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brainclamp

Rock, Bradford, Hbos Etc..

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Remember seeing a panorama programme on the high street lenders doing lie to buy self cert mortgages, a few years ago.

If savers start to worry about thier deposits in this part of the banking system it could mean the newly arrived immigrant presenting a typed up letter in broken english, stating his income is 70k per year being given a massive loan funded by undeclared activities and rentings will now find it difficult as credit to this banking segment dries up.

Taking your savings from these banks and depositing them elsewhere will force a toughening up on credit quality, stopping the houseprice inflation.

Trouble is who are these lenders?

Edited by brainclamp

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Remember seeing a panorama programme on the high street lenders doing lie to buy self cert mortgages, a few years ago.

If savers start to worry about thier deposits in this part of the banking system it could mean the newly arrived immigrant presenting a typed up letter in broken english, stating his income is 70k per year being given a massive loan funded by undeclared activities and rentings will now find it difficult as credit to this banking segment dries up.

Taking your savings from these banks and depositing them elsewhere will force a toughening up on credit quality, stopping the houseprice inflation.

Trouble is who are these lenders?

A league table of banks and building societies considered to be 'at risk' would be a nice idea.

I'll start with Bradford & Bingley and Alliance & Leicester according to rumours I am hearing. Any others?

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A league table of banks and building societies considered to be 'at risk' would be a nice idea.

I'll start with Bradford & Bingley and Alliance & Leicester according to rumours I am hearing. Any others?

I don't really know why A&L has been mentioned, they use 50% of deposits when lending, Nationwide the highest are around 70% so I do not see A&L being at risk myself, B&B are around 40% and NR 30%.

There are many smaller Sub primers that are going to suffer and possibly collapse but I feel things are already getting a little over exaggerated.

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These are the Banks in the FTSE 250:

by Market Cap (bln)

Big boys

HSBA.L HSBC HLDG 104.53

RBS.L ROYAL BK SCOTL GR 50.26

BARC.L BARCLAYS 40.44

HBOS.L HBOS 32.12

LLOY.L LLOYDS TSB 29.35

Large cap banks

Middle Cap

STAN.L STANDARD CHARTERED 20.96

ALBK.L ALLIED IRISH BANKS 15.19

BKIR.L BANK OF IRELAND 11.84

Mid Market cap banks

Small Cap

ANGL.L ANGLO-IRISH BANK 9.64

IPM.L IRISH LIFE & PERMNT 4.3

AL.L ALL & LEICS 3.75

BB.L BRADFORD & BINGLEY 2.06

NRK.L NORTHERN ROCK 1.84 (from over 6 bln)

EIIB.L EURO ISLAM INV BANK 0.13235

Small Cap Banks

With old economy landing standards back, the huge acceleration in profits during the past few years - where the banks made thier money, looks like hitting a wall.

The collapse in market cap has just started if the unsustainable profits bulge and share price rises showen here over the past 5 years is anything to go by. Obvoiusly the more money taken out by savers of these banks who have expanded with aggressive profits over the past few years, the tighter lending standards become, meaning HPI will drop.

Edited by brainclamp

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I don't really know why A&L has been mentioned, they use 50% of deposits when lending, Nationwide the highest are around 70% so I do not see A&L being at risk myself, B&B are around 40% and NR 30%.

There are many smaller Sub primers that are going to suffer and possibly collapse but I feel things are already getting a little over exaggerated.

A&l vs NRK - share price follows

Just from the chart it seems AL has followed the same profit chasing as NRK - only they have not gone to the BOE yet for funds.

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A&l vs NRK - share price follows

Just from the chart it seems AL has followed the same profit chasing as NRK - only they have not gone to the BOE yet for funds.

Error.

AL. only have 3-4% of the mortgage market and securitisation is only a small part of their model. NRK have 17% of the market, mostly funded by securitisation.

A&L have a diverse model with half of their profits coming from commercial banking and treasury operations. They have a cash handling business that distributes a quarter of the cash used in the country - think ATM's and supermarkets etc. They own leasing businesses and own what used to be Girobank with a huge tie up with the post office.

NRK (used to) sell lots of mortgages.

There is no comparison with NRK. Chalk and cheese.

All this is publically available info in the annual report and imho makes A&L one of the safest bets. Everyone thinks A&L is a 'mortgage bank'. The extent of their operations would suggest otherwise.

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Error.

AL. only have 3-4% of the mortgage market and securitisation is only a small part of their model. NRK have 17% of the market, mostly funded by securitisation.

A&L have a diverse model with half of their profits coming from commercial banking and treasury operations. They have a cash handling business that distributes a quarter of the cash used in the country - think ATM's and supermarkets etc. They own leasing businesses and own what used to be Girobank with a huge tie up with the post office.

NRK (used to) sell lots of mortgages.

There is no comparison with NRK. Chalk and cheese.

