Mortgage lending to homebuyers fell by 7% in March to its lowest level since August 2012 – the month when the Funding for Lending Scheme began.

The number of approved mortgages for home purchases fell to 48,200 last month, according to the latest Mortgage Monitor from e-surv chartered surveyors – a fall of 5% on March last year.

The March figures showed a third consecutive fall in monthly house purchase lending, which has now largely reversed five consecutive months of increases between July and December last year.

Richard Sexton, director of e.surv, said that the low interest rates supported by the Funding for Lending Scheme had been unable to prevent a regression in the mortgage market.

“One month could be a blip. Two months could be coincidence. But three consecutive months of falls in house purchase lending indicates the market has gone into reverse gear,” he said.

“FLS has certainly helped but it is losing the tug of war against high inflation, low wages, low savings rates and rising house prices.”

E.surv attributed the fall in demand for mortgages to high inflation, higher high prices, and tough lending criteria that was continuing to exclude borrowers.

"The economy is finding it tough going," Mr Sexton added. "Growth has been non-existent, and high inflation and weak wage growth continue to snap at its heels.

“This has reduced demand, making it harder for high LTV borrowers to build a deposit and meet lending criteria," he said.

Unaffordable Mortgages

Property experts recently condemned unaffordable mortgages in poorer areas of England and Wales.

Mortgage fees recently reached a 25-year high, with some having risen by 50% since the start of the year – a trait which coincides uncomfortably with the fall in accepted mortgage approvals (read more).

"Sadly, the improvements in mortgage availability, prices and sales have not been spread evenly," said David Brown, Commercial Director of LSL Property Services.

"The market in the Southeast, particularly London, is going great guns, but less affluent areas are struggling."

Keith McDonald
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The UK's largest high-street banks are reluctant to offer bank accounts to help benefits claimants manage their budgets when the welfare system reverts to universal credit later this year.

Universal credit will deliver benefit payments in a single monthly lump sum, replacing the current welfare system’s separate weekly or fortnightly instalments.

The adjustment will require claimants to budget effectively over the course of the month.

Sensing that some may find this difficult, the Government has approached banks to create multifaceted bank accounts that would allow money to be allocated into different pots, such as savings and bill repayments.

The Department for Work and Pensions (DWP) has reportedly offered £145 million towards these accounts after feedback revealed that many expected to find it more difficult to cope with a single monthly payment.

But banks are thought to consider the solution as too costly and overcomplicated. Such accounts, which are already in short supply, traditionally cost users upwards of £12 per month - an amount that consumers in receipt of benefits are unlikely to be willing or able to pay.

Gillian Guy, the chief executive of Citizens Advice, expressed concern that without help to adapt, many will find themselves turning to expensive short-term loans.

"Without support, many people making the transition will find themselves in debt and could be forced to turn to payday or doorstep lenders," she told The Times.

Crackdown on Benefit Cheats

Work and Pensions Secretary Iain Duncan Smith has launched a new crackdown on benefit fraud that could see repeat offenders losing access to benefits for up to three years.

“The benefits system is there to help people when they need it most, so it's particularly galling when some people try to cheat the system not just once, but two or three times," he said.

Those who continue to claim whilst in work are eligible to have their wages seized as part of the crackdown, which aims to claw back £1 billion per year.

Mr Duncan Smith said that reform was desperately needed as a deterrent to fraud, which is thought to have cost the taxpayer £1.2 billion last year.

Keith McDonald
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The government has been accused once again of abandoning savers who are unable to keep up with the rising cost of living.

The Treasury-supported savings institution last week announced a 30 basis-point increase to the returns on its income bonds, from 1.45% to 1.75%. But this still falls woefully short of the consumer prices index measure of inflation, which currently stands at 2.8%.

The popular NS&I received praise earlier this year after it pledged to automatically transfer a series of old and low-performing ISAs into a new ‘Direct ISA’ account offering 2.25% (read more). It has become the norm in recent years for returns on savings accounts to plummet after an introductory period, with most banks happy to let savings deposits flounder.

The raise from 0.50% to 2.25% positions the NS&I Direct ISA as the fourth strongest in the market for instant-access ISA accounts, after First Direct (3.00%), the Coventry Building Society (2.60%), and the Cheshire Building Society (2.30%).

The government is accused of letting down savers by refusing to match inflation through its NS&I savings facility.

But there are still droves of discontented savers who believe that NS&I should be providing better conditions for savers given the severe impact on savings accounts caused by the government’s Funding for Lending Scheme.

Inflated-linked certificates, which provide some measure of guarantee against the rising cost of living, will not be sold for at least another year.

And the plea from many quarters to allow savers to save their entire annual tax-free allowance in cash also fell on dear ears, with only a small increase announced in last month’s budget.

