Trumpo questions the credit crunch blame game
The Trumpo blog launched in September 07 stating that the B&B may well be the next Northern Rock.
I have been thinking long and hard about today’s rights issue for £300 Million - should the Directors of B&B be praised or condemned?
Read the Sept 07 blog and let me know if my comments below are correct or not?
Since the start of the credit crunch Bradford and Bingley have been advertising like crazy to get savers to put their hard earned into the Bradford and Bingley - and paying extremely attractive savings rates. Today’s rights issue, I would say, is a result of a failed and no doubt extremely expensive media campaign to get money through the B&B doors and onto the Balance Sheet. The Directors had to at least try this route first before going cap in hand to the city so shouldn’t be condemned for trying.
The savers are getting a great deal, but the shareholders in Bradford & Bingley PLC feel they are not. Yet again we have a situation where the regulator and the city are at odds. The FSA will be saying to the B&B board of directors ‘bolster your reserves and change your business model, and if you don’t we will fine you the controlling directors personally for not dancing to our new regulatory tune’. But the Directors are being put in a near impossible position, wrath from the shareholders or wrath from the regulator. It’s a no brainer unfortunately, the regulator can send you to jail and the shareholders are continually made aware that shares can go down as well as up. So the FSA basically say that the speculating shareholders have to swallow it.
The shareholders are unhappy and feel they have been hoodwinked by the board of B&B. But things are changing weekly and what the board may have said 4 weeks ago, may be unavoidably turned on its head today due to a change in FSA rules and objectives (look at the governments 10p tax turnaround). Things are so volatile out there shareholders should get out now if they can’t stand the heat.
See a couple of comments listed today on a shareholders bulletin board;
“When The Sunday Telegraph and The Sunday Times ran the story that B&B would be having a rights issue, some weeks ago, their journalists were slated on here, their characters and motives impugned. Will we now here some words of contrition, apology even, from those who wrote those comments ?”
“I think I’ll stay with it and take up my rights, but I am seriously pi$$ed about this rights issue. As an income seeker, I am also seriously pi$$ed about the interim dividend being paid in shares. Instead of the company paying me and supporting my pension, I am having to support them. It’s the management lies I can’t stand as much as anything.”
“You need to learn that directors like politicians can never be relied upon to tell the truth!”
“What makes you think that B&B are doing this because they have problems? Right now it might simply be the best available way of raising some funds to increase/continue lending at profitable rates. Pretty cheap too considering the future dividend will be paid in shares. Of course, I’m a holder so I have my head firmly in the sand. Well, slowly getting over my initial reaction of ‘we were lied to’, and am thinking a bit more clearly after coffee. Still incredible to think that this is off nearly 20% this week alone”
Trumpo says we cant actually criticise the guys running the firms, they operated in the shareholders interest to obtain the best returns and would have been criticised if they didn’t shoot for the stars with their mortgage lending activity in the boom times.
This blog link will run for some time yet I think, but rest assured, it’s not the Directors intention to bring all this heat upon themselves, you love them when they are winning and dump them when times change, the Directors havent changed, the market has.
Now wheres my Northern Rock paying in book!
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May 14th, 2008 at 11:06 am
Hi
Why is it that shareholders are always winging when the company or companies they invest in either lose value or go bust? Investment is stocks and shares is a high risk strategy and losses should be accepted in the way as gains.
However no one should be lied to and the liars get away with it.
Robin.
May 14th, 2008 at 11:09 am
I’ll agree with your blog bar the line belowbecuase it would eb advice in my book and without knowing the reader it might not be the right thing.
“Things are so volatile out there shareholders should get out now if they can’t stand the heat.”
If they couldn’t stand the heat, they shouldn’t have been in their in the first place would be what I would say, however that is NOT to say I don’t think they are getting a raw deal and to some extent so may be the Directors in a catch 22 situation. We are all finding oruselves i this postion all of a sudden as lack of clear rule of LAW and a Principles (FSA’s as puchsed by teh Treasury) is a flawed approach and always was going to be.
Asking one to justify their own actions against thier OWN principles is a totally different matter and that is what pricniples based regulation should have been about.
I an an atheist, but have been described by a friend in the services as being dangerous were I religious.
He missed the point slightly as I am religious about my principles and beliefs and hence as mine differ from the FSA, FOS and Treasuries, effectively calling on us to work according to THEIR flawed principles is a religious was in itself and hence the fallout follwing the credit crucng, nortehrn rock failure and now the dual pricing issues with mortgages and lenders.
May 14th, 2008 at 11:11 am
Looking at my spelling on here, I’d just like to say it is my passion and not alcohol which has resulted in the amount of typos!
