Posts Tagged‘bank’

The Cyprian Banking Industry is Damaged Beyond Repair.

If there’s one thing that Australia has going for it at the moment it’s the duo of a well regulated banking industry coupled with a strong economy that has seen us weather some of the worst financial crisis we’ve seen in decades. The Global Financial Crisis came and went without leaving much of a lasting impact and for the most part we’ve been immune to the Eurozone Crisis. For an industry that relies on trust you really couldn’t find a better environment than Australia at the moment as compared to nearly every other place on earth the trust in our banking system is extremely high.

Bank of Cyprus

If I was to choose a place that is the exact opposite my country of choice would of course be Cyprus. For the uninitiated Cyprus is a small island nation of about 1 million people or so and is renown for being something of a tax haven. This is due to its extremely favourable tax rates on savings accounts there and led to the banks storing more wealth than the entire nation’s GDP. When everything’s going well this isn’t much of a problem as the steady flow of capital helps keep both the nation and the banks afloat. However when things turn bad, like they have done during the Eurozone Crisis, what you have is an island nation that’s left in a rather difficult situation as it lacks the tools to deal with such colossal entities failing.

The issues stem from the Greek financial crisis as the Cyprian banks had amassed some  €22 billion worth of Greek private sector debt. As a result of the writing down of much of this debt in order to save Greece (and thus the Euro itself) the Cyprian banks were hit hard by this and in turn had their credit rating downgraded. This lead to a downward spiral of bad debt piling up, banks defaulting on loan payments and the Cyprian government, with a GDP below that of the debt their banks had amassed, being completely unable to deal with it. So like any other EU member they approached European Commission, the International Monetary Fund, and the European Central Bank for a bailout. They were able to secure one however before they could get it they needed to raise some €7 billion and the method by which they did this was, to put it bluntly, incredibly retarded.

The initial proposal, according to IVA, was to raise these funds was a one off tax on all savings deposits with accounts under €100,000 losing 6.7% and above that losing 9.9%. They began musing this particular deal over the weekend in order to be able to enact the legislation before everyone had a chance to get their money out but as soon as news began to spread the beginnings of a bank run started taking shape. ATMs were quickly emptied of their cash and long lines formed as people tried to get as much of their cash out of Cyprian banks before they were slugged with the tax. The initial proposal didn’t get through however and the Cyprian government had to order the banks not to open and they’ve been closed ever since.

News reaches us today that the Cyprian government has managed to reach a resolution with the one off tax now being restricted to accounts over €100,000. What the particular rate will be though remains a mystery but you can guarantee it will have to be higher than the initial proposal to make up for the revenue lost on accounts below that threshold. The deal will also see one of the bigger banks broken down into a toxic asset dump and a small, feasible business but there have been calls for the same thing to happen to its largest bank. No matter what they end up doing however the damage has been done to their banking industry and I’m not sure it’ll ever be able to recover.

You see banking relies on a certain amount of trust, especially when it comes to things like savings accounts. You trust your bank won’t lose your money and, in the case of the government, you trust that they won’t come after it unless you’re directly responsible for something. The Cyprian people, and their foreign depositors, are essentially being punished for the mistakes of the banks and there’s no amount of guarantees that they can make that something like this won’t happen again. Thus the only smart thing for anyone to do is to get their money out of there as soon as humanly possible lest the same thing repeat itself in the future.

It’s not like this couldn’t happen elsewhere, indeed New Zealand is considering a similar move, but the reputation Cyprus had as a great place to store capital is now in tatters. Future depositors will think twice before sending money there again because it’s clear that the tiny nation can’t deal with the mistakes of its banks due to the huge influence they have their economy. After the tax goes down I doubt any of the large creditors will be keeping their money in there for long and its likely a bank run will still occur once the banks reopen their doors. With that the finance industry in Cyprus will be dealt a crippling blow, one which it will be unlikely to recover from.

It might be for the good of the country in the long term however since no one will store capital there any more it’s unlikely they’ll get into a situation like this again. I’m not entirely sure that’s a good thing though as it takes an axe to what was once a very profitable industry for the Cyprian people. Realistically though the blame for all of this lies directly with their government, one that should have taken better precautions to avoid a situation like this in the first place.

The debt advisors are those people whose contacts you must o have in your phone.

