Jump to content
House Price Crash Forum
VeryMeanReversion

Couple Of Banking Anecdotes

Recommended Posts

Friend works at a bank :

Story 1: Customer with a couple of acres of commercial land with several industrial buildings on (asbestos roofs, not the nastier stuff) surrounded by residential homes. Owner took a 25 year, interest only mortgage, 26 years ago (!) and cannot pay back the principle. Mortgage company want their money back. Friend wants his bank to lend him the money, under £150K so sends round the surveyors to do a valuation. The buildings aren't in active use.

Valuation = £0.

Apparently, the buildings have become liable for business rates under the new rules so the whole two acres has become worthless. This was the basis of the companies financing for 25 years so it will probably now close.

Story 2: Commission Generation pre-credit-crunch.

Sell personal loan for £5K, sell PPI at £1k, get commission. (Knowing full well the customer will never pay the loan back)

9 months later

Sell new personal loan for £9k, sell PPI at £1800, get commission. (small refund on the cancelled £1k one)

9 months later

Sell new personal loan for £12k, sell PPI at £2400 get commission. (small refund on the cancelled £1800 one)

So three lots of commission from a customer that will never pay the loan back.

Now step forward to 2011

- The customers arent paying the loans back

- The bank implements a new policy where customers are actually checked before the take a loan (shock!)

- Loan salesman thinks he will be made redundant since he has no customers that could actually qualify for a loan and would be prepared to pay the new interest rates.

What a huge waste of money, just because the guys at the top decided to expand their loan book without regard for the consequences, thinking only of have their short-term bonuses and long-term pension payoffs.

Share this post


Link to post
Share on other sites

Friend works at a bank :

Story 1: Customer with a couple of acres of commercial land with several industrial buildings on (asbestos roofs, not the nastier stuff) surrounded by residential homes. Owner took a 25 year, interest only mortgage, 26 years ago (!) and cannot pay back the principle. Mortgage company want their money back. Friend wants his bank to lend him the money, under £150K so sends round the surveyors to do a valuation. The buildings aren't in active use.

Valuation = £0.

Apparently, the buildings have become liable for business rates under the new rules so the whole two acres has become worthless. This was the basis of the companies financing for 25 years so it will probably now close.

Story 2: Commission Generation pre-credit-crunch.

Sell personal loan for £5K, sell PPI at £1k, get commission. (Knowing full well the customer will never pay the loan back)

9 months later

Sell new personal loan for £9k, sell PPI at £1800, get commission. (small refund on the cancelled £1k one)

9 months later

Sell new personal loan for £12k, sell PPI at £2400 get commission. (small refund on the cancelled £1800 one)

So three lots of commission from a customer that will never pay the loan back.

Now step forward to 2011

- The customers arent paying the loans back

- The bank implements a new policy where customers are actually checked before the take a loan (shock!)

- Loan salesman thinks he will be made redundant since he has no customers that could actually qualify for a loan and would be prepared to pay the new interest rates.

What a huge waste of money, just because the guys at the top decided to expand their loan book without regard for the consequences, thinking only of have their short-term bonuses and long-term pension payoffs.

VMR,

interesting post, please post more if you have them.

I am wondering about how banks are going to cope going forwards. Looking back, a huge amount of the credit boom must have been due to lax lending controls, with banks forwarding cash to customers that could never repay. The whole system of doing this was basically a fraudulent one, because the loans were put down at par, when any sort of basic credit check would have shown them to be a loss. They raised funds to do the lending on the back of this fraudulent accounting, and many in the bank paid themselves huge bonuses due to this 'profitability'. Of course cashflow wins in the end, and the banks blew up. Instead of the banks creditors taking the losses, the taxpayer and Lloyds shareholders took them. Instead of the crooks going to jail, they were given top jobs and/or fat pensions.

Now we have a situation where the banks appear to have stopped lending to those who cannot repay, and are also having to eat some pretty huge losses. First of all this is going to take a lot of money out of the economy. Secondly, many of the banks themselves can only operate with their current costs because of the volumes of business that they do. We can see from the mortgage market, that volumes have shrunk. I remember reading on Robert Peston's blog that Northern Rock was split into two, and the 'Good Bank' part appeared to be suffering because it didnt have the volumes to sustain its business model.

