The Co-op take over 700 Lloyds Bank Branches

The British government has claimed this sale as something to celebrate, but I have real doubts about whether it is going to be of any real benefit  to the British public.
Here are a few of the comments that have been made about this buyout......

Chancellor George Osborne said,"This is another step towards creating a new banking system for
britain that gives real choice to customers and supports the economy." ................................

The treasury also claimed this buyout , "... forms part of a raft of measures to reform the banking system and improve competition."

"The sale of hundreds of Lloyds branches to the Co-Operative creates a new challenger bank and promotes mutuals."

"This follows the sale of Northern Rock to Virgin Money in January and represents another important step towards a more competetive banking sector."

Some of the other comments made about this by the press include:-

"If this deal goes ahead it will see Co-op land  a 10% slice of the U.K.'s high St banking pie. That's a sizable figure and will give them real clout as a main stream lender.....This could be a really significant development for small firms looking to restore traditional relationship banking, where the tick box lending criteria approach will hopefully have no place."

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Lloyds are currently 40% owned by the tax payer.

First of all, Lloyds were expecting £2 billion for this sale, but will actually only receive a fraction of this amount. It is actually going to cost a maximum of £750 million. Only £350 million will be paid initially. The other £400 million is to be paid over the next 15 years! But this mortgage payment is dependant on the success of the combined Verde Group banking business. It may never be paid.......................................................................................................................

Secondly, the Lloyds Banking Group has in recent years spent a lot of money on up-dating the systems running the banks. However, the Verde Group Banking business has not been updated to the same level as it is much the same as when Lloyds bought the banks. So the sold off banks are un-likely to be able to compete with banks that remain in the Lloyds Banking Group. This will pose a challenge to the claims made by the conservatives that this is going to bring in much needed new competition in U.K. banking. Im strugling to find reasons how this will happen.

Thirdly........The Lloyds Banking Group combined with the Verde Group Banks, which are about to be sold, amounts to many banks which the Lloyds Banking Group probably does not actually need. The reason being that, due to the continued stagnation in the housing market, many of these smaller customer friendly banks have become comparitvely redundant as far as the actual banks are concerned. What I mean is, although we need our local banks, to the big banks, the smaller banks have become more of an inconvenience. Because wages are generally paid in electronically, the banks know that our wages will still arrive even with a lot less banks in our towns and villages. When banks were giving out lots of mortgages they needed the local branches so they had a place so you could sign the papers for 25 years of debt for your dream home. However, until something revolutionary happens in banking, for many of us the idea of buying a  dream home has long passed. For many, the idea of buying any delipidated shoe box of a home is a dream out of reach. I think Lloyds have calculated that they can concentrate on corporate buyouts and stock markets, without the need to hand out money to ordinary individuals. (No need to be too pessimistic. The whole point of this blog is that there is an answer, but it is un-likely to come from the big banks or the governments.......Not without a push from the people...). What I am trying to say is, the European rule which is forcing the sale of these banks by the Lloyds Group seems almost convenient for the long term Lloyds Banking Group. If they were not to be sold off, many probably would have been closed at some time in the future.

Forthly....... Probably one of the most niggling things about this deal is that Lloyds are going to remain as a  kind of landlord to the Verde Banking Group  banks.The Co-op is going to have to pay an annual commercial rate bill to the Lloyds banking group, expected to be many billions of pounds a year. Exact details are yet to be disclosed along with the management teams pay structure. For this reason there is little chance of the Co-op actually becoming competition for the Lloyds banking Group to worry about. Because if this was to happen, Lloyds could just increase the costs for the Co-op. So much for the much needed competition that George Osborne seemed so optimistic about.


Fifthly.........If I thought this was going to make a positive difference to the economy and make more home loans available to home buyers, I would be the first to recomend people to open an account with the Co-op bank. Regretfully I can not see this happening so I could not recommend people to start switching their account. The only way I can see this working is if the Co-op was to give stop gap loans whch are more profitable due to higher interest rates. This would work for the bank as they could take business away from 'money shops', log book loan companies and pawn shops. This certainly will not have any real benefits to the economy, as the only loans that make economic sense for the ordinary people is for loans to buy homes. However , I don't really see the Co-op as a competetive force to compete with the big banks.  So the claims of George Osborne and the treasury on this buyout have little foundation to actually fulfil their claims. I hope I am proved wrong. Unfortunately, I don't think I will be.


