Wednesday, January 21, 2009

That “New Bank” plan is starting to take shape…

Britannia and Co-operative to merge

The "New Bank" plan is basically instead of shifting all the rubbish to a new bad bank at taxpayers' expense, a new or existing smaller bank starts from scratch, takes everybody's deposits at slightly higher interest rates than averybody else, then offers remortgages to good risks (< 60% LTV, < three-times-earnings, good credit history etc) at slightly better rates than everybody else. I've looked at their balance sheets for 2007 and they both seem very dull and sensible, no fancy inter-bank mortgage backed nonsense. So now they have decided to go for 'critical mass'.

Posted by mark wadsworth @ 01:25 PM (1213 views)
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11 thoughts on “That “New Bank” plan is starting to take shape…

  • All very well except based on this model they won’t be doing any meanningful mortgages business until asset prices and job market are both stable – ie for a very long time.

    Also this is not just about what mortgage holders owe the banks but what the banks owe ex uk creditors. If you start from scratch as you suggest it is the equivalent of the UK defaulting – like Iceland.

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  • japanese uncle says:

    From now on, banks will be forced to advertise ‘Last year our CEO’s salary was no more than 50K, which is why we can offer you competitive rates and excellent services’.

    Anyway if the new bank can offer any better IR, I definitely go for it.

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  • mark wadsworth says:

    Bellwether, correct, they shouldn;t be doing too much new lending, unless it meets very strict criteria (make up your own) however there are plenty of existing borrowers who DO meet those criteria, it’s a question of pinching the good risks off the old banks who are eff-you-kay-tea.

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  • japanese uncle says:

    To be honest, any housing loan offered at the current market (even assuming 25% drop from the peak) cannot be run on viable basis, unless involving 40% deposits. The new bank may better stop lending any new motrgage business for the time being.

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  • A new “good” bank seems like the only option now that the old banks have taken the government re-capitalisation money and lost it apparently.But this will not only require the building of a new banking chain,covering everywhere in the country,possibly in the premises of old banks gone phut, but a new banking system with loans more closely matched to deposits and no fancy commercial paper as reserves,collateralised loans from the wholesale market etc..Mortgages might have to end up being issued by re-mutualised building societies only.
    House prices will have to fall much further before the total capital requirement is affordable by either a new or old banking system.Perhaps a nudge from a land value tax will shift people out of the present state of denial that causes them to hang on for the fabled up-turn. LVT might prise a few fingers from the ledge.

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  • mark wadsworth says:

    JU, 40% = 60% LTV, that’s why I said max LTV 60%. Or 50%, or whatever.

    Sure, this will mainly be to existing borrowers who are remortgaging, not to lunatic FTB’s with more money than sense, but the market for remortgaging is there.

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  • Nothing wrong with boring old mutual building societies. At least these ones haven’t lost all their investors’ money.

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  • Somebody on here a while ago was talking about taking his money out of his bank and sticking it under the mattress. He was encouraging others to do the same to force the banks to pass on cuts.

    I said at the time that no such conspiracy would be necessary. Savers will move their savings to the banks who aren’t trying to recover losses. Likewise, low-risk borrowers will move to the banks who don’t need to plump up their margins. Market forces at work.

    Britannia will not lend against new-build flats or terraced houses (less than two year old). Their table-topping deals require 40%v deposits. So yes, they are cherry picking.

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  • last_days_of_disco says:

    Sign me up, sounds like a sensible place to have a bank account and keep my hard earned cash.

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  • Tenyearstogetmymoneyback says:

    japanese uncle said.

    Anyway if the new bank can offer any better IR, I definitely go for it.

    Having recently closed my Co-op account which was paying less than 2% in an ISA
    I am a bit concerned about this.

    I have a Britannia Account and was very pleased when having offered me a decent fixed rate
    they honoured it after one of the recent big drops in interest rates.

    :- Duncan

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  • Co-op have been lending on a lot of shared ownership new-build flats. I’m not sure that’s the best sector to be in.

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