Last month, Nationwide CEO Graham Beale said that government could have improved the inflationary problem for savers through an increase to the cash ISA limit (read more).

"It will not only help savers address the inflationary pressures, but also help borrowers struggling to raise a deposit," he said.

Keith McDonald
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The number of complaints made about financial institutions rose during the second half of 2012 due to payment protection insurance (PPI).

The Financial Conduct Authority (FCA) said that a total of 3,422,384 complaints were received between July and December last year – a 1% increase on the first half of the year.

There was a fall in complaints for all financial products except insurance between July and December. Complaints about current accounts fell by 6%, while credit card complaints fell by 14% and issues about savings accounts fell by 20%.

However, the insurance and pure protection group (including PPI), leapt by 5%. PPI complaints rose above the two million mark over the six-month period, to 2,170,537, and accounted for almost two thirds of all complaints (63%).

Irate consumers filed a total of 4.23 million PPI complaints in 2012, almost triple the number from 2011.

Banks Under Fire

The figures showed Barclays to be the most complained-about bank, though this was eclipsed by the constituent banks of Lloyds Banking Group, which summated 762,000 complaints across all product areas.

Both banks have been plagued with negative headlines over the last twelve months following a number of scandals.

Barclays: the single most complained-about bank between July and December 2012.

Barclays recently commissioned a report from Rothschild to highlight the bank’s past mistakes and has repeatedly stated its determination to restore its hammered reputation (read more).

Lloyds, meanwhile, has come under scrutiny for its controversial ‘Salespoints’ system, which prioritises sales of financial products that are more valuable to the bank. Such operations, the Financial Services Authority concluded, were instrumental in promoting mis-selling practices.

Lloyds has set aside more funds for PPI redress than any other bank (read more).

Transparency Incentives

Martin Wheatley, chief executive at the FCA, said that publishing the data created an incentive for banks to improve their practices.

"Greater transparency drives greater competition, and the publication of the complaints data lays bare the track record of the UK's financial institutions when it comes to resolving customer conflicts," he said.

"Not only does our data help consumers compare and contrast their current bank or lender, but it also boosts competition among firms too."

Keith McDonald
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Metro Bank will open its 17th store in Guildford this weekend as it continues its expansion outside the M25.

Following the success of the Reading branch, the bank will once again mark the occasion with a two-day celebration on Friday and Saturday in North Street.

It hopes that the whole town, which Metro describes as having a "great personal and business community", will want to join in the festivities.

Focus on Customer Service

Despite a lack of stand-out products, the high-flying “challenger” bank, which became the first new retail bank to open its doors in over 100 years in 2010, continues to erode the influence of mainstream high-street banks through its simple model based on customer service.

Metro Bank branches are open seven days a week during retail hours. It fashions itself as a dog-loving bank and offers useful amenities for families, such as baby-changing facilities.

The bank provides free coin-counting facilities and access to a 24-hour contact centre.

Customers opening a current account receive a ready-to-use debit card, which can be replaced on-the-spot without weeks of waiting. It will also not cost to use the card abroad.

Metro Bank: expanding further outside the M25 with a store in Guildford, Surrey.

"We want to give customers unparalleled levels of service and convenience," said Metro Bank’s chief executive, Craig Donaldson.

"Over 160,000 personal and business customers have flocked to experience our amazing service since we opened our doors in 2010."

Alternative Personal and Business Bank

With recent figures showing that the major banks racked up hundreds of thousands of new complaints between July and December last year, the bank hopes that its distance from the toxic environment of investment banking will keep an influx of customers heading its way.

Its plight could be improved later this year when new rules are imposed that require banks to process bank account switches within seven days.

Mr Donaldson expressed his hope that Metro's simple model would "make a difference to the way the town banks".

"Our job is to make banking easy for our customers and now the people of Guildford have a bank that's open seven days a week at times that suit them," he said.

He also hopes to support new and growing businesses in the town, at a time when cautious banks have created a significant lending shortfall.

"We want to support SMEs and growing businesses in the local area and work closely with them to understand their needs," he said.

"Metro Bank is a community bank and Guildford is a great personal and business community for us to serve."

Keith McDonald
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The Government is to help hundreds of thousands of hard-up borrowers avoid the trap of high-cost loans by boosting the influence of credit unions.

A £38 million pot is to be given to the Association of British Credit Unions (ABCUL) to help the not-for-profit institutions establish themselves as a credible "antidote" to payday lenders and loan sharks.

It is hoped that the renewed importance of credit unions will see them help up to one million hard-pressed consumers out of the trap of paying thousands of percent on short-term loans.

