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The Chelsea building society has revealed it has lost £41m as a result of mortgage frauds by some of its buy-to-let borrowers.The frauds are the main reason for the society staying in the red, with overall losses of £26m in the first half of the year. Last year, the Chelsea lost £39m, the largest annual loss yet recorded by any building society. Its finance director has now joined its chief executive in agreeing to resign.
"The society has been through a difficult period and reporting a loss in the first half of the year is disappointing," said Stuart Bernau, the Chelsea's chairman and interim chief executive. "However, the underlying performance is strong, even though we have had to make provision for impairment and fraud losses."
The Chelsea explained that the fraudulent loans it had discovered were mainly among buy-to-let loans made between 2006 and 2008. It said the frauds were mainly due to "the artificial inflation of property values by third-party professionals involved in the transactions".
Experts have now combed through all the society's mortgages, searching for actual or suspected frauds, and have come to the conclusion it has lost £41m.
The society said it was now trying to recover the money "vigorously."
The Chelsea stopped making any new buy-to-let, sub-prime, self-certification or commercial loans at the end of last year.
The Chelsea is the fourth largest building society in the UK, with 606,000 savers and 34 branches. Mortgage arrears and falling house prices led the Chelsea to write off a further £12m in the first half of 2009, in addition to the money set aside for the mortgage fraud.
Its directors said the society was "comparatively well-placed" to deal with the problems of potential further losses and the difficulty of attracting savers, amid fierce competition from other societies and banks.
But the directors said they would "continue to review the strategic options available to the society", a phrase often used by managements when they are considering seeking a buyer or a merger partner. source: bbc.com

The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in two of Europe's largest economies.
"The data is very surprising. After four negative quarters France is coming out of the red," said French Finance and Economy Minister Christine Lagarde.
Few analysts expected the economies to come out of recession this early.
But economic activity in the eurozone fell by 0.1%, showing the region as a whole is still in recession.
The contraction was a marked improvement on the 2.5% drop recorded in the first three months of the year, and was smaller than economists had expected.
It was the fifth consecutive quarter of eurozone economic contraction.
Both the French and German economies last grew in the first quarter of 2008.
'State umbrella'
Exports in Germany - the continent's largest exporter - grew by 7% in June, the fastest pace in nearly three years.
Mark Sanders, Europe business reporter, Brussels
To draw a medical analogy, we've got the patient waking from a coma and talking to medical staff - they're not necesarily going to be running any marathons soon.
We are recovering from a very low base, and there are questions about how how strong and credible this economic recovery is.
The recession may be over for some, but it won't feel like its over for many people, especially those out of a job.
Unemployment in Europe is likely to continue to climb this year, the banking system is still fragile and, eventually, governments will have to stop the huge amounts of stimulus spending they are pumping into their economies.
The country's Federal Statistics Office said that household and government expenditure had also boosted growth.
It added that imports had declined "far more sharply than exports, which had a positive effect on GDP growth".
Analyst reaction to Germany's recovery was mixed.
"The recession has ended, and it has ended sooner than we all thought. We expect to see growth of 1% in the third quarter, which is very strong for Germany, and I wouldn't rule out the chance of even better growth," said Andreas Rees at Unicredit.
source: bbc.com

The number of people out of work in the UK has risen to its highest level since 1995, official figures have shown.
Unemployment increased by 220,000 to 2,435,000 in the three months to June, taking the jobless rate to 7.8%.
Claims for unemployment benefit grew to its worst level in 12 years, increasing by 24,900 from June to 1.58 million.
Average earnings, excluding bonuses, grew at their slowest rate since records began in 2001, the Office for National Statistics said.

Earnings rose at an annual rate of 2.5% in the three months to June - though those in manufacturing only averaged pay increases of 1.1%, while the public sector saw an average rise of 3.7%.
The figures come as the Bank of England's latest quarterly inflation report warned that the UK economy still had some way to go before it recovered from the effects of the financial crisis.
The British Chambers of Commerce warned that unemployment was likely to continue rising at a rapid pace, even if the economy started growing again, and could exceed three million.
And the Institute of Directors said that almost a million people were working part-time because they could not find a full-time job, meaning the impact of the recession on employment was "even greater than the headline figures suggest".
source: bbc.com

Losses at nationalised bank Northern Rock have grown by 24% amid mounting losses on its mortgage loans.
Losses at the bank totalled £724.2m in the first six months of 2009, compared with £585.4m in the first half of 2008.

