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Halifax Bank Of Scotland Teetering On The Brink...

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http://business.timesonline.co.uk/tol/busi...icle3558310.ece

apologies if this has already been posted, it was in yesterday's Times after all...

But can someone explain how HBOS can borrow a quarter of a billion pounds at 9.5% and then effectively lend it out in mortages around the 5 - 6% rate and not go bust??? They are so desperate for capital they have simply had to take what they were given. This might temporarily keep them their tier 1 status, but surely to be a business they will need to be charging 10%+ interest on their mortgages to stay afloat in the medium term?

We all like to a giggle at the little fish like A&L or B&B getting their comeuppance, but its starting to look to me like Halifax could become the UK's Countrywide. And how about Barclays' exposure to toxic US investments..? I reckon we're going to see some big fish go belly up in the not too distant future. No doubt we'll all end up paying for their folly through astronomical tax, food and fuel prices as governments desperately try to throw lifelines to these sinking Titanics.... :angry:

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thats crazy..got to wonder about this guys comment though

HBOS are not raising funds at 3.5% above what they charge.

They have a global finance brand and will easily outstrip the amount they have paid to borrow.

An excellent deal at this current time.

Tom Simons, grantham,

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But can someone explain how HBOS can borrow a quarter of a billion pounds at 9.5% and then effectively lend it out in mortages around the 5 - 6% rate and not go bust???

Only a very small amount of money is costing them 9.5%... they don't pay that much to the plebs.

The numbers add up in the same way as how consumers can afford their debts despite owing £200K on a mortgage at 4.5% while owing £5K on a credit card at 14.5%. The substantial interest rate only applies to a small proportion of the liabilities.

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But can someone explain how HBOS can borrow a quarter of a billion pounds at 9.5% and then effectively lend it out in mortages around the 5 - 6% rate and not go bust???

Simple.

They raise the mortgage rates of current mortgage holders to cover the difference.

Lets imagine you're on a 3 year fix at 5% on a 200k home.

Your fixed period has come to an end and you need to negotiate a new deal. What are your choices?

1 - You can move to another bank. But they will want to do a valuation on your house.

Chances are in the current market they'll 'undervalue' it.

Still, they agree to offer you a 180k mortgage on your property..... but you owe the original mortgage lender 200k.

So, you either find 20k cash and move your mortgage or

2 - you stay where you are and accept the new, increased, rate of say 6.9%

This is the mechanism that will cause the housing market to crash.

Not a good time to have a large mortgage.

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Presumably this money can be used for credit card lending and other premium rate services. I have to say I have also wondered though about this decoupling from the BOE rate and how lenders offering saving rates of 6.8% could have mortgage rates lower.

I know previously lenders could use the easier/cheaper money markets to raise funds but if they have to return to the traditional ways of using savers monies for lending then presumably saving rates will be forward indicators of mortgage rates.

I don't spose any of our lenders will fancy gambling on using the carry trade to fund mortgage lending (unless they have some sophisticated whizz kids out back that could hedge against adverse currency movements . . . )

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is it me or do these sam banks seem to be teetering on the brink every week.

all they do is print more money.

so on the brink of....printing more money, thats all.

all you will see of this banking collapse is inflation on your must haves such as food and fuel.

i dont think you will ever see people queing again. they are going to inflate the write offs away i think.

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Its simple.

They aint lending ANY of it.

They need it just to stay in the game of "being solvent".

Itll come straight off the bottom line.

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If they had offered cash deposits at 9.5% interest rate they'd see people queueing and camping outside just to get in first thing in the morning.

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If they had offered cash deposits at 9.5% interest rate they'd see people queueing and camping outside just to get in first thing in the morning.

Would they?

Wouldn't people wonder why they were so desperate for deposits that they would pay so much more that other banks?

Maybe you're right, greed would prevail.

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There is an assumption in this thread that HBOS and many of the other big banks just make money from mortgage lending etc. etc. - this is a very small part of their business, with the majority of the profit coming elsewhere - recall recently what HSBC wrote off, at the same time as declaring a multi-billion pound profit

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There is an assumption in this thread that HBOS and many of the other big banks just make money from mortgage lending etc. etc. - this is a very small part of their business, with the majority of the profit coming elsewhere - recall recently what HSBC wrote off, at the same time as declaring a multi-billion pound profit

What else would they invest in? Hope it isn't hedge funds and commercial property.

