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The Treasury hedge fund

Robert Peston | 09:49 UK time, Tuesday, 3 November 2009

HM Treasury today becomes perhaps the biggest hedge fund in the UK: it is investing £25.5bn in Royal Bank of Scotland shares and £5.7bn in Lloyds shares, financed almost exclusively by borrowing.

RBS and Lloyds logosIt's probably quite good business.

If we're past the nadir for the economy and for bank shares - and that's a fair bet - it's not a bad punt to borrow at an average interest rate of around 3% (by selling new gilt-edged stock with maturities of five years or ten years) to invest in assets with substantial potential upside.

I'm not sure that I'd recommend that the government speculate its way out of its debt problem by taking further stock-market punts, but there is a delicious irony that economic and financial woes caused by banks gearing up their balance sheets in the boom years are being solved by HM Treasury now gearing up the public-sector balance sheet.

Of course, the chancellor would never concede that he's become a hedge-fund manager.

His motive for deploying taxpayers' funds in this way is to shore up these two banks.

Even though the outlook for both of them is way better than it was six months ago, they're still chronically short of capital.

The weakness of RBS is the most terrible indictment of its previous management and board.

Only with the most complex and delicate of financial engineering has it escaped the fate of being 100% nationalised.

Because on top of the £25.5bn of new capital - provided by you, me and 30 million other British taxpayers - the state is also (as I pointed out yesterday) selling it catastrophe insurance through the revised Government Asset Protection Scheme (Gaps) and promising to inject a further £8bn of capital were there to be a further calamity of biblical proportions for the banks.

Here's how to see all this: Royal Bank is being forced to raise sufficient capital to protect itself against the losses that are most likely to materialise over the coming few years; and it has a contingency plan just in case the worst were to happen.

As for Lloyds, it too became perilously fragile - although compared to poor old RBS, it looks a model of prudence.

Lloyds' requirement for £21bn of additional capital is one of the great humiliations in the history of banking.

But the bank has retained, perhaps, just a scintilla of dignity, since it is raising most of this capital from the private sector, rather than from taxpayers.

Here's what may strike a few of you as odd: Lloyds is paying a staggering, unprecedented, reputation-destroying £2.5bn fee to the Treasury for being propped up by the state over the past few months; and (like the management of RBS) the executive management of Lloyds' board has only agreed to defer their bonuses for their performance during the past appalling year until 2012.

To be clear, it was the current top team at Lloyds that (unlike their opposite numbers at Royal Bank) were the architects of the bank's woes. Which is why some might say that cancelling bonuses would perhaps be more appropriate than postponing them.

Comments

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  • Comment number 1.

    "It's probably quite good business."

    Ah yes, but so were collateralised debt - and look what happened there...

    Good business is done when both participants are willing in the engagement - in this case neither party is wiling - i.e. bad business.

    I expect this to carry on for a while, the Government is now in a 'shareholder pose' and can do nothing but fire more money at the problem.

    As for who is responsible or not - it does not matter if the personell change they all follow the same idiotic and fundamentally flawed theories.

    The contradictions of Capitalism never left us - they were simply swept under the carpet

    ...and now they're back - and bigger and badder than ever!

  • Comment number 2.

    Do you really believe we are past the nadir for the economy, bob? That's a bit like saying we had won world war2 one month after Dunkirk.

  • Comment number 3.

    Yes I'm that with house prices trading back at five times earnings we are now over the worst.

  • Comment number 4.

    When you say: "The weakness of RBS is the most terrible indictment of its previous management and board", that's by no means the whole story. There are countless small businesses having their loans called in by RBS as a result of this shambles. And these small businesses are now having to struggle to make alternative credit arrangements at a time when money is tight, property surveys are being kept artificially low, LTV's are stricter and bank charges in the form of interest rates and arrangement fees are at rip-off levels. Not for the directors of these small businesses the worry of how to manage the influx of £25 billion of taxpayer's money into their companies, or the depressing prospect of awarding themselves 6-figure bonuses for dismal ongoing failure. Caledonian Comment

  • Comment number 5.

    #3. Dear Prudence wrote:

    "Yes I'm that with house prices trading back at five times earnings we are now over the worst."

    Oh yes, whoopee accelerated structural breakdown of society - just what all of us need! Keep pumping the bubble up - faster, faster, faster.... pop!

  • Comment number 6.

    The obvious question is why are international investors prepared to lend Funds to the British government at around 3% to buy shares in RBS?

    Barclays also tried and failed to buy ABN Amro. Had Barclays succeeded they would now be in RBS's position. This raises a pretty big question mark over the commercial judgment of Barclays Management.

  • Comment number 7.

    It is a long time since I have commented on these boards - I managed to kick the habit.

    The Government keep talking about doing something about these bonuses and that action being worldwide to stop the bankers working their way round the system - I have my doubts this will ever be done effectively.

    Receiving/earning bonuses at the same time as Government handouts is a disgrace. It seems the City and the rest of the UK are now detached almost in to two separate nations. There is a large part of me hopes that the paper shuffling all collapses and these bankers have to learn to live on the land - of course they have all made so much money they would employ manual workers to do the dirty stuff for them whilst they supped cocktails on the verandah.

