Going for bust

Letter from the City: The Square Mile is feeling the pinch. With more bloodbaths to come, even banke

The papers may have been full of stories about Royal Bank of Scotland slashing bonuses to staff and Lloyds' troubles over HBOS, but the human costs in the Square Mile have been borne by people like my friend Peter. They don't necessarily win much sympathy from a public baying for bankers' blood, but there are plenty more like him, with families facing seriously reduced circumstances, too.

This is a symptom of our times and it is going to get worse, much worse. Further shocks are in store across the pond, and the ripples won't take long to reach us here. The whisper in the City is about the more than three million so-called Alt-A mortgages outstanding in the US, representing a total of $1trn owed. An Alt-A mortgage is self-certified (you tell the bank what you earn and they don't check or verify it); it is a loan for those very nearly in the last chance saloon.

The problem is that more than 70 per cent of applicants for these self-certified loans have admitted to exaggerating their income. This when 30 per cent of their properties are now worth less than the outstanding mortgages. No wonder that Citibank today has 4,500 employees who "counsel" customers in loan restructuring - more than double the number it had a year ago.

My friend doesn’t think he’ll ever get another job in the City – and I can’t argue with him

The celebrity-name restaurants beloved of City bankers have been undergoing their own market correction - one of Jean-Christophe Novelli's outlets has just closed, while Antony Worrall Thompson had to close four of his - and more are likely to pull down the shutters, for there is plenty more trouble ahead, even for HSBC, which seemed to be immune from the downturn. The bank, out of whose Canary Wharf tower used to stream workers splashing out on champagne in Smollensky's and truffle oil in Carluccio's, has a US offshoot called Household. Back in 2004, HSBC ate into shareholder funds, biting off £10bn for its American arm, much of it going on sub-prime lending. Surprise, surprise: to all intents and purposes Household is now kaput, bust. The entire purchase price, plus some more, has been written off. We'll find out how bad the Household investment has been and what type of bloodbath there is for HSBC in the US on 2 March, when the bank reports its results. Observers are expecting further writedowns of between $15bn and $20bn.

It doesn't bode well for the little shooting syndicate I run in the West Country. A third hacks, a third City boys and a third locals, it has already been hit. Shooting is ruinously expensive (and a habit unlikely to elicit much support, I realise, from New Statesman readers), but while the locals and hacks are still all in for the coming season, which starts in mid-October, the City boys are feeling the pinch. Instead of shooting for six days, they've asked for three. Will they come at all next year?

But back to the present, and the uproar among shareholders and customers after Lloyds Banking Group announced that it was going to pay some serious bonuses to the people who got us into this position in the first place. Lloyds' merger with HBOS, supposedly cooked up by its chairman, Sir Victor Blank, over cocktails with Gordon Brown, has now left both with a serious hangover. Blank would be wise to follow the line taken by Spain's fourth-largest bank, Banc Sabadell. It announced this month that directors were taking a 10 per cent pay cut and the top management tier were having their pay frozen for the remainder of the year.

Not all is contrition in the City, however. One major (part-nationalised) European bank has been told by its government masters that it must not pay bonuses; so it has simply given its employees a 15 per cent increase in salary. The increase does not have to be disclosed as those receiving it are not directors of the bank. They've been promised an extra 30 per cent in the next quarter as long as their government doesn't find out. Never explain, never apologise, as the saying goes.

Dominic Prince is a former City editor of the Sunday Express

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.