Sixth.........Lloyds will continue the 'back office' work for the Co-op bank. This is likely to thwarte any adventurous new strategies, for example.........to start lending for home purchases instead of the mostly pointless speculation on the stock markets which has continued to thrive despite the recession. If the Co-op was to proceed with this 'new strategy' it would for certain bring in new account holders who are currently with other banks. But this change in direction could have affects on the stock markets which would be negative. A sudden rise in home loans would have a negative affect on the sacred stock markets. This would have a negative affect on bonuses of bankers, stock brokers and also a temporary affect on interest on various types of investment products that are predominantly linked with stock markets. It would also affect businesses related to the buying and selling of big business (buyouts). I know you are probably thinking that banks lending for home loans should earn bonusus just as easy as the stock markets.......No...Because home loans take a long time to get the money back........As much as 30 years.....Compare this to a corporate buyout of a large company.....It won't take as long to get the money back. Because the buyout business is an industry its self which is backed and supported by stock markets. When big business people buy businesses they will usually be hoping to sell them within a few years at a profit, to another business with another load of borrowed money.........Very similar to stock brokers and hedge funds buying shares of companies.......Again any money lent for this type of investment gets returned to the banks quicker to be used for the next investment.  Lots of the bonuses the top bankers get comes from the success in these shorter term investments. If a bank can provide the finance for a buyout and then provide the finance for the next investor to buy the same company they make money from fees from both deals, but also early repayment fees etc. These buyouts provide lots of good for the bankers, but these buyouts do little for the rest of us apart from add a few pennies of interest to investments at the expense of higher costs for products and services we use and often job losses to make the savings to pay off the interest on the loan to buy the company!..
If account holders want the Co-op to lend money for mortgages, they are probably going to have to tell them that they require this as a condition of the account holder placing their money in the Co-op's banks. Failing that...It will probably need the forming of a peoples bank that does the things the people want. It could be the pheonix from the flames of David Camerron's big society ! Though I some how doubt that he would back this new peoples bank due to his completely biased relationship with people in the current international banking industry.- See "David Cameron has Worked Out What Caused the Economic Crisis !" in X-ECONOMICS.

 Roll on the next building boom!

U.K.'s Farmers Protest Over Reduction in 'Milk-gate' Price. Have the banks had an influence?!

Dairy farmers in the U.K. have recently been protesting about the price being paid for each litre of milk they are producing. There are mixed feelings from the public about this, going by recent debates that have been going on in the media and press. The thing is, most be people will not have been told all the factors which are involved in this scenario. The businesses involved are giving their own version of what is going on which is then re-iterated to us by the Financial Times, The British Broadcasting Company, The Daily Telegraph and all the rest of them. If the journalists don't have experience in areas outside of journalism, the chances are it will be easy for certain types of 'business' people to use them not to keep the public informed, but to create a smoke screen over goings on which they may wish to keep from both the public and potential investors.

Before going any futher, the press and media is far more important in these kinds of situations then most of the people working within it could possibly realise. It is therefore vitally important that the reporters collect all information available from both sides of an argument. If this doesn't happen it will affect the decisions made by political parties and also the general  publics' votes when it comes to voting time. And we will end up with the wrong people in government or possibly potentially the right people, but people who have been misled by the people who have been feeding them information such as the press and media.

So, if you are a reporter for the press or media, lets get this one right, otherwise we are at risk of losing all our farmers!

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A lot of the attention by the press and media is focusing on the big supermarkets, but this attention would seem to be mis-placed. The big supermarkets have been blamed by many news papers for squeezing the price that the farmers are receiving. If these news papers had done a bit more research, they could have come up with some important influential factors which have been over looked....
First of all let's look at the Supermarkets, and their reaction to what has been going on....

The Co-operative is one of the smaller buyers of the milk being produced by the farmers, but was one of the first to promise to increase the price they would pay. Also there was no hesitation by Morrisons and Asda to increase the price paid after the protests kicked off. So then, it would seem there was another outside factor influencing the situation. So let's look a little deeper.

Robert Wiseman Dairies processes 30% of the U.K.'s fresh milk, but they are not a retailer to the public as they are a processor which buys milk from farmers and then sells on to retailers. Robert Wiseman Dairies in fact supply milk to the Co-op supermarkets! The Co-op does not pay the farmers directly, but pays Robert Wiseman Dairies who then pay the farmers.

Therefore, there is no guarantee that the increased payments promised by the Co-op will actually reach the farmers. Regardless of this is ; Why did the processor not anticipate this problem arising? The willingness of it's customers to actually pay more............

The problem with lots of businesses which become ....merely vehicles for the investment of billions of dollars, Euros and pounds is that the people who actually run them are little more than landlords,... of that business and often don't have the nouse to really have the understanding of the business they are seen to be running..........

There is one factor which the 'free markets' promoted by many politicians, bankers and capitalist investors do not take into account. That is the 'human factor'. This is the idea that 'the people' want what is right , and this is not necessary what the capitalist motives of the bankers and other beneficiaries of capital want!.......

On 16th January 2012, Robert Wiseman Dairies was taken over by the dairy conglomerate Muller for the price of £279.5 Million.....

....The way this works is that the buyer borrows the majority of the purchase price against the subject company, and puts that company in debt. (Its an internationally accepted financing rule that needs to change). Basically, since Muller bought the company, Wiseman has become in debt to banks. When Muller bought the company, it borrowed money which Wiseman will have to pay back with the added interest payments. The interest will obviously affect its running costs which will have an an inevitable affect on the price it can buy milk and the price at which it can sell. Either the selling price for its end product will have to rise or the running costs will have to be some how reduced.

So, to summarise - the costs of running Robert Wiseman Dairies has increased substantially in the months that have recently passed. It would certainly be possible that the dairy will either have to increase its prices or lower it's costs so the resultant accumulated cash can be used to pay back debt and associated costs such as interest on the debt.