Buying Property: A Geek’s Perspective.

Buying a house is an experience of many varied emotions, from excitement to confusion to being overwhelmed and finally the ultimate reward of having a place to call your own. I’ve been through the whole process twice now and suffice to say I’ve had my share of trials and tribulations along the way. Today I’m going to walk you through a rough outline of the process (note that this will be Australian centric, sorry overseas readers!) so that those aspiring property owners looking for a bit more information on the process will hopefully come out feeling a bit more confident when they start looking for a place to call home.

First of all before you start looking at any houses you’re going to have to know what kind of budget you have to work with. At this early stage I’d highly recommend seeing a mortgage broker as they can look at your financial situation and find a loan that’s appropriate for you. They can also teach you how to build business credit, which can be useful to you in the long term should you be short on capital. I have personally used Aussie Home Loans as my brokering agent every time I’ve looked for a property and have never been recommended the same loan twice (nor any of Aussie Home Loans products either). There are of course dozens of firms around and none of them charge any fees so I’d wholeheartedly encourage you to talk to a few of them if you’re not completely happy with any one of them. At this point you can also get pre-approval for a loan, meaning the bank is ready to finance you and will make the whole buying process a lot faster than if you’d found a house then had to get finance.

With your finance sorted you can now go about looking for a place to call your own. In my experience this is a whole lot of fun for the first couple weeks as you get to see many great houses (and some not-so-great) but it can be exhausting if the process drags out over a long period of time. Whilst I said before you shouldn’t bother looking before you’ve got finance it can help to do a little market research in the months prior to fully committing to getting a house. This will let you know how the market is doing and which properties have been on sale for a while. A rule of thumb is that the longer a property has been on the market the more likely that the seller will be flexible regarding the price (although it could also mean the property is overpriced, in need of dire repairs or has something else preventing it from selling).

Once you’ve found a place that’s within your budget the next step will be to make an offer¹. This process is wholly dependant on the agent selling the property and can be as informal as a telephone call to the agency or could involve multiple forms in order to register your intent to buy the property. It’s at this point you can negotiate the price for the house if you so desire and it’s quite possible that the house will go for below or above the advertised price. Should someone else make another offer you will, most of the time, be notified by the agent should the offer be higher than yours. Strictly speaking agents are not meant to tell you how much other people are offering for the property but inevitably most do. Depending on the instructions given to the agent by the seller there might be predetermined sell point or they may leave the property open for offers until they’re satisfied with the price. Should you be lucky enough to place the accepted offer you’ll be contacted by the agent and will usually have to supply a $1000 deposit to confirm your intentions to buy the home (this is counted towards the asking price).

According to Think Conveyancing’s website, at this point its time to bring in the lawyers or a conveyancer, as part of the formal offer acceptance you will have to nominate one such agency to deal with the legal paperwork required by the sale. Just like if you were seeking the aid of an injury attorney in Orlando for example, you have to do your research. In my experience you will be better served by an actual lawyer rather than a conveyancer as they will be able to provide qualified legal advice in the event something should go wrong. They can also help with explaining some of the legalese and add provisions and protections into the sale contract should they be required.  Once you’ve nominated the agency the agent will send them the required paperwork and you’ll be required to sign a few things in order to get the process going. Soon after (usually before 10 business days) your and the selling party’s lawyers will then exchange contracts, allowing both sides to inspect them prior to agreeing to continue with the sale. Again at this point you’ll be required to sign the paperwork to say that you’re happy with the terms of the sale. At this point you have a financial interest in the property so it’s recommended to take out insurance on it at this point.

Once the paperwork is completed the next major event will be the settlement, the formalisation of the sale contract that both parties have agreed to. Before this happens however there are usually a few things that need to be sorted out. Probably the largest of tasks is the payment of stamp duty which has to be done either directly to the Revenue Office or through your lawyer’s trust account. There are also things like arranging financing for paying out rates or water bills (usually paid to your lawyers who hold it in trust for use at settlement) and having one last final inspection of the property to make sure you’re still happy with it. The bank will also send out a representative at this point to do an evaluation on the property to make sure the property isn’t worth substantially less than the loan they’re giving you. Once they have been completed (can be anywhere from 2 weeks to months, in my experience) then both party’s legal representatives convene to complete the sale. Shortly after this you should be contacted by the agent who will hand over the keys and you’re officially a home owner.