Millions of consumers struggling to make ends meet have often found themselves turning towards payday loans, where annual interest rates can exceed 4,000%.

Credit unions, owned by their members, are unable to charge more than 26% APR on their loans – little more than the average credit card.

The contract is expected to help the less-well-off save up to £1 billion in loan interest repayments by 2019 compared to the charges they would have faced through high-cost lenders, the Government believes.

The £38 million fund will facilitate a modernisation programme to help the unions offer products including current accounts, savings accounts and affordable loans to a greater number of struggling consumers.

"Ambitious" and "Timely"

The chief executive of Abcul, Mark Lyonette, said that the body was "delighted" to undertake an "ambitious and timely project" that will help to raise the profile of credit unions as well as support consumers.

"More credit unions will offer a wider range of products including current accounts, Cash ISAs and innovative budgeting accounts," he said.

Welfare reform minister, David Freud, said: "Credit unions offer an alternative to vulnerable people who have few safe options to get cash when they need it most.

"They are the antidote to predatory loan sharks or high-interest lenders."

Keith McDonald
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A link between current accounts and mortgages may prove to be a winning formula for challenger banks to gain traction on their major high-street rivals.

Mortgage customers at Barclays are to lose a considerable advantage when Woolwich, the bank’s mortgage arm, severs the link between mortgage repayments and its current account overdraft facility.

Those with special mortgage-aligned current accounts at the bank have been able to extend their overdraft limit as the mortgage was repaid, allowing them to draw upon thousands of pounds at rock-bottom rates below 5% - cheaper than standard personal loan rates.

But Barclays has now decided to withdraw the offer, citing a lack of popularity for the overdraft uptake while the effects of inflation and pay freezes continue to bite.

Though overdraft limits will no longer rise in tandem and will be slashed in some cases, customers will not be required to repay their debts immediately.

Challengers

Therein lies an opportunity for so-called "challengers" such as the Co-operative Bank and Britannia, whose latest best-buy mortgage range is made yet more attractive through the group’s current accounts.

Impressive current account linked mortgages, with no set-up fee. Source: Co-operative Bank.

The group’s latest mortgage rates includes impressive 5-year fixed-rate deals, with a 75% LTV mortgage available at 3.19%, and an 85% LTV loan available at 3.69% – both until June 2018.

And even better: new or existing current account customers with the bank will face no arrangement fee – a saving of £1,149 – provided they have completed the Co-operative Bank switching service or paid in a salary for two consecutive months.

Research published recently confirmed that while the Funding for Lending Scheme had continued to drive down mortgage rates, the average arrangement fee has reached a 25-year high (read more).

And with new rules that will improve the process of switching bank accounts due to come into effect later this year, such offers will become even easier for customers to exploit in the future.

Keith McDonald
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New regulator the Financial Conduct Authority has charged eight men with conspiracy to defraud in relation to a land banking scam dating back to 2008.

The ongoing “Operation Cotton”, initiated by the Financial Services Authority in 2008, has investigated three land banking companies, Plott UK, European Property Investments (EPI) and Stirling Alexander.

The former regulator managed to secure the compulsory closure of Plott UK and EPI in June 2011 and December 2012.

Under the latest proceedings brought by the new regulator, Scott Crawley, Daniel Forsyth, Ross Peters, Aaron Petrou, Ricky Mitchie, Adam Hawkins, Brendan Daley and Dale Walker have all been bailed to appear at the City of London Magistrates Court on 10 May.

In addition to fraud, Mr Walker, a solicitor, has also been charged with Money Laundering, while Mr Forsyth has also been charged with providing false information to the regulator.

The now-defunct FSA has investigated landbanking malpractice since 2008. The new FCA will now oversee the criminal proceedings.

The move is the latest crackdown by the City watchdog on manipulative schemes that have targeted large numbers of willing investors.

Land banking involves selling small plots of land to investors, often with promises of huge rises in value when it becomes available for development.

But the land is often situated on sites of outstanding natural beauty, which makes the likelihood of development very limited and renders the investment more-or-less worthless.

The FCA said it believed the three companies had reaped £5 million from UK investors since its investigation began in 2008.

Toughening Up

Martin Wheatley, the FCA’s chief executive (pictured top-right), said that the new regulatory structure would allow the FCA to get tougher with wayward investment companies.

His comments follow those of Andrew Bailey, chief executive of the new Prudential Regulation Authority (PRA) which now operates in tandem with the City watchdog.

To Mr Bailey, a previous “box-ticking" style of regulation which lacked accountability and clear objectives had persistently failed to act quickly or decisively enough over the last decade.

Keith McDonald
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Introductory bonus rates on savings accounts and ISAs may soon become a thing of the past, the new City regulator has suggested.

