Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Nationwide Calls Time On Fresh Bailouts Of Rival Societies

Recommended Posts

http://www.independent.co.uk/news/business/news/nationwide-calls-time-on-fresh-bailouts-of---rival-societies-2024493.html

Nationwide has called time on any further deals with rival building societies after coming to the rescue of three of its smaller competitors during the financial crisis, The Independent has learnt.

The decision has been taken because of the potential negative impact on the society's members were it to step in to rescue another struggling rival. It comes at a time when wafer-thin margins have left many societies in difficulties while the Financial Services Authority wants them to raise more capital.

In its recent financial stability report, the Bank of England also raised concerns about the health of the sector and warned that building societies have found it harder to reduce their debt levels than the major UK banks. The report said: "Cyclical challenges have put further downward pressure on building societies' earnings during the course of the crisis. The low interest rate environment has squeezed interest margins, an effect exacerbated, in some cases, by contractual limits on societies' ability to raise interest rates on existing loans."

It has cited consolidation among building societies as one way to ease the difficulties. But it admits that "in the near term cyclical pressures and the fact that most large societies have recently been involved in mergers are likely to limit the scope for further consolidation somewhat".

While Nationwide's financial strength remains robust, Britain's biggest building society has not been immune from the margin squeeze, and 2009 profits fell by almost a half compared with the previous year.

It also suffered an outflow of deposits while mortgage lending fell by a third as it warned that it expected "lower levels of profitability" to continue through 2010-11.

Nationwide, led by its chief executive, Graham Beale, has been an active consolidator in the past three years merging with the Portman building society in 2007, before the financial crisis hit. Subsequently it added the Derbyshire and Cheshire building societies and effectively rescued the Dunfirmline as the sector was buffeted by the banking crisis.

So it would appear that the Nationwide has left the game and won't bail anyone else out.

Question is who will intervene now if another mutual gets in to trouble. Does the BoE have any remit to help the building societies or is it purely a fund for Bankers to access.

No wonder the banks have a healthier balance sheet as the BoE has been running monetary policy to try and get them out of the 5h1t.

Share this post


Link to post
Share on other sites

it's not just that - having worked for one of the big 5 building societies - they are pretty amateurish outfits compared to the big PLC financial institutions (and that's saying something) - and this goes doubly so (by reputation) for the smaller societies

Nationwide might, additionally, without saying it, consider what's left to be dross. They'll buy their mortgage books but not their businesses (which would consist of a dozen fogeys with unusual filing systems in a dusty office)

Share this post


Link to post
Share on other sites

it's not just that - having worked for one of the big 5 building societies - they are pretty amateurish outfits compared to the big PLC financial institutions (and that's saying something) - and this goes doubly so (by reputation) for the smaller societies

Nationwide might, additionally, without saying it, consider what's left to be dross. They'll buy their mortgage books but not their businesses (which would consist of a dozen fogeys with unusual filing systems in a dusty office)

http://news.bbc.co.uk/1/hi/business/10594824.stm

US private equity firm JC Flowers is in talks to buy a stake in Kent Reliance Building Society, it has been confirmed.

Kent has just 45 UK staff, but a deal would give Flowers the needed licence to operate and expand in the UK.

There has been speculation that Flowers, which unsuccessfully bid for Northern Rock in 2007, is looking to create a new UK bank.

Kent confirmed the talks in a stock exchange announcement.

The Financial Times had reported that New York-based Flowers would invest £50m into Kent and take a 49% stake.

Other reports have suggested that Flowers has identified up to ten other potential takeover targets.

Traditional banking

Flowers' move is part of what is expected to be a wider shake-up of the High Street banking and building society sector.

Since the banking crisis led to the part-nationalisation of both the RBS and Lloyds banking groups, the former Labour and current coalition governments said they wanted to encourage the formation of new retail bank operations.

So this might not be a very good plan then?

Share this post


Link to post
Share on other sites
In its recent financial stability report, the Bank of England also raised concerns about the health of the sector and warned that building societies have found it harder to reduce their debt levels than the major UK banks. The report said: "Cyclical challenges have put further downward pressure on building societies' earnings during the course of the crisis. The low interest rate environment has squeezed interest margins, an effect exacerbated, in some cases, by contractual limits on societies' ability to raise interest rates on existing loans."

Wait... did the BoE just admit that by reducing interest rates to zero it effectively KILLED the UKs building societies who often offered trackers?

That it basically killed the responsible lenders by setting irresponsibly low interest rates?

Edited by TaxAbuserOfTheWeek

Share this post


Link to post
Share on other sites

Last paragraph was interesting

"Nationwide is, in terms of its assets, more than twice as big as the other 49 combined. The Yorkshire, Coventry and Skipton building societies, which are the next three biggest, have all done at least one deal with a smaller rival in the last couple of years."

Death of the Sector

***************

So only 50 building societies are left in the UK and Nationwide is nearly 70% of the sector.