    As regards whether we are past the worst - I think the world has reached a plateau of comfort - this plateau is at quite a low level. For the UK I do not see a route up the mountain from here. For the rest of the world I can see it climbing the mountain again for a while but ultimately the world cannot sustain everyone having a standard of living of the West - so either the West will have to get poorer, the rest will have to stay poor or ,and I fear this result is the most likely, the rest will rise towards the West standard of living until some cataclysmic natural catastrophe destroys all our standards of living forever.

    You make money faster pumping oil than you can print money.
    However when the money runs out you can print some more, when the oil runs out.........

  • Comment number 8.

    Dear fractalfinance, there aren't as many foreign investors who think sterling debt is a good buy as you might imagine: I think you'll find the government is buying it's own bonds via the BoE, ie printing money, ie impoverishing our future.

  • Comment number 9.

    The action of the Chancellor hardly fills me with confidence that, to quote that deliciously hedged phrase "resume growth at about the turn of the year" (ie Q4/09 or Q1/10), the economy will pick up in the next three months or so. When will this stipendiary of billions cease. If the Chancellor has any confidence in the economy he would express in his medium term forecast a large capital inflow from the sale of these public assets to offset some of the vast public debt.

    It would be better for the strategic security of the economy if not only the banks were supervised rather than regulated and that there was a public sector 'model' competitor to set the pace on the ethical and service standards. This could facilitated by extracting HBOS from Lloyds and merging it with Northern Rock.

  • Comment number 10.

    Robert - I think that you are being a bit harsh on Lloyds; their un-doing was principally taking on Halifax BOS at the behest of Gordon Brown who probably felt embarrassed that, not one but two Scottish banks had spectacularly failed.

    The bit I don't get is why the Government doesn't use RBS to move into state run banking. After all if the slimming down of RBS and Lloyds is to create more competition what better way to achieve this than to have a state owned retail and commercial bank to compete with the private sector.

    Of course, your comments about the actions of the former RBS board are quite right. When is Fred Goodwin going to be relieved of his knight-hood?

  • Comment number 11.

    "Lloyds' requirement for £21bn of additional capital is one of the great humiliations in the history of banking.But the bank has retained, perhaps, just a scintilla of dignity, since it is raising most of this capital from the private sector, rather than from taxpayers."

    The above is technically accurate but appears to be 'spun'. As the taxpayer owns circa 38% of Lloyds, then it will have to stump up £8.5B as its share of the rights issue. In return it will get a load of useless paper and £2.5B to leave the insurance scheme. This sounds like the economics of the madhouse.

    The suggestion that the injection of many billions is required to get these banks to defer bonuses is pure fantasy. RBS is at least 70% owned by HMG and can simply TELL RBS to stop paying or deferring ANY bonuses. Even at 38% in Lloyds HMG is the principle shareholder and I find it hard to believe that they could not force this through without paying any billions.


  • Comment number 12.

    So we're investing £25 billion in RBS, to increase our stake from 74% to 84%. So that £25 billion injection buys us 10% of the equity? So we're effectively valuing RBS at £250 billion pounds... a quarter of a trillion pounds? Is this valuation realistic for a near bankrupt bank that's totally reliant on state support? If not, could you explain why on earth so much taxpayers money is being invested for such a tiny increment in equity?

  • Comment number 13.

    #6 fractalfinance:
    "Barclays also tried and failed to buy ABN Amro. .... This raises a pretty big question mark over the commercial judgment of Barclays Management."
    ++++++++++++++++

    Barclays Mgt were probably taken in at the time by the AAA ratings of the 'toxic assets' as RBS themselves were.

    Worthless bits of paper traded by the trainload. It has been a long time yet we still have not been able to plumb the bottom of the Abyss. Perhaps it cannot be spoken.

    I wrote 'worthless' earlier. Maybe I should have put 'Liability' instead.


    Toldyouitwould

  • Comment number 14.

    So RBS is the only bank in the GAPS scheme. Therefore the purpose of GAPS is to allow the Goverment to insure £282bn of dodgy assets which belong to an institution that is 84% owned by... the Government.

    Is it just me, or does this all seem completely mad? A scheme by which the Government insures itself. Wouldn't the sane answer now be to fully nationalise RBS and have done with it? It seems like the taxpayer is already taking on all the risk with RBS anyway.

  • Comment number 15.

    I was just wondering how much, in total, have we invested in RBS & Lloyds shares to date, if you include these amounts?

    We all need to keep a record so that when "our" stake is sold by the government we can get a good idea of how much we may have lost or gained?

    I fear we are in so deep with both RBS & Lloyds that they have us over a barrel rather than the other way round.

  • Comment number 16.

    2. At 10:17am on 03 Nov 2009, bankingballs wrote:

    "Do you really believe we are past the nadir for the economy, bob? That's a bit like saying we had won world war2 one month after Dunkirk."

    great name - great comment.

  • Comment number 17.

    Re the various posts re RBS and Barclays bidding for ABM Amro I imagine every morning the shareholders and workers of Barclays offer a small prayer to their guardian angel Sir Fred Goodwin.

    I think the appropriate phrase is "there but for the grace of god go I".

    At the time of the ABM Amro fight banks were falling over themslves to buy almost anyone with a banking licence. It seemed to me madness driven more by boardroom ego than common sense.

  • Comment number 18.

    Yet more taxpayer subsidies for the greedy bankers.

    Can't they see what happened to British Leyland? Let's save ourselves some trouble: sack the entire City immediately and sell it off lock, stock and barrel to the Chinese!

