David Cameron: Help to Buy triggers £1bn of new home loans

David Cameron claims that more than 6,000 people will move into their own property thanks to the Government's Help to Buy scheme, just three months after it was launched.

Nearly £1bn of home loans have been offered through the Government’s flagship Help to Buy scheme in the first three months since its introduction, the Prime Minister has claimed.

The controversial scheme, which has triggered warnings of a fresh housing bubble, has allowed more than 6,000 homebuyers to put in an offer on a property and apply for a mortgage, David Cameron said.

Those mortgages, once approved, will amount to almost £1bn of new lending, the Prime Minister said. So far 750 purchases have been completed since the initiative was rolled out in October.

“The New Year is often a time when people look to make those big life-changing decisions like moving home or taking that first step on the housing ladder,” Mr Cameron said.

“But too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.”

Mr Cameron added: “That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hardworking people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.”

However, Help to Buy, which offers Britons the chance to get on the property ladder with a deposit of as little as 5pc, has sparked warnings of a fresh housing bubble from economists and also Vince Cable, the Business Secretary.

Property experts have cautioned that initiatives such as Help to Buy are making it easier to purchase homes at a time when there is a shortage of new property coming on to the market.

Bodies such as the International Monetary Fund have warned the UK needs to be “vigilant” to the risks of another housing bubble and suggested the Government may need to consider other measures such as easing planning constraints to boost house building.

Downing Street insisted today that housebuilding is now growing at its fastest rate since 2008 and Help to Buy encourages “responsible lending”.

People wanting to buy a house through the scheme are, on average, seeking to buy properties worth £160,000 – below the UK’s average house price of £247,000.

Applicants face average monthly repayments of around £900 on an income of around £45,000, Downing Street said.

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Royal Mail major shareholders to be asked if shares were too cheap

Commons business committee plans to write to large investors as part of bid to find out if state-owned postal service was undervalued

Royal Mail investors who bought large stakes in the postal service following its £3.3bn privatisation last month are to be asked by MPs why they have staked hundreds of millions of pounds on the view that the government sold the firm on the cheap.

The news emerged after the Commons business committee investigating the Royal Mail flotation questioned the business secretary, Vince Cable, and his ministerial colleague Michael Fallon how the offer was valued, prompting an assertion from Cable that there was no need for an independent inquiry into the process.

Committee chairman Adrian Bailey said he will be writing to the The Children's Investment Fund (TCI) and GIC, Singapore's sovereign wealth fund, which have built up their Royal Mail stakes since its listing to more than 6% and 4%, respectively – having decided the shares would rise far above their 330p flotation price.

He said: "Yes, we might well want to [write to major new shareholders to ask why they value Royal Mail so highly]. We are reviewing the transcript [of evidence] to identify areas to follow up."

The committee has been investigating whether the taxpayer has been shortchanged by the Royal Mail flotation, in which 60% of the shares were sold to outside investors last month. The share price has since soared by about 70%, prompting criticisms that the government could have demanded a higher price. The Bow Group, a thinktank led by former prime minister Sir John Major, has called for an independent inquiry into the privatisation.

When asked if he thought an inquiry was required, Cable replied: "Absolutely not. We think this is a good process for the taxpayer."

He added that the valuation was only one criteria in deciding whether or not the taxpayer had received value for money, as the company could have withered – and its services put at risk – without access to private capital to invest in its future.

"Bearing in mind the set of objectives which we set at the very beginning ... the value for money is partly dependent on the offer price, it's partly dependent on the continuing value of the state's [30%] share, and it's partly dependent on what happens to the company. If the company isn't able to invest successfully [in its business], you could be left with a serious casualty. When we take all those things together, I think the conclusion will be, when people have settled down, that this has been a very professional well-managed and successful operation."

Royal Mail floated at 330p a share when the government sold 600m shares last month. Once the shares began trading on the stock exchange, they quickly soared. The shares were up 5% on Wednesday afternoon following the group's first results statement as a public company, changing hands at around 563p.

Also being questioned alongside Cable and Fallon were Mark Russell, the chief executive of Shareholder Executive which holds state stakes in businesses, and William Rucker, the chief executive of the government's main financial adviser, Lazard.

Russell said the government had been taken by surprise by the surge in the share price, telling the committee: "We did not anticipate the share price to move to the extent that it did."

He added, however, it had been anticipated that the shares would rise following privatisation, which was part of the reason why the government had retained a 30% Royal Mail stake. Typically, the City hopes the shares rise by around 10% on the first few days of trading following a flotation.

Bailey also asked the witnesses if it was predictable that Royal Mail shares would surge so strongly, with the offer was 20 times oversubscribed by investors.