This scenario does not mention anything that might go wrong during this entire process. Should all things go well the time from accepted offer to moving in is usually around 4 weeks however this can easily balloon out should any part of the process be delayed. The most common problems are finance related, usually either delays in sending out appraisers or not releasing the funds for settlement. There can also be issues at settlement like unapproved structures or disclosure of required sale information (like if it’s a flood plain, for example). However if you have a good lawyer behind you most of these problems will be made clear to you and options presented for remediation.

So in a nutshell that’s what the process is for buying a house in Australia. I’m sure there are details I’ve missed or haven’t given enough attention to but if you were wondering what’s actually involved in securing property than this should give you a good insight into what’s required. It can seem daunting at first but realistically it’s really just a whole lot of talking, walking and sending money to people in the right places. If you have any questions about a particular part of the process feel free to ask in the comments below and I’ll do my best to ask.

¹I’m deliberately writing this from the perspective of buying a house through a negotiated price rather than at an auction. Buying a house at auction is an inherently more risky scenario due to emotional involvement and the removal of many buyer protections. The process before and after the auction is identical however.

The advice provided here within is general advice and should not be considered professional financial advice. It does not take into consideration your personal circumstances and can not be used in any financial decision process. No party should take action or refrain from action based solely on the content of this post or any other contained here on The Refined Geek. Please seek professional financial advice before proceeding with any investment.

Bigger is not Always Better.

I used to have a lot of pride in the idea of big corporations. After spending much of my life working for the public service (and indeed I still am although in a different capacity) and lamenting at the inefficiencies the private sector looked like the greenest pastures I’d ever thought of. It was then interesting to note that when it came time for me to make the jump into the private sector my initial impressions were pretty much as I had expected. After a while though it all started to morph into the same story I had experienced for the past few years.

Take any large organisation and the one thing you’ll notice is the increase in bureaucracy and this is not necessarily a bad thing. As organisations grow larger they will require more people to lead and facilitate communication between disparate sections. However what I traditionally saw in the public service was that restructures often caused redundant positions to retained instead of removed. This often lead to the too many chiefs problem where you get a lot of people who are in charge of something or someone which tips the management to underling ratio unfavourably. This is not to say I didn’t see the same thing happen in the private sector, it was just less common as when you’re trying to turn a profit from your business it becomes much easier to remove those people who aren’t really adding value to the business.

More recently I’ve encountered this in my own personal financial matters. A couple years ago my fiancée and I took the plunge and bought our first house here in Canberra. The process was actually pretty easy for us and we managed to find our beautiful home in the first week, although we held off making an offer for a while to make sure it was the one we wanted. After a couple quick signatures and a couple of phone calls to our broker the process was over and done with in a matter of weeks. Needless to say we were pretty impressed with everyone involved.

Naively believing that it would be the same deal the second time around we took the plunge yet again to buy an investment property. Now I know most people would be telling us we’re crazy for trying this (I did the figures, and believe me it still surprises me how good an idea this was) but we went ahead anyway. We found a beautiful place that would rent fantastically which unfortunately fell through. We since then found another house which was in good shape for its age and was in a great location. So we went ahead and decided to purchase.

Queue the last 2 months of my life spent dealing with the bureaucracy that is one of the big 4 banks of Australia. Our first loan was from a smaller bank that was from outside of our state and was a painless process. Our new bank had so many different sections that communications between myself, my broker and the bank would usually hit at least 3~4 different sections, all of which were responsible for different things. Not only was settlement delayed over a month because of a simple question I asked they also lost several critical loan documents twice over, something I’d never experienced before from a professional institution (let alone a bank). I was left pining for the smaller banks, at least then there would only be one central location that dealt with everything.

And so marked the end of the idea that a bigger corporation could do something better. It seems that there’s a sort of bell curve phenomenon going on here. When you’re too small you can’t do all the things that the big guys do. Once you’re at the peak you’re doing just as well as the big guys without the inefficiencies. After that it’s all down hill and whilst your company might be more successful you’ve traded in your efficiency to achieve that. It does keep the stock holders happy however.

I guess now its time for me to put my money where my mouth is and start my own company and do better then them. I’ll take the easy route out and blame the global financial crisis for it instead 🙂