BBC BLOGS - Douglas Fraser's Ledger
« Previous | Main | Next »

Lloyds' hobbled horse

Douglas Fraser | 11:52 UK time, Saturday, 7 March 2009

The desperate attempts to avoid majority government ownership of Lloyds Banking Group have had a coach and that rampant horse on its logo driven through them. As a result, a once majestic black stallion now looks hobbled.

The Asset Protection Scheme puts £260bn of toxic assets under government insurance, in addition to the £375bn of risky investments from the Royal Bank of Scotland, agreed ten days ago.

Whereas LBG has been 43% owned by the government, following the recapitalisation last October, it is now looking at 65% ownership as a result of the deal. Including the government's ownership of 'B' shares, that effectively rises to 77%.

That's a humiliation for Eric Daniels, Lloyds' chief executive, an American running a near-nationalised British bank, having blown his reputation for conservatism. Last year's deal to buy Halifax Bank of Scotland has turned hideously sour, at least for shareholders in what was the relatively safe, dull Lloyds TSB.

He has fought hard to save a fig-leaf of retaining the hope for his shareholders that there may be a dividend pay-out from next year. The block on that has been removed, by the conversion of the £4bn preference share the government held since the last bail-out. That removes a £480m annual bill in payouts (at a 12% rate) that was to have been the first call on the bank until the preference shares were bought off.

The RBS similarly shed £5bn in preference shares, but the effective resulting impact of the deal, including the Asset Protection Scheme, was to take government ownership from 68% up over 90%.

In a statement this morning, Daniels stressed the more robust gearing of the bank's balance sheet, but the best he could say to shareholders is that this looks like an "appropriate deal" for them.

Of the assets being insured, HBOS account for 83% and Lloyds TSB for only 17%, reinforcing the message we already got from the annual figures last week that it is the Edinburgh-based part of the merger that has brought the problems.

And while the £260bn now insured is made up of £74bn in dodgy mortgage loans, it is dominated by the £151bn in corporate and commercial loans, including real estate. That takes us back to the £6.8bn loss incurred for last year by the Bank of Scotland corporate division.

It's with this background that Standard and Poors, the credit rating agency, yesterday lowered the rating on Lloyds Banking Group and its various subsidiaries including HBOS and Scottish Widows. That means a reckoning that the financial position is less secure, but it is clear from the S&P assessment that it is only that high because the Government is standing behind Lloyds. It means, of course, that raising funds is becoming more expensive for Lloyds, just as it is for many of its customers.

Will the £14bn in guaranteed new lending for each of the next two years feed through to hard-pressed customers? Only if the bank is willing to expose itself to more risk.

This returns to the fundamental inconsistency of requiring banks to be more responsible while requiring them to take more risks. And with Lloyds now majority owned by the government, it reinforces the other inconsistency, that the government wants banks to behave commercially while exerting political pressure on them over their lending, dividend and pay structures.

It is intensely frustrating for bankers to have to accept these terms from ministers and civil servants. But it should be intensely alarming for the taxpayer that, as of this morning, we're in for another £16bn or so of investment, while carrying an insurance risk on more than £200bn of dodgy assets.


  • Comment number 1.

    After this disgraceful outcome, when are the CEO and Chairman of Lloyds Banking Group going to fall on their proverbial swords?

  • Comment number 2.

    As a Lloyds TSB shareholder I am horrified. I voted against this merger for the obvious reason - why saddle Lloyds with a disasterous merger - and yet that is exactly what it's chief exec and chairman did. And apparently 95% of shareholders agreed with them. What were they thinking? I can't for the life of me understand why this merger was agreed to.

  • Comment number 3.

    Many thousands of small investors put up with mediocre performance from Lloyds while the 'giants' of risk fueled growth were at play. Steady income and low risk were promoted - and we agreed. In one blind flash of greed and unresearched risk, it has all been thrown away by Sir Victor Blank and Eric Daniels. They have destroyed Lloyds and they should resign now - without ANY payment!

  • Comment number 4.

    Mr Daniels and Sir Victor:- You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go.

  • Comment number 5.

    Could we not introduce the mutual concept into all the banks and building societies, by law, to avoid any repetition of these banking fiascos?

  • Comment number 6.

    The Lloyds TSB - HBoS merger must surely now be seen as a terrible idea, rushed through by a desperate government and areed to by a bank management that lost sight of the concept of due diligence.