Also note that the mostly borrowed finance was handed over by banks who clearly had no anticipation of problems concerning the products of the dairy which could have an adverse affect on the company's well being. The reason I say this is that on 29th June 2012, Robert Wiseman Dairies released the following statement (just six months after the buyout):-

"Wiseman Confirms Milk Price From August 2012."

"Robert Wiseman Dairies  has given it's dairy farmer suppliers a months notice of a 1.7pence per litre reduction in the 'farm gate' milk price to take effect from August 1, 2012."

"The decision follows a collapse in value of the cream in each litre of farm-gate milk over the last 12 months. From it's peak the commodity fell in value by the milk price equivalent of more than 5ppl (Source:Dairy Co Datum)"

"Wiseman had hoped that the need for  further adjustment to it's milk price following a 2ppl reduction which took affect in June could be negated by a sustained and significant rally of commodity market values"

"But whilst markets have improved from the lows of recent weeks, they remain at levels not seen since early 2010, when the average DEFRA milk price was 24.19ppl. Wiseman's standard litre price from August will be 24.73ppl."

"Pete Nicholson, milk procure directorment director at Robert Wiseman Dairies said,"We know that this news will come as a major disapointment to Wiseman Milk Group members. We have done everything we can to minimize the reduction in our farm-gate milk price, but we must now reflect the substantially lower returns from the markets which we serve."

One week after Robert Wiseman Dairies reduced their 'milk gate' price, both of the U.K.s other big milk processors reduced their 'milk gate' price. They are Arla and Dairy Crest......  Arla supply Asda......Without being some kind of mind reader , it is difficult to give a clear picture of what is going on. But, it is possible that Arla, and Dairy Crest saw the Robert Wiseman 'band wagon' going passed and decided to jump on it!... After all, it would only result in bigger profits for both these companies.

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Okay then, I am no expert on the milk production business or farming, but going by the information made available to us by the press and media, and also this statement by one of the U.K.'s biggest milk processors.

Although Robert Wiseman Dairies does not control the market, it certainly has a major influence. Yet the above statement would have you beleive that Wiseman are at the mercy of  the stock markets. I beleive this to be a load bull. Demand for cream may well have dropped in the U.K., but this has been happening over the last couple decades as people have turned to a more healthy diet. This should not be an issue that has had the negative affect that Wiseman claims.

 The real reason for Wiseman to be squeezing the price of the milk it buys I beleive is because....
...The debt it is now carrying as a result of the recent buyout has influenced a drive to cut its costs. One of those costs is obviously the farmers providing the milk which it processes.

As mentioned in  the above statement, Wiseman has already pushed down the price in June and is going to again in August. So then, what are the big supermarkets' position whilst this is happening. Well that is fairly clear. If a big milk processor which apparently processes 30% of our milk reduces the price it pays, then the supermarkets are understandably going to expect a comparable reduction in the price they pay.

To bring this to a swift conclusion.......

Wiseman are a major player in milk production in the U.K., but due to the recent buyout which will have involved masses of debt being added to it by major banks, it needs to cut its costs to pay back its debts and to keep its investors happy. However, some of the supermarkets who are buying milk direct from the farmers appear to have turned and gone in the opposite direction. The effect this could have on Wiseman is to say the least worrying.

The Dairy farmers that Wiseman uses are under contract to supply milk to Wiseman, it would seem at the price that suits Wiseman as long as a period of notice is given.

If Wiseman sticks to this next price reduction in August there is a chance dairy farmers will go out of business.
However, if the farmers stick to their guns and refuse to supply the milk to Wiseman this would cause major problems for Wiseman.

What is most probable is that a compromise will be reached which will most certainly reduce profits for Wiseman. The problem is, will the company's inability to control the market cause problems with paying back its debt and therefore put the company and the jobs of all the employees at risk ?
If this was to happen the main stream press and media may well tell every one that market forces were to blame. This would be the wrong explanation. The difficulties are being caused by the banks loading the business with debt. Debt that is totally un-necessary. This debt is now risking the livelihoods of British farmers. Whilst much of the press and media only help the banks cover up the real reasons behind the farmers protests.

If you can't get your head round this Idea that bankers and some business people will get some kind of satisfaction from putting businesses we depend on in financial difficulty, you need to find out about some of the benefits of doing this...

See posts on private equity, hedge funds and buyouts in this the X-ECONOMICS  blog and also the ANTI-CRISIS ECONOMICS blog. You soon will ! 
                                          


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The F.S.A.'s Contribution to the Barclays 'LIBOR' Scandal!

The F.S.A.'s Contribution to the Barclays 'LIBOR' Scandal!

It looks like our banking regulator, the F.S.A. had a chance to resolve this without the United States financial regulators getting involved. You might have noticed that our American friends are generally pretty diplomatic when having to deal with our inept politicians. But I think we know that as patient as the Americans often appear, its likely to come as a surprise when they do decide to take decisive action where they think it necessary. In this particular circumstance I think the Americans lost their patience, and from what I know about the F.S.A. I am not the least bit surprised!....

When I read about this it was difficult to understand why the press and media has suddenly made such a fuss about this story as it has been around for so many years. I heard about it a couple of years after the financial crisis, but obviously no fines had been dished out at that time. The press and media have just not bothered to cover it since. Either that or have been encouraged not to due to a fragile international financial system which could be further damaged by further bad publicity whilst people were still running away from banks with there money.