    To incentivise the deal I would chuck in Gordon Brown and his party for free: a bonus even!

  • Comment number 19.

    9. At 11:31am on 03 Nov 2009, watriler wrote:

    "The action of the Chancellor hardly fills me with confidence that, to quote that deliciously hedged phrase "resume growth at about the turn of the year" (ie Q4/09 or Q1/10), the economy will pick up in the next three months or so. When will this stipendiary of billions cease. If the Chancellor has any confidence in the economy he would express in his medium term forecast a large capital inflow from the sale of these public assets to offset some of the vast public debt."



    ....oh it's far worse than that - Evan Davis asked him about this banking deal and he used the phrase "I hope..." in his answer.

    Uh oh - we're down to hope - and when hope is eventually lost - what then?

  • Comment number 20.

    In summary, Lloyds bought HBOS complete with its debt with the excuse that the larger, more powerful organisation would do wonderful things. Now, they have to become smaller because the large, debt-ridden and partly government owned organisation is too powerful. So they will sell off some assets, which will cover some of the debt. It sounds like a painful way of going around in a circle and getting nowhere. Or is it a downward spiral?

    While all this goes on, ordinary people pay the bills (act as bankers to the banks?). Does anyone profit? Oh yes, when recovery arrives, the Darling Treasury Hedge Fund wins! If so, then this is a better scheme than Madoff's. How can the rest of us get in on it?

  • Comment number 21.

    I personally think I'm past the point of caring what this government does.

    I'm more worried about my local LloydsTSB branch as I live in Scotland. Due to the way most of the big banks operated in the last few years we were dissuaded by the Bank from moving our accounts up here when we moved from England. It was apparently to be a seemless service - seems not ! no doubt my branch will be auctioned off and I will be required to move my accounts to the new Timbucktoo Bank of where ever !!

    Lloyds was already well managed boring bank popular with a lot of personal and small business customers, until Flash Gordon forced a shot gun marriage with Bank of Scotland.

    I blame the government, they meddled and have made the whole messy problem a lot worse that it might have been. Instead of having a few banks down the pan (RBS, Bank of Scot, Northern Rock, etc), we now only seem to have a few that are ok (HSBC, Barclays, Nationwide.....) and have brought down others.

    Just a thought as we as a country are now pretty bankrupt could we ask the Germans to step in or maybe the USA on a hot foot mission to avert an international crisis.

    Oh well back to sleep then.

  • Comment number 22.

    Robert. We have billions of pounds of so called 'toxic assets' on RBS's books, which they are insuring for a premium of 700 million pounds. Does anyone have any idea of what these assets are and more importantly has RBS actually received any money from TARP because an asset has actually gone bad. Additionally, when you exclude these assets are RBS operating annually as a profitable company or not. Finally, it is criminal that we continue to allow executives to benefit from their poor management. How can Stephen Hester and his exec's contemplate deferring bonuses, when the only thing they have achieved is making people redundant and selling business.

  • Comment number 23.

    WolfiePeters - you seem to be complaining about us ordinary people paying the bills when the government pay out the money and then suggesting that it is the Govy that wins when the recovery arrives - either they are both ours or neither is ours.

    Of course everyone keeps talking about the fact that we re paying the bill - unfortunately we are not currently paying the bill - the government is running our country at a loss - it is when the govt start trying to get us back to break even that we start paying - I think Labour are hoping that the Tories win the election so they can hand over the mess - cue 5 years of the Tories blaming lots of horrendous tax rises and spending cuts on the Labour government - oh I can't wait........

  • Comment number 24.

    WolfiePeters

    The scandalous thing about this deal between Lloyds and HBOS, government inspired, is that it must have been a clear breach of the UK and EU rules on competition. They all said nothing as a merger went ahead putting together two banks with around 32% of the savings and mortgage markets. Included in that silence of the lambs was the chief instigators Gordon Brown and Sir Victor Blank, the Lloyds Board, the FSA, the EU competition authorities, the Treasury, etc etc. The press and media said nothing. Nor did the experts (analysts). On the Government's part it was an act of desperation, so they must have gone into the monopoly with their eyes deliberatly shut. On the part of Blank and Daniels it must have been pure greed. One newpaper headline desrcibed it as the deal of the century and there is no doubt their heads were turned. Sir Victor has slunk away into the night, but Eric Daniels remains at the helm. With the prospect of bonuses from 2012. How can a man who took this kind of gamble (and those of his Board who were there) still be trusted to run the new entity?

    Now we are faced with the prospect that another monopoly player (Tesco) is being touted as a potential buyer of a bank. Say Sainsbury, Morrison and Asda want to buy one as well. Will the MMC rule against Tesco growing bigger than its current market share if banking becomes part of that market share? Like petrol crept in under radar? Might we end up with a Poundstretcher Bank? Or a Royal Bank of Lidi? And as for the other name being touted around, if he gets a bank how long will it be before he is moaning about unfair competition as he does with everything else he runs?

  • Comment number 25.

    Darling may have been the biggest hedge fund manager at the start of the day, but with the RBS share price heading south once again it may well be a short lived description. Clearly investors do not think much of the European Commissioner's meddling.

  • Comment number 26.

