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Banks start to trust again
Jonathan Prynn and Paul Waugh16 Oct 2008
NERVOUS banks are finally starting to respond to Gordon Brown's historic rescue package by lending more freely to each other.
The London interbank offered rate, or Libor - the rate at which banks are prepared to lend to each other - is dropping: today's three-month Libor eased from 6.21 per cent to 6.18 per cent.
Libor - which is used as a benchmark for many mortgage deals - is forecast to fall more steeply to 6.07 per cent next week when the Bank of England says it will make it easier and cheaper for banks to borrow money from the Government which should pave the way for more competitive new mortgage deals within days - a welcome boost for first time buyers.
Libor had been stuck at close to 6.3 per cent, despite last week's half-point cut in base rates by the Bank of England, because banks were reluctant to lend to each other in case the borrower went bust.
The bunged-up money markets have led some major mortgage lenders to increase the cost of their new tracker mortgage deals in recent days.
Today Lloyds TSB said it was increasing the cost of its mainstream trackers by between 0.3 per cent and 0.5 per cent and Barclays' lending arm the Woolwich raised its lifetime and offset tracker rates by 0.2 per cent.
Banks and building societies have also been criticised for not passing on the half-point cut to customers on their standard variable rates. So far only 23 banks and building societies out of 85 have said they will be reducing their standard variable rate.
A spokeswoman for Moneyfacts, which monitors all mortgage rates, said: "It usually takes a couple of weeks for the money market rates to filter through to mortgage rates."
Another encouraging sign has been an increase in the number of deals available to buyers with only a five per cent deposit.
However, market activity was rather less encouraging.
Shares in London fell sharply in early trading on fears of a global recession and last night's turmoil in Asian markets although they bounced back later.
By lunchtime the FTSE-100 was down 140.4 points at 3939.13 points, a fall of three per cent. That makes a 10 per cent fall over two days of 444.2 points.
Last night Asian markets suffered one of their worst ever trading sessions. Japan's Nikkei 225 Index lost more than 11 per cent, its second biggest one-day fall on record. The Hang Seng index in Hong Kong fell eight per cent, while markets in Australia, South Korea and Singapore were also heavily down. barrel of crude oil dropping to a 13-month low of around $71, half its July peak.
The Government's £37 billion bank bail-out was also causing concern today amid claims that its tough terms had been imposed by Brussels.
Lloyds TSB is lobbying Chancellor Alistair Darling to drop a five-year ban on paying dividends to shareholders because of fears that the draconian move will undermine the whole deal.
The City worries that Lloyds' plans to take over HBOS could be scuppered by plunging share prices in both banks and wants the Government to allow dividends to be paid after a year.
It was claimed today that the European Commission had forced the Treasury to impose the five-year ban as the price for winning its approval for the deal under EU competition rules.
Mr Darling is furious at attempts by the banks to bounce him into easing the terms but he said late last night that there was room for flexibility.
The Treasury and No 10 know that if private investors are put off by the tough terms of the bail-out it is more likely that the state will have to buy more shares in Royal Bank of Scotland, HBOS and Lloyds TSB.
Reader views (11)
This government "rescue" is another gigantic Crash Gordon blunder.
- Jacqueline, Hampstead, London, 16/10/2008 22:33
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Does Victor Blank know exactly how much toxic debt HBOS has? Or Gordon come to that. If not then how does he expect the shareholders to risk the takeover. HBOS could drag Lloyds down with them. As to the government giving away all this money. How many people with savings are getting 12% interest? There,s no way this is going to happen.
- Bob, Bristol, 16/10/2008 19:07
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Hopefully all of the shareholders have been prudently puting away all those faboulous dividends they have received and are now getting ready to buy the new share that the government is about to underwite. If they buy them all then they can decide what dividends the bank pays in future. Although I do wonder why the banks paid the dividends when clearly they needed the cash to build their balance sheets instead. Perhaps the boards of these banks, as well as not understanding the risks attached to the assets they held, just couldn't run a newsagents. Hopefully the government will put Rita and Norris on the boards and we can all sleep easy at night.
- Slightly Dotty, Wood Green UK, 16/10/2008 14:00
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If the government had not bailed out the banks and they had gone bust the shareholders would not be receiving any dividends this year; next year or the next five years and they would have lost all their capital!
- Julian, Brittany France, 16/10/2008 12:04
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As far as I can tell from this fiasco, Lloyds TSB was in a very secure and healthy financial position until the govt asked them to bail out HBOS and now suddenly Lloyds TSB are the feckless bankers. I don't think you can blame shareholders and anyone who has a pension (and understands how pensions work) for being angry about the govts idea for handling this affair. Though I do wish Lloyds would do what Barclays have done and seek funds elsewhere or alternatively back out of the HBOS takeover.
- Isabel, woking, 16/10/2008 12:00
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maybe it would be better to nationalize all our banks
- Nino, london, 16/10/2008 11:58
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Sorry banks and your shareholders, no sympathy from me. There's a simple alternative to Gordon Brown's plan - YOU put up the money to buy the new shares and so rebuild the wrecked balance sheets. You'll then get the 'punitive' 12% interest. Not rushing? You cannot expect UK taxpayers (I am still one) to lend money out to banks to pay dividends from non-existent profits.
- Tonyb, Melbourne, Australia, 16/10/2008 11:31
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How can it be anti-competative if all the European banks are in the same position. Stand up Gordon and fight your corner for the UK at the same time teating others fairly.
- Simon - Bucharest, bucharest - Romania, 16/10/2008 11:15
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Has anybody stopped to ask what affect this dividend freeze will have on pensions? The vast number of shares aren't held by millionaires in Jersey, but company pensions schemes who use the dividends to grow pensions for ordinary people. The terms of this bail-out illustrates that the UK Government is clueless about finance, and the EU doesn't give a damn about the UK.
- Mark, RICHMOND, SURREY, 16/10/2008 11:02
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Share Holders should get in the real world, they were part of the problems that encouraged the idiots who have ran our big banking system to take unregulated and poorly managed decisions to ensure a "nice little" dividend cheque appeared on their door mat twice a year.
- David, London, 16/10/2008 10:54
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Please can someone tell the shareholders and their brokers who apparently are very intelligent people that receiving billions of taxpayers money for failure and investing in shares, which according to their own analysts go up or down, does not entitle you to live off the state in receive compensation for that privilege. You are not entitled to Corporate Welfare because you do not receive the income you thought you would get because you made a bad investment. If shareholders want dividends, invest in a company that performs, which is clearly not banking. Maybe they are inspired by Gordon Brown who deregulates regulatory protections, hands over power to the banks and then hands over taxpayers money when it fails. Now Brown wants to change the terms so it is worse for taxpayers. The UK taxpayer will not be providing any more corporate social welfare, Mr Brown, take note.
- V Keller, London UK, 16/10/2008 10:27
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