Foreign Perspectives

Archive for the ‘Finance’ Category

By far the most popular post on our Whole Earth Guide is the one detailing how to go about opening a bank account in America.

The reason is simple really: if you run an online business then sooner or later you generally find yourself in need of an American bank account. Unfortunately, the increased security measures in place post 9/11 mean that it’s not quite so easy to open one these days unless, of course, you’re living in America and therefore a considerable number of websites have grown up with the specific aim of selling you the required information.

Our site doesn’t charge for that information and therefore is increasingly popular as it provides exactly the same information that other sites charge anything from $5 to $250 to provide.

However, we’re sorely tempted to start charging for it too given some of the emails we’ve received demanding additional information and wanting to know why it isn’t on the site yet. What we’ll likely do is to charge for the hand-holding level of information or at least offer it for sale as the information on the above page is quite sufficient to allow anyone to open an account in America.

The events surrounding the slow death of the Northern Rock mortgage bank get more and more surrealistic by the day.

Back in July last year it was actually the leading mortgage lender in the UK with 19% of the entire market for new mortgages sold in the first half of the year. Bearing in mind that it’s basically a fairly small building society this should have been the first sign that trouble was ahead as it meant that to source the funds for those mortgages it had to move well outside it’s traditional deposit base and borrow on world markets to find the money.

Just two months after announcing these fantastic results we find that the bank needed to go to the Bank of England for emergency support which, of course, it was granted. The next day the troubles began in earnest for the bank as everyone tried to reassure the customers that everything was fine. Of course, it was far from being fine as the large queues of depositors asking for their money bank well knew on hearing this announcement. On September 17th, just three days later the government moved in to guarantee the deposits held by the bank, subsequently extended on October 9th to include all deposits made regardless of the date.

Moving on to today we find that the government has provided some �25 billion (around �1000 from every family in the country) to support the bank and here’s where the magical world of finance really kicks in.

Although the bank seems to have enough security to repay all of it’s debts, to repay everyone would entail calling in the mortgages on an awful lot of people which obviously wouldn’t go down too well and might not even be possible legally for those that have been keeping up their repayments. Of course this is the same situation for all banks: if everyone wanted their money back at the same time there just wouldn’t be enough on hand. Therefore, in a sense, it makes sense for the government to provide backing to avoid repossessions on a wide scale and to provide confidence in the banking system in general.

However, the government clearly need the money back at some point unless they want to nationalise the bank.

The snag is that there is really no way for them to actually get the money back. So, what they’re doing instead is proposing�selling bonds to the value of that £25 billion. The problem with that is that nobody wants to buy bonds from a bankrupt bank and therefore the government will have to provide the security for the bonds too which means that they won’t be clear of that £25 billion for some years, if ever (some similar bonds issued for the first world war still haven’t been repaid!).

And, of course, this is just one bank. Granted, a bank that over-extended itself but who’s to say that there aren’t a few other banks around in a similar situation or who could find themselves in such a situation if the current squeeze on credit worldwide continues?

You’d think that that these days banking practices around Europe would be fairly standard. After all, the banks handle international business every day so they’re in constant contact with their counterparts in other countries.

Of course, it’s one of many areas where European business practices are far from standard.

Take the UK and France for example. Two countries with a very long history of interaction so you’d think that many things would be similar except that they aren’t.

In the UK, credit cards are commonplace and it’s normal, expected even, for people to have several of them. In France, credit cards are a relatively new phenonmen and remain very rare.

In the UK, almost everyone has an overdraft and the banks prefer you to be permanently overdrawn as they collect more fees that way. In France, they’ll close your account if you’re overdrawn more than a couple of months.

In the UK, debit cards don’t have any purchase limit on them. In France, you can’t buy more than 3000�� a month usually, which is why you often see people resorting to cheques towards the end of the month.

In the UK, nobody will accept a cheque without a cheque card (a card issued by their bank and guaranteeing the cheque will be paid). In France, almost everyone until recently accepted cheques because if you bounced a cheque you could be banned from having a cheque account at all. That actually worked well until very recently when the economic situation seems to have caused something of a run on dud cheques so the effect is that more and more businesses don’t accept cheques which is sure to cause trouble soon so long as that debit card spending limit remains.

Any one of those differences can easily fell you if you don’t know about it in advance.

We’ve been looking around the prices of places locally and there’s quite a divergence between what some places are actually worth and what they might sell for at the moment.

For example, there’s a major hotel/restaurant complex near us that’s listed for almost EUR 2.5 million. It’s easily worth that as it’s a recently modernised building with over 30 rooms, large swimming pool, gardens, sports facilities, has a second building under construction to add another 30 rooms and planning permission for a third building for the complex plus extensive grounds.

Unfortunately, that complex is totally out of character with the region. There’s nothing comparable to it locally and for good reason: there just isn’t the market for it here.

So, whilst it might well be worth 2.5 million (and probably more), chances are that it’ll sell for around 1.5 million or so. That’s if it sells at all, of course, as it’s nothing like what people would expect in this area which means that nobody is looking to buy such a facility here.

When you look around in a new country you generally bring all your preconceptions as to what a bank is with you.

Typically, the assumption is that a financial organisation is a bank if it issues credit cards, debit cards and cheque books whereas it’s a building society if it largely confines itself to savings accounts and mortgages. Of course, in many countries such distinctions don’t exist 100% of the time and there’s usually something of a graduated scale between building society and bank in most countries these days.

In fact, a more realistic distinction these days is probably based on size (however that might be measured) and perhaps the extent of international activities. So, for example, although most people would call the likes of the Halifax in the UK a building society in fact in both legal and practical terms it has been a bank for many years. For example, it has been issuing cheque books since the first world war if not before and has had international activities for a substantial time too.

On the other hand, the various Credit Agricoles in France are clearly in the building society camp. Yes, they issue cheque books but their debit cards aren’t run by themselves and their international activities are nil, at least as far as the regional Credit Agricoles go.

Spain by contrast has the fairly substantial La Caixa which is a savings bank in name only although with few international activities up to now.