High Court Decision on Bank Charges Row

Hurrah for bank charge claimants!

Today, the Appeal Court has ruled that banks must wait for the Office of Fair Trading to decide on whether the banks have a right to charge customers on unarranged borrowing fees.  We all know the situation – you’re in your overdraft as it is, and then direct debits, standing orders or cheques come in ‘unpaid’ or ‘bounce’.  The bank stings you with a charge for each unpaid item – often to the tune of £35 per item.  We were on the verge of needing a cheapo payday loan just to cover ourselves!!  It seems steep and a few years ago a test case came to light which snowballed so much so that soon, tens of thousands of customers were claiming back what they saw as unfair charges.

Almost a billion pounds were paid out by banks to customers.  But banks felt that the charges were not an unreasonable measure and took the case to the High Court and Appeal Court.  Today, the Appeal Court has reached a unanimous decision that the OFT must decide on what happens next.  Meanwhile, thousands of cases remain frozen in county courts until the final decision is reached later this year.

Consumer groups are delighted at the Appeal Court’s ruling, while the British Bankers Association has argued that they continue to believe that the 1999 Unfair Terms in Consumer Contracts regulations do not apply to these charges.

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Bank Loss So Huge, It’s Britain’s Biggest

It is the biggest loss in UK corporate history – Royal Bank of Scotland have today announced their loss figures for 2008, and at a total figure of £24 billion it doesn’t make for light reading…

The bank’s woes began where many banks’ downturn took speed – with the Lehman Brothers disaster of last year.  Since then, RBS has been racking up its massive debt.  The acquisition of Dutch bank ABN Amro has cost the bank £16.2 billion, and many are blaming that disastrous move as part of the reason for today’s miserable figures.  Former RBS managers behaved recklessly say some observers – and bad charges to the tune of £7 billion may give credence to that comment, along with the Dutch disaster.

RBS is currently part nationalised – around 70 per cent is owned by the UK taxpayer – but many are now wondering whether full nationalisation is now not just wise but necessary.  So far, the government has given no indication of taking over in full, and have come up with an ‘asset protection scheme’ for both RBS and Lloyds, which is designed to protect shareholders and bondholders – but no one quite knows yet what exactly is to be covered under the plan.  This lack of surety and direction continues to cause havoc in the market, and confidence is at an all-time low.  The bank has promised to increase lending over the next 12 months – anyone fancy an RBS loan?

Meanwhile, RBS are to introduce cutbacks which would mean more job losses across the board – which union leaders are saying means the government must now step in.

Obama Addresses Congress!

Obama is in. There’s no two ways about it now. Not just ‘in’ in the fashion sense but in the fully-fledged, I have made a joint Congress address.

And yes, he started a bit early (before the Speaker could call the room to order), but whereas the last President would have been laughed out of town for it, with Obama we forgive him a small slip up. Not just because he can speak fluently and without breaking up sentences in illogical places, but because of the grave tone and apparent readiness for action that he gives us. In the address, which lasted around 45 minutes, Obama said that the “day of reckoning” had arrived for the USA. He said that he was not passing blame on past governments (though we all couldn’t help casting our minds back) but that there was too much irresponsibility in recent times. People spending money they don’t have, banks offering ‘bad loans‘ – too much short term gain without thinking of longterm prosperity.

So far, the new President has put forward a fiscal stimulus plan worth over $500bn, which he believes will create millions of new jobs and help the people of America “back into work, and money in their pockets”.

The speech went down well – US newspapers fairly gushed their responses – but did get a less-than-welcoming response from Republicans. Bobby Jindal, governor of Louisiana, said that Obama was spending money the country didn’t have, and that his plans were “wasteful”.

Whether Mr Jindal is correct remains to be seen, but right now it seems as though nothing will spoil the shine and glow surrounding the new President.

World Stocks Fall Amid New AIG Misery

Asian and World stocks were rattled by the Dow Jones’ 12-year low point as markets in the US closed last night.  The negative cycle seems to be no way near coming to an end, and the market seems to be filled with a growing lack of confidence and unease.  Last night, the Dow closed at 7,114.78 , 251 points.  This depth has not been seen since 1997.

So what made the downward spiral so sharp?  The forthcoming announcement of AIG’s quarterly loss is the major factor.  The loss is expected to be around $60bn – their biggest quarterly loss in corporate history.  AIG has been fraught with issues and they came close to collapse in September 2008.  At the time, the world financial system hung in the balance and faced coming to a standstill if the insurance giants were to crumble.  But the US government stepped in and nationalised the company in the nick of time.  But now, the firm is on the verge of bankruptcy – something which insiders deny will be a certainty (despite calling the lawyers in..).