The Newcastle-based lender said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.

The first bank to seek emergency aid, it was nationalised in February 2008, and owes the government £10.9bn.
It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.
Taxpayers are currently nursing a pretty hefty loss on their ownership of the Rock
Robert Peston, BBC business editor
Read Robert Peston's blog
BBC business editor Robert Peston said that there were tentative signs that Northern Rock may be over the worst.
But he added that its mortgages were continuing to go bad at an alarming rate and at a faster rate than most of its rivals.
The bank said the total value of all of its loans had fallen by £602.2m in the first six months of the year. source: bbc.com

Bankers at Barclays are set to pocket huge bonuses after the firm reported bumper profits of almost £3billion today.
The banking giant's pre-tax profits were up 8 per cent to £2.98billion in the six months to the end of June, buoyed by a fantastic six months for its investment arm.
That division - Barclays Capital - produced an incredible 100 per cent rise in takings to rake in £1.05billion.
Executives in the investment side of the bank are now in line for pay and bonuses worth up to £250,000 for just six months' work.
It is a huge turnaround from last summer when the recession was taking hold of Britain and the banking industry was on the verge of the worst crisis in decades.
Unlike Lloyds Banking Group and Royal Bank of Scotland, Barclays was not part of the £37bn Government bailout. Neither was HSBC which also unveils its profits today.
Barclays turned to Middle East investors for funding and also agreed the £8.2billion sale of its Barclays Global Investors fund management division.
However, its bonus and pay plans will still face criticism after the clamour for an end to the old days of high risk and big rewards in banking.

Bankers in the City are set to pocket a record £4billion in bonuses this year because of surprise profits despite the sector bringing the economy to the brink of meltdown.
It is a major embarrassment to Alistair Darling and City minister Lord Myners who had promised to slam the brakes on corporate excess.
The news will also enrage millions of credit-starved businesses and families after taxpayers were forced to pick up a £37billion bill to bail out the banks.
Barclays chief executive John Varley stressed today that bonuses would be paid at the end of the year and that the bank would consider recent guidance.
'The subject of compensation is a hot topic and I understand that, and it is very important that we are sensitive to the views of citizens and indeed central bankers like Mervyn King on this subject,' he said.
'We will make our decisions about variable compensation at the end of the year... We are sensitised to this issue and we will behave responsibly.'source: dailymail.com

Ford Motor Co. saw an increase in domestic sales this July over last, a Ford official told CNN Radio on Sunday. It was the first monthly sales gain claimed by a major automaker since the financial crisis began last year.
Ford Motor Co. saw an increase in domestic sales this July over last, a company official said. Ford will release its official U.S. sales figures on Monday. While details were not immediately available, Ken Czubay, the automaker's U.S. sales and marketing chief, said retail and vehicle sales increased over July of last year. And the government's new "cash for clunkers" program, which encourages consumers to trade in less fuel-efficient vehicles for new vehicles that get better fuel economy, may have given Ford the boost it needed.
"We've been looking at our forecasting model, and we thought that as a result of President Obama's stimulus actions and basically the consumer getting his feet on the ground a little bit more, that in the fall of this year we'd start to see an increase in business," Czubay said. source: cnn.com

The Chinese economy may be roaring back to life, but concern is growing that record lending rates are feeding a speculation bubble
While the U.S. and Western economies have faced a credit crisis, there is a credit feeding frenzy happening in China. China state banks have lent nearly $1.1 trillion in the first half of the year -- more than the $800 billion U.S. stimulus or the $586 billion the Chinese government is spending to bolster its economy. CNN's John Vause reports on China's spending »

The record lending spree -- equal to one-quarter of the nation's total economic output -- is helping China's economy grow close to 8 percent the last quarter.

While boosting domestic consumption is seen as crucial to help reduce China's reliance on exports, economists see signs of trouble ahead.

"China has a $4 trillion economy and has (public and private) loans out of $1 trillion," Jerry Lou, China strategist for Morgan Stanley, told CNN recently. "Its loan book is out of balance."

"Somewhere between a fifth and a third of total new lending may have ended up in such things as stock market speculation, real estate speculation and even a measurable amount may be showing up in the casinos in Macau," said Michael Pettis of Peking University.
source: cnn.com