This must be affecting other banks too. They simply cannot be doing enough business to keep many of their branches open and their employees fully occupied. Getting a bonus for the big boys must be pretty difficult as well.

Do you have any view on this? Does your friend see that the bank is no longer doing the volume of lending business that it once did?

Share this post


Link to post
Share on other sites

interesting post, please post more if you have them.

Only one more. The loan decision process is still computerised (used to always say yes!) but now mostly says no. However, it comes with an override button where the person running the computer then asks the person making the loan whether they are going to put their rear on the line for it. Not surprisingly, the answer is no.

Previously, bad debts were the sole responsibility of another department so the person making the loan required no judgement.

An improvement I guess.

Do you have any view on this? Does your friend see that the bank is no longer doing the volume of lending business that it once did?

.... They simply cannot be doing enough business to keep many of their branches open and their employees fully occupied.

That is basically what is happening at this bank. The senior managers are getting nervous and putting the pressure on the sales staff to get back to previous lending levels. My friend now expects redundancies which would actually be the best outcome for him since there is no way bonuses from previous years can be maintained and the base salary isn't that great.

Getting a bonus for the big boys must be pretty difficult as well.

I suspect that they operate under their own rules.

Share this post


Link to post
Share on other sites

Friend works at a bank :

Story 1: Customer with a couple of acres of commercial land with several industrial buildings on (asbestos roofs, not the nastier stuff) surrounded by residential homes. Owner took a 25 year, interest only mortgage, 26 years ago (!) and cannot pay back the principle. Mortgage company want their money back. Friend wants his bank to lend him the money, under £150K so sends round the surveyors to do a valuation. The buildings aren't in active use.

Valuation = £0.

Apparently, the buildings have become liable for business rates under the new rules so the whole two acres has become worthless. This was the basis of the companies financing for 25 years so it will probably now close.

So this guy sat on this piece of land and buildings for 25 years and did nothing with it?

If I got that one right it's a typical example of the waste that is created by inflationary policies.

Edited by _w_

Share this post


Link to post
Share on other sites

So this guy sat on this piece of land and buildings for 25 years and did nothing with it?

If I got that one right it's a typical example of the waste that is created by inflationary policies.

Don't know much more details, only that he ran a profitable engineering business on the site, just not profitable enough to pay off the principle.

I found it interesting that the mortgage company gave him an extra year to find the money but he still couldn't get it, even with commercial-designated land as collateral.

I have neighbours with several outbuildings, not really used anymore (used to be part of smallholdings). Not everyone wants to rent out their properties if it requires expensive clearance, fitting out to building regs standards and subsequent management. They also don't want to sell in case the law changes one day and they can sell it all for residential development.

Share this post


Link to post
Share on other sites

Don't know much more details, only that he ran a profitable engineering business on the site, just not profitable enough to pay off the principle.

Ah OK. I thought he was just hoarding the land but obviously not.

Share this post


Link to post
Share on other sites

Only one more. The loan decision process is still computerised (used to always say yes!) but now mostly says no. However, it comes with an override button where the person running the computer then asks the person making the loan whether they are going to put their rear on the line for it. Not surprisingly, the answer is no.

Sounds like it's become a little Britain sketch.

Share this post


Link to post
Share on other sites

Got another banking anecdote.

Put £1.00 in the bank 5 years ago rather than buying 3 tins of soup.

Took that £1.00 out this week and can now only buy 2 tins of soup with it.

It's like....i've been robbed of one tin of soup.

:rolleyes:

Share this post


Link to post
Share on other sites

It's like....i've been robbed of one tin of soup.

:rolleyes:

You have.

But you should cherish the thought that that can of soup went to a person with talent who's also very fragile and does God's work.

Share this post


Link to post
Share on other sites

Got another banking anecdote.

Put £1.00 in the bank 5 years ago rather than buying 3 tins of soup.

Took that £1.00 out this week and can now only buy 2 tins of soup with it.

It's like....i've been robbed of one tin of soup.

:rolleyes:

Wot, no interest on your £1?

How about, bought gold with £1 five years ago. Now can afford 20 cans of soup. B)

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...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 309 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.