There are fears for Citigroup and other large banks which are also said to be on the verge of nationalisation.

But what is really spreading negative feeling, rumours and speculation is the fact that there’s a lack of knowledge as to what the Obama administration plans to do in order to save the financial system.  There’s a growing feel amongst investors and the market – currency exchange and stock at the forefront – that while many world leaders are happy to inject more and more funds into the problems, nothing is really giving a positive effect.

Brown and the Billions

So, while Gordon Brown prepares to inject a fresh load of cash into Northern Rock in a bid to increase lending in the UK, he also dashed over to Berlin to meet G20 leaders.

The Big Deals – Germany, France, Britain, the Netherlands, Spain and Italy – met to discuss common targets ahead of the next G20 meeting on 2nd April, to be held in London.  One major announcement out of the talks is the new IMF fund to be set up in order to boost the Eurozone – and at $500bn it’s apparently still not large enough, according to Brown.

In general, the country leaders tried to come to some agreed outlook on ways of tacking the crisis.  It is at times like these, when countries are dealing with a negative influence, that issues can become highlighted.  One that has had many divided is the success of the Euro.  Does a situation like this highlight problems in a shared currency, and are there elements of it that might make some decide to pull out in the years to come?  Would it be more trouble to start afresh outside of the Zone?

These are interesting topics for discussion and theory, but perhaps it is too early to give it more than hyperthetical thought.  Yes, there has been increased strain on stronger countries – Germany in particular – out of a shared interest rate, and the possibility for bailing out weaker countries, but in actual fact the currency as a whole has been a success.  What happens in the next couple of years is going to be interesting to say the least.

So while Gordon has a lot on his plate in the immediate surroundings, and seems yet more willing to inject cash into the UK, he will have his work cut out at next the G20 summit, of which he will be the Chair.

Eurozone in Turmoil

We have discussed before the way in which the European Central Bank has been dealing with the global recession.  So far, they seem to have taken a softly, softly approach – since October 2008 they have only cut rates to 2 per cent.  “Only” seems a bit rich but that is in comparison to other central banks such as the Fed and the Bank of England, who as we know have been much more aggressive (see past blog posts).

But today, Jean-Claude Trichet – head of the ECB – is likely to announce further rate cuts in order to spur growth in the Eurozone region.  This news comes after a Finnish council member commented in an interview that so far, the Bank had not exhausted its capacity to deal with the crisis.

The impending announcement has caused the Euro to fall again in another week of dismal figures.  Yesterday it stood at $1.258 and fell by 2.1 per cent this week alone.  It would probably be best to wait until after the announcement before looking for the best euro exchange rate….

But over in Germany, Angela Merkel is refusing to show signs of pessimism.  She yesterday said that the Eurozone region is ‘strong’ – this despite Germany finally being poised to inject a new fiscal stimulus to boost what remains the largest economy of the region.  But she was not willing to comment on whether the country was to help out weaker nations – in fact bail them out – if necessary.

Over in France, ministers said that without swift action, the Eurozone would be on the verge of needing intervention by the International Monetary Fund.

So, rather a mixed bag of views from the group of nations, and it sounds like there may be need for a mutual outlook…

UK Bank Decision: Print More Money

It seems that there is no place left to go but to introduce fresh money into the UK economy. The Bank of England is making fast moves to gain approval to begin quantitative easing (QE) in order to ease the flow of credit and cash in the market. By buying corporate and government bonds, this measure is designed to improve company buying and for the banks to increase lending.

So, in essence, what they will do is print new money. Sound familiar to anyone? Sound like a risky move? Anyone who remembers the history classes at school, with images from the Weimar Republic of children playing with stacks of cash might wonder if increasing inflation will lead to similar situations. Others may look towards Zimbabwe, where the reckless turning on of the printing presses has led to sustained levels of inflation and corruption. But is this panic-inducing thought or does it carry weight?

Hard to tell, and really the only way of dealing with this is to sit and wait. The Bank’s governor, Mervyn King, has been described as throwing caution to the wind by one analyst, and many believe that his action in light of the deepening recession has been slightly on the wild side – but he has commented before that he will do whatever it takes to try and slay the beast and stave off deflation.

So what about the poor pound? It took a further knock on this latest announcement from the Bank, and there are many who worry about its future in light of there going to be an awful lot more of it around. Who wants to buy british pounds when the value becomes more depreciated?

It’s certainly going to be an interesting time to come. There’s not much else we can do now except sit and watch – and hope for the best..