Banking on a better future

Friday 14th August 2009

By Phil Whitehouse, managing director of The Mortgage Alliance

The Mortgage Alliance has a loyal data base of 7,000 Directly Authorised mortgage intermediaries and as with most firms operating within the mortgage market it is having to overcome a number of obstacles in order to help members write business. He previously worked as a senior manager for Pink Home Loans and spent 25 years with Halifax/Leeds Permanent Building Society running various high street branches.

Phil enjoys golf but says: “No matter what I do I cannot get any better and I beat myself up crazily about something that on the face of it is such a simple game."

It’s that time of year when a good proportion of the industry are packing their buckets and spades in search of the sunshine in a welcome break from the turmoil of financial services. However, in their wake we have seen the recent raft of half year reports from some of our largest lending institutions with contrasting outcomes. Banking giants Barclays and HSBC, who avoided having to be bailed out by the taxpayer in last year's meltdown, announced profits of nearly GBP3billion each for the first half of the year.

Looking closer at these returns Barclays' figures were up eight per cent on the same time last year, although HSBC's were 51 per cent down. Especially in the case of Barclays it appears that the bulk of these profits came from their respective investment arms. This leads us into the realms of city bonuses, one of the leading issues that has been highlighted by many economists as helping to create a culture that was an accelerant to the credit crunch. We have to be mindful of the outcry that the perceived high bonus figures caused and make sure the lessons are learnt from the past few years. This will ensure public and government confidence is maintained in the industry and go some way to increasing the mechanism for improving mortgage funding.

Looking to the other side of the fence we have seen government backed banks Lloyds and Northern Rock post big losses in their first half yearly figures. Northern Rock revealed that it made a GBP724 million loss in the six months to June as its bad debt tripled to GBP602 million. The bank disclosed that 12,100 borrowers with the 125% Together mortgage have fallen into arrears. Hindsight is a wonderful thing and there is increasing evidence that this product should have been pulled quicker when Northern Rock realised the problems it was in. Unfortunately this has resulted in thousands of people financially burdened– with the taxpayer having to pick up the bill.

Lloyds Banking Group has posted a pro-forma loss of GBP4bn for the first six months to June 30. The group pointed to an unprecedented £10.9bn increase in bad debts, largely due to poor corporate lending at HBOS, which was taken over by Lloyds TSB last year. Despite the losses Lloyds shares have risen as the bank claimed “impairments are expected to peak in the first half”. It added: “The [bad debt] charge in the second half will be significantly lower [and] we expect the 2010 charge to be significantly lower than 2009.”

I agree that the re-structuring of the Lloyds business has been evident in these losses and a fairer assessment of its performance will come via the full end of year results. So all in all there are some positive and some not so positive signs from these half year reports but what is evident is that we, as an industry, still have a long way to go and any positivity should also be greeted with an element of caution.

As HSBC chairman Simon Green stated: "The timing, shape and scale of any recovery in the wider economy remains highly uncertain." I think he’s right and while any positivity is welcomed within the banking circles, it’s a ‘could do better’ attitude that will hopefully help us through these troubled times.