    It has effectively destroyed a perfectly viable bank while producing no benefit to anyone.

    With hindsight, the best course would have been to have merged the bad parts of RBS and HBoS into a single, manageable entity, while preserving, if at all possible, those parts of the two banks which were still profitable as independent concerns. That way we might still have had viable, if diminished banks, and the proper attention could have been given to the problems all within the context of a single toxic organization.

    No-one come out of this business with their reputations intact, and there needs to be some serious soul-searching on behalf of those who promoted and acceded to these ill-judged actions. Some heads should be rolling within both government and the banks.

  • Comment number 7.

    I am a shareholder who started by buying TSB shares over a 2 decade period have reinvested dividends in shares and continued to buy.

    Why ? because the dividend was good and I was setting funds aside for my retirement.

    As a small shareholder when asked my opinion I was against the merger.

    So who voted Yes - it can only have been large institutions holding shares in HBOS as well as LLoyds.

    So Lloyds small shareholders are the cannon fodder and are without a voice.

    Is there anything to be done?

  • Comment number 8.

    As a shareholder and retired member of staff I am devastated by todays news and absolutely stunned that our Chairman and Chief Executive have done this to our once proud, if boring, Bank.
    I, like many small shareholders, had confidence and faith in our Chair and Chief Exec when they said the merger was good for all but how could they have misread the HBoS balance sheets so badly.
    I agree that they must go but it concerns me as to who we can then turn to. Sir Brian Pitman?

  • Comment number 9.

    The documentation and reasons for the merger/ takeover of HBOS must be made public. The Brown/ Darling insistence on it going ahead was a disasterous decision, instead of one failing bank, we now have Lloyds in the same position as HBOS was. This must rank as another of Brown's more idiotic ideas, what he hoped to achieve and what he has achieved are two very different things. However as usual he will blame everybody and everything before he will accept that it was his incompetence that is at the root of the problem.

  • Comment number 10.

    "Of the assets being insured, HBOS account for 83% and Lloyds TSB for only 17%"

    Yes, at last we are getting to the bottom of the banking asset mess. "Lloyds TSB for only 17%" means Lloyds were "up the creak without a paddle" last September: it hoped to cover its own failures by taking on HBOS.

    Nice try, but wrong. Literally for YEARS the divi paid by Lloyds was not sustainable.

    BTW Lloyds went broke in the 1980s due the buying in massive amounts on Less Developed Count(ies) LCD debt, especially in Latin America. Who was in charge of that mess, why none other than Saint Sir Brian Pitman.

    Bankers are there to find newish ways of losing money every decade or so

  • Comment number 11.

    I find this a 'good' deal for the taxpayer. Well the best of a load of possible bad outcomes. The taxpayer has spread the load onto another bank. So two trying to pay the ferryman. The problem was still the same prior to the Lloyds HBoS hook up. Still dismal performance at board level. How can anybody take these genii seriously.

  • Comment number 12.

    As a long term shareholder of Lloyds TSB I am amazed,but not surprised,how this deal has gone. Lord Turner head of the FSA stated in February ' the authority had predicted such losses when carrying out stress-testing in October'. This referred to the eventual £10bn HBOS annual loss. If this was known by the Government agency why did'nt Lloyds TSB know it? This was a brokered deal by the Government and it must be complicit in knowing the potential disastrous consequences. Individual shareholders were sold down the river because fund managers and pension funds held shares in both Lloyds TSB AND HBOS - they did not want to see HBOS go the same way as Northern Rock. With the lack of due diligence by Daniels and pressure from the Government if the Lloyds Banking Group is finally nationalised then there surely must be a case for litigation.

  • Comment number 13.

    I entirely agree with #9. The minutes of meetings between Golem and Captain Darling and Lloyds can either be made public the easy way or dragged out of them in court. This corrupt govt chose to saddle Lloyds with HBOS because it was based in their home territories. There is a potential action on 2 fronts. The first is based on abuse of office and misleading investors. The second relates to the terms of the asset insurance and the expectation that similar terms for similar risks will be provided to all parties. I suggest an immediate application for judicial review of the terms and an ultimatum to Lloyds senior management to publish their records of discussions or face court action to remove them (remember that minority shareholders do have some rights). Obviously Golem will be out of office before a case concludes.