    The architect of Lloyds woes were Darling and Brown who strong armed the current Lloyds management to rescue HBOS. Lloyds shareholders should be compensated for this terrible deal, if it hadnt had happened Lloyds would be trading at 300+ right now

  • Comment number 27.

    So if this all goes "belly up", Labour will be forever blamed; yet if it succeeds, it will have been bcause they critisised the banks for having too high a leverage, as well as critisising hedge funds, then copied them... How will Labour ever regain credibility again??

    Oh yeah, it'll be because by the time they've regrouped to have another collective "stab" at governance (no pun intended), the "boom" of boom & bust'll be back into full swing, low-leveraged financial institutions will seem terribly inefficient, and Labour will be able to brag about how they pioneered "fiscal policy for the 21st Century"... Good work guys

  • Comment number 28.

    I think that it is an even better punt than you say Robert, because if the bonds sold to raise the money are bought by the Bank of England, as part of its quantitative easing programme, then any interest paid to the Bank will return to the Treasury as profit made by the nationalised Bank.

    Eventually the pressure on sterling might become a problem, but only if and when the private banks start printing money again by providing credit as lavishly as they did before the credit crunch. At that point the shares could be resold to reduce the money supply at a good profit.

    This point applies to all government investment at the moment. There is a double benefit. For example why not use government funding to modernise Royal Mail. Selling it off later, if for political reasons the government at that time thinks this necessary, when market conditions will be much better.

    The government should take the opportunity to buy up the whole of RBS and HBOS, telling the EU commissioner that there is an over riding need to do this in the present economic emergency.This would solve the problem of regulating banks "too big to fail" raised by the Governor of the BOE recently. The wholly publicly owned banks would no longer be required to operate in the interest of any private shareholders by taking advantage of the credit shortage to charge high interest rates. Their lending policies could be in the interest of the national economy.

  • Comment number 29.

    To GrimUpNorth77 and MajorRoad Ahead Again2

    You are both right.

    GrimUpNorth: certainly, the difference between government and people is blurred. In this context, I see them as 'middle men' raising money on the basis of our collateral. When (or if) the pay back arrives, the middle men will, like good hedge fund managers, be in a position to skim the cream off the milk. Worse still, if anyone has to pay, it’s clear who it will be.

  • Comment number 30.


    Is there not an overwhelming case for Scottish independence now.
    Leave Alex and his pals to prove their credentials by letting a Scottish government inherit RBS and BoS. Scotland could join the Euro take an "Icelandic" solution with European taxpayers sharing the burden.
    Our Scottish mafia government would of course have to return to help out.
    The taxpayers of England and Wales could get their old Lloyds back (perhaps with a bit of Halifax). We might even allow Northern Rockers to go further North. Could we then buy back Bradford, Bingley and Leicester?

  • Comment number 31.

    "Only with the most complex and delicate of financial engineering has it escaped the fate of being 100% nationalised."

    And we all know that nothing could ever go wrong with complex financial engineering...

    Just one obvious thing that could go wrong: what about all these dodgy assets that the taxpayer is insuring? How much are we in this for if those assets prove to be worthless?

    I suspect this could get a lot worse yet. Still, it's nice to see that it's not doom and gloom for everyone. At least the banking executives will get nice fat bonuses come 2012. Lucky them.

  • Comment number 32.

    David Buick was just interviewed on the BBC, and when asked at what price the Lloyds rights would be set he said he thought it would be around the current price (of 83p). I know it is naff to own up to watching Working Lunch, which in financial terms is a bit like Watch with Mother. However, I would have expected better, even though they occasionally have the man with braces on whose then firm (Barclays) predicted the 2000 year end stock market at 7,000 and was only 2,000 points out.

    There can be no doubt that it is going to be deeply discounted - something I assume the underwriters already in place would insist upon. Otherwise they will finish up with 57% of the rights and the Government their 43%. No-one in their right mind would take up their rights at a current market price, when the only saving would be dealing costs. The only way that it could be the current market price would be if there were a conspiracy to avoid small shareholders taking part.

    I understand that Daniels has said he will set the rights price before the next Lloyds meeting at the end of November.

  • Comment number 33.

    trevst - I live in Northern England but get a bit frustrated when the Scottish question is dragged into the banking crisis because the banks are Scottish banks - not sure if the Head men who got them in that mess were Scottish however - unless of course you go all the way back to McGordon and McDarling. I realise a lot of your comments are tongue in cheek.

    Scotland is a beautiful country and the Scottish people are also on the whole wonderful. From an economic point of view they may well have a valuable resource still to come with all the water and how bad the weather is they may well have access to more renewable energy than we have in England so I wouldn't be in a rush to give Scotland away.

  • Comment number 34.

    The lies are falling apart at the seams.....

    Remember UBS?

    "The chairman, Peter Kurer, told an extraordinary general meeting in Basel, Switzerland, that "despite recent extremely volatile market conditions, UBS currently expects to report a small profit for the third quarter, based on preliminary estimates."

    ...another false dawn I'm afraid - £337m loss announced today.

    This is exactly the sort of hopeful statements the Government is making about RBS and Lloyds at the moment.

    We've been in recession long enough now that the falsehoods and inaccurate predictions made at the start are now known not to be true.

    The only predictions that have come to fruition are those of the bear - not the bull.

    Bull is exactly what it is.

    Remember selling Northern Rock back to the private sector?

