View more on these topics

Too little, too late

Who would have thought anybody could describe a £75bn cash injection “a leap in the dark”, as it was described by Conservative Shadow Chancellor George Osborne or unfortunately as it will also be described, too little too late.

Now £75bn is a lot of money in anybody’s terms but, in the context of the UK mortgage market, pitifully inadequate. Less than 25 per cent of 2007 gross lending and way short of the estimated £600bn needed to “cleanse” the banks.

HBOS alone has close to £250bn of its own “toxic” assets, with RBS a similar amount. The ongoing squabble between Lloyds Banking Group and the Treasury over the numbers involved illustrates just how close we still are to a UK economic meltdown. By the time you read this, there is every chance that Lloyds will have been nationalised as well as RBS, NR, B&B….

But credit where it is due… at least the authorities (that is, the Government) are vaguely getting closer to the real issues. Zero base rate, zero VAT rate, public spending gone mad – none of this will make a difference.

Now unless the Government plans to nationalise all UK lending (and who knows, maybe this is the advice they are following now), it needs to understand part two of the problem.

Yes, they have correctly identified that we have a wholesale funding problem, and hence the £75bn or first instalment of many (and remember the global debt market for mortgage-backed securities closed in August 2007). But unless the Government plans to issue so much debt of its own to fund the shortfall in the UK they have to think about part two as well. How do they intend to attract investors, and their capital, back into the market?

Zero rates (and close to zero yields) will certainly start to force investors to think about future returns but even at current values it will take a brave investment manager to recommend buying new mortgage assets (assuming the asset hangover from previous lending finally gets resolved).

Today, the market price for performing loans of 12 to 18 month”s seasoning is 65p to 70p in the pound. Now, I don’t want to state the obvious but that pricing hardly reflects keen investor interest.

Investors initially will want some comfort. This will either happen by waiting for market conditions to provide that, that is, the market cycle back on an upcurve, asset values stabilised, unemployment and GDP heading the right direction and therefore about three to five years away.

Or by direct market intervention, through insurance in some shape or guise, Government-backed or provided a la Freddie or Fannie.

So 20 months on from the start of the crises, we are about to see some real action now, as I said too little, too late…


FTSE rebounds slightly

The FTSE 100 has rebounded slightly this morning after banking shares dragged the index below 3,500 at one point on Monday.

Defaqto puts focus on stats

Defaqto has revamped the layout of its quarterly multi-manager guide, Blending Talents, to focus on statistics and comment.

Mark Page: why my biggest overweight stock is a discount Spanish retailer

Artemis European Opportunities Fund manager Mark Page is questioned about the merits of investing in Spanish supermarket group, Dia. Dia is a 7,000-store Spanish discount supermarket chain. But with cheaper food prices coming on to the market and an improving Spanish economy, journalist Alexis Xydias questions Mark about its inclusion in the Artemis European Opportunities […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm