Tuesday, January 29, 2008

A&L’s problems

Banking Giant Reveals Sub-Prime Hit

Alliance & Leicester has tried to reassure investors worried about its liquidity in the wake of the Northern Rock crisis. The bank says it has strengthened its funding position to the end of the year, despite a greater-than-expected £185m hit due to the credit crunch. The group has around £23.4bn in retail deposits and £8bn in deposits from commercial customers.

Posted by alan @ 11:25 AM (1324 views)
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12 thoughts on “A&L’s problems

  • There’s an important distinction to make between those who originated the subprime debt (e.g. Northern Rock or Paragon) and those who bought the repackaged securities (e.g. German banks, Norwegian towns). It sounds like A&L has fallen into the latter category.

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  • japanese uncle says:

    Why couldn’t any one of the institutions have the guts (or wisdom) to say this to the public, including savers and investors and borrowers as at, say 2002.

    “We are convinced that the property market has now reached the stage of bubble. While our competitions are changing operational rules to allow them to take much more aggressive stance than before, we have decided to stick to our traditional rules. Thus our business may not grow keeping pace with our peers for the next few years. But on the longer term basis, the soundness of our operation will prove good enough for all of you. So please have patience.”

    whereas saying this to the employees,

    “This office cannot offer you exorbitant salary and bonus as some of our competitors do, but if you want longer term welfare, please stay with us to work in a traditional way. In return for your loyalty, we won’t have to make any one of you redundant in the faced of the eventual and inevitable collapse of the current bubble.”

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  • @ju – I thought we lived in the United Kingdom not never never land. In a couple of paragraphs you have just defined capitalism!!!

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  • japanese uncle says:

    Capitalism is simply doomed.

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  • theboltonfury says:

    right now I’m confused! In order to hold off some inflation I want to invest in a year long bond at 6% ish. Now it seems that a bank has as much chance of going bust as my local estate agent? Maybe I should follow Lester Piggot’s model and keep the lot under my mattress
    what’s the best thing to do? I don’t want to buy gold.. I’ve got nowhere to keep it all!

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  • tbf – try bullionvault.com or buy gold shares (selftrade.co.uk) or maybe even spreadbet on gold (igindex.co.uk). There are plenty of ways of getting exposure without physically holding gold. I think there’s more info in the forum.

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  • A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs.

    When she opens the door, there stands Bob, the next-door neighbor.
    Before she says a word, Bob says, ‘I’ll give you £800 to drop that towel.’ After thinking for a moment, the woman drops her towel and stands naked in front of Bob.

    After a few seconds, Bob hands her £800 and leaves.

    The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks, ‘Who was that?’

    ‘It was Bob the next door neighbor,’ she replies.

    ‘Great!’ the husband says, ‘Did he say anything about the £800 he owes me?’

    Moral of the story: If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure

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  • theboltonfury says:

    inbreda – so buying a 1year bond is a bad idea? Isn’t it guaranteed by the gov for under 30k. Surely there’s little value left in most precious metals now as they’ve been hammered to death by speculators?

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  • bolton fury – you could buy National Savings Index linked bonds http://www.nsandi.com
    they are for three or five years, but you can get out after 1 year
    they pay 1.35% plus RPI – so currently about 5.35% – tax free/tax paid depending how you look at it

    If a lot of savers need to claim on the bank guarantee all at once – it may take many years to pay out at zero interest. The bank guarantee doesn’t say when you get your £35,000 back!

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  • theboltonfury says:

    cheers cornish – that confirms it for me

    I like the idea of being linked to inflation – it’s clearly going only one way. I don’t fancy joining a queue to get my money back

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  • Boltonfury – if you want a hedge against inflation you could try National Savings & Investments indexed linked savings certificates. You’ll get RPI (currently 4.1%) plus 1.35%. More importantly the returns are tax free. There are currently two terms: 3 years and 5 years and you can invest up to £15,000 in each issue. Anyone of 7 years and above can invest, or, if you have children below the age of 7 you can invest on their behalf.

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  • BoltonFury: the National Savings & Investments index-linked bonds are also tax-free. All other investments are taxed: a bank account which claims to pay 5% gross actually only pays 4% net (3% for high-earners*); a really good company with shares yielding 10% gross is only worth 8% net (6% for high earners*). So that 5.35% is equivalent to 6.69% for most people and a whopping 8.9% for high-earners.

    *High-earners means people in the higher income tax bracket, i.e. with earnings greater than ~£39k.

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