    "Government mulls early Northern Rock sale
    Tue Apr 28, 2009 8:41am BST

    LONDON (Reuters) - The government is considering plans to sell off nationalised lender Northern Rock although no formal discussions are taking place with potential buyers, people familiar with the matter said on Monday.

    A sale before the end of the year was "not impossible" but would be hard to achieve given the lack of visibility on the length of the recession, a banking industry source said."

    ....another story to convince us that everything is under control when it clearly isn't.

    That's the wonderful thing about history - you cannot hide from it.

    I went hunting in my garden for green shoots and all I found was a 'baroness in hiding'.

    Bring them to account

  • Comment number 35.

    #33 ......

    Thankyou. It's sad that some still do not understand that "the Scottish banks" were not even remotely Scottish. Their main shareholders were City based fund managers and they were regulated (I use the term loosely) by London based organisations inc the FSA, the BoE and the incompetent Treasury.

    In Scotland it was realised a long time ago that these banks were lost causes in terms of the real value they added to the Scottish economy.

  • Comment number 36.

    WOTW

    Apparently there is a plague of Baronesses at the moment. But nothing to match the plague of the other kind of Baroness that will come when Gordon writes his departure honours list.

  • Comment number 37.

    This may not exactly be the point of this discussion.......but
    I'm a big motor-racing, Formula 1 fan (F1). Having watched this season's sport at various race tracks around the world on the BBC, my senses were overloaded by the number of Banks, e.g. ING, RBS etc. splattered across my T.V. screen. I could only envisage the great and the good from these banks enjoying the hospitality of various sporting venues. I had expected to see these bankers not only enjoying their racing, but knocking back a few magnums of the old bubbly while travelling around the world at the tax-payer's expense.
    Was it only me who felt nauseous watching the banks distribute our hard-earned tax money to the Formula 1 fraternity this year?

  • Comment number 38.

    Banking is now a one customer system with the "government" taking from the taxpayer being the primary client.
    It may have all worked much better had the government given the money to the taxpayer directly, as it is borrowed in their name, and let the taxpayer either spend it, boost the economy, or save it, recaptialize retirement accounts.
    Shoring up bad decisions by banks has done nothing but save the banks, and provide undeserved bonuses to reward betrayal and failure. The economy is supported by consumer purchases and the money has gone to the top and not the consumers. These decisions prolong the gloom and do nothing but reward the wealthy for mismanagement and failure.
    "Well, Jack, I called you in today to say our best customer called and canceled all business with us because of your poor service and we will probably need to close the firm, but before we do we would like to give you a bonus." Only in government and banking.

  • Comment number 39.

    26. At 12:39pm on 03 Nov 2009, Chevgr wrote:

    "The architect of Lloyds woes were Darling and Brown who strong armed the current Lloyds management to rescue HBOS. Lloyds shareholders should be compensated for this terrible deal, if it hadnt had happened Lloyds would be trading at 300+ right now"

    Can we clear this one up - there are lots of people (probably Lloyds shareholders) who claim they were bullied into submission by a raging Government to take on HBOS.

    The reality is that if Lloyds had not stepped in (and they were the only ones of a substantial size and national allegiance who could) - then the pain for them would have been just as bad (if not worse) than it is now.

    The fact is that Lloyds would not be trading around 300 at the moment, it would not be trading at all - the group might have survived, but the bank would have been in as much trouble as Barclays are (oh and they're in trouble - just keeping it quiet)

    They were not bullied by Government, they were bullied by their own actions and those of other banks.

    Just because Lloyds shareholders have been 'dun ova' it doesn't mean they can come on here and harp on about what a nasty Government we have and how it's at the foot of al their problems.

    Where were you at the shareholders meetings? Were you voicing your protest loudly - or simply accepting the status quo - as led by the hedge funds and other major investors.

    This is why I do not participate in shares if I can avoid it - it's a 'faux democracy' and as with all fakes it usually comes unstuck.

    Don't forget - the value of your shares can go down as well as up.

  • Comment number 40.

    Corporate sponsorship and entertainnig is an absolute joke - most customers who finish up being entertained do not wat to even be there in my opinion but feel obliged to go - only the bankers have time for it because it is part of their 'job' - HA!

    There used to be a joke about bankers that went something like - when the sun is shining they want to give you an umbrella and when it rains they take it away. This can now be extended to when it rains on them we have to give them umbrellas.

  • Comment number 41.

    I run a small business which has suffered during the downturn (some 30% of our staff have been made redundant in order for the business to survive and others are on short time.) We never received any grants, only ever paid taxes on time. In previous years the corporation tax rates 20-21% (and 28% for larger companies depending on profits) were the same rates as imposed on Bank businesses now defined as too big to fail. I have never had any illusions that if we go bust, then no government bailout will rescue us.

    Maybe any business should be assessed by the government whether it is a 'business to be saved' i.e. An industry of strategic importance, Big Bank, Steel works, Nuclear reactor, Airport, Channel tunnel, BBC etc; and they should pay Super % Corp tax (This higher rate corporation tax which comes with an implicit guarantee of rescue for the staff and customers) Those firms that have no chance of being saved, should pay 0% Corporation tax and maybe lower rates of National insurance (And then at least we would know as investors and employees where we stand, and we would get a benefit in less taxation than those people, who's jobs are more secure within protected firms..)

