Friday, March 03, 2006

A Banker Writes..

Just received the following anonymous advice regarding Mrs. David Mills and her unfeasibly frequent mortgages.
Hambros is a past tense merchant bank of course; it bit one over the Co-Op takeover scandal and got taken over by Societe Generale of France. "SG Hambro" is now SocGen's UK private banking brand, and it would not be out of the ordinary run of things for a private (ie toff) bank to put together deals like this for a high-rolling lawyer. The fact that the loan is a mortgage is pretty irrelevant in this case; the mortgage on the house is there because the banker really doesn't want to be interested in the credit quality of the client, he wants a nice valuable asset that he can take a charge on. Everyone involved in this would be aware that this was a short term loan for a speculative transaction and would be paid back as soon as the investment paid off.

So far, so comprehensible. But then the next two deals are weird in the choice of banks. "Mortgage Express" is a brand of the Bradford & Bingley which does most of their "specialist" lending. They mainly do buy-to-let deals these days, although in 2002 they were also big in self-certification mortgages, which Mills would need because he doesn't have payslips. But they're high-margin players and they're not at all the kind of people that you would go to for a mortgage that you intended to pay back in any short time as the redemption charges on ME products are quite high (their business model in the old days was to lend money at high rates to people who other lenders didn't want, then make money out of the redemption charges when the customer remortgaged to a cheaper deal). The only product they sell which is remotely appropriate for this kind of application is Flex-Ability, and that can only be accessed through the IFA/mortgage broker channel - I wonder who the IFA was. (I am not even sure that Flex-Ability was available in 2002, as B&B was quite late to the mortgage price wars and I think was one of the last to give up on early redemption charges).

Then we have A&L and that is plain weird. I wouldn't even have thought that A&L would lend to Mills as they are in general positioned in the space where they're only interested in totally plain vanilla deals; notoriously, they still insist on checking three months of wage slips long after the rest of the sector has gone over to using the Experian and similar files for credit scoring. I remember them talking about this practice in 2003, so I am surprised that a lawyer working in a partnership got a mortgage out of them in 2002. I suppose Tessa Jowell gets payslips but Mills wouldn't; there are a few high street banks that have customer service teams which know how to deal with partners in law and accountancy firms and other types who have loads of money but no wages, but A&L isn't one of them. I can't see any A&L product at all that would be a good idea for a loan you intended to pay back in a short time - they all seem to have substantial early repayment charges apart from the Standard Variable Rate which is a bloody expensive way to borrow money. Looking at their website today the "5yr discount Fully Flexible" doesn't have repayment charges so maybe he took out one of those, though the A&L product range was much smaller in 2002 so I doubt that one was available then.

The point I'm making here is that normal people's mortgage banks are set up for people who want to borrow money over twenty years, not three months. They set their businesses up to run like that and if you depart from this model they will usually charge you extra because they are selling a standardised product to a mass market. Private bankers who are tailoring a specific product to a specific customer and who know that the "mortgage" element is only incidental to a short term loan will usually give you a better deal; this is not a universal rule (and still less is it financial advice) but in general this is the case. I don't understand why Mills didn't use his private banker for the 2002 transactions (I surmise that given the investigations, they had politely asked him not to). I would be interested to know what the products used were in Mills' transactions and what sort of fees he paid, and I suspect the Italian investigators would be looking into that too; as you say this seems like a really expensive way of carrying out the transaction.

Note that everyone Mills spoke to has effectively dobbed him in on this series of transactions; this is a consequence of the status of UK money laundering law, which is one of the few laws which creates a specific (and very serious) offence of not grassing on a client who you have the slightest suspicion of being up to something; this is only an obligation of people carrying on relevant business so civilians who don't do compulsory ML training are often not aware of the fact that conversations with a banker are carried out under the diametric opposite of the secrecy of the confessional. Tragically, he may have gone on believing that these people were still his mates, since "tipping off" someone that you have grassed on them is also a serious offence; I think you can get seven years for it.

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