The 49 really are like a bunch of old fogeys.

Signifigance of Nationwide House Price Index

***********************************

NW have around 8.5% of residential mortgage market (from 2010 annual report), so I guess the total Building Society sector only comprises around 12% of UK residential mortgage market.

Nationwide HP Index must be based on approx 3000 properties per month, with a bias to the South. mmmm.

Share this post


Link to post
Share on other sites

Last paragraph was interesting

"Nationwide is, in terms of its assets, more than twice as big as the other 49 combined. The Yorkshire, Coventry and Skipton building societies, which are the next three biggest, have all done at least one deal with a smaller rival in the last couple of years."

Death of the Sector

***************

So only 50 building societies are left in the UK and Nationwide is nearly 70% of the sector.

The 49 really are like a bunch of old fogeys.

Signifigance of Nationwide House Price Index

***********************************

NW have around 8.5% of residential mortgage market (from 2010 annual report), so I guess the total Building Society sector only comprises around 12% of UK residential mortgage market.

Nationwide HP Index must be based on approx 3000 properties per month, with a bias to the South. mmmm.

Another thought...

Except for Nationwide, average number of mortgages per Society (nationally) per month is only 30.

Share this post


Link to post
Share on other sites

it's not just that - having worked for one of the big 5 building societies - they are pretty amateurish outfits compared to the big PLC financial institutions (and that's saying something) - and this goes doubly so (by reputation) for the smaller societies

Nationwide might, additionally, without saying it, consider what's left to be dross. They'll buy their mortgage books but not their businesses (which would consist of a dozen fogeys with unusual filing systems in a dusty office)

Britain was built on fogey's with strange filing systems. We must return to this golden age of lending to people with jobs and appropriate incomes!

Share this post


Link to post
Share on other sites

it's not just that - having worked for one of the big 5 building societies - they are pretty amateurish outfits compared to the big PLC financial institutions (and that's saying something) - and this goes doubly so (by reputation) for the smaller societies

Nationwide might, additionally, without saying it, consider what's left to be dross. They'll buy their mortgage books but not their businesses (which would consist of a dozen fogeys with unusual filing systems in a dusty office)

It is saying something!

I've worked in the IT departments of several companies, by far the least competent was the large multinational bank. Heck, internet startups have a stronger focus on quality and durability <_<

Share this post


Link to post
Share on other sites

It is saying something!

I've worked in the IT departments of several companies, by far the least competent was the large multinational bank. Heck, internet startups have a stronger focus on quality and durability dry.gif

they ran a large unified oracle db of roughly 4000 tables and they had never heard of an ERD, most of the database logic was actually in the code against unconstrained non-unique table-rows - I could quote dozens of breathtaking examples. It had to be illegal from an audit perspective but they thought it doesn't really matter if everyone seems nice and looks busy

Edited by Si1

Share this post


Link to post
Share on other sites

they ran a large unified oracle db of roughly 4000 tables and they had never heard of an ERD, most of the database logic was actually in the code against unconstrained non-unique table-rows - I could quote dozens of breathtaking examples. It had to be illegal from an audit perspective but they thought it doesn't really matter if everyone seems nice and looks busy

So whats new. Neither have some big outsourcing IT companies (I kid you not).

Mention Third Normal Form to some Java Developers and expect a lot of blank stares in return

Share this post


Link to post
Share on other sites

Britain was built on fogey's with strange filing systems. We must return to this golden age of lending to people with jobs and appropriate incomes!

the conservatism indeed is their strength - except you get that with the Nationwide too

Share this post


Link to post
Share on other sites

Mention Third Normal Form to all building society Java Oracle Developers and expect a lot of blank stares in return

corrected for the building society IT skillset. but yeah same pricnciple.

Share this post


Link to post
Share on other sites

Death of the Sector

The big building societies of old were Halifax, Abbey National, Alliance & Leicester, etc. Nationwide was the biggest to survive the age of carpetbagging.

Britannia was, until recently, #2. Given that it was taken over by another mutual (the Coop), it could be argued as still in the sector. And if you count Coop/Britannia then you get a second biggish mutual.

/me likes Nationwide. Had my UK current account with them for over 20 years - since the days they were only #6 building society.

Share this post


Link to post
Share on other sites

is there any way you could give us a laymen an analogy we might understand?would love to understand what youre on about.

I suppose an analogy would be accountants not bothering with double entry book-keeping as it slows them down when the rows and columns don't balance

not an analogy granted but:

a relational database table has closely associated info on a single row - ie person's height, weight, favourite food. Multiple rows on the same table equals same info but for multiple people, for example. When a person's details change then you would maybe 'end date' that row and create a new row - with no end date - for the same person withnew details. the person-id on that table would link into corresponding rows on other tables with other info, maybe address history, bank account details, GP details, whatever, all on different tables, each with unique rows for each person, or perhaps more than one unique row for each person if there were several things to descrbe on the same topic. gets complicated. All covered by a very practical application of set theory implemented thru the 'SQL' database computer language.