All this is publically available info in the annual report and imho makes A&L one of the safest bets. Everyone thinks A&L is a 'mortgage bank'. The extent of their operations would suggest otherwise.

Just took a tour of AL's balance sheet.

It holds Assets of 71.2Bln of which Residential Mortgages are 38bln (note 3 i think in the accounts), Unsecured Loans 3.6bln and 19bln of ABS, CDOs, CLOs, SIVs, PPN's.

Assets - 71.2 bln

=====

38bln - Residential mortgages

3.6bln - Unsecured

19bln invested in ABS, CDOs, CLOs, SIV's, PPNS and all the other fancy junk re-rated as AAA or AA (10bln is AAA/AA rated)..

Against this are 38.6 bln of deposits and borrowings of varoius forms making up the rest.

Shareholder Equity is 1.8bln.

LIABILTIES - 71.2bln

========

38.6 bln Deposits

1.8 bln Shareholder Equity

30.8 Borrowings

Obvoiusly this insitiution is at risk of its Assets being rerated downwards, the 19bln in Exotic investments, and the rest of the loan book.

If even if part of its savers start to remove deposits, they will also have to borrow more at higher rates to cover via bridging finance, which would pressure its super low interest rates and ability to make as many loans, as lending standards return again.

I have read the 'residential mortgages' in the accounts as being residential mortgages?

Edited by brainclamp

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If lending criteria is anything to go by HSBC arent daft, as a year ago they would only lend me 3 times joint wages. abbey were double that, so i feel my savings are safe with HSBC.

Agreed. HSBC traditionally have a large capital base. They started out in the Far East with no safety net except themselves, and that attitude is now in their DNA.

Christopher Fildes had a really good piece on HSBC in yesterday's Evening Standard.

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Just took a tour of AL's balance sheet....

Obvoiusly this insitiution is at risk of its Assets being rerated downwards, the 19bln in Exotic investments, and the rest of the loan book.

If even if part of its savers start to remove deposits, they will also have to borrow more at higher rates to cover via bridging finance, which would pressure its super low interest rates and ability to make as many loans, as lending standards return again.

I have read the 'residential mortgages' in the accounts as being residential mortgages?

Yes I think that's right. Less confident with NRK's figures - I think I read on here a figure of £78bn which doesn't square with 4% v 17% but that's because the figures are established 'book' rather than current market share. A&L have been happily plodding along at 3-4% of the mortgage market for the last 10 years.

Don't get me wrong, all the banks / BS are at risk of re-ratings, sentiment etc. The point I'm trying to make is that A&L are much more diversified than percieved and they haven't chased market share on mortgages. They have recently been offering btl and sub-prime but this is a recent move. If you look at the ltv levels, it looks like a big part of their mortgage book is low risk re-mortgages.

Leaving aside the current turmoil, if A&L decided to stop selling mortgages they still have profitable income streams. NRK don't appear to be in this position.

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I don't really know why A&L has been mentioned, they use 50% of deposits when lending, Nationwide the highest are around 70% so I do not see A&L being at risk myself, B&B are around 40% and NR 30%.

There are many smaller Sub primers that are going to suffer and possibly collapse but I feel things are already getting a little over exaggerated.

Are you under the impression that because A&L use 50% of their deposits to lend as mortgages, they are a worse risk than Nationwide, who are at 70%?

My understanding is that it is the other way round. Nationwide are generally regarded as thesafest - because they don't go the credit market to borrow money to lend (at least not as much as A&L, B&B and NR).

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By compaision NRKs stipped down balance sheet is roughly like this at 31 dec 2006.

ASSETS ---- 101 bln

======

Loans 87 bln <--- low interest rate loan book

Investments 6 bln - CDO's etc...

Other assets 8 bln <------ cash, property, etc...

LIABILITIES --- 101 bln

=================

Bank Deposits 4.3 bln

Customer Accounts 66.6 bln

--of which ------------------------

Customer Deposits 20.6 bln

'Special Purpose entities' 42 bln <----- financial engineering for loans

other 4 bln

Shareholder Equity 2 bln

Other liabilities 28 bln

There is a difference between the balance sheets, Nearly all NRKs assets are the 90 bln loan book, funded by just 20.6 bln of customer deposits (22%), and a lot of other liabilites and fin. engineering making up the 77% difference.

In the case of AL, they hold assets of 41 bln in unsecured loans and mortgages, and further 19bln in exotic investments. This loan book and investments totalling 60bln are funded by roughly 50% of customer deposits, with borrowings making up the 50% difference.

However,

If the large amount of AL's toxic waste investments - 30% of its book - of CDO, CLO etc.. is marked down - who takes the hit?

Just saying AL is ok because its got a lot of real assets and is backing its loan book by a larger % customer savings to interbank borrowings, doesn't mean its much less risk, considering a large amount of its loan book - around 30%, is 'toxic waste' CDOs, CLOs

which is has gorged on trying to get a few basis points more interest in spread to cost of funds, turning a blind eye to real risks.