A dominant feature of the market in leading years has been the practice of inflating savings accounts with temporary bonuses worth up to 96% of the account’s ‘standard’ rate.

After a period – typically one year – returns can plummet overnight to as little as 0.1%.

Part-taxpayer-owned Lloyds TSB, highlighted in our guide to Savings and Bonus Rates for the steep decline to its accounts, pays just 0.1% on its Easy Saver account once the bonus term has expired.

"Frogs Boiled in Water"

Speaking in London, Martin Wheatley, chief executive of the Financial Conduct Authority, accused banks of exploiting consumers’ apathy or inability to switch their accounts regularly.

"The smart consumer switches at the end of that year to a new teaser rate," he said. "What do most people do? - Nothing! They stay in these products like a frog boiled in water."

This follows comments made last week, when he described the more severe bonus-laden accounts as “the financial equivalent of the Venus fly-trap”.

Such products tempted in savers with headline rates, he said, before relying on “inertia” to keep snared savers suspended in a low-performing standard account.

A table from June shows how drastically returns on savings can be affected by bonus rates, with some accounts flatlining after the initial 12 months.

Savings Deterioration

The number of accounts offering introductory bonus rates has fallen in recent months as the savings market continues to be adversely affected by the Funding for Lending Scheme.

But despite the reduced risk of savers seeing their savings plummet to negligible rates, further restrictions are condemning them to a small number of fully flexible options.

The prime example is the lack of options for savers with existing ISA nest-eggs to transfer their funds.

Only one of the top six easy-access ISAs allows inbound transfers (Cheshire Building Society, at 2.30%). Even National Savings & Investments (NS&I), the Treasury-supported savings facility, is keeping its doors closed to existing ISAs.

Other restrictions include the inability to deposit funds once a fixed-rate account is opened. Of the fixed-rate ISAs that currently beat inflation, half do not allow additional funds once the initial deposit has been made.

(Find out more about transferring cash ISAs.)

Editor’s View

On the surface, greater transparency and less exploitation can only be a good thing. The lack of urgency towards the new ‘kitemark’ system of simplicity highlights how much banks have relied upon bonus rates, restrictions, and complicated terms and conditions to bamboozle savers.

Our guide to bonus rates (transcripted here) leans heavily upon research showing that the majority of people don’t switch accounts often enough and remain clueless about the rates they are receiving on their ISAs.

But the Funding for Lending Scheme has complicated matters. Given what it’s already done to the savings market, there’s a risk that stripping bonus rates will simply leave less competition for savers at the top end of the market.

Granted – putting an end to bonus rates will end the practice of apathetic savers subsidising the returns of the savvy, which is effectively how this has operated to date. But is equalising everyone on dour rates really solving very much?

It could be argued – somewhat cynically – that educating people to the practice leaves them with an informed choice. It’s easy to blame banks for exploiting human inertia, but there’s a point to which we might take some accountability ourselves.

There’s no solution to suit everyone; the question is how many will suffer when the new regulator makes its stand.

What do you think about the culture of temporary bonus rates? Is it exploitative? Is it our responsibility to play banks at their own game? Will scrapping these bonuses solve a problem? Let us know by leaving a comment below.

James Booker and Keith McDonald

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Two investment banking chiefs at Barclays are to leave the bank this summer as new chief executive Antony Jenkins continues his clearout from the Bob Diamond era.

The head of the investment bank, Rich Ricci, will end his 19 year affiliation with the bank this summer, Barclays revealed in a statement.

He will be replaced by Eric Bommensath and Tom King, who will become co-chief executives in addition to their current headships.

Tom Kalaris, the head of the wealth management business, will also leave at the end of June, to be replaced by Peter Horrell.

The shake-up, an undeniable milestone in Antony Jenkins’ revolution at the bank, sees the promotion of Skip McGee, who will lead Barclays’ operations in the Americas.

Bonuses

The two lieutenants of Bob Diamond’s maligned tenure at the bank both profited heavily from cashing in share reward options last month.

The appropriately named Ricci cashed in almost £18 million in deferred shares, while Kalaris also picked up a windfall of over £5 million.

The bank confirmed that both men would receive a year’s salary unless new employment is found elsewhere in the meantime.

Jenkins, who replaced Diamond last year, offered his gratitude to Ricci for his "major contribution to Barclays", but did not evade a glance at the vulgar rewards pocketed by the retiring chief.

"We’re not hurting for Ricci", he added. "All that bonus money should help cushion the blow a little bit.

"In Tom and Eric we have two superb leaders for CIB", he continued.

"I am looking forward to working with them to build the ‘Go-To’ investment bank from our already world-leading position."

