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ShedDweller

Zombie Loans .. And The Banks ..

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This is a complicated question but what has to happen before banks decide to chuck in the towel and cut their losses ..

For instance RBS (I believe) has just "allowed" JJB sports to pay less towards their debts so they can discount aggresively over the christmas period .. What makes them think that this will be better than keeping the interest payments at a normal rate and then crystalising the loss when the company goes into administration ..

The sort of point here being that JJB WILL go into administration at some point .. so why not do it now ?

Also the Wilsons .. They plainly will not survive so why not wield the Axe now wile house prices are still "High" .. and you could in theory switch the loans from the Wilsons (high risk) to Owner occupiers (Lower risk) you might lose 10% but not the 40-50% you lose in three years time ..

Do we know how the banks make these decisions?

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This is a complicated question but what has to happen before banks decide to chuck in the towel and cut their losses ..

For instance RBS (I believe) has just "allowed" JJB sports to pay less towards their debts so they can discount aggresively over the christmas period .. What makes them think that this will be better than keeping the interest payments at a normal rate and then crystalising the loss when the company goes into administration ..

The sort of point here being that JJB WILL go into administration at some point .. so why not do it now ?

Also the Wilsons .. They plainly will not survive so why not wield the Axe now wile house prices are still "High" .. and you could in theory switch the loans from the Wilsons (high risk) to Owner occupiers (Lower risk) you might lose 10% but not the 40-50% you lose in three years time ..

Do we know how the banks make these decisions?

Despite what seems obvious to us here i actually believe the banks don't expect things to get worse, superficially it is possible to paint a positive picture if you leave certain trends and historical points out and that is what they choose to believe. And i really do mean believe, i have a banker friend who never buys the bearish point of view.

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Probably in the bank's interest to keep them going over Christmas as they will take a load of cash in providing an opportunity to reign in the overdraft for one thing.

Theoretically, time should be called on the loans if the hole's untradeable out of or a fire sale of either the whole business or its inventory would generate enough to recover the loans.

However, if it's a government bailed out bank all bets are off.

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However, if it's a government bailed out bank all bets are off.

I do wonder who is making these decisions .. Yes I can see that waiting until after christmas to call in the loan might well be worth doing, but what happens if even after all that they recover less money than they would have done last summer ..

And with the Wilsons .. Plainly the time to have repo'd was when they were in trouble earlier in the year .. instead they just reduced the interest payable .. Instead of getting 90% of the money back they will end up with 40-50% at most in 2015 .

What about if they need working capital to survive ? will the bank throw good money after bad ?

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I do wonder who is making these decisions .. Yes I can see that waiting until after christmas to call in the loan might well be worth doing, but what happens if even after all that they recover less money than they would have done last summer ..

And with the Wilsons .. Plainly the time to have repo'd was when they were in trouble earlier in the year .. instead they just reduced the interest payable .. Instead of getting 90% of the money back they will end up with 40-50% at most in 2015 .

What about if they need working capital to survive ? will the bank throw good money after bad ?

you are making the error of thinking that large organisations have a single groupmind. they don't. what if the division that 'owns' the wilsons debt has an end of year for accounts of dec 31st? and bonuses are dependant on that? why would individuals therein crystallise losses now, when they can report status quo for end of year, trouser a bonus, and ejector seat next year to another job before the 40-50% losses come in?

individuals motivations are key, not what is good for the organisation as a whole.

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I do wonder who is making these decisions .. Yes I can see that waiting until after christmas to call in the loan might well be worth doing, but what happens if even after all that they recover less money than they would have done last summer ..

And with the Wilsons .. Plainly the time to have repo'd was when they were in trouble earlier in the year .. instead they just reduced the interest payable .. Instead of getting 90% of the money back they will end up with 40-50% at most in 2015 .

What about if they need working capital to survive ? will the bank throw good money after bad ?

Banks wouldn't just reduce interest on a loan. Assuming there is equity underneath the loan, they will take a bite out of that before changing any terms.

Of course if there is no equity, the bank has a problem. This underlines the importance of securing equity against any loan of any size.

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Banks wouldn't just reduce interest on a loan. Assuming there is equity underneath the loan, they will take a bite out of that before changing any terms.

Of course if there is no equity, the bank has a problem. This underlines the importance of securing equity against any loan of any size.

Really ? I was under the impression that banks are renegociating loans all the time .. JJB certainly was .. and I'm pretty sure the Wilsons have had help from the taxpayer (or mortage express as it was known) ..

The view from the sisters (housing officer for a local authority) is that if the leints has NO equity in their home then the banks will negociate .. if there is more than 30% they go for a repo ..

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  • 150 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%



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