Banks still losing money, crisis not over yet

Reminder: the financial crisis is anything but over. This is underlined by the fact the Royal Bank of Scotland posted a £1.1 billion loss.

While the loss is particularly linked to Ulster Bank, which is a RBS subsidiary and has guaranteed 100% mortgages in the Irish Republic, it demonstrates how the European banking system is still in crisis.

We still have issues of denial about the extent of problems in the Irish Republic, not least triggered by the European bond crisis which affected Ireland. And there are continued policy fights within the European Central Bank as to whether existing securities are enough, or whether a sea-change in fiscal policy is required which would see the ECB buying up European sovereign bonds.

In the meantime, everyone else seems to have forgotten that we haven't yet faced down the threat of a sovereign bond crisis in Europe. While there is a degree of optimism in the markets at present, it's worth noting that Portugal may yet require a bail-out, and if that happens then Spain is almost certainly next as the sovereign bond crisis slowly but surely unfolds.

And here's the elephant in the room - if UK property begins to fall in price as all trend indicators suggest they must, then you can expect a new round of financial problems to adversely impact Britain's banks, and our economy with it.

And then, of course, there are public sector cuts looming.

The financial crisis is anything but over yet.

Credit card write-offs increase

One of the more interesting indicators in the economy at present is that there is no overwhelming problem with debt.

Or, to put it another way, we still live in an environment of low interest rates, and because of this, debt remains relatively affordable.

However, one area where debt remains a more acute problem is credit cards, not least because interest rates on cards, rather than falling with interest rates, have actually been going up.

It is therefore hardly surprising that defaults on credit cards are rising, while defaults on mortgages with low rates remains low.

However, the real danger that few are currently reporting on in the media is that interest rates must necessarily rise at some point. When this happens, as it inevitably will, then mortgage and loan payments will be subject to higher default rates.

In an economy subject to major cuts in public spending and difficult conditions in the private sector, the only assurance with rising interest rates is that money problems are going to become far worse for everyone.

While the government is keen to make property repossession a matter of last resort for lenders, the overwhelming economic pressures building up suggest the property market is due for a fall, as mortgages become less and less manageable, with the ugly feedback loop of negative equity coming into play as values do fall.

Setting up the office

It has been a while since I last posted due to the length of time required to set up the offices.

Finding suitable offices has proven to be a surprisingly difficult endeavour, with quite a number on the market, but few actually properly suitable because of their existing design, not least in older buildings.

However, it looks like we're finally moving A1 Brokers into office space at Beechwood.

There are still a couple of issues to address first before we're properly operational, though.

The first is that we still haven't cleared a full list of representatives to send our leads through. We are still waiting for Central Trust to address some technical support queries to allow us to sort leads automatically for personal loans on our A1 loans website.

We're also trying to get the business phone system sorted out so that we can automatically direct leads for different products to different phone lines automatically. There are plenty of phone systems available for office maintenance, but it requires bringing a number of third party providers together, not least BT and their inept support department.

However, it looks as though we'll be setting up our broadband through a dedicated provider instead, and use a leased line internet connection to ensure we have plenty of spare capacity bandwidth. While it's proving an expensive option, we need to ensure plenty of redundancy is built into the service due to much of it being sorted automatically either via the internet or the phone line, so it remains an essential trunk of the business.

Office furniture is not so much of a problem. Because of the financial crisis there is actually a lot of inventory available at present for second hand, and we've been able to pick up quite a bit of office equipment like this. However, all electronics are being bought new, not least the business computer system, as the last thing we'll need is any of the main computers crashing and taking down our data or other essential operations.

Staffing is not a problem, either, as I'm bringing on board local contacts and freelance agents I've been working with for some time.

So all in all, it looks as though the office is almost ready. The pieces of the jigsaw are all in place, it's just waiting now to bring them together.

ISA deadline looms early in 2010

It’s that time of year again - when the deadline for last year’s ISA’s allowance comes up and is gone forever.

To be part of this year’s allowance, the transaction will need to be completed by 6 April 2010.

However, due to the Easter Bank Holiday, savers and investors only have until Saturday 3 April to do this.

Therefore if you haven’t already put your ISA money away, you have only days to get the situation addressed.

According to CityWire, the following are the best ISA’s currently on the market:

Leeds Building Society ISA - five-year fixed rate paying 4.6%
Nationwide Building Society ISA - five year fixed paying 4.25%
Saga at 3.9%
Coventry Building Society - one-year fixed rate at 3.25%
Santander Flexible ISA - 3.2%
Barclays Golden ISA - 3.10%.
Cheltenham & Gloucester - two year fix at 3.5%
Post Office - one-year fixed-rate at 3%

How savings are changing

The way people save has undergone a fundamental shift, but not a lot of people have noticed the change.