    The problems arise (e.g. Equitable life) where there is regulation but this regulation is not a guarantee because the policyholders are seen as shareholders by the government. Compare with the Northern Rock where depositors are protected but shareholders lose out.
    Most members of the public were unaware of the nuanced differences between these situations.

    If the government were to make it 'more expensive' in terms of tax rates for the businesses which receive the guarantee, maybe there could be less onerous taxes on small businesses which will never receive any help.

  • Comment number 42.

    41. At 1:43pm on 03 Nov 2009, PaulattheRocks

    It's very sad to hear your plight (and the report of yet more 'hidden' job losses) - I can only wish you the best of luck.

    The big difference between you and the corporate giants is that they are big enough to influence Government - preventing what they would describe as 'unfair taxation' - as you suggested.

    This then encourages companies to grow - for when they are as big as these giants - they too can control Government.

    This is how they become too big to fail.

    The sad fact is that in the Government's eyes - you are dispensable and you (and many others) will be sacraficed in order to save the uber-rich bankers with whom they feed at the trough together.

  • Comment number 43.

    #41:

    As another small business owner, I heartily agree with your suggestion about corporation tax. Sounds like a great idea to me. You're quite right: no-one would lift a finger to help us if we went out of business.

    BTW, sorry to hear about your business. Mine isn't doing too well this year either. No redundancies (yet!), but I'm expecting profits this year to be down about 90% compared with last year. Let's hope things pick up soon.

  • Comment number 44.

    Lloyds are trying to get out of the Govt guarantee scheme as it costs them a lot of money, but caps the risk (any bad loans beyond that being covered by the taxpayer).

    Lloyds is having to raise £20B+ (38% from the taxpayer!) partly to increase its reserves supposedly to cover the potential bad debt and release it from the Govt guarantee. However, Lloyds is still in the "Too big to fail" category, so should its reserves be insufficient to cover its losses (as they turn out even worse than expected!!!) then guess who will pick up the tab for saving Lloyds AGAIN .... the taxpayer. So Lloyds gets its bonuses albeit deferred, and gets its protection basically for free (the Government share of the rights issue is 3.5 times the £2.5B payment to get out of the scheme.

    In addition, why on earth is the Govt taking up the rights option? Well its because unless they did, there isn't a cat in hell's chance of the rights issue being successful, not to avoid dilution (unless the offer price was suicidal).

  • Comment number 45.

    One thing that is often overlooked in the quest for 'competition' is the inefficiency this often brings.

    Take Surbiton high street - it has 3 types of shop - Banks, Estate agents and Coffee shops - more choice than you could wave a stick at.

    ....and yet having all these identical (or near identical) vendors in the street is completely inefficient. The high street needs 1 bank, 1 estate agent and 1 coffee shop - and that's it.

    If the system wasn't defined and run by the laws of competition then you could still have choice - but without the inefficiency.

    The eventual conclusion to this problem is (as is happening now) the high street has many holes in it - and soon to be many more. Trading space is wasted and property stays empty - as well as making it look run down.

    So my question is why do we al accept that competition is good. We don't need 500,000 badly run banks, we just need 1 bank - well run - doing the day to day mundane stuff banks always used to do.

    It's only when the uncompromising 'need for choice' is pursued that we produce inefficiencies.

    ...and yet rather from learning from this - Alistair Darling seems to be positively encouraging it.

    We need 1 bank offering varied products - not thousands of banks offering extremely similar products.

    I mean there was no 'rule book' on bank charges - and yet in our supposedly 'free market choice' world all the banks seemed to charge about the same in the way of penalties.

    Co-incidence? - I think not.

  • Comment number 46.

    WritingsontheWall

    I think you are totally wrong when you say that the bank (Lloyds) would have been in just as much trouble as Barclays. You are also totally wrong when you ask "Where were you at the shareholders meetings" as if in some way you were sharing the blame around to small shareholders as much as big ones.

    I dont go along with the strong arm theory - as I have posted earlier I think Blank and Daniels were suckered, and saw the chance that had escaped them with Abbey National years earlier. However, they must have been given a green light by government, by the EU and by the institutional shareholders of both banks, otherwise why would they think they could get away with a monopoly busting bid? I think you are missing most of the points here. Of course, there will be papers in the Treasury and elsewhere about what transpired in Sept 08, but it was both a total screw up on behalf of Lloyds and a con by the government who must have given some assurances that they have now totally ignored.

    As for small shareholders and the amount of clout they carry, the fact that you dont own shares probably explains why you don't understand how it works. Every company has a bunch of institutional shareholders who have all the cards - the same people who have already been briefed about the forthcoming rights in advance whereas none of the small shareholders even get anything other than what they read in the press.

    A few large shareholders who owned shares in both banks voted for the merger. In the case of HBOS it was a bacon-saving exercise, the alternative being going bust. A lot of these same institutions held shares in both banks. A lot of small shareholders went to the meeting to protest, and some in the most strident ways. They were totally ignored, with a benign look of chiding on the faces of Blank and Daniels.

    The institutions I am talking about are the very same people who run our pension funds so it is not just LLoyds shareholders who are losing out from all this.

    By the way I agree with the previous post that Lloyds would have been safely trading on its traditional savings and mortgage business and worth much more than it is now. Not as you have put it "not trading at all". However, the only way you could ever prove that would be to know the percentage of toxic assets for HBOS and Lloyds. I suspect it will be hugely down to the former.

