across the pothe uk and irelandscene
h
air-shirt time is in full swing
in London: bankers have
been appearing before the
Treasury Select Committee.
The former bosses of The
Royal Bank of Scotland
and HBOS, an amalgam
of Halifax Building Society
and Bank of Scotland, were
interviewed on day one
and the word “sorry” was
uttered, though ungraciously
received, by Committee
chairman, John McFall, who
enquired as if PR people told
them to say it.
McFall, a Scottish member of Parliament,
has been in tetchy mood, though whether
his indignation owes more to the fact that
these two banking disasters occurred on
his watch, or on his patch, or a combination of both, is open to question.
The Royal Bank of Scotland hit problems with American sub-prime mort-gage-based securities and its purchase
of an overpriced lump of ABNAmro Bank,
the Dutch bank.
HBOS had substantial exposures
to house building and retail empires,
maybe some eccentric policies towards
delinquent accounts too; not one of its
leveraged deals met with saviour Lloyds
TSB’s criteria.
When quiet American Eric Daniels, chief
executive of now renamed Lloyds Banking
Group, appeared on day two, it was on the
back of an announcement that its new
subsidiary, HBOS, had lost £ 10.8bn.
This, plus Eric Daniel’s suggestion
that he would have liked more time for
a thorough due-diligence exercise, provoked further impatience from McFall.
Whilst great for the cameras, it seemed
a tad ungrateful, given that only Lloyds
TSB’s rapid intervention prevented HBOS
collapsing and giving prime minister,
Gordon Brown, more problems.
Brown had not covered himself in
glory, dithering over the Northern Rock
affair and having already learned that
one of Scotland’s two major banks, The
Royal Bank of Scotland, was struggling,
which might be viewed as unfortunate;
to have the other hometown outfit
collapse as well might be viewed by the
uncharitable amongst his constituents
as downright careless.
The most telling admission from both
Scottish bank chief executives was that
there were no qualified bankers in the
senior echelons of either institution:
speaking as a qualified banker with
some miles on the clock, and the scars to
prove it, tell me something that was not
obvious. The same sad reaction probably
goes for thousands of excellent men and
women who worked so hard for both
banks, only to see the stock they had accumulated, some of them over decades
to retire with, almost wiped out.
Lloyds Banking Group could still
come out of this smiling, though maybe
headed by a new team. The merged entity with HBOS is huge, the cost savings
from the rationalisation opportunities
were surely understated for political
reasons, and I suspect that good banking
practice prevailed and the bank decided
to root out all of the bad news in the
HBOS loan portfolio and take one big hit.
It can write back the windfalls and
over-provisions when the dust has
settled and, allied to a huge programme
of branch mergers, it looks like one for
the long term. The danger is that a new
government might invoke competition
laws and insist on breaking it up.
On the wider front, the bad bank option, to take over every bank’s toxic assets,
is beginning to look more attractive if a
price for them can be agreed. It worked
for the Lloyds of London insurance market
when asbestos-related claims might have
brought it down, so much so that Warren
Buffett has now bought the resulting “bad
asset” vehicle, Equitas. It, and Lloyds of
London, which has no connection with
Lloyds Banking Group, prosper today.
The media, with the BBC to the fore,
has indulged in some wickedly inaccurate
reporting of the UK banking scene, ignoring that Lloyds TSB, before it stepped in to
rescue HBOS, Barclays, Standard Chartered, HSBC and Nationwide, required no
state aid to go forward.
Five out of seven ain’t bad, to misquote
the old Meatloaf classic, but heck, BBC,
why let the facts ruin a good story? TSL
Robert LeFroy is editor of Business Money,
the first dedicated commercial finance
journal in the UK. He can be contacted at
lefroy@business-money.com.