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There is an assumption in this thread that HBOS and many of the other big banks just make money from mortgage lending etc. etc. - this is a very small part of their business, with the majority of the profit coming elsewhere - recall recently what HSBC wrote off, at the same time as declaring a multi-billion pound profit

You mean like investment banking, M&A, etc? Well these are hitting the proverbial iceberg too.

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they arevery likely going to leverage a good chink of it.

plus you will have allthe fees that they charge for mortgages etc.

plus the profit that they make selling the loan on, if they can.

it's not as cut and dried as it looks.

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This is a subordinated issue - not senior debt. If HBOS goes belly up this debt ranks at the bottom of the pile with shareholders.

It is this core debt/equity that gives them capacity to lend.

On a £100m mortgage book you need £8m of capital as a bank. This £750m of capital allows them to make new loans of £9,375 or more likely replace capital that will be impaired by write downs in their £7bn ALt A investment portfolio.

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It seems to me that 'the plan' for all the banks will be fairly simple.

Survive. Bully governments to help out with taxpayer's money.

Rebuild their balance sheets. Screw the taxpayer's, again, under their guise of customers with punitive rates on uncleared credit card debts, unrefinanceable mortgages, overdrafts, charges, everything possible.

Ratchet down the wages of the mass of their staff to fund increased bonuses for the high ups.

Appoint Gordon Brown and Alistair Darling as non-exec directors as a thank you.

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If they had offered cash deposits at 9.5% interest rate they'd see people queueing and camping outside just to get in first thing in the morning.

Other way round in my opinion.

The sensible types would afford a big bank that suddenly offered an exceptional rate like that - Very worrying sign if one did, impending failure.

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Lets imagine you're on a 3 year fix at 5% on a 200k home.

1 - You can move to another bank. But they will want to do a valuation on your house.

Chances are in the current market they'll 'undervalue' it.

Still, they agree to offer you a 180k mortgage on your property..... but you owe the original mortgage lender 200k.

So, you either find 20k cash and move your mortgage or

Assuming you were not on an IO mortgage, would you not have paid off some of the principal during that 3 years, so wouldn't need a full 200k? Could you not have paid 20k off the principal during that period?

(Never had a mortgage myself, so apologies if this is a no brainer... ;) )

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This is a subordinated issue - not senior debt. If HBOS goes belly up this debt ranks at the bottom of the pile with shareholders.

It is this core debt/equity that gives them capacity to lend.

On a £100m mortgage book you need £8m of capital as a bank. This £750m of capital allows them to make new loans of £9,375 or more likely replace capital that will be impaired by write downs in their £7bn ALt A investment portfolio.

Thank goodness someone on here knows what they are talking about, rather than speculating wildly.

This was a Tier 1 capital issue, so akin to equity risk (one step safer than shares) to ensure decent capital ratios.

The mere fact that they got this away during a credit crunch like this shows that they are well backed and regarded.

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Assuming you were not on an IO mortgage, would you not have paid off some of the principal during that 3 years, so wouldn't need a full 200k? Could you not have paid 20k off the principal during that period?

(Never had a mortgage myself, so apologies if this is a no brainer... ;) )

No. A vast proportion of the early payments are interest. Principal doesn't start to reduce significantly until later years.

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No. A vast proportion of the early payments are interest. Principal doesn't start to reduce significantly until later years.

Ta WAI :)

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Thank goodness someone on here knows what they are talking about, rather than speculating wildly.

This was a Tier 1 capital issue, so akin to equity risk (one step safer than shares) to ensure decent capital ratios.

The mere fact that they got this away during a credit crunch like this shows that they are well backed and regarded.

That's pretty much my understanding too, although it's interesting they chose not to do it by, say, issuing some preference shares. It seems not dissimilar to the investment whoever-it-was made into Citibank last year.

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Surely the best way to know if your money is safe in a bank is by looking at its share price. Okay, HBOS is down a lot but not into meltdown yet. If the share price goes to 300p I'll be thinking of taking my money out.

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Surely the best way to know if your money is safe in a bank is by looking at its share price. Okay, HBOS is down a lot but not into meltdown yet. If the share price goes to 300p I'll be thinking of taking my money out.

It might happen this week :unsure:

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That's pretty much my understanding too, although it's interesting they chose not to do it by, say, issuing some preference shares. It seems not dissimilar to the investment whoever-it-was made into Citibank last year.

Yes, but HBoS got better terms, I think.

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  • 293 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% +
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      • Even
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      • up 5%



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