Lazard's Rucker claimed not: "A lot of the orders [for shares] that go into the books ... there is a heavy element of gaming. The three biggest orders were $1bn each. That would have represented 20% of the company. Those institutions had no expectations of ever receiving anything like that quantity of the stock."

Article Source : http://www.guardian.co.uk
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The great Royal Mail sale: 700,000 want shares

Government reveals that sell-off is seven times oversubscribed, fuelling criticism that price is too low

More than 700,000 people have applied for shares in Royal Mail, the government has revealed, reviving privatisation fever last seen in the 1980s and intensifying fears that the postal service is being sold too cheaply.

Vince Cable, the business secretary, said the public had placed orders for more than seven times the number of shares available to them. Small investors could have bought the entire company if 70% of the shares on sale had not been reserved for City investors and pension funds.

"We haven't yet got the final figures but my very rough estimate is that we've had about 700,000 applications and it's about seven times oversubscribed," Cable told MPs. The huge demand for the shares means that applications are bound to be scaled back.

Those applying for the minimum £750 of shares may be the only ones to get what they have applied for while those who applied for shares worth thousands are expected to get just a fraction of what they had wanted.

The frenzy for the shares – fuelled by expectations of an immediate paper profit of 20% to 30% when trading begins on Friday – is more intense than demand for British Gas or British Telecom was at the height of the privatisation drive in the 1980s and 1990s.

The public put in orders for just four times the number of British Gas shares available in its 1986 privatisation despite its multimillion-pound "Tell Sid" advertising campaign. The privatisation of BT in 1984 was 3.2 times oversubscribed. More than 4 million people applied for British Gas shares, while 2 million applied for BT shares.

Cable said he was confident the shares had been "priced in the right place" despite claims from City analysts that the government undervalued the company by more than £1bn.

The business secretary said the claim by stockbroker Panmure Gordon that Royal Mail is worth £4.5bn compared with the government's maximum valuation of £3.3bn was "way outside the estimates of most of the equity analysts".

The shares will almost certainly be priced at 330p and will make their debut on the stock market on Friday. Stockbrokers predict the shares could rise to between 385p and 405p on the first day. A rise to 400p would mean investors would make an immediate 21% paper return.

If the shares rise by 20% on Friday, £750 of shares will be worth £900 by the end of the afternoon. It also means the government will have lost out on collecting an extra £400m for taxpayers on top of the £2bn it will collect from selling the 60% stake of Royal Mail. A further 10% is being given to the company's 150,000 employees – each will collect shares worth about £2,200.

Cable said people should ignore the immediate "froth" of the expected share price jump on Friday and concentrate on Royal Mail's secure long-term future on the public market.

Ian Murray, the shadow minister for postal affairs, said: "I don't think taxpayers losing millions is froth."

Selling Royal Mail, which traces its roots back to a forerunner founded by Henry VIII in 1513, has been on the political agenda for decades. Margaret Thatcher, the pioneer of privatisation in the 1980s drew the line at Royal Mail, saying famously that she was "not prepared to have the Queen's head privatised". But both the Tories' Lord Heseltine and Labour's Lord Mandelson tried, and failed, to sell it.

The sale now comes despite massive opposition from staff, 96% of whom are adamantly against the sell-off despite picking up free shares. Royal Mail's army of 150,000 workers are currently balloting on holding days of paralysing strike action in the runup to Christmas.

Because the shares are so oversubscribed orders from the public as well as from banks are likely to be significantly scaled back. The government is likely to honour all public orders for the minimum £750 of shares, but larger orders will be severely cut back. Michael Fallon, the business minister, has said he is committed to making sure small investors "get their fair share" of Royal Mail shares.

The government has only committed to granting 30% of the £2bn of shares available to the public but the government refused to say whether a greater proportion of the shares on offer will be transferred to the public rather than institutional investors.

The 30% earmarked for the public would work out at only £857 each if split evenly between the 700,000 applicants. A government spokesman said the exact details of how the shares will be distributed will not be announced until Friday morning.

On top of the massive public demand, hedge funds and other institutional investors are understood to have placed orders for more than £30bn of Royal Mail shares.

Cable said institutional demand was so strong that the government would be able to block shares from going to "spivs and speculators" in favour of "responsible long-term institutional investors".

"We are in a position to ensure we do get the right type of investor community – pension funds insurance companies that hold the savings of millions of people," he said. "That's the type of community we want."

Cable said demand from institutional investors at the maximum 330p is so strong that hedge funds and other speculators "in it to make a killing" are unlikely to end up with any shares in the flotation. "The aim is to place the shares with long-term investors, we are absolutely confident that will happen."
Article Source : http://www.guardian.co.uk
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Vince Cable has swallowed the bankers' line on capital

Business secretary used the phrase 'capital Taliban' to describe Bank of England officials, which was both unhelpful and wrong

Hark the words of Robert Jenkins, former external member of the Bank of England's financial policy committee, earlier this month: "I fear that the banks have bamboozled government into believing that society must choose between safety and growth, between safer banks and bank shareholder value, and between a safer financial framework and a competitive City of London. These are all false choices."

