IMF slashes growth forecast for Britain‏

By Patrick Corby

The International Monetary Fund (IMF) has reduced the UK’s growth forecast for 2013 from 0.8% to 0.2% in its latest release, representing a fastening contraction in the British economy.

The IMF has reduced growth forecasts for the UK to just 0.2%. Photo: Reuters

The UK’s own Office for Budget Responsibility (OBR) has forecast growth to 0.6% this year and 1.8% in 2014, as opposed to the IMF’s forecast of 1.4% next year, down from 2%. The UK’s downgrade is the sharpest seen in the developed economies.

The report specifically targeted George Osborne for “playing with fire” regarding the size of the cuts he made to the budget last month. The IMF report suggested further monetary easing which would temporarily inflate the UK’s credit bubble and allow the contraction to occur more slowly.

The IMF report states that “the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation” and that a “domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions, and economic uncertainty”.

The fund would like to see more inflationary measures used to increase credit availability and spur growth in a time when most economies are focused on trimming and contracting their economies from their debt-fuelled levels reached in 2007.

The Bank of England recently published its inflation report which saw inflation increase towards 2.8% and markets now expect a rise towards 3% as the currency devalues its purchasing power and increases its international competitiveness. This is normally seen as the warning area where controlled inflation can give way to more rapid price movements.

This is in context to the wider picture of world economic output. The IMF now expects a decline in total European output of -0.3%, 1.9% growth in the US and India to 6.1%, Brazil to 2.5% and to 8% in China. Only Japan and Sub-Saharan Africa saw increases.

 

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RBS under fire after second cash point meltdown

By Patrick Corby

The Royal Bank of Scotland (RBS) on Thursday experienced hardware failures that left its customers with no way to withdraw cash from its ATMs, use their bank cards or access their online banking accounts.

RBS suffers with its second IT failure in nine months. Photo: Elliot Brown

The RBS Group collectively serves 17.5m individuals in banking transactions, none of whom could access their deposits on Wednesday night between 2100 GMT and 2300 GMT.

Many were left in restaurants or at supermarkets without any statement from the bank, the news reported on Twitter before the bank could respond.

Last week RBS announced it had pre-tax losses in 2012 of £5.17 Billion that included charges brought against RBS for its role in two major financial scandals: the manipulation of the interest rate set up between banks (LIBOR) and it’s miss-selling of interest rate swaps (IRS) to unsophisticated clients.

If that wasn’t enough for the publicly owned company, this latest episode represents the second time in nine months that RBS has experienced mass IT failure.

Last June the problem cost RBS £175m with Executive Stephen Hester, who is in his last year of restoring the bank to good health, waiving his bonus towards the sum.

“It was much easier to fix, though clearly an unacceptable failure,” read a statement by RBS after the glitch had been fixed. The statement went on: “we apologise for the disruption our customers experienced last night. All systems are up and running as normal, though any customers with any individual problems should get in touch with us”.

This year the Chancellor, George Osborne, announced plans to privatise RBS again by 2014 to recover some of the £45bn the public spent on buying 81% of RBS in 2008.

But this week the governor of the Bank of England, Mervyn King, released a statement suggesting the break-up of RBS In order to raise more capital by being sold as smaller manageable entities.

King said: “We should simply accept the reality today that [RBS] is probably worth less than we thought and we should find a way to get the bank out in a way that can be useful to the UK economy.”

The Co-operative bank and Triodos last year saw significant increases in their applications from those RBS customers affected last year.

On Thursday, shares in RBS at midday fell 1.1% against the backdrop of a 0.2% fall across European banks.

I also write for The Upcoming, which you can read here.

RBS to face £390m LIBOR criminal charge

By Patrick Corby

The Royal Bank of Scotland Group plc (RBS), the UK’s biggest publicly owned bank by 81%, could face a fine upwards of £500 million ($800 million) for the role it played in the manipulation of the London Interbank Offering Rate (LIBOR).

RBS is third bank to receive hefty fine for LIBOR. Photo: Ell Brown

As of now the bank will pay £208 million to the US Commodity Futures Trading Commission (CFTC), £97 million to the US Department of Justice and £87.5 million to the Financial Service Authority (FSA) in London, CTFC said in a statement today.

LIBOR is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London. (Bloomberg)

Those rates control more than $350 trillion in contracts worldwide from mortgages to complex derivative securities.

In a statement the FSA said that bank traders in the US, UK, Japan and Singapore from 2006 until 2010, including over 21 traders and one manager at RBS, had made multiple attempts to manipulate the Japanese Yen and Swiss Franc to benefit their trading positions.

According to the British Financial Services Authority RBS made more than 219 documented requests submitting inaccurate exchange rate offers. RBS’s Securities Japan, their Japanese subsidiary, will plead guilty to this.