Anyway, if you run a large database holding complex data with 4000 interlinked tables - this is a managament headache. Tools and techniques for handling this have been developed over the last 40 years. An ERD is a logical diagram to show the layout of information and its relationship to the underlying tables. This is very important to design the database and understand an existing database or portion of a database. And these days instead of your core company application programs directly reading and updating database tables - you can imagine the opportunities to (a) get the wrong data out and (b ) put the wrong data in are rather huge - intermediate prgrams are written, that prevent the databas being updated in the wrong way, and even completely hide the database from core system programmers and represent an intermediary interface, so instead of trying to work out which combination of tables to read certain info off, they simply do a call to a pre-existing program that already knows how to get individual chunks of info out of that database in the right order.

Anyhows, if you don't do these latter integrity-tricks (which take time in the first instance to set up), then there is a much greater risk, say, the info will not be correct, in or out of the databse - may apply wrong interest rates to wrong transactions, maybe mix up web logon details of customers (this HAS happened), send letter to wrong people, standard financial organisation c*ck-ups. Worst case being updating wrong info to your mortgage/current/insurance account. Breaks all sorts of laws and the probable reason they get away with it is... probably because the most commonly used elements of systems are efectively tested in live use so the major bugs get noticed and ironed out quickly and never escalated to the law. Thing is, the whole sodding corporate IT industry could avoid lots of these problems which cost a lot to sort out and operate more cheaply if they just applied first principles of not reinventing the wheel to projects and applying a design and analysis project discipline. But poor project management is a blight on so much of it.

Edited by Si1

Share this post


Link to post
Share on other sites

thanks for that Si,explains an awful lot in terms of some of the anecdotal stories you hear or read about banks getting things worng.

It seems to follow,in my mind anyway,that the bigger more commercially orientated operations,will have the spendo to facilitate this in a way that the Market Harborough BS(population 10,000) jsut wouldn't.

yep - they would probably buy a semi-relevant off the shelf system and then bodge a semi-manual set of work-processes around it, possibly involving a printer and a large filing cabinet

Edited by Si1

Share this post


Link to post
Share on other sites

http://www.guardian.co.uk/business/2010/jul/12/building-societies-new-capital

Building societies were tonight urging the government to protect their special status after one, Kent Reliance, prepared to quit the sector in a groundbreaking £50m deal with private equity house JC Flowers.

Adrian Coles, director general of the Building Societies Association, called on the government to grasp the initiative in ongoing talks with international regulatory bodies. The building societies want to create a new financial instrument that would allow them to raise crucial capital without having to give up their building society status.

As building societies do not have shareholders and are mutually owned by their members, they cannot boost their core tier one capital – the toughest layer of support that is the last to be eaten up in the event the institution runs into trouble – by issuing shares as banks are able to.

This has forced building societies to either merge with each other – as with Nationwide taking over the Derbyshire and Cheshire – or to try to use new capital tools, as West Bromwich did with profit participating deferred shares (PPDS).

The issue is becoming more urgent as Kent Reliance Building Society puts the finishing touches to a £50m deal to cast off its building society status and become an industrial and provident society to form a banking joint venture with JC Flowers that could eventually take over other building societies.

Coles said: "This government could take a strong lead in the discussions in Europe and in Basle to get across the need for a capital instrument that is good for building societies".

"[The instrument] has to be a permanent and loss absorbing instrument and variable in return," he added.

The BSA's own attempt at creating such an instrument – mutual ordinary deferred shares – has not met the hurdles set by regulators, while the PPDSs used by West Bromwich have not proved as popular with other societies as was intended.

Looks like the building societies are expecting to struggle for cash soon?

Share this post


Link to post
Share on other sites

Looks like the building societies are expecting to struggle for cash soon?

When you can get RPI+1% tax-free in NS&I, 100% guaranteed and instant access in an emergency, why put your money in a BS with a rubbish rate.

My kids child trust funds are with Nationwide at a rubbish rate, cant get the money out til they are 18 though. They are basically stealing my kids money.

VMR.

Edited by VeryMeanReversion

Share this post


Link to post
Share on other sites

When you can get RPI+1% tax-free in NS&I, 100% guaranteed and instant access in an emergency, why put your money in a BS with a rubbish rate.

My kids child trust funds are with Nationwide at a rubbish rate, cant get the money out til they are 18 though. They are basically stealing my kids money.

It's already been given to the creditors of failed banks. What you're seeing now is book-keeping to record what happened.

Share this post


Link to post
Share on other sites

Am I right in thinking that BSs cannot access the BoE's oh-so-generous 0.5% borrowing facility? And that their major (only?) source of money is mug punters, whoc tend to want a bit more than 0.5%?

Peter.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 192 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.