Answer: when its financial structure is exactly like a bank.
Persimmon appoint Bank of England Chief Operating Officer to their board
Persimmon confirmed that Joanna Place (Chief Operating Officer at the Bank of England for three years) will be taking a place on the Persimmon board as an independent non executive director (link).
There is some interesting stuff about Persimmon on Leaseholder Knowledge here.
Help To Buy cheat Persimmon racks up £1bn profits – and spread the plague of leasehold houses around the country
Persimmon is to make a £1 billion profit thanks to taxpayers pouring in money through Help To Buy to get young first-timers onto the property ladder. And in return, what? The company has been the main offender in spreading leasehold houses around the country, creating homes which include an investment asset for someone else. So, taxpayers have been subsidising the investments of private equity speculators in residential freeholds, who hide their beneficial ownership behind nominee directors and are often based offshore.
That was this time last year. I’m sure everything has been sorted out now.
Earlier this week David Blanchflower, a former member of the Bank’s influential monetary policy committee, called for Place to resign after a security breach that gave some speculators early access to an audio feed of market-sensitive press conferences.
It looks like the buck doesn’t stop at the top,” he said. “This needs to be fully investigated by the Treasury select committee.
All in good time.
Eumaeus day in court
The High Court hearing I referred to last week took place over 22 and 25 November, part of the process for a Part VII transfer of a portfolio of liabilities from Equitable to Utmost Life & Pensions. Martin Moore QC spoke for the applicants on Friday, I spoke for myself (as an Equitable non-profit policyholder) on Monday morning.
PRA playing fast and loose
An interesting article in the FT published this Sunday, quoting one expert as saying that the Prudential Regulation Authority is playing “fast and loose” with pensions over its willingness to nod through transfers of savings from long-established insurers to newer specialist rivals.
Continue reading “PRA playing fast and loose”
What to Expect from the 2019 Bank of England Stress Tests
The sixth set of Bank of England stress tests for the UK banking system will be released on December 10th.
So what to expect? UK banks’ CET1 ratios better than ever, long march to higher capital is long over, UK banks are now so strong that they can undergo a crisis that is worse than the last one and still come out in good shape.
I am confident about these predictions because that’s what the Bank always says.
Continue reading “What to Expect from the 2019 Bank of England Stress Tests”
Still doesn’t add up
I discussed the mathematics of the PRA proposal to tie the deferment rate to the real risk free interest rate here, linking to two earlier posts by Kevin with the detailed mathematics. But we can express our result without much of the detailed mathematics, as follows.
PRA maths doesn’t add up
Well we said we would be back. Here is the newly released PRA Policy Statement 19/19, and there is some really weird stuff in there. We start with section A, ‘Reviewing and updating the minimum deferment rate,’ and in particular the part which starts at paragraph 2.6, ‘The PRA considers that the approach of linking changes in the minimum deferment rate to changes in real interest rates is economically sound and appropriate for the intended purpose of a diagnostic test.’
They write:
The PRA considered net rental yields in paragraph 2.59 of PS31/18 and agrees that net rental yields could be a reasonable starting point for determining deferment rates over short terms, as they are a measure of the income foregone by an ERM investor as compared to a direct owner of a property. However, a net rental yield is a short-term measure of deferment.
Which is very strange indeed.
The Bank’s ‘Stress’ Tests
My report on the Bank of England’s latest (November 2018) stress tests was published by the Adam Smith Institute on August 3rd.
The purpose of the stress tests is, in essence, to persuade us that the banking system is in good shape on the basis of a make-believe exercise which purports to show what might happen in the event of a supposed severe stress scenario as modelled by a central bank with a dodgy model and a vested interest in showing that the banking system is in great shape thanks to its own wise policies.
We are expected to believe that the central bank has managed to rebuild the banking system despite enormous pressure placed on it by the institutions it regulates, whose principal objective is to run down their capital ratios (or equivalently, maximise their leverage) in order to boost their returns on equity and resulting short-term profits, and never mind the systemic risks and associated costs imposed on everyone else or the damage their high leverage did in the Global Financial Crisis.
Real Risk-Free Rate or Deferment Rate?
The PRA’s Consultation Paper CP 7/19 makes some sensible points on a number of issues, but one proposal is a bit bonkers. We refer to S2.4 where it proposed “to take account of movements in real risk-free rates when setting the deferment rate,”’ in order to prevent variability in the real risk-free rate causing variability in the forward rate:
The PRA would increase (reduce) the deferment rate if the review shows there has been a material increase (reduction) in long-term real risk-free interest rates since the last update.
In an earlier post, however, we showed that the deferment rate is equal to the current net rental yield, i.e. the nominal net rental payment divided by the current nominal house price. The real risk-free rate does not even enter into it!
Eumaeus submission to CP 7-19
We have a new letters page, accessible from the links page, on which our recent submission (27 June 2019) to the PRA’s recent consultation on equity release takes pride of place.