"We're not hurting for Ricci" - Barclays' chief executive Antony Jenkins continues his clearout from the Bob Diamond era.

Culture Shock

Jenkins, who has waxed lyrical in recent months about the importance of cleaning up the beleaguered bank, spoke of the reshuffle as "the next step in that journey" to find the "right senior team."

He has commissioned several investigations into the bank’s culture since his appointment.

The first of these, produced by consultancy firm Genesis Ventures, was sensationally intercepted and suppressed by Andrew Tinney, a £5 million-a-year senior executive at Barclays Wealth (read more).

The damning report uncovered the relentless pursuit of "revenue at all costs" and a culture of intimidation and fear across Barclays Wealth under the leadership of Kalaris.

Tinney promptly resigned after his deception was uncovered.

Jenkins and the bank's chairman, Sir David Walker (right) were grilled by the Banking Standards Committee in February.

A more recent report furthering these claims has been submitted to UK and US regulators, demonstrating the bank's complicity in its own recrimination (read more).

Investec analyst Ian Gordon said that the departures of Ricci and Kalaris were "inevitable" and that a "material changing of the guard" was expected by the City.

He described the replacement co-chiefs as "very good, capable people" without the external visibility and flamboyance exuded by the erstwhile chief executive and his top henchmen.

And so Antony Jenkins' banking revolution at Barclays continues, albeit with the spotlight now uncomfortably upon the vast sums acquired by its ousted chiefs in the months before their retirement.

Keith McDonald
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Santander is to contact over 270,000 mortgage customers amid claims that it misled or failed to inform them about a rise in the cap on its standard variable mortgage five years ago.

Under decree from new City regulator, the Financial Conduct Authority (FCA), Santander will write to customers later this month explaining what happened to the cap on its variable mortgage rate back in 2008 and inviting customers to register a complaint if they believe that they have lost out as a result.

The cap on a standard variable mortgage rate is a maximum limit to which a lender can raise a standard rate when an introductory or fixed-rate deal ends.

Santander increased its cap in 2008 from 2.5% plus the Bank of England base rate to 3.75% plus the base rate.

But the bank’s communications issued to customers about the cap increase were deemed inadequate by previous regulator, the Financial Services Authority.

And with the new regulator now pursuing the case, it is thought that as many as one in nine – up to 30,000 customers – could be eligible for thousands of pounds in compensation.

The letters were confusing, the new regulator decided, while some customers received no notification of the changes at all.

"When Santander raised the cap it should have given affected borrowers clear information in easy to understand terms,” the FCA said.

Rate Increases / Bank of Ireland

Santander was criticised last year for raising its standard variable rate by half a percentage point to 4.74%, despite the launch of the Funding for Lending Scheme, which was designed to make mortgage rates cheaper.

The Bank of Ireland is also currently under review after announcing huge rises in its mortgage rates.

The bank is set to more than double its tracker mortgage rates this year, despite a sustained record-low base rate of 0.5%.

The move could cost 13,000 customers thousands of pounds extra on their mortgage payments each year (read more).

The chairman of the Treasury Select Committee, Andrew Tyrie, has asked the FCA to investigate further after his first demand to the now-defunct regulator did not receive a satisfactory response.

Treasury Select Committee chairman, Andrew Tyrie, challenges the City regulator to act more decisively over the Bank of Ireland's huge mortgage rate hikes (read more).

Earlier this month, Adam Phillips, chair of the Financial Services Consumer Panel, called for "an era of effective consumer protection."

While are signs that the FCA is getting to grips with some of the administrative failings that have caused customers to be misled, there is more to be done to ensure that such an 'era' begins on the right grounds.

Keith McDonald
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Chancellor George Osborne is readying an extension to the Government's Funding for Lending Scheme in an effort to boost lending to small and medium-sized businesses (SMEs).

The £80 billion scheme has improved lending activity from homeowners and large businesses, thanks to more attractive mortgage and lending rates for lower-risk parties.

But lending to SMEs remains thin, the Bank of England has revealed. In the final six months of 2012, net lending contracted, particularly from state-owned banks (read more).

The Chancellor had stated his intention to expand the Funding for Lending Scheme in the March Budget, though it was recognised that it needed to better address small-business lending.

The Monetary Policy Committee (MPC) has also voiced support for an extension of the scheme to improve lending to SMEs.

An extension to the Funding for Lending scheme would be disastrous to savers, however. The scheme has been blamed for a collapse in the rates on savings accounts, with banks turning to low-cost funds rather than competing for retail deposits from savers.

But the extension comes as pressure mounts from the International Monetary Fund (IMF) about failures in the Coalition government's austerity programme.

The government is desperately hoping to avoid a triple-dip recession when provisional first quarter growth figures are announced this week.