Bad news, Mr Jenkins, your fears are well founded. On the evidence ofVince Cable's extraordinary outburst to the FT, the government has indeed been well and truly bamboozled.

The business secretary used and endorsed the phrase "capital Taliban" to describe Bank of England officials. The term is bankers' favourite way to insult the Bank and, aside from bad taste, there are two reasons why a cabinet member should not use it.

First, the criticism of the Bank's Prudential Regulation Authority (PRA) is plain wrong: asking banks to hold more capital should not impede lending.

Second, ministers should keep their noses out of the day-to-day judgments of the independent regulator.

This row has broken out after the PRA demanded that lenders achieve leverage ratios of 3% – that is, that they should hold £3 of capital to support £100 of lending. By no stretch of the imagination can 3%, implying a 33 times levered balance sheet, be regarded as an onerous demand. The Vickers commission argued for 4%, meaning a leverage cap of 25 times, and the US is heading towards 5%.

Nor is a 3% leverage ratio for British banks hard to achieve in practice. All the main lenders apart from Nationwide and Barclays are there already. Nationwide – conceivably an institution with a "safe" book of mortgage assets – has been given until the end of 2015 to fall into line. The PRA's verdict on when Barclays must conform is awaited eagerly, making the timing of Cable's comments appalling.

The key point is that more capital and more lending go hand-in-hand, as Sir Mervyn King stressed time and again when he was governor. "Capital supports lending and provides resilience. And, without a resilient banking system, it will be difficult to sustain a recovery," King said in his last Mansion House speech.

Business secretary Vince CableCable seems to have swallowed the bankers' line that the regulator is making them assemble vast sums of capital that could otherwise be used to lend to small businesses. No, that is not how the system works: to repeat, weakly capitalised banks won't lend because they can't lend. And getting more capital into the system looks a sensible policy when the starting point is a banking industry that is still hugely over-leveraged by historical standards. As Jenkins says, we don't have to choose between safety and growth.

Of course, it suits the lenders to muddy the waters. Barclays would be unpopular with its shareholders if it had to whack them with a rights issue to find capital in a hurry. Nationwide has a particular reason to worry because it is a building society without access to shareholder capital. But the PRA's job is to manage financial stability. By speaking out, Cable makes it harder for the Bank to be seen to act independently.

What if Barclays is next week given a Nationwide-style waiver to meet the 3% ratio by the end of 2015? Would that be because the PRA is satisfied with the current financial strength of Barclays or because the regulators have been intimidated by Cable and the Treasury, which apparently shares the view that jihadists are running amok in Threadneedle Street?

Mark Carney, the new governor, should be spitting blood. He's got a tough job. He doesn't need politicians who make it harder. Cable, who in opposition was quick to spot the danger in running an under-capitalised banking system, should know better.

Article Source : http://www.guardian.co.uk

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Royal Mail privatisation will not affect postal delivery – Vince Cable

Business secretary says postal service sell-off will not threaten universal service obligation to deliver to 29m UK homes

The Royal Mail's duty to deliver to all 29m homes in the UK will survive privatisation, the government has said, as it unveiled plans for the most significant state sell-off since the railways in the 1990s .

The pledge came as business secretary Vince Cable announced long-awaited plans to float the Royal Mail on the London Stock Exchange this year, and confirmed that postmen and women would be entitled to free shares in the business.

Critics argued that the privatisation of an institution first opened to the public 378 years ago would mean post office closures, the erosion of six-day delivery in rural areas and worse pay and conditions for postal workers. Speaking in the House of Commons, Cable said privatisation was "an irreversible course" that would secure the future of Royal Mail in the face of competition.

"The government's decision on the sale is practical, it is logical, it is a commercial decision designed to put Royal Mail's future on a long-term sustainable business. It is consistent with developments elsewhere in Europe where privatised operators in Austria, Germany and Belgium produce profit margins far higher than the Royal Mail but have continued to provide high-quality and expanding services," he said. "Now the time has come for government to step back from Royal Mail, and allow its management to focus wholeheartedly on growing the business."

The Communication Workers Union (CWU), which represents two-thirds of the Royal Mail's 150,000 workforce, vowed to fight the sell-off and accused the government of ignoring the views of the public.

The Labour party, which attempted to part-privatise the service in 2009, accused ministers of pushing ahead with the sale to dig the chancellor out of a financial hole caused by a rise in government borrowing. Market analysts expect Royal Mail will be valued at £3bn when it floats later this year. The public will be able to apply for shares, although Royal Mail workers will be allowed first in the queue if they want extra shares on top of the 10% share guaranteed to them.