There is a possibility the Americans delayed their actions for some years in order to prevent damaging publicity to the world of finance.

From what I have read in the British press, some important details of this story have been left out by most of the journalists covering it. The bit  being over looked is the part the F.S.A. played in this fiasco. They have been aware of the goings on for a long time but would appear not to have taken any action until the U.S. sent in the Financial Industries equivalent of an air strike!

 The way I understand what has happened from memory is this;

Basically what has happened is that the U.S. financial regulator informed the United Kingdom Financial Services Authority that Barclays had been manipulating the 'LIBOR'. This is the agreed  rate for interbank lending which varies, but all major banks contribute their own opinion to what the level should be. Barclays wanted the rate where it was most profitable for them. This, a few years ago would have normally been fairly high, as Barclays would have more surplus cash then other banks in the U.K. This is because Barclays had more depositors than any other bank. They would therefore regularly be on the lending side of interbank lending deals. Hence, the higher the inter-bank lending rate, the higher Barclays profits and bonuses would be. However, more recently they have been trying to lower it. This is because of Barclays' rapid growth into an investment bank.

Barclays Capital currently has more assets under mangement than any other investment bank in the world. In 2008 it was just about in the top 10 ! This is what Goldman Sachs were known for. Barclays have however caught up with Goldman Sachs, and left them behind as far as investment banking is concerned. So this is why their tune has changed as far as the inter-bank lending rate is concerned. They need more money for their lucrative buyout business. Barclays have helped create a shopping spree for corporate buyouts, since the housing market collapsed.
 (This is great news, atleast some one is benefiting from the collapse of the housing market!...... But then again its probably part of the cause of the stagnation in the housing market.............)
  Along with new restrictions on banks having to hold cash, Barclays need cheap money from other sources to continue their buyout bonanza. Barclays had apparently been bribing management at many other banks to raise or lower the 'bar' for the lending rate depending on  their requirements at the time.
(You can see more on this in ' The Legacy of Bob Diamond' soon to be added to the blog posts.)

Any way, the American authorities kindly informed the F.S.A. as to what they believed Barclays were up to. I also understand they specified that they wanted the F.S.A. to take appropriate action.
Im not sure what happened between then and now, but the way understand it is that the U.S. authorities were giving the U.K. authorities a chance to deal with the situation. My guess is they were not satisfied with the F.S.A. and so decided to take action themselves.

The way its supposed to work is that the F.S.A. and the Bank of England are supposed to regulate the British Banks and take actions where required. It looks like the Americans have decided to take action on Barclays themselves despite the in-action of British Authorities. This would then be a kind of 'activist' fine which Barclays would not have been expecting. The choice Barclays probably have is to pay the fine and straighten out their procedures or lose billions in the way of business. I would speculate that the fine by the F.S.A. is in response to the action by the U.S. regulator. How would it look now if they were still to do nothing?

When you take into account the length of time the F.S.A. took to deal with the 'miss selling of PPI', it would be easy to understand why the U.S. regulator became frustrated and reacted accordingly. It took four years for the F.S.A. to come to the conclusion that mis-selling was taking place in British banks.

For the LIBOR scandal the U.S. regulator fined Barclays £230 Million whlist the F.S.A. only fined them £60 Million.

It makes you wonder if; If the Americans didn't get involved, would the FSA ever have done any thing about it?

On second thoughts, may be it doesn't!

The affects of raising the lending rate in the lead up to the crisis could certainly have created problems for smaller banks such as Northern Rock who are known to have borrowed fortunes from other banks. Was it a contribution to the crisis?
It could be an addition to what is becoming a very long list.

There have been conflicting messages on this story depending what you read or who are speaking to. But be aware that when top management start bringing traders into their explanation as to what is going on and blaming them , I don't think you will need me to explain that traders are not going to be making decisions that will affect the destiny of many trillions of dollars. The big decisions are made by the top people thats why they are paid many millions.

 Eighty percent of a top bankers job is justifying their actions, or confusing the public so they don't know what they are really doing. Ten per cent is just public relations, - feeding it to the press who generally eat it up and then feed it to the generally un-suspecting public.

(Percentages expressed are estimates at time of posting which may rise or fall in due course)

By the way, happy independance day to all Americans following this blog!

British Companies; The Subjects of Recent Buyouts.

Although Businesses getting into debt was not blamed for the financial crisis, there was almost certainly a degree of protectionism of businesses in order to reduce contagion in the stock markets, by the international financial industry. Private Equity buyouts were certainly a factor which contributed to the crisis as a lot of debt including the debt Barclays lent to the buyers of Alliance Boots, just before the crisis could not be sold by Barclays. Below is a list of Buyouts of companies which had their origins in the U.K. This is however only a fraction of the total companies involved in buyouts as there have been many more involving oversees companies, and in the U.S. buyouts reached epidemic levels. British banks were involved in many more international deals as well as any British deals they were involved in.