Mr Osborne is expected to stick to his guns when the IMF assesses the UK economy next month. And further details of the Funding for Lending for small businesses are expected to precede the IMF's visit.

A more immediate problem for the Chancellor is the decision by credit ratings agency Fitch to downgrade the UK's credit rating from AAA to AA+. Fitch claims the downgrade was due to a "weaker economic and fiscal outlook."

Keith McDonald
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HSBC is to cut over 1,000 jobs in total as it pushes through a three-year cost-cutting plan.

The bank said that 3,166 positions were to go, mostly from the wealth management division, but that it was creating around 2,000 new positions which it hoped to fill with the “displaced” employees.

The bank axed 2,200 jobs last year as it continues its drive to streamline staffing and cut costs.

This will be continued in June, when wealth management and commercial advisers, who support savers and business owners respectively, will be merged into the main retail banking advisory business.

The bank’s chief executive, Brian Robertson, said that he was confident a “significant majority” of the affected staff would remain with the bank in some capacity.

"I understand change is always unsettling, particularly for those directly affected," he said.

"We are doing everything possible to offer impacted employees opportunities from the many newly created roles.”

Unions are expected to ballot their members for strike action, furious at what they see as a needless job-cutting spree from the bank to fund further profits at the expense of its employees.

Are you an HSBC customer or employee? What do you make of the latest round of job cuts? Drop us a comment below and let us know.

James Booker
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Lloyds' hopes of selling 632 branches have suffered a major blow after the Co-operative Bank decided to withdraw its offer.

The Co-op blamed the sustained economic downturn and the more costly environment for banks following the move to dual-regulation.

Lloyds has been required to sell off the branches by decree from the European Commission as a condition of the taxpayer-funded bailout it received during the financial crisis.

The sale of the Co-operative Bank, known as Project Verde, was agreed in 2012.

Following the breakdown of the arrangement, Lloyds said that it would attempt to sell the branches under the stand-alone TSB Bank, which will operate as a subsidiary of Lloyds from the summer.

The Co-operative Bank said that it was not in its members' best interests to complete the purchase of 632 branches from Lloyds.

The Co-op had already pledged to revamp and streamline its existing branch network as it prepares to phase out the 150-year-old Britannia brand by the end of the year (read more).

The expected takeover would have increased the bank’s share of the current account market to around 6%, which would have boosted its ability to challenge the major high-street players.

But the Co-op’s chief executive, Peter Marks, said that it was not in the best interests of its members to complete the transaction.

"Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk," he said.

The withdrawal means that Lloyds will have to return to the European Commission in Brussels and ask for an extension to its deadline of November 2013 for a completed sale.

Keith McDonald
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Savers' suffering will increase from an imminent extension to the Government's Funding for Lending Scheme after the extent of the damage it has caused to ISAs was revealed this week.

According to financial analysts, Moneyfacts, the number of cash ISAs has dropped by almost a quarter from this time last year (325 compared to 420), while returns on long-term fixed-rate ISAs have fallen by a third over the same period – from 3.58% last year to just 2.41% this week.

The stark impact of the Government’s lending programme was evident throughout the traditional ISA season, when the usual suite of new products and competitive rates failed to materialise.

Savers have fared no better in the new tax year, where the increase in the tax-free personal allowance to £5,760 has been offset by a glut of withdrawals and reductions.

Santander axed its heavily publicised Major ISA to new customers shortly after the tax year began (read more), while the Coventry Building Society withdrew its easy-access Poppy ISA, which had stood resolute at the top of best-buy tables.

The only easy-access ISA account that beats inflation is available through First Direct, but savers will need a cool £40,000 to achieve the top rate of 3.00%.

Chancellor George Osborne announced an extension to the Funding for Lending Scheme in the Budget last month. But the scheme has caused a visible collapse in the savings market.

Welcomed Extension

The Funding for Lending Scheme was established in August 2012, offering banks access to cheap funds as a reward for increased lending to households and businesses.

To date, it is primarily the residential mortgage market that has benefited, though the extension is expected to be tailored to offer more support to small business alongside mortgage applications.

Representatives of lending bodies were quick to praise the new incentives available to small businesses, such as an indirect extension to include lending by non-bank subsidiaries of participating banks.

Banks that support these lenders will now be able to include that lending as eligible for the benefits of the lending scheme.

Stephen Sklaroff, Director General of the Finance and Leasing Association, said that the extension “ought in principle to help the leasing markets.”

Paul Smee, Director General of the Council of Mortgage Lenders, also welcomed the indirect extension.

“This ought to result indirectly in the benefits of the FLS scheme being passed through to non-bank mortgage lenders,” he said.