  • Comment number 14.


    In your final para, you say, 'It is intensely frustrating for bankers...'; should you not be saying, more truthfully, 'it is intensely humiliating for bankers...'

    And beyond that, it is high time you were doing a piece on the complete foolishness of Paw Broon and his Treasury acolytes who, we are led to believe, were instrumental in 'persuading' Lloyds to do the deal with HBOS??

    To be fair to Eric Daniels it's a bit over the top to castigate his reputation if he was 'persuaded' to do the HBOS deal with both hands tied behind his back and a hob-nailed boot sitting on his throat!!

    Is there no one out there who will hold this bankrupt government to account and expose their gross incompetence, negligence and outright chicanery in these banking matters??

  • Comment number 15.

    The HBOS deal was like tying your seaworthy rowing boat to the sinking titanic in the hope of making a fortune from salvage rights.

    At least RBS and HBOS shareholders reaped the profits in the good times before disaster struck. LTSB has been wrecked in six months with no benefits for shareholders what so ever.

  • Comment number 16.

    Surely the Scottish Government should be bailing out HBOS and RBS, not the English taxpayer.
    Like others, I invested in and banked with Lloyds in the belief that they were a sober, conservative bank.
    I feel betrayed.

  • Comment number 17.

    When it became clear that Golem Brown was involved in the Lloyds TSB-HBoS deal I sold out of Lloyds TSB. This is the worst of all worlds, for Lloyds Banking Group. Huge toxic debts and the toxic Golem holding control.
    Well done, Golem Brown, you've personally ruined Lloyds TSB.

  • Comment number 18.

    By letting some of the banks hang themselves and merging the good ones with the bad the Labour dream of nationalisation of banks has been achieved.

    A new era.

  • Comment number 19.

    So a Scottish bank is bought by an English one, and takes down the English one. This is hot on the heels of another Scottish bank being the worst of a string of failures in the banking sector.

    Congratulations and good luck, PM-in-waiting Cameron. The former cannot possibly be premature, the latter cannot possibly be heaped enough upon him as he attempts to salvage a hopeless situation - hopefully starting this year, not next.

  • Comment number 20.

    HBOS should have been allowed to fail, but it's likely that Broon could not have allowed this to happen fior reasons not unconnected with noise that would have been made by the Nats.

    Sir Victor was a fool to be flattered by Broon.

    As several bloggers have said, this is the worst of all possible outcomes: it's not quite nationalisation - for which there was a case with HBOS only - but Broon gets to interfere as if he were the CEO.

    According to the IMF Broon-Darling have 'invested' nearly 20% of GDP in this stream of bailouts.

    We should all be very afraid for the future of our country. Sorry, it's not ours att all, is it.

    Time we got it back!

  • Comment number 21.

    So Lloyds were hiding 17% of losses too?!

    What a ghastly situation. What about all those HBoS shareholders who subscribed to the rights issue last year, where has that money gone....£2.72 a share at the time...halcyon days indeed, if only we'd known then.

    Disgraceful, utterly disgraceful.

  • Comment number 22.

    All the Golem's interventions have weakened the banking system.
    He nationalised Northern Rock, which then saw mammoth cash in-flows as it was seen as being "safe". Those in-flows were denied to the other banks, who were thus weakened.
    Northern Rock has paid back circa £15 billion of the money the government lent it. That's at least £15 billion that has been taken from the competent and given to the incompetent.
    It's what Jim Rogers is talking about. Giving the money from the competent to the incompetent so they can compete instead of going to the wall, as the market demanded.
    Then HBoS was merged with Lloyds TSB, so a fundamentally well run bank was virtually destroyed and is now forced into the suffocating embrace of Golem Brown.
    I fear for Barclays and HSBC, since the Golem no doubt has some scheme for bringing them down as well.

  • Comment number 23.

    Some of the comments on this blog defy belief.

    Every advertisment that solicits an investment carries a warning that prices can fall as well as rise.

    This is an explicit warning that you are taking a GAMBLE.

    Stop complaining when you suddenly realise its not a one-way bet.

    Anyone who invests as an individual private shareholder can never hope to have any influence over the corporate governance of any major listed company.

    When the full detail of the Lloyds/HBoS merger eventually emerge (and do not hold your breath)I suspect we will find that Blank and Daniels were, given their previous records, seriously misled about the state of HBoS assets.

