La Caixa, now renamed CaixaBank, and floated last year, has reported profits are down 13%.
Sabadell group profits are down 39% and Banesto has seen profits tumble by three quarters.
On the positive side they all at least still made a profit.
Most of the down turn in profits is due to the drop in income between the interest payable and interest earned and the higher provisions they have been forced to make to cover bad assets on their balance sheets.
Loans in default, as a percentage of their loan books, continue to rise each month partly driven by more defaulters and partly driven by the fact that every bank is decreasing its loan book size.
Risk departments who were on the back foot during boom times and forced to bow to commercial pressures are now very much ruling the roost. They are by nature normally cautious and, with no pressure being applied from sales, are wielding their new found power in a dictatorial and intransient manner.
There is on most occasions little common sense or commerciality being applied. Any deviations from criteria are rejected and ability to look at an application in its entirety to assess risk properly has all but disappeared. A well constructed challenge to an initial decision can still bear fruit but experience and a good understanding of risk managers psyche is paramount to making this happen.
Many branch staff are finding it difficult to come to terms with the new world and often still over promise direct clients both in terms of what is possible and costs. We are back to the days of Spanish banks working on the basis that if a client applies for a mortgage, no matter what is finally agreed, the client will complete even if the terms bear no resemblance to what the client was expecting to get.
Many, including Lloyds and Barclays, are focusing solely on a certain type of client by having minimum levels of income required, minimum value of property or minimum loan sizes but have pricing that a “vanilla client” would not want, or need to pay. It is difficult to see how these banks are going to square the hole on pricing against the type of borrower required.
Loans above two hundred thousand euros are becoming more difficult to find, whatever the strengths of the client’s situation. Again this makes no sense as there is no evidence that one larger quality loan is worse to have than 10 poorer quality loans, in fact for most sensible people the reverse would seem to be true.
Potential borrowers can expect the Banks to be very pedantic on paperwork requirements, to request what clients may feel is unnecessary, to have unusual and unfathomable idiosyncrasies to their risk assessment and appear on many occasion to have issues with perfectly good applications.
Matching a clients profile to the current banks available has now become one of the most important things upfront. There is no point in applying as a single applicant to a bank that will only lend to married applications. There is no point in applying to a Bank that will not lend if more than one property in the applicants country of residency is owned, if you own more than one property. There is no point in applying to a Bank if you are self employed if they will not take into account dividend income.
Once access has been ascertained the next consideration is best terms of those lenders available for that application. The rate range from worst to best is the largest it has ever been. Margins above Euribor range from 1.70% at bottom end to a massive standard rate of 3.85% at top end. The linking of compulsory products also means all costs need to be taken into consideration. It may be better for instance for certain clients to have a higher rate and no life costs versus another client who may find it more beneficial to have life cover and a lower rate.
Any clients who want to brave the battlefield without professional assistance need to make sure the bank explains all the terms clearly and they should shop around.
International Mortgage Solutions
( p.s. Many thanks to Heather at International Mortgage Solutions for her informative updates. )