I am shocked at the 19bln of assets out of 60bln AL holds - 96% of which AL states is all sorts of SIV's, CDOs, CLO's. NRK doesn't have these problems in its loan book.

Edited by brainclamp

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These are the Banks in the FTSE 250:

by Market Cap (bln)

Big boys

HSBA.L HSBC HLDG 104.53

RBS.L ROYAL BK SCOTL GR 50.26

BARC.L BARCLAYS 40.44

HBOS.L HBOS 32.12

LLOY.L LLOYDS TSB 29.35

Large cap banks

Middle Cap

STAN.L STANDARD CHARTERED 20.96

ALBK.L ALLIED IRISH BANKS 15.19

BKIR.L BANK OF IRELAND 11.84

Mid Market cap banks

Small Cap

ANGL.L ANGLO-IRISH BANK 9.64

IPM.L IRISH LIFE & PERMNT 4.3

AL.L ALL & LEICS 3.75

BB.L BRADFORD & BINGLEY 2.06

NRK.L NORTHERN ROCK 1.84 (from over 6 bln)

EIIB.L EURO ISLAM INV BANK 0.13235

Small Cap Banks

With old economy landing standards back, the huge acceleration in profits during the past few years - where the banks made thier money, looks like hitting a wall.

The collapse in market cap has just started if the unsustainable profits bulge and share price rises showen here over the past 5 years is anything to go by. Obvoiusly the more money taken out by savers of these banks who have expanded with aggressive profits over the past few years, the tighter lending standards become, meaning HPI will drop.

.....if you go back to the last crash commercial banks did not have OO mortgages or BTL mortgages on their balance sheets ...now ....well uh...and they decided this was the easy option......property in the world of finance has always been high risk.....the new age Banker has been listening to too many old wive's tales....what these simpletons do not realise is "its all about timing"....but in any market make sure "it's not rigged".....see below........unfortunately this one was rigged........!. :lol::lol::lol::P

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"How can a business like a bank, which is involved in a typically low-growth, mature industry like money-lending, make returns on equity of 20 per cent-plus, as expected by the pension funds and banking stock indices?

The only way they can do this is by working their staff to the bone, capping costs and wages and lending recklessly."

"Counter-intuitively, the more money they lend, the safer it looks in terms of the ratios they use to assess secure lending. So it becomes a self-reinforcing dynamic where, the more money they lend, the more they feel they should lend.

Now think about the situation when the price of land is falling. The bank draws in its horns automatically. The credit bonanza is followed, almost overnight, by a credit crunch."

http://www.davidmcwilliams.ie/2007/09/09/b...economic-crisis

Good article my McWilliams, which is a rehash of an article he did last year, in the face of years of rampant banking profits.

AL looks like its diversified - its a hedge fund as well as a lender.

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If lending criteria is anything to go by HSBC arent daft, as a year ago they would only lend me 3 times joint wages. abbey were double that, so i feel my savings are safe with HSBC.

HSBC's accounts are difficult to wade though - really all you can go by are the lending standards.

In many industries like insurance it pays to sit back and watch other market partipants aggressively take market share regardless of risk, while you go on an uphold 'old fashioned' common sense standards. When they eventually suffer, you simply step in as the well capitalised company and take back the market.

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If the large amount of AL's toxic waste investments - 30% of its book - of CDO, CLO etc.. is marked down - who takes the hit?

Well me for one which is partly why I'm interested.

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I understand HBOS to be pretty safe. Have a good history of savings etc and I know they tightened up thier lending at the start of this year...

Edited by mobeyone

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I understand HBOS to be pretty safe. Have a good history of savings etc and I know they tightened up thier lending at the start of this year...

....do you have a link where this is recorded.......?.... :ph34r:

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....do you have a link where this is recorded.......?.... :ph34r:

Nope.. but it was posted on HBOS intranet site ;) take from that what you will.

Also, HBOS has over the last 12 months slowly finished selling personal loans and credit cards with various affinities whose lending criteria varied from being quite strict to loose....

Edited by mobeyone

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If savers start to worry about thier deposits in this part of the banking system it could mean the newly arrived immigrant presenting a typed up letter in broken english, stating his income is 70k per year being given a massive loan funded by undeclared activities and rentings will now find it difficult as credit to this banking segment dries up.

Are you one of THEM scary immigrants too?! Or punctuation is not part of English anymore?

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Nope.. but it was posted on HBOS intranet site ;) take from that what you will.

Also, HBOS has over the last 12 months slowly finished selling personal loans and credit cards with various affinities whose lending criteria varied from being quite strict to loose....

...doyou work for them...intranets are internal websites.....?.... :unsure::unsure:

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Expect adverts on the telly advertising high savings rates

1 billion from Northern Rock needs to be invested somewhere

Something tells me these people aren't the kind to invest in widescreen tellys and breast augmentation

Such an amount of hot cash can, actually, suppress the savings rates temporarily...

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