This will be expanded later to show all international buyouts. That will give a better idea of what is really going on in the 'buyout' world. The reason being that British businesses have been favoured by oversees investors just as british property has. This is really for no more a complex reason that the U.K. being a leader of capitalism. Basically, the more money that gets thrown at the U.K. , the more money will stick to it in the future! This means business and property get over valued. Its one of the reasons that the London Stock Exchange along with New York is one of the favoured Stock Exchanges to sell businesses. Anyway, the point is that the Big British companies are not going to be on this list in the future simply because the big British companies are becoming U.S., Indian or Chinese owned. There are likely to be less U.K. buyouts in the future not because there are less buyouts but because there are fewer big U.K. companies as a result of them being sold over seas!

The list below certainly shows how lending grew in the lead up to the crisis. It also shows that it has made a better recovery than lending to buy homes. (We should start to question how much of this lending to businesses is draining potential loans for homes and if all this investment is being used to prop up the stock market at the expense of home loans. I don't think there is much doubt. But how much of an affect ?)  All of these buyouts will involve borrowed money. Probably 75-80% of the money below will be leant by big investment banks such as Barclays, Lloyds, JP Morgan, Goldman Sachs.

What you need to ask is will these companies benefit from the dept which will be added to them?
 Or is it all just to benefit some executives of these companies who can pay themselves with the borrowed money, along with the bankers who can have their fees paid by the borrowed money?
And where a company is sold by the government, is it just so the government can receive a trough load of cash, which some of which could be put into government spending, but also could boost government wages and pensions!? What ever happens to the cash, we will be paying for the original service but with added interest to pay to the investors of those businesses who buy them.

Whatever good comes from buyouts and privatisation, no matter what your political views are, there is no way that the benefits from this can possibly justify the extra costs we are having to pay. You need look no further than the current increases in energy bills to see it just does not work. The mainstream media and press will not usually tell you that your charges are rising because you are having to pay the investors costs, in the same way a tenant pays the investment costs to a landlord. But then if they ask the owner of a business why prices are rising, they are unlikely to say, "Well we borrowed a fortune to buy the business and we only bought it because we want a bundle of cash for ourselves which has been added to the costs of the debt which the customer is having to pay on top of the actual running costs of he business."
The truth will normally be substituted by the 'euro crisis', 'recession' or 'low margins'. There will certainly be no end in sight of them using the euro crisis or recesion as an excuse because whilst the stock markets and banks continue adding costs to our lives as a result of these buyouts we will have no spare cash to fund an exit from any recession as our basic living costs continue to rise! 

January 2012
8.68% of Thames Water                      £500 Million
Sold to China Investment Corporation

September 2011
Charter International                            £1.5 Billion
Sold to Colfax of USA

August 2011
Autonomy Software                             £7.1 Billion
Hewlett Packard of U.S.

March 2011
Forth Ports
(Owner of Tilbury Docks and other British Ports)            £754 Million
Sold to consortium including Deutsche bank

August 2010
International Power                                    Merged
Merged with GDF Suez

April 2010
Arriva Bus company                                                                   £1.5 Billion
Sold to Deutsche Bahn, Germany

March 2010
Camelot- Lottery Operator                                                          £389 Million

January 2010
Cadbury                                                                                        £11.5 Billion
Sold to Kraft, American multi-national

October 2009
20% of BMI-Airline                                                                      £38 Million
Sold to Lufthansa (bought from SAS)

July 2009
Tomkins-Engineering co.                                                               £2.9 Billion

December 2008
British Energy                                                                                 £12.5 Billion
Sold to EDF, France.

February 2008
Burren Energy                                                                                 £1.7 Billion
Sold to ENI, Italy

January 2008
Scottish & Newcastle-Brewery                                                       £7.6 Million
Sold to Heineken  & Carlsberg

August 2007
ICI                                                                                                    £8 Billion
Sold to AkzoNobel, Holland

February 2007
Liverpool FC                                                                                    £285 Million
Sold to Tom Hick & George Gillet, USA

January 2007
Corus-Steel                                                                                       £6.2 Billion
Sold to Tata, India

Alliance Boots Chemist                                                                    £12Billion
Sold to KKR and Stefano Pessina

December 2006
Gallaher-Tobacco                                                                              £7.5 Billion
Sold to Japan Tobacco

November 2006
Scottish Power                                                                                    £12 Billion
Sold to Iberdrola, Spain

September 2006
British Oxygen (BOC) Group                                                             £8.2 Billion
Sold to Linde Group, Germany

July 2006
Associated British Ports                                                                      £3.17 Billion
Sold to Consortium

June 2006
Pilkington-Glass                                                                                   £1.8 Billion
Sold to Nippon, Japan

British Airport Authority(BAA)                                                           £10.6 Billion
Sold to Ferrovial Group, Spain

March 2006
P&O-Shipping                                                                                       £6.8 Billion

February 2006
Westinghouse-Power station builder                                                      £5.4 Billion

October 2005
MmO2-Mobile phone network                                                                £18 Billion
Sold to Telefonica, Spain

August 2005
British Plaster Board                                                                                £3.9 Billion
Sold to Saint-Gobain, France

May 2005
Manchester Utd                                                                                       £800 Million
Sold to Glazer Family, USA

October 2004
Abbey Bank                                                                                              £8.6 Billion
Sold to Santander, Spain