    Stick to the facts, Ma'am. Stick to the facts.

  • Comment number 47.

    ....and for those who think 'other banks' are better off than us - rest assured their time will come.

    In an environment like this - there is no way the biggest national bank is going to breeze through this crisis.

    http://news.bbc.co.uk/1/hi/business/8339990.stm

    Spanish unemployment at a whopping 19% - that is a lot of people out of work.

    How long before we're bailing out Abbey National and A&L?

  • Comment number 48.

    wOTW - your post has got me thinking - there must be a tipping point at which the workers in the private sector simply can't pay for the public sector and the unemployed.

    The private sector contribute taxes (PAYE/NI/VAT/Corp Tax)to the government. These need to pay the net wages of the public sector and the unemployed.

    Only once these are paid is there some money left for other costs - lets presume they are all covered by indirect taxes - I wonder how these sums work out and what the 'tipping point' is?

    i.e. Net Wages of Public Sector plus Unempoyment Benefits = Private Sector taxes

  • Comment number 49.

    46. At 2:14pm on 03 Nov 2009, majorroadaheadagain2

    It's exactly because I do understand how shareholding works that I do not invest. All institutions of any size are controlled by a small number of elite shareholders (Hedge funds, Pension funds etc.) I'm sure Victor Blank does not invite you to play golf with him to get your approval for his next move. Being a small shareholder is like being a voter - a pointless and fruitless excercise which only serves to frustrate and highlight your complete lack of power or influence in decision making. It's not a case of 'blame' - but the Lloyds shareholders who come on here and complain are not large ones (well at least I presume not) and therefore have no basis for complaint. The fact is they are only now realising what being a shareholder actually means - pure and simply cannon fodder - trying to hang on to the coat-tails of the rich - hoping they too can breach the glass ceiling and live comfortably without actually being industrious.

    If you suggest that the lloyds board were 'suckered' then you are saying that these sharks - of great and vast experience - were fooled by a bunch of civil servants and clutzy politicans - I don't think so, it's too much to have to believe. The strong arm theory has more credibility (even though that's wrong too)

    I empathise with the protesters at the HBOS shareholders meeting - in the same way I empathise with the G20 protesters on the street - they both represent the little man and are both railroaded by stronger and more powerful adversaries. However it's a bit late rolling up to the shareholders meeting and crying about the impending takeover when you have happily collected your 'pound of flesh' for the last 10 years in the form of nice dividend payments.

    There was no point protesting as the decision had already been made. The protest was merely a recognition by the smaller shareholder that their democratic right was worthless - when they really needed it too.

    ...and as for pension funds - well that's why I don't have one. Why would I hand my wealth to some muppet to manage - so they can act in 'their own interests' - as all the pension funds have done over the last 2 years (note I said their interests - not the pensioners who's funds they hold)
    If all pensioners (or future pensioners) held their pensions individually then they would have democratic power - but this is discouraged as you are less able to provide the diversity required. What actually happens is the power is opened to all - and then focused back into a single fund manager - who is also playing golf with Victor.

    As for 'not trading at all' - the collapse of HBOS (which would have happened) would have been the second run a bank in less than 6 months - it would have been catastrophic for the banking system as all trust would have gone out of the window.
    I suspect the Government simply couldn't do what it did with NR without seriously damaging sterling (and I mean more than it has been) - I mean if the UK Government is seen to be taking in failing banks at such a rate - how long before our credit rating was downgraded and the Governments ability to borrow was terminated?

    Lloyds bought the financial system time - time to revive itself - as the biggest player in that system Lloyds had as much vested in saving the system as anyone.

    I don't come back from the betting shop moaning about the bad tip I was given down the pub - so it's a bit rich for Lloyds shareholders to complain about being unfairly treated.

    The other banking shareholders think they have got off lightly - but their time will come. If you want to look on the bright side - at least Lloyds went for the 'rip the plaster off fast' rather than the painful slow peel back others are now going to go through.

    The facts are as they stand - shares can go down as well as up - and in this case they went down - and it's no good blaming the Government for a 'systemic failure'.

  • Comment number 50.

    48. At 2:42pm on 03 Nov 2009, GRIMUPNORTH77

    Yes definitely - I can't tell you where that tipping point is - but I can tell you what happens.

    The Government are forced to raise taxes to absurd levels (I think they did in the 60's) - at which point those still lucky enough to be in work start to question "why should I bother working when 98% of what I earn goes to the Government".

    The Government can offset this by paying for the public sector and unemployed with 'borrowed funds from the future' - which unfortunately have to be paid back at some point (they hope when more people are working again and tax revenues are up)

    Considering only about 40% of the country are employed at any one time (the others being retired and children etc) and the rate of unemployment could reach 10% (which I assume is based on the whole pop. - not just the 'available to work' population) - then we can't be far off.

    However the alternative is to cut the public sector jobs - but this will merely add to our problems (unemployment and less consumption). This is what the Tories will do next term.

    We're in a no-win situation - the winners were the bankers - they have since left the game - leaving us with no chance to get back in the game.

  • Comment number 51.

    I am not one for conspiracy theories but today's announcement of the breakup of the banks smells like a red herring for excusing the billions more this government are having to prop them up with and the jobs that will have to be lost.

    Hope and trust in the future and all will be well Brown tells us but what we never hear is WHEN in the future.

