbers. These details can then be used to create fake debit cards and used in other machines.

‘Cracking Down Hard’

“We are urging the public to pass on information that they may have about cash machine crime, for example card skimming or physical attacks on cash machines themselves,” said Graham Mott from Link.

“Even something that may sound insignificant could be part of a bigger picture and prove invaluable in convicting someone involved in cash machine crime.”

John Folan, Detectie Chief Inspector of the Dedicated Cheque and Plastic Crime Unit (DCPCU) has also said: “Tackling cash machine fraud is a continuing priority for the DCPCU, and a joined-up initiative of this nature has our full support.

“Any relevant information should be passed through Crimestoppers will be used to help track down and arrest those responsible – which will not only disrupt criminal activity but also send out a clear message that we are cracking down hard on those carrying out crimes of this nature.”

What Do You Think?

What do you think should be done to help tackle this crime? Have you ever been targeted by cash machine fraud? What do you advise other people to do if they find themselves in the same position? Let us know. Leave your comments here.

Research has shown that UK residents are saving billions in tax by having money in offshore tax havens.

The Channel Islands and the Isle of Mann are among the most popular spots UK residents choose to store their savings according to the research compiled by the TUC.

According to EU rules, UK residents are allowed to declare interest earned overseas or have 15% held back from interest in the chosen offshore country where the account is held.

Although this may not be an issue for much longer, as MPs are asking for a review into the use of such accounts.

According to EU rules, three quarters of the 15% tax on interest earned in offshore accounts is eventually paid back to the UK government. But this means that only 11.25% instead of 40% is being given back according to the TUC.

£4 billion – a “serious underestimate”

By extrapolating data from an answer to a parliamentary question, £4 billion was estimated to be stored tax-free in offshore accounts.

During the last three years, £319 million of tax, of a total income of £1.1 billion has been lost to their holders.

The TUC have warned however, that this is a “serious underestimate” and has called for the EU Savings Tax Directive to be reformed, allowing tax benefit on overseas funds.

TUC General Secretary Brendan Barber said: “The mechanisms of tax avoidance are always hard to understand, but this is a very simple story. If the super-rich held their money and assets in the UK they would contribute at least £4 billion extra.

“This would be enough for the government to meet its target to halve child poverty by 2010. It would also mean that instead of being squirreled away in tax havens, it was being spent in the real economy here helping us fight recession.

“With the tax take falling because of the recession, there can be no better time to get tough with the super-rich, so many of whom did so much to throw the world into recession.”

Government Going Easy on Offshore Accounts?

Related to this, it has also been reported that opposition MPs are planning on calling ministers to disclose how much offshore subsidiaries of taxpayer-funded banks were costing in lost revenue.

For example, Lloyds has over 125 offshore companies and RBS has 238.

However, it has not been suggested that any laws have been broken by tax sheltering, but George Osborne, shadow chancellor, told the newspaper that a “lack of coherent strategy” was being shown my little governmental action against offshore firms owned by banks that have recently been rescued with taxpayers money.

What Do You Think?

Should offshore accounts be taxed on par with UK held accounts? Is the government losing billions because it is still overlooking these accounts? Leave your views here.