The fine is the third charge racked up against those banks involved in the manipulation of aggregate exchange rates. In June Barclays plc was charged £290 million and then UBS AG, the Swiss bank, paid £1 billion in December when its Japanese firm pleaded guilty of the charge.

Due to RBS being a public bank, the fines would come directly from the tax payers in Britain. Acknowledging this Chancellor George Osborne said that the US portion of the penalty will be paid by those employed by RBS – none of which were those involved in the financial scandal.

Teresa Pearce, of the Labour party, said: “We hold an enormous number of shares in that bank which ultimately need to be sold. If its reputation is that there were things going on that shouldn’t have been – and other things may still be going on – then the value of those shares will plummet. We need to know the money used to prop it up was well spent.”

As of March 2011 the conduct involved in LIBOR submissions has been regulated at RBS. It has now entered into a deferred prosecution arrangement which allows RBS to avoid being charged and instead meet governmental reform and penalties, that if not met will lead to ready prosecution. Hopefully this will allow RBS to continue activity in the US.

The LIBOR investigations continue with ten financial regulators analysing accounts and documentations at 20 different financial institutions.

I also write for The Upcoming; read my archive here.

 

Commercial Banks or Crowdfunding?

By Patrick Corby

In many parts of the world the international financial crisis reins on making loans tighter to acquire as capital regulation is restructured and growing concerns over defaulting becomes commonplace. But an alternative has been growing which offsets the traditional funding model associated with banks. Increasingly peer-to-peer lending, or crowdfunding, is gaining popularity in many different countries deciding to create a regulatory structure around the industry.

The UK government is currently working on legislation surrounding peer-to-peer lending in order to give the industry more legitimacy. Early next year a consultation will be held with crowdfunding websites in the UK in order to structure regulation and give the Financial Conduct Authority (FSA) supervisory controls by April 2014.

The service is not presently supervised by the FSA because it’s business model does not take deposits, it just matches lenders and borrowers together. This means there is no Financial Services Compensation Scheme; you could lose all your money. But due to screening, in the last 49-60 months Zopa a UK based site, has had a default rate of 2.2%; that’s pretty low. Andrew Giles, chief executive of Zopa, has stated that commercial banks which don’t disclose figures have default rates closer to 5% and upwards.

Seedrs, the crowdfunding website approved by the Financial Service Authority (FSA), include a online test to make sure consumers understand the risk involved in putting money in start-ups.

The framework will mostly involve assessing and screening businesses in order to avoid scams and also making sure that the risk of default for creditors in properly known. He USA has crowdfunding at the top of their annual investment scams list making regulation all the more necessary for the alternative financial model.

The Peer-to-peer association has stated “We have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish”

“We are committed to working closely with the government and the Financial Conduct Authority over the coming months to build the right framework for our future.”

A Growing Industry

Peer-to-peer fund-raising helps individuals and businesses raise the cash they need directly from members of the public. Entrepreneurs cannot expect to go to the bank and walk away with a loan, crowdfunding offers an alternative model.

Massolution, a research and advisory firm specialising in the sector, says that 1.2 billion euros ($1.6 billion) was raised globally from crowdfunding last year.

The movement towards crowfunding started in Britain in 2005 and spread quickly to the USA, Germany, China and elsewhere.

The USA has already legislated crowdfunding and Kickstarter a US based crowdfunding site estalished in 2009 now accept projects from the UK starting this autumn rivalling the UK’s Seedrs. China started to develop crowdfunding sites such as Ppdai.com starting in 2010 due to tight credit lending. Ppdai, which in Chinese is short for “lending through auctions” offers the legal top rate of interest of 23%, far beyond the benchmark rate.

There is a lot of scope for crowdfunding as a concept. Princeton University’s Ethan O’ Perlstein has already decided to try and fund a scientific methamphetamine lab in order to study amphetamines effect on the human brain. Starting a crowdfunding page on RocketHub on October 4^th hoping for a project loan of $25,000. In return the research paper will be posted online for free.

“Together we can create an open model of scientific research and communication for the Internet age and beyond,” the team expressed.

Patrick Hussey at the Guardian gives a outline of civic crowdfunding to collect money towards state projects. This could become an alternative to taxation with ‘crowds, governments and companies coming together to fund projects’. The city of Portland already partakes in civic crowdfunding where those projects proposed get small, medium or large amounts based on a democratic lending ‘vote’ towards project individuals want to lend to.

The Bottom Line

• Crowdfunding is a rapidly growing industry and provides a fierce alternative to commercial lending and interest rates.
• The business model has already shook the foundations in lending, interest rates, scientific research, public projects and campaign funding.
• Where will it head next?