September 2004
Southern Cross Healthcare                                                                      £162 Million
Sold to Blackstone Private Equity, USA

February 2004
Amersham                                                                                              £9 Billion
Sold to GE Healthcare

December 2003
Debenhams-Retailer                            

June 2003
Chelsea FC                                                                                               £140 Million
Sold to Roman Abramovich

March 2002
N Power-Energy Supplier                                                                        £3 Billion
Sold to RWE

January 2001
Blue Circle-Cement                                                                                  £3.1 Million
Sold to Lafarge, France

November 2000
Thames Water                                                                                           £4.3 Billion
Sold to RWE, Holland

May 2000
Orange- Mobile phone network                                                                £26.9 Billion
Sold to France Telecom

April 2000
Robert Fleming & Co-Investment Bank                                                  £7.7 Billion
Sold to Chase Manhattan, USA

January 2000
Courtaulds Textiles                                                                                 £150 Million
Sold to Sara Lee, USA

Schroders Invstment Banking                                                                 £1.36 Billion
Sold to Citigroup, USA

June 1999
Asda- Supermarket                                                                                  £6.7 Million
Sold to Walmart, World biggest retailer, USA

November 1998
London Electricity                                                                                    £1.9 Billion
Sold by Entergy, USA to EDF, France
        

The Economic Facts; Lots of Reasons Which are Contributing to Our Economic Turmoil !

The Economic Facts; Lots of  Reasons Which are Contributing to Our Economic Turmoil!

I expect if you are reading this blog you will already know a number of contributors to the crisis, for example sub-prime loans, the selling of debt within the banking system, Credit Default Swaps, Collateralised Debt Obligations, the use of the heap of trillions that must be invested!, etc
Here are some other economic facts. Many of them you may work out are influenced by the knock-on affects of the main causes of the financial and economic crisis.

 1.... The London School of Economics carried out research in 2008 and concluded that the biggest
influence to income inequaility in the U.K. was due to pay explosion in the City (London) leading up to the financial crisis. Three quarters of the increase in income concentration amongst the top 1 % of earners went to people working within the finance industry, virtually all of it in bonuses.
2....The income of the top 25 hedge fund managers in the U.S. in 2004 exceeded the total amount paid to all of the CEOs of the entire S&P 500. 
3....In 2002 the distribution of marketable wealth in the U.K. of the bottom 50% of the population had reduced to just 6% from 10% in the mid 80s.
4....In 2007 the income of the top 1% of earners in the U.S. received 23.5% of the income of the total population.
5....The wealth of the top 1% of the U.S. population increased from 19.9% in 1976 to 34.6% in 2007.
6....U.S. liquid wealth (that is wealth minus the value of their home),  42% is with the wealthiest 1% !
7.... The difference between pay of Chief executives Officers of medium or large U.S. Companies compared to the average of all workers was a ratio of 344 to 1 in 2007.
8....In the U.S., although average workers pay increased by 4.3% after adjusting for inflation, pay to CEOs increased by 300% for the same period between 1990 and 2005.
9....American Business Magazine Forbes listed 946 billionaires across the globe in2007 with a combined worth of $3500 billion. This is higher than the GDP figure of Germany.
10....One of the influences of a rising number of Billionaires in Eastern Europe, for example Roman Abramovich, is due to the collapse of communism. This resulted in the sell off of state industries by the new democratic governments. People like Roman Abramovich borrowed money to buy them up. The benefits are sudden cash flow for the government that sells them. The buyer benefits from capitalist costs like the interest payments on the debt used to buy them which the ordinary people will be for ever paying plus any margin he or she desires to add for profit. There is nothing entrepeneurial about this. Its just borrowing money to buy control. Many billionaires around the world have materialised in the same way, by just borrowing money to buy control of businesses. Although the people involved and the bankers may not intend it, collectively this type of 'business' is inevitably going to bring the world to a grinding halt or bring about a poverty epidemic throughout the developed world. Many people around the world are borrowing to pay for gas, electricity, telephone, internet and water bills as well as food and rent for their home. Yet they all still rise in cost. For this to continue one of two things will have to happen.
 a.... The world economy suddenly improves, employment increases, and we can afford to pay the higher costs that are demanded of us.
or..
 b... Lots of us are going to be left out in the cold or without food or a reasonable standard of living, without television.  Vital services being run in the current capitalist way can continue as they are with rising prices as long as they make the wealthier people pay more. And they will pay more when asked. So basically the capitalist owners of these companies can continue as they are. But the lower end of the economy will be left with little or no standard of living. Poverty and the ultimate effects of poverty will increase within the developed world. They are also more likely to become unemployed in the future because our living costs must be covered by our income.(Our rising unemployment is certainly being contributed to by this fact currently). Realistically, its absolutely un-sustainable. - If your going to have democracy you really need to make sure you have a suitable government that doesn't sell off all the control it was given to begin with!

to be continued..
    

The 'Absent Landlords' of Property & Business are Compounding the World's Economic Crisis.