    That said, it does not excuse their failure to carry out comprehensive due dilligence. I believe Daniels is on record as admiting they did a third of the norm.

  • Comment number 24.

    Do not fear for HSBC.

    The Hong Kong and Shanghei Banking Corporation have more than adequate defences against an assault from Golem.

    As for Barclays - I'm not so sure! Lots of Middle East investmen in the recent past so probably OK.

    (Not sure about the spelling of Shanghei but Im sure you know who I mean).

  • Comment number 25.

    I cannot imagine what is causing such a delay in clearing my posting at #23?

    Does the moderator have a problem with gambling on the stock exchange?

    It's time for bed so I will check in the morning.

    I will not sleep well - fearing for sensitivities North of the border

  • Comment number 26.

    No 24, it's Shanghai, if you're interested. Mind you, HSBC aren't that interested, they prefer to think their initials stand for nothing in particular, rather like BP.
    As I understand it, the Middle Eastern investors in Barclays are most certainly against having the Golem taking an interest in the bank.
    HSBC, having just made a "cash call" to investors, I'm less certain about. RBS made a "cash call" to investors and look what happened there. Perhaps the Golem is sniffing weakness in the air and the chance to destroy another company.

  • Comment number 27.

    There are many thousands of people who have sleep walked into retaining large holdings in the UK Banks. Many of us are employees or ex employees/pensioners who should have known better, but were entitled to rely on the Directors guiding the businesses sensibly.

    We have lost our life savings that can never be replaced; we are not entrepreneurs who can start again; we don't have that opportunity or mental attitude.

    With LTSB in particular, the events srrounding the HBOS takeover are so murky that HMG should pay LTSB shareholders for all the shares they owned at a price equivalent to what that business was worth and take the shares off our hands.

    If not, it risks undermining the whole transparency of the share owning system and any faith in the responsibilities of Directors and Governments to act in shareholders best interests.

  • Comment number 28.

    1. At 12:43pm on 07 Mar 2009, Henry_Quimper wrote:

    After this disgraceful outcome, when are the CEO and Chairman of Lloyds Banking Group going to fall on their proverbial swords?

    Make proverbial literal.

  • Comment number 29.

    Whatever way you look at the events of the last 12 months or so you could go round in circles finding people to blame - what strikes me most is the victims of all this are easy to find - but who has been held truly to account - no-one!

    There is a list of parties and most of them will know who they are (Government / FSA / Bank execs etc etc). Ordinary people have had their lifelong plans ripped apart. Time will tell on this one but I hope history records a sequence of events that results in what can be seen as justice and lessons for the future.

  • Comment number 30.

    Lloyds shareholders outraged? Stocks and shares are a gamble, no different than putting your £10 on the 3:30 at Kempton. If you lost that bet the bookie would'nt give you back your money. Why are shareholders asking for compensation. Back another horse next time. Apparently greed is not good.

  • Comment number 31.

    Thank goodness for someone else with a degree of sanity.

    I thought I was alone.

    " Back another a horse next time"

    Presumably not a Black one!

  • Comment number 32.

    I note from other posting Nos that this is not a regular BBC blog.

    The recent exponential interest should give Douglas Fraser a "Preston" type boost.

    I'm sure he warrents this for not being so sensationalist

  • Comment number 33.

    I genuinely don't understand how Lloyds have managed to avoid making a single "job-loss" announcement since their figures were announced. Not from the old Lloyds TSB franchise, but from the ex HBOS Corporate side.
    These are the surely the people who brought down HBOS via their 'aggressive sales culture', which in turn seems to be be taking down Lloyds.
    Has anyone seen any announcement to say whether any material part of that group has been let go?
    Is this what the Lloyds shareholders want?

  • Comment number 34.

    At last we know who and what "the Great whore of bubbleloan"...ed on is that it has "fallen in a day "as profitsighed

    The meek shall inherrit the earth means we can expect deflation.

    Pity the economosists are secular and dont realise that its the last daze

    Drunks holding onto eachother only postpones the day of wreckowning a shortwhile and encourages a collective lurch into the canal whilst singing the final rendition of we'll all swing together

    We paid monkeys and we get in return peanuts and now they tell us they heard no evil saw no evil and spoke no evil ...000 ooo AAA AAA

  • Comment number 35.

