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HBOS and the theory of moral sentiments

Brian Taylor | 13:11 UK time, Tuesday, 28 October 2008

It is, in truth, the only strategy carrying the prospect of success.

Alex Salmond says that, when he meets Lloyds TSB bosses, he will urge them to consider "enlightened self-interest".

Not, in other words, benevolence towards Scotland, or pity: concepts that, in any case, do not sit particularly easy in the world of commercial credit.

No, Mr Salmond will rely upon a pitch that stresses, to be blunt, that there is money to be made in Scotland or, at the very least, overheads to be saved.

A St Andrews graduate, the First Minister has plainly been reading his Adam Smith. Kirkcaldy's finest reminded us in "The Wealth of Nations" that: "Man has almost constant occasion for the help of his brethren and it is in vain for him to expect it from their benevolence only."

Smith further advised in the same work that, when dealing with the commercial world, "we address ourselves not to their humanity but to their self-love and never talk to them of our necessities but of their advantages."

I confess I have occasionally given comparable advice to young trainees seeking an opening in the decidedly rough trade of journalism.

Tell your prospective employer, I counsel, what you can do for them. They already know what they can do for you.

And so the First Minister will, quite rightly, present a business case to Lloyds TSB to maintain as many jobs and decision-making functions in Scotland as possible, should the take-over of HBOS go ahead.

His case has been prepared by the Scottish Government with support from the Council of Economic Advisers.

No supplicant, he - but rather a prospective partner, a stake-holder, stressing the expertise, cost base and financial network available in Scotland.

Is Mr Salmond's case weakened by the doubts he has cast on the merger, arguing in his party conference speech that it should not go ahead until there was an explanation as to whether the recapitalisation available from the UK Government is only available to the merged bank?

Frankly, I don't think so. For one thing, Mr Salmond has taken pains to stress his belief that Lloyds TSB has, to use his phrase, "behaved honourably".

For another, I expect he advised Lloyds TSB in advance that he would be making such remarks, understandably keeping them in the loop.

More to the point, though, we are dealing with serious players here.

They know that Mr Salmond's intuitive and financial position is to defend the Bank of Scotland, albeit in its current guise.

They know that he is entitled, indeed bound, to question the terms of a deal which has such a potential impact upon Scotland.

Let me be clear, here. I am not, repeat not, saying that Mr Salmond is going through the motions in raising questions about the deal. Far from it. He is posing legitimate questions.

At the same time, though, he is pursuing Scotland's interests, should the deal go through - which seems probable.

His leverage with Lloyds would be weakened if he condemned the merger outright.

In contrast, leaving open another door - a prospect he genuinely believes feasible, as do some senior business figures - merely indicates that he, too, is serious about this deal.

That is why Mr Salmond retains questions about the merger - but does not consider it appropriate to major on those issues in talks with Lloyds TSB today.

Lloyds TSB, I feel sure, understand that complex negotiations sometimes involve complex positions.

So, enlightened self-interest. But perhaps, just perhaps, Lloyds TSB will consider a further piece of advice from Adam Smith, from his "Theory of Moral Sentiments".

Smith reckons that "no benevolent man ever lost altogether the fruits of his own benevolence".

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