Cable said the "overarching objective" of privatisation was to secure the universal service obligation that requires mail deliveries to any UK home six days a week, which has been threatened by a slump in profits in the wake of a 25% decline in letters over the last decade.

But Dave Ward, the CWU's deputy general secretary, said the business secretary was "off the pace" on the economic reality of the six-day universal service, which he predicted would not survive in rural areas and remote regions under privatisation.

Warning that privately-owned companies will seek a relaxation of the obligation if they offer their own doorstep delivery services around the UK, he said: "We are talking about an economic reality. These [delivery] companies will lobby against the six-day service. It simply will not make the money to secure their investment."

The national network of 11,780 Post Offices, a separate company from Royal Mail, will remain in public hands, a promise that failed to reassure the National Federation of SubPostmasters', who accused the government of taking "a reckless gamble" with the network that would lead to post office closures.

"If privatisation goes ahead, we have very real fears that the Royal Mail will rip up its the current agreement with Post Office Ltd [to provide Royal Mail products and services] in an aggressive bid to maximise profits for its shareholders," said NFSP general secretary George Thomson.

Chuka Umunna, shadow business minister, said the recent doubling in profits at Royal Mail to £403m also called into question the assumptions behind the "fire sale". "They now want to privatise the profits at the time it is making money. How can this policy make sense?"

Cable pledged that private ownership would not trigger any change in post office workers' terms and conditions, while the Royal Mail promised "a legally-binding and enforceable contract with the CWU" to enshrine these rights.

Dave Ward at the CWU said Cable's guarantees "are not worth the paper they are written on", while existing agreements with were "completely inadequate". Strike action was inevitable, he said.But the government hopes that giving away shares to employees – the largest worker share offer in nearly 30 years – will soften opposition to the sale. Under the scheme, eligible employees would be entitled to free shares, but would be unable to sell them for at least three years.

Moya Greene, Royal Mail's chief executive, who has been courting potential investors in the UK, North America and continental Europe, said the sale would give employees "a meaningful stake in the company" and the public "the opportunity to invest in a great British institution".

British Petroleum, October 1979

Now a publicly traded company with a large number of US shareholders and institutional investors including BlackRock

British Aerospace, February 1981

Now BAE Systems, the company is traded on the FTSE 100 and major institutional investors include Invesco and AXA

British Telecom, December 1984

Now a publicly traded company with institutional investors including Invesco, BlackRock and Legal & General, and more than a million small shareholders

British Gas, December 1986

Following a demerger in 1997, British Gas became part of the newly formed Centrica, which is publicly listed and whose shareholders include Invesco and Legal & General

British Airways, February 1987

A listed business, merged with Spain's Iberia and owned by International Airlines Group

BAA, July 1987

Now called Heathrow Airports Limited and owned by a consortium including Spain's Ferrovial and China's sovereign wealth fund

British Steel, December 1988

After it merged with a Dutch steel producer and became Corus, it was bought by India's Tata Steel

Water (10 regional companies), December 1989

Thames Water is part of Kemble, which is owned by a number of institutional investors and pension funds, including China's sovereign wealth fund and funds managed by Australian group Macquarie. Southern Water is owned by Greensands Investments, a consortium of pension and infrastructure funds

Vince Cable issues his Commons statement on the Royal Mail privatisation plans. He said this was 'an irreversible course' that would secure the future of Royal Mail in the face of rising competition

British Coal, 1994

Its administrative functions were transferred to the government's Coal Authority, while its mines were transferred to UK Coal, which went into administration this week.

British Energy, 1996

Part of French state-owned group EDF

Stage in process: a 10-year contract has been awarded to US-based company Bristow, which will take over duties from the RAF and Royal Navy from April 2015

Student loan book/Student Loans Company

Stage in process: Vince Cable has already announced the sale of a £900m book of loans. It is possible that the rest of the £45.9bn loan book could follow. Bidders could include banks, funds and financial institutions

Urenco

Stage in process: the government put its one-third stake up for sale in April, after securing agreement from its Dutch and German partners. Bidders could include consortia of financial buyers – most likely infrastructure investors and sovereign wealth funds – and trade buyers

Plasma Resources UK

Stage in process: the government announced in January it was examining a partial or whole sale of its blood plasma business. Possible bidders include bioscience and healthcare companies, as well as private equity firms

Lloyds Banking Group and Royal Bank of Scotland

The bailed-out banks will be fully privatised, but the government has not indicated when. It is likely to sell its shares to investors on a phased basis, starting with Lloyds. The government would like to see them fully returned to the private sector by the next election in 2015

Article Source : http://www.guardian.co.uk

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