May 14th, 2008 at 4:17 pm
Regarding Northern Rock, B & B and others.
The FSA regulates the whole of the Financial Services industry and is charged with doing so both competently and with efficiently.
Were the FSA were to live up to these basic expectations then all companies in the Financial Services sector would be run in such a way as to not only protect the customer but also to make sure that the company was also safe and secure in both its business model and the way in which it runs its business.
Given this, it is not a big leap to suggest that buying shares in a Financial Services company should mean investing in a ’strongly regulated industry’ where integrity and sensible business practices are overseen by a powerful regulator. Therefore shares in such companies should be MORE secure than investing in an ‘unregulated industry’.
The shenanigans at the FSA have worked in the opposite direction and have just exacerbated the problems. Not only that the FSA then tries to offload any responsibility and when that fails it appoints an INTERNAL team to look at its own failings. The need for such an investigation begs the question as to ‘what on earth were the management doing?’ Not their jobs obviously!
Being a ‘one man band’ mortgage broker I have been interested to see the jobs advertised with the FSA for Small Mortgage Broker Supervisors. Basic salary £55k + benefits (Possibility of a premium for specific qualifications or experience)
Looking further I found that the FSA was looking for bureaucrats, not for anybody with experience of small brokerages. How does the FSA expect to regulate businesses that it knows nothing about and patently is not even looking to understand.
Small brokers should look at the ’six TCF consumer outcomes’ on the FSA website, together with the relevant links and examples, then apply them to their past experience and see if there is any way in which they can be totally compliant.
In relation to TCF I have recently had occasion to ask a lender if they would allow my purchaser to REDUCE the amount to be borrowed, due to the possibility of negotiating a reduction in the purchase price of the property he was buying. The answer was yes, but ONLY at a rate of nearly 1.0% above the rate in the existing offer letter.
While it is a bit more complicated than this the net result would have been that it would actually have cost my client more in the first year than the reduced purchase price would have saved. Then 1% pa more on the interest rate for the duration of the mortgage. I cannot see how this can possibly square with TCF. But hey the lenders do what they like and the FSA has no interest in the client being screwed. I advised the client to complete at the original price.
May 20th, 2008 at 11:42 am
Well I am not surprised having seen the big players like RBS go for a right issue. You only have to look at the share price of B&B to see they are in the do do
change
%
52 wk-h 455.00
52 wk-l 112.00
As most of B&B’s Client bank is self cert and BTL they are going to struggle in this market.
May 21st, 2008 at 9:09 am
I think there’s a basic misunderstanding about the way finanical institutions operate. When you have ineffective regulation and a bonus-led culture, based on volumes, you will get the type of situation which has arisen now. Why would any sane loan officer reject a loan application when his bonus is linked to the volume of new business he writes, particualrly against a backdrop of abundant liquidity and low interest rates. Loans rarely default in the very short term.; they may or may not default in 5 years’ time. Who cares, I get my bonus now.
This logic goes right up the tree. The guys at the top get huge bonuses, of course. None of this is designed to secure the long-term future of the financial institutions involved. That is why an institution like Bear Stearns can go bust overnight (of course, it wouldn’t have been overnight if the auditors had done thier jobs). But, again, look at these big US banks; top managers still got their huge bucks.
Of course, systemic crises are rare. On that basis, most of the time, you can happily manage for the short-term.
Always remember, people, if you eat like an elephant, you’re not going to sh*t like a sparrow.
Oh, as to why some banks are going for rights issues. Easy, they’re insolvent if they marked assets to market.
May 21st, 2008 at 4:13 pm
Investing in a company in a ‘heavily regulated’ industry such as the banks SHOULD mean that an investment is BETTER protected. The actions of the FSA have actually made the shares of such companies perform way below NON-REGULATED companies. The FSA only protects it’s own position and jobs with no respect for the consumer, be he investor or borrower.
May 21st, 2008 at 6:43 pm
The FSA have simply been shambolic. Part of the problem is that they have no real understanding of the financial markets that they are basing regulation upon. As evidence of this is the fact that they still bury their heads in the sand regarding hedge fund regulation. That is where the greatest leverage risk lies (outside the banks).
The big elephant in the room, however, is derivatives exposure. The total value of derivatives outstanding is greater than the total GDP of the whole world, several times the size of the US stock market and many times greater than US treasuries. Over 90% of derivatives are non-exchange traded and are subject to no regulation. If credit markets are bust, so are their derivatives. This is the big shoe, which nobody dare acknowledge. Markets cannot afford to test the solvency of counterparties. That is what lies behind the massive injection of funds by central banks. Simply, they are monetising worthless paper.