The 'Absent Landlords of Property & Business are Compounding the Economic Crisis!
In the U.K. we have a world renowned education system which is supposedly  one of the the highest rated in the world.
Lots of jobs require various qualifications in order to be considered for that particular industry. But what makes a mockery of all this education is the fact that there are many well paid positions which you can attain without an education. You can become a land lord of a property empire for example without a single qualification. A landlord can then profit from the general publics need for homes to live in. Or similarly, it may be a commercial property empire, in which the landlord will be profiting from the needs of businesses for a place to carry out their work. A lot of borrowed money is used by landlords renting out property and this adds an unnecessary extra cost to all of our lives as we are all paying this rent atleast as far as the businesses are concerned because the products and services we pay for have to cover the costs of business premises. (And this a major contribtion to all the shops which are having to close down). It will be a surprise to some that it goes on at all. Yet the fact that this busines is totally un-regulated raises questions as to why this would be. Some cynical people might say that it is because it would be to the cost of the finance industry, that the governments choose not to regulate this business. Unfortunately it is to the cost of every one of us that it is not regulated!

So basically, the people buying and renting property in general are doing us a dis-service. By buying the property and renting it out allowing a profit margin for themselves. Whilst doing little themselves to earn that payment. And the icing on the cake for these landlords is that the money you may have in an investment account for years saving for a deposit on a home, while you are saving will most likely be leant to landlords who will buy property with it, adding to its demand and pushing up the market price of homes. Therefore increasing the amount the saver needs to save for a deposit!

It wouldn't be quite so bad if it ended there,.............. but unfortunately it doesn't.

The business pages of many national news papers along with the financial news papers promote the idea that we should all be trying to own a bit of a business in one way or an other whether it be direct investment in company shares, bonds-which are government or company debt investments, or into a pension fund, or an other type of investment fund or just simply an ISA.

What all of these have in common is that every investor is going to require interest on their investment. All of these have their money in  some kind of business which is going to add costs to that business. Otherwise, where is the interest going to come from? What we then have is a similar situation to the landlords who are putting their money into property and renting out the property allowing for a profit margin.

Try to put your self in the position of a banker.
As a banker you know that every one wants a return on their investment. So how do you make sure that all your investors are going to be able to achieve this?
The first way you may think is to vet all the potential businesses for investment potential. Then only lend to the all the safest businesses with potential to increase their income to cover their added interest and loan repayments. But then what if you find you have more invested than you need for your good potential businesses. You will be left with a load of money in customers accounts which you will not be able to pay interest on. If you stop paying interest to investors, they are going to begin to take their savings elsewhere. This is a no go area (whilst there is no intervening regulating interest rate setter!), before long you are out of business. What you need to do is lend to some more businesses which may be you didn't really want to. This may be a risk, but if you lend to enough businesses, it won't matter if the odd business collapses. As long as you lend to enough businesses you can spread the risk. (Any way you can ease your headache by selling the debt to some un-suspecting soul) .Over all then, every one should be kept reaonably happy.

The situation we then have with a lot of our businesses is a situation of absent landlords. The investor in most cases doesn't even know what their money is being invested in. Even if the investor is a share holder of a business, share holders do little more than check on their share price and 'exit' their shares when they anticipate things are having a turn for the worse. Neither of these types of investor are much use to the long term prosperity of the business. Then we have the stock brokers and hedge funds, who continually buy and sell shares. Again, a stock broker is of little use when it comes to the long term success of a company. Hedge funds though can have a more influential contribution to a business. But their contribution will not help the company on a long term basis either. The strategy of hedge funds is again short term. Often a hedge fund will take the reins of a company by getting a representative on to the board of directors. But it is only to get temporary control whilst as much as possible is 'milked' out of the business until there is only a very streamlined version of the original company left. This could be achieved with redundancies, selling of assets and price rises. Ultimately there will come the day when the hedge fund 'exits' the business (sells all shares) at a good price before the share price begins an inevitable collapse as the affects of the 'streamlining' begin to have a detrimental affect. A private equity company may take control of a company by buying enough shares to take control of it. They work much the same way as the hedge funds. They will asset strip and make redundancies. If a hedge fund or private equity management company keeps hold of a company for a long period of time, it is because they can't sell it. It is not that they don't want to.

So can we expect any help from the banks in the way these companies are run. Afterall they are providing the money to their stock brokers who are buying shares. They are also lending money to the hedge funds who are buying them up and to the private equity companies. The banks make money by lending it, and without any mediator, they will lend this money pretty much at will. The only thing these banks will do is add debt to these businesses, as the hedge funds and private equity companies borrow money which inevitably means interest payments will be due from the companies they buy shares in.

So what about the executives of these companies, surely they are being paid enough to keep these companies on an even keel?
Well, they probably are, but an executive can earn more if he allows a company to get into debt. That is if some of the debt is used to pay the executives of the company for atleast the next few years in salaries, bonuses, company cars and some expenses.
What Im saying here is that for all those who are in control of business there are too many incentives to run a business badly on the finances side of the business.
The craziest thing of all is that every one including savers, investors, stock brokers, hedge funds, private equity companies, bankers and the executives of these companies, could contribute to a company being put out of business due to its debt without any of these individuals suffering any loss themselves. Simply because of the nature of the business world which allows all these people after a business has collapsed, simply to blame economic conditions and move on to the next business.

Investors make terrible landlords, whether they are a landlord of property or the 'landlord' of a business.