    #2, thats easy - Gordon Brown and Alasdair Darling were determined that that was how it was to happen. They were unprepared to bail out HBOS unless it merged with Lloyds TSB and they clearly misled both parliament and the leadership of both organisations.

  • Comment number 36.

    #30 & 31
    I agree that buying shares has something in common with gambling on horse races. I do not know much about either. But, I thought that if the jockey or trainer were incompetent, they lost their jobs. If they were dishonet, they were punished.
    In banking and finance, the rules are different from the rest of the world. The government buys the horse and the jockey rides on.
    And don't forget, some of the gamblers are the people who run your pension funds.

  • Comment number 37.

    I think you know much more about gambling and horse racing than you are willing to admit.
    You sound a very astute individual to me.

  • Comment number 38.

    #37 EBAHGUM
    I wish that I knew enough about finance to make better decisions for myself - like selling my thankfully small number of shares in Lloyds when they were still worth something.....

    However, thank you for the first kind reply that I have ever received to any of my comments. All the previous have told me that I don't know what I am writing about.

    And while I am in good mood, praise to HM Government for the £ 27M to Land Rover to do something useful for the UK. What a huge sum. It must be enough to buy a pension for a sacked banker!

  • Comment number 39.

    #38 WolfiePeters

    Notwithstanding my earlier comments about stocks and share being a gamble, I am sorry to hear of your losses as a result of Lloyds recent activities.

    Hope it is not of such significance that it materially affects your long-term financial well-being.

    I suffered a serious case of burnt fingers in the 1980's when I made a disastrous investment in Brent Walker. It was then when I first encountered the expression "off balance sheet debt".

    It was a salutory lesson and I've steered clear of direct stock market investing ever since.

    Fortunately it was, as they say, "money I could afford to lose" but that did not make it any more pleasant an experience.


  • Comment number 40.

    Re my #39

    I meant to add - ignore the critics of your comments.

    There are an inordinate number of people on BBC blogs who are downright rude.
    Super-self-opinionated contributors who have little or no regard for other people's opinions.

    I was always taught that civility costs nothing and I think that it still holds true.

  • Comment number 41.

    # 39 & 40

    EBAHGUM - It’s nice to know that there are still decent people.

    “Off balance sheet debt” reminds me of something I heard on a course on making decisions in engineering projects: “The main function of accountancy is to decide how much tax you have to pay. It has nothing to do with how much money you have.”

    I am very risk adverse so my losses on own Lloyds’ shares are disappointing but not a disaster. I feel for others who have lost more. Probably a lot of those thought ‘safe’ bank shares would be a good alternative to wobbly pension schemes. I suspect that we shall all pay dearly for the present crisis.

    There are a lot of investments where we do not have any control, we did not decide to make them and are passive, even unconscious, in the whole process. Pension funds are an obvious example. Sterling is a less obvious one. We are all investors in it. The value of the pound falls by 30 % and everyone in the UK’s economy suffers a major loss in their buying power.

    I shall close this ramble around banks and their investors by asking:

    Who (or what) precisely are we trying to save?
    Why are we trying to save them instead of someone else?
    What is the most effective way to save them?

  • Comment number 42.

    Hi Wolfie.


    Those are three pretty seminal questions - quite beyond the limits of my intellectual capability to answer.

    You may well get some reaction if you were to post the same questions on Pestons blog at the Business section of the BBC news frontpage.

    It's a blogg awash with many well informed and many ill informed contributors.

    Be prepared for a mega response. The Preston blogg is much more active than the one on the Scotland page.

    Is that something to do with the availability of broadband services north of the border - or are the fair folk of Scotland just getting on with life rather than trying to solve the rest of the world's problems?

  • Comment number 43.


    To be honest, I might have been, in part, padding out my reply to make it look less like two of us chatting.

    In areas where I am used to working, I realise that it is too easy for me to make the obvious response to a problem without thinking as hard as I should, especially if time is short and panic is about to take over. Sometimes it helps to ask some obvious questions about objectives and means. I have a feeling that BoE and HMGov might be in that situation.

    I suspect the activity of the various blogs reflects ease of/routes to access from the main pages of the BBC. There are links to Preston all over the place.

    I do wish (if there is a moderator reading this, feel free to give advice) my apostrophes and quotation marks did not appear as question marks. It makes my thoughts seem even more disjointed.


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.