What Credit Crunch? Bankers Gorge On Bonuses And High Risk Mortgages Are Back

(Daily Mail) – BANKERS HAVE ALREADY FORGOTTEN the lessons of the credit crunch, it was claimed last night.

They were accused of recklessly returning to the practices that tipped the world economy towards meltdown only a year ago.

Executives are queuing up to collect multi-million pound bonuses and lenders have launched a hard sell on 95% mortgages, triggering a price war on the high street.

Politicians accused banks of ‘gorging’ themselves on the back of the taxpayer guarantees that were used to bail them out.

Their anger was stoked by the news that Goldman Sachs’ 5,500 bankers in the UK are in line to pocket £440,000 each after the business revealed a three-fold surge in profits.

In a separate move, banks and building societies attempted to light a fire under the property market.

The Nationwide began promoting its 95% home loans and also cut the price of 34 mortgage deals by up to 0.84%.

This followed a move by the UK’s biggest bank, HSBC, to promote a number of 90% home loans. Other major lenders are expected to follow suit.

The idea that ‘business as usual’ has returned in the Square Mile was met with consternation by politicians of every hue.

Critics point out that Goldmans and other survivors of the 2008 crash can only earn such sumptuous rewards because governments and taxpayers now provide a guarantee that they will not be allowed to fail.

Last night Business Secretary Lord Mandelson said the City was witnessing an ‘unacceptable return’ to past practices.

He said that the Financial Services Authority could step in to force banks to increase their cash stocks if they are deemed to have handed out excessive rewards.

‘Goldman Sachs and other banks operating in London know that governments around the world, across the G20, have taken decisions and adopted standards which they want to see implemented by every bank,’ he told Channel 4 News.

‘That means not returning to the bonus culture that led banks astray in the past and if they persist in excessive bonuses then the FSA have the power to set that against the capital requirements that they can impose on these banks.

‘We are seeing, if all these deals go through with these bonuses, an unacceptable return to the sort of behaviour that got banks into so much trouble in the past.’

John McFall, Labour chairman of the Treasury Select Committee, said: ‘There’s a lot government money sloshing around the system, which firms like Goldman are gorging on.

‘The industry has said it is going to change, but in fact, it’s back to business as usual.’

Vince Cable, Lib Dem Treasury spokesman, said: ‘People will be rightly furious to see Goldman Sachs paying out bumper bonuses just 12 months after it was bailed out by the U.S. government.

‘It is farcical that so soon after the reckless greed of bankers brought the world economy to its knees, we are seeing a return to business as usual.’

Tory Treasury spokesman Mark Hoban, said: ‘Public money should be used to build up bank balance sheets, not to pay out huge dividends and bonuses.’

The outcry came after Goldmans revealed that it is on course to shower nearly £14 billion on its workers.

The Wall Street giant, which has repaid a £6.3 billion emergency taxpayer loan, saw its profits leap 277% to £1.96 billion between July and September.

Some high-fliers could earn bonuses of millions, thanks to the commissions the bank is ‘earning’ for advising the Government.

In the British mortgage market, banks and building societies are now taking off the lending shackles.

Nationwide is reducing the interest it charges on 34 of its mortgages for those buying a property from today, cutting them by an average of 0.23%.

It is also cutting legal fees and registration fees for customers in a effort to drive up home loan applications and house sales.

The group’s four-year fixed-rate loan for those borrowing 60-70% of their home’s value will see the biggest reduction, dropping from 5.78% to 4.94%.

Historically, a loan to value figure of 80% was considered a prudent figure. However, the last boom saw loans from all the major lenders of 100%.

The Nationwide deals will allow new customers buying a home to borrow up to 85% of the value. Existing borrowers who are moving home will be able to borrow-up to 95%.

The society believes that loans of up to 95% are valid where they have a long relationship with a customer and they know about their income and spending patterns.

It said that it has always offered a 95% mortgage. However, it stopped promoting them once the credit crunch struck, and it also made them unaffordable by imposing very high interest rates.

Now, it is beginning a hard-sell of these deals and making them more attractive by charging the same interest rate regardless of the loan to value.

Nationwide’s mortgage director, Andy McQueen, said the cuts in rates and fees are about helping people, particularly first time buyers.

HSBC said it was offering 90% loans on the basis of its belief that the housing bust is over.

Goldman’s extravagant rewards come at a time of rising unemployment and extraordinary strain on family budgets.

Finance director David Viniar said: ‘We’re very aware of what’s going on in the world, but we have to trade that off with being fair to our people who have performed admirably throughout this crisis.’

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