   

JP MORGAN ;Why did no one sue them for 'winning' billions during the financial crisis?

JP Morgan; Why did no one sue them for 'Winning Billions During the Financial Crisis?!
JP Morgan Chase are the biggest investment bank in the world (At time of this post).

In the lead up to the banking Crisis, Goldman Sachs were the biggest investment bank. But losses during the financial crisis meant the bank was to reduce its assets substantially.
However, JP Morgan made bets during the aproach to the financial crisis which were successful enough to cover any losses due to the financial crisis. This success has also bolstered the banks success since as investors have favoured the bank due to its apparent imunity to financial crisis. The confidence of its new customers may however be misplaced.
JP Morgan investment bank, recently hit the the headlines for losing $2 billion in 'bets that went wrong'.
Share holders of the bank are suing the Chief executive and the board.

Reasons for the law suit are,"Defendants mis represented the losses and risk of loss to the company arising from massive bets on derivative contracts related to credit indexes refecting interest rates on corporate bonds." as explained by Saratoga Advantage Trust-Financial Services Portfolio, one of the share holders.

What is interesting about this is that lots of this kind of thing was going on in  the lead up to the crisis. Only during this time, JP Morgan was one of the more successful banks. JP Morgans success today has been partly due to how it was able to ride the economic crisis. The reason for this was that lots of these 'bets' that JP Morgan were involved in during the crisis were a whole lot more successful. JP Morgan were in fact profiting by adding to the economic crisis. Other banks were losing money which was ending up in the hands of those same executives which are now being sued. Banks that ordinary people of the world helped to bail out with their taxes was in part due to banks like JP Morgan and the hedge funds run by JP Morgan who were protecting themselves, but at the same time adding to the losses of other banks and financial institutions, and to the bail outs which the public have had to pay for.

Some will say, how can this be right? While they are gaining phenomenal amounts of money, no one seems to care how they earn it. The press and media never seem to question it, and much of the press and media seems to actively encourage them by shouting about their profits figures when the accounts become available.

The other matter  concerns all of us and the way that these banks should operate in the future. We all invest in shares, bonds, derivatives, credit default swaps, etc one way or an other. I mean all of us.

All of us who have savings.
Once these are placed in investment account they can be used for various types of bets that JP Morgan have been involved in. This is because for example a hedge fund owned by JP Morgan will have access to the money in your account by your bank lending money  to the hedge fund. Your money could then be used to invest in a whole range of investment products such as the derivatives which have been blamed for the current JP Morgan loss.

All of us who have insurance.
Similarly, insurance money gets paid into funds which will be used by the investment banks and the hedge funds they run in a more direct way. (This is used as the deposit,  the money you have in a deposit account could be used for a loan, up to around five times the amount which would be put behind the main investment). These insurance funds will earn more money than the money in your investment account, but obviously you will not see any of it as this will go to the managers of the insurance companies. (This should make your insurance costs lower but it in reality, it is more likely to have the opposite effect. This is what happens when a finance industy is allowed to run it's self).

All of us who have National Insurance (Employed or unemployed!)
If you thought you had escaped with the two above routes to investments controlled by investment banks then you are less likely to escape through this route. Even the un-employed have investments which are being handed to investment banks to do with as they wish. National Insurance is invested in much the same way as any other type of insurance. The majority of these investments will be making money for the few, but as for the rest of us and the world economy in general, we will all suffer for these investments.

I really don't see how Saratoga are going to get compensated for the loss in value of their shares. This is what the investment banks do every day. Most of the money that has been paid to share holders in the past will have come from profits generated from the same type of business, but when JP Morgan had been more fortunate with their 'bets'. The share holders weren't complaining then. I totally agree that the bank was taking risks it should not have been taking. The problem is  that bankers beleive all their hype. That they are creating some kind of good from their gambling. All they are doing is creating problems, and these will become ever bigger as the bankers themselves become more demanding as far as their own salaries and bonuses. This gambling they are taking part in is at the expense of real investments which provide products like housing which we all need. Real business for these investment banks is becoming a bit of chore for them because the costs related to employment and other genuine costs of a business reduce the commission and interest possibilties that the investment banks can get from any deal. They therefore too often choose to use our money to gamble with.

The bottom line is this-
The share holders are right about the risks being taken but what they should be complaining about is the fact that they are merely gambling with investors money, whether it be money that JP Morgan are using whilst carrying out their business which could be contributed by any member of the public (through an investment account), or the share holders investment in the company. The share holders should be telling JP Morgan that they want the money invested in real business with real products and services instead of the type of 'investments' that the investment banks call business which in real terms is nothing more than touting, gambling and damaging the economy with our money. The problem with this is that the gambling, and the needless shovelling of money into business which don't need it is a major part of investment banking. 

If the investment banks are unable to react to the changing economic conditions and also the new expectations of both their customers ( by this I mean the originators of all the fund s that end up with the investment banks) and their share holders, they could find themselves having to down size some time in the near future. If things carry on as they are today, with the governments allowing the big banks to dominate the economy, the people are likely to start to influence the situation by investing money elsewhere, where the investment banks can't get access to it. Also the insurance companies which invest the money we pay to them may have to invest money where it will create more sustainable investments in order to keep their customers in the future.