Traditionally, savers would put their money away into a savings account, where the interest rate would be reasonably competitive, could vary from time to time, with higher rate accounts offering higher returns the less you touched your money (ie, notice accounts).

Those people with a lot of money to save would often look to save their money in multiple accounts with multiple savings providers, and those in the higher income bracket saving into an offshore bank account.

While there were additional savings options for tax-free interest, such as TESSA's, PEP's, then ISA's, and variations on savings such as the premium bonds, that was as complicated as it got.

Those who did not want to invest in stocks and shares, mutual funds or index funds, futures, bonds, or other investment vehicles as part of a portfolio, remained just savers.

What has happened since the financial crisis impacted is now those savers have become investors, without realising it.

Most current accounts now pay 0% interest, and savings accounts rarely offer more than 1.5% .

However, many savings providers are now offering higher rate savings through fixed rate bond accounts, where interest rates can be 4% or more above the Bank of England's base rate, so long as you lock you money in to the account for two, three, or five years.

The result is a major change in the savings landscape that few have even noticed, as savers are now finding themselves forced into putting their money into bonds for a fixed term. In effect, they are now investing in investment products, rather than saving in savings products.

The surprise is that only a few savings and investment brokers have noticed this change

While some commentators have suggested that 2009 saw the growth of green shoots in the economy, others remain adamant that we are looking at a W shaped recession.

Either way, it looks like the savings landscape is not going to change any time soon, and that fixed term plans will continue to force savers to become investors in all but name.

Change of ISP

Well, it looks as though I'm finally moving ISP from Zen back to BT broadband, as I just called Zen for a MAC code.

It's a shame, really, as Zen has a far better reputation for service and support than BT, but the problem of wireless interference is a constant and annoying problem.

Plus BT are offering mobile broadband with their new broadband packages, and free BT openzone minutes, which will be very useful for business travel.

The caveat is that the pricing on the BT website is quite misleading, as those shown only apply to certain exchanges (apparently) plus they include 24-month pricing, which can take as much as 25%-30% off the 12-month price (so Option 3 is £45+VAT over 24 months, or £30+VAT over 12 months).

Still, at least I know from experience that the BT router supplied is far less susceptible to wireless intereference.

Which is very important, because if I couldn't get decent business broadband, I'd have to consider more serious broadband connection packages, such as a leased line or custom business SDSL, both of which are priced higher than normal mass-market broadband packages.

In the meantime, I can only hope the move to BT goes smoothly, and that I don't end up getting caught up in their cold automated support process - as BT customer service is not renown for being good.

How bad is the economy?

The more I read about the impact of the financial crisis in the UK, the more it feels that the UK is doomed economically, and that the best option now while you have cash in Great British Sterling is to cash out and move aborad to somewhere more financially sound - ie, not threatened with collapse by the weight of its own debt.

That may seem somewhat alarmist, but despite the claims of "green shoots" earlier in the year, we have not seen any signs that the economy is returning to normal. In fact, anything but, and that at best we're moving into a "lost decade" similar as to what happened to Japan.

Britain's debt to GDP is spiralling out of control, and even measures to reduce costs being mooted by Labour and the Conservatives are plain in their limitations - we are in far too much of a hole to be able to dig us out even within the next Parliament. It's going to take a full decade to even begin to expect to bring British debt to normality, and during this period, there is no reason to presume the economy will fare any better.

Repossessions continue to be high, insolvencies are expected to increase, and consumer debt is growing through credit cards and loans at a time when paying are supposedly paying off debt. Unemployment continues to increase in leaps and bounds (forget that's its slowing - double dip, people), and rather than help employers hire, the government is actually going to tax companies more for employing people.

In the meantime, ratings agencies expect at least a further 15% fall in house prices in the UK, and at a time when the market is limping forward, the FSA wants to bring in tougher rules on mortgages, while at the same time demanding banks hoard more cash.

And that's before we even get into the threats of deflation and unknown consequences of "Quantitive Easing".

The result of all these pieces in play can hardly be good for Britain - worsening debt, worsening access to credit, worsening consumer spending, falling asset prices, etc. The strategies in play may be different to Japan in the 90's, but the state of play is looking increasingly like it.

The problem, of course, is that while matters are exacerbated in the UK, these are afflictions across the world economy. So where is safe?

The answer is relative - the financial crisis is firmly rooted in the US and Europe, and while other areas have been impacted, their fundamantals have been far less knocked by comparison.

Asia remains strong and a bulwark so far against global financial collapse. While no doubt asset bubbles there are growing, they still don;t have the problem of being so invested in complex debt instruments that have so far crippled US and European banks.

In the meantime, now seems to be the moment to batten down the hatches or move on - economic power is clearly heading East, and to developing nations, and for those who remain, only the prophets of doom are left to comfort us.