Avoiding Apathy for Savers

The offshoot for savers is that the access to cheaper funds has reduced the need for banks to attract retail deposits through attractive rates.

As rates and products continue to fall in number, increasing numbers of savers are finding themselves unable to match the rising cost of living.

The pain could be heightened even further if inflation follows predictions to rise over 3% in the summer.

And chief executive of City regulator the Financial Conduct Authority has also signalled an intension to crackdown on temporary bonus rates – one of the new ways in which savers have been able to combat the problem of low returns in recent months (read more).

It’s been noted several times here about the need to avoid apathy, and ISAs are a particular case here because any unused allowance does not carry over from year to year.

Hence, when rates do finally improve, savers will benefit most if they have continued to use their full cash ISA allowance during these depressed periods.

Keith McDonald
Which4U Editor

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The UK has narrowly avoided a triple-dip recession, with first estimates showing that economic growth rose by 0.3% for the first quarter of the year.

The return to positive growth has been attributed to stronger performance in the service sector, which grew by 0.6% in the quarter, and transport and communications, which registered growth of 1.4%.

There was also increased output of North Sea oil reserves brought about by the extended spell of cold weather.

There had been concern that the UK was about to register two consecutive quarters of negative growth, which would have taken the economy into recession for the third time in five years.

Instead, the Office of National Statistics found that GDP had risen by 0.6% against the first quarter of 2011.

"Nothing to Celebrate"

Chancellor George Osborne described the growth figure as “encouraging”, saying that the economy was “healing”.

“Despite a tough economic backdrop, we are making progress. The deficit is down by a third, businesses have created over a million and a quarter new jobs, and interest rates are at record lows,” he said.

“By continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.”

But opposition ministers called for the figures to be viewed in context, with the UK registering only two quarters of positive growth in the last six.

“We’re in danger of celebrating 0.3%,” said Labour MP and Treasury Select Committee member John Mann. “That’s the perspective we need to have.

“We are falling behind and we need some major shift in policy to turn that around,” he said.

The return to growth follows the decision by credit ratings agency, Fitch, to downgrade the UK from its top rating of AAA to AA+ last week. Fitch had cited poor growth forecasts as the reason behind its decision (read more).

The Chancellor will face further inquisition on his austerity programme next month when the International Monetary Fund visits to assess the UK’s future growth prospects.

Keith McDonald
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The cost of cleaning up Barclays' public image has already taken a significant slice out of the bank's first-quarter profits.

Pre-tax profits fell by a quarter during the first three months of the year, to £1.8 billion, as the bank pressed ahead with ‘Project Transform’, a measure designed to revolutionise the bank’s culture and restore its damaged public image.

Chief executive Antony Jenkins has pledged to scale down the scandal-struck investment bank following its involvement in mis-selling activity and the attempted manipulation of the Libor inter-bank lending rate.

He has also attempted to move the bank away from its profit-dominated culture of old towards a model based upon values such as integrity and respect.

Several reports commissioned in recent months have highlighted the bank’s relentless pursuit of “revenue at all costs” alongside a culture of fear and intimidation that plagued Barclays’ Wealth Division under the reign of previous chief executive Bob Diamond.

The cost of the clean-up is estimated to reach £1 billion this year, with over £500 million already allocated to restructuring costs which include severance packages for thousands of staff at the investment bank.

The bank recently announced the departure of investment chiefs Rich Ricci and Tom Kalaris, the most senior of Diamond’s remaining lieutenants, who will leave the bank this summer with a year’s salary in addition to their deferred share options (read more).

However, the investment bank proved a strong earner for Barclays, reporting an 11% increase in revenue from the same period last year, at £1.3 billion. The investment bank accounts for roughly three quarters of Barclays’ total profits.

Keith McDonald
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Shareholders at Barclays have reacted angrily to the pay-packets of top earners at the bank after being told that it would be two more years before they could expect to see a decent return on their investment.

Chief executive Antony Jenkins told investors at Barclays’ AGM that the bank did not expect to generate profitable returns on equity until at least 2015.

The cost of streamlining the investment bank had already cost over £500 million, he said, as he defended his move to streamline the division that became involved in numerous scandals under previous incumbent Bob Diamond (read more).

Severance packages for staff include vast rewards for outbound chiefs Rich Ricci and Tom Kalaris, with total expenditure for the restructuring process expected to reach £1 billion this year.

Shareholders at Barclays were angry to learn that the cost of the clean-up operation instigated by Antony Jenkins (above) would damage their dividends until at least 2015.

“Greedy Bastards”

But board members were unimpressed by the vast sums awarded to the bank’s top brass. They took umbrage with the pay-off granted to Mr Diamond, who left the bank under a cloud of controversy last year after the bank's involvement in the Libor scandal emerged.

Board members highlighted the statement made by Alison Carnwath, former chair of the board’s remuneration committee, who had been the sole opponent to Diamond receiving a full bonus of £2.5 million for 2011 (read more).

Ms Carnwath said that directors were generally worried about withholding any of Mr. Diamond’s entitlement, despite the bank’s lacklustre performance.

Barclays chairman, Sir David Walker (right), faces a grilling in February for supporting the bank's head of remuneration (read more).

Shareholders found a measure of support from the bank’s chairman, Sir David Walker, who admitted that he sympathised with their more belligerent remarks.

But he faced criticism in February from the Parliamentary Committee for Banking Standards for supporting remuneration chairman Sir John Sunderland (read more). Sunderland had told the panel that no mistakes were made regarding the pay recommendations for Bob Diamond, despite the damaging scandals that took place under his leadership.

Barclays said it would continue to recalibrate its pay structure to reward service rather than profits following two separate reports that condemned the “revenue-at-all-costs” culture that existed under Diamond’s leadership.

Keith McDonald
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The Government should help small banks assume control of the 632 branches that Lloyds TSB has to offload, one such lender believes.

A deal for the Co-operative Bank to buy the branches broke down last week, with the mutual blaming ongoing economic difficulties and the higher costs of regulation.

The deal, known as Project Verde, had been the Government’s preferred destination for the branches. But the Co-op now faces pressure to plug a large hole in its finances, while Lloyds is planning to float the branches as a new bank under the TSB brand (read more).

However, the chief executive of Secure Trust Bank, Paul Lynam, believes that the Treasury could facilitate a better solution by helping smaller banks to buy up the branches.

The takeover would have increased the Co-op's share of the current account market to around 6%.

Lynam called upon the Government to "act decisively and actively promote the involvement of a profitable, listed challenger bank to shake things up."

This echoes his call made last month for the Treasury to support smaller banks’ efforts to bid for the 316 branches of the Royal Bank of Scotland that has been ordered to sell by the European Commission (read more).

RBS may offload its 316 branches to a consortium led by former Tesco director Andy Higginson, which is ready to offer £1 billion to tempt a quick-fire sale.

Bidding was re-opened for the branches after a £1.6 billion deal with Santander broke down last year.

Other interest parties are thought to include Virgin Money, private equity firms JC Flowers and Corsair Capital, and the billionaire Pears family.

But Lynam, the former head of SME business banking at the RBS group, said that genuine competition would be created in the market by encouraging smaller banks to buy up branches rather than by selling them to "consortia of private-equity firms" or wealthy families "who are simply motivated by making short-term profits."

Keith McDonald
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Banks need to redeem themselves after contributing to the growth of the payday loan market, according to the head of a leading consumer charity.

Gillian Guy, the chief executive of Citizens Advice, said that banks needed to find low-interest solutions for struggling customers, who have had little choice but to turn towards high-cost loans in emergencies.

Banks have left the neediest with no better alternatives than expensive payday loans, which are continuing to fill an obvious gap in the market, she said.

And the switch to the monthly benefit system of Universal Credit could create a new series of cash-flow problems, pushing more people who rely on benefits into potential debt spirals.

But stemming the availability of credit could prove more damaging by pushing people towards more desperate alternatives, she said.

Instead, it is down to banks to restore their social usefulness and offer lower-cost alternatives.

While banks fear “reputational damage” for offering short-term loans, Guy called for a “responsible high-street challenger to the payday lending market.”

She also called upon taxpayer-supported banks to “recognise their public responsibility”.

“Banks risk becoming the dinosaurs of financial services”, she said in a statement.

“They can step up to the plate by offering responsible short-term loans that can be spread across a person's bank account so they can pay an urgent bill and still feed their family without being sent into a spiral of debt.”

Improvements to Retail Banking

The issue of low-cost loans is likely to feature when a comprehensive Consumer Panel convenes for its first meeting in the coming weeks to improve services in the retail banking sector.

The panel, assembled by the British Bankers Association (BBA) and to be chaired by Gillian Guy, is to discuss areas of high street banking which need to be changed for the benefit of consumers.

The BBA said that issues such as savings rate disclosures had already been raised, and that a taskforce of senior bankers, the Service Improvement Group, would be tasked with putting the agreed changes into action.

"This is a big step towards improving people's everyday experiences of the banking sector,” Gillian Guy said.

“Members of the panel will be able to bring the problems they see on the ground right to the heart of Britain's biggest banks.

“There will be some hard truths but also I hope some imagination, invention and collaboration to make banking work better for customers.”

Keith McDonald
Which4U Editor

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