    The whole announcement is just another hotch potch to confuse the poor taxpayer and try to convince them once again that someone knows what they are doing. We can expect this month in and month out now until Brown has finally gone.

  • Comment number 52.

    #48 "i.e. Net Wages of Public Sector plus Unempoyment Benefits = Private Sector taxes"

    Er +++++ repayment of Govt borrowings!!!!!!!!! et al

  • Comment number 53.

    I'm sorry but do none of you get it? RBS has nearly 2 trillion of "assets". For those of you who did accounting that means they also have nearly 2trn of liabilities. If RBS went belly up the tax payer would suffer the most. assuming recovery of about 1 trillion of assets you're looking at a tax payer bill of 900bn/30mio... the UK would just go pop. and most people would lose their savings/pensions/ISAs. better the 30bn stitch in time than the epic fail of the nine.

    At the same time just over 50% of the UK population are now employed by the public sector... that is higher than any other country. How did we voters let that happen?? The UK has 3 industries. Fin/legal/accounting services, guns & more guns. People bore on about relaunching our manufacturing base. Please get real. The average wage of someone in china making clothes for primark is about 5 bucks a week. anyone on here want to work for 250 bucks a year so we can "get our manufacturing base back". Thought not.

    People need to wake up. The govt engineered this crash by spending so much.. we are the ONLY economy to enter recession having INCREASED debt and REDUCED savings in the 8 years preceding the recession. Shouting at the bankers bonuses will not help this. All you are doing is succeeding in deflecting attention from the issues that really matter and that is a gov't with a plan and a population that embraces the austerity. sorry but we don't have any other choice. you can call for bankers bonuses to be cut all together but it is totally fruitless. And no the tories will be no better either.

    Just remember those who can't, govern.

  • Comment number 54.

    We are all doomed. China has all the cash. The west has all the debt and the middle east and Russia have all the energy. Oh dear is all I can say. Third World War within 20 years...either that or this recent global recession will seem like a kid's tea party in comparison to what is coming next. No doubt the next recession will be the catalyst for the aforementioned war

  • Comment number 55.

    Instead of borrowing money, why don't we make stuff and sell it abroad ? You know, manufacturing, IT, medicines...

    That used to be how we paid for foreign goods.

    Economists seem to be so enamored with borrowing that they have forgotten all about the real economy, yes that means you Robert.



  • Comment number 56.

    Post 45 you must be wrong as there are at least four mobile phones shops on every High Street I have been on recently. Surely the mobile phone has reached Surbiton?

    Having said that "To let" signs and "Closing Down Sales" are still pretty common here in the Midlands.

    I do agree with your generalisation though that there does seem to be little other than banks, coffee shops, mobile phone shops and charity shops plus new arrivals in the cash converter style shops and the ubiquitous Poundland. This might explain why I never shop in my local High Street.

    Two of the three Estate Agents just up the road from me have shut but maybe they still have the money to buy property in Surrey there isn't much spare in Birmingham..

  • Comment number 57.

    I see that a key element of the announcement is that more competition will be created by sell offs. Nice bit of spin but how do you do it in practice? What practical value are a few Nat West branches in Scotland and how do you sell RBS branches in England without an infrastructure unless someone wants to invest heavily in IT and admin etc? LTSB Scotland is relatively self contained and LBG says it will sell off maybe 300 branches in E&W as part of reliving the TSB brand. What makes anyone want such branches when LBG will identify its least profitable, worst sited and poorest maintained with least potential? Even after that what makes Darling Gordon think that customers will be willingly sold off to some other institution? LTSBS customers would see little change but people with NW/RBS and LTSB have chosen to be with those banks. Their contract is with the Bank not the branch.So what happens when LTSB customers vote to stay not transfer - what company in its right mind will pay for property and not customers. Call me cynical but I wonder how much will happen by 4 years' time?

  • Comment number 58.

    If you want a tale to show you how the system works - take the story of New Star Asset Management and John Duffield. This man set up a hedge fund and employed a number of people - some leaving secure jobs on promises of a great future.

    Fast forward a number of years and the same New Star is being rescued by another asset manager - in the process many staff lose their jobs as de-duplication occurs during the takeover (rescue).

    Mr Duffield is un-deterred and simply sets up a new fund management / hedge fund called Brompton asset management - and then entices former employees from their position at the 'saviour' - Henderson asset management.

    The big problem with this story is whilst small businesses struggle to survive - simply because they follow moral guidelines - people such as Mr Duffield know how to play the system and therefore survive.

    I mean how many SME's out there are going to get bailed out by the banks next year - and how many will be let to go to the wall?

    This is where the inequality is so apparent - Mr Duffield's loss was merely an inconvenience to him - to most SME's failure means their business, their income, their house, their assets. This is where the risk v reward formula is completely out of touch with reality.

    Whilst the small man slogs hard - the rich man merely tinkers with the system so it works in his favour.

    Only at times like these does the reality of where you come in the pecking order really hits home - which is why there is so much anger out there at the moment.

  • Comment number 59.

    50. At 3:12pm on 03 Nov 2009, writingsonthewall wrote:
    48. At 2:42pm on 03 Nov 2009, GRIMUPNORTH77

    Surely, in the light of the financial and economic events since October 09, there is evidence for not only the tipping point that you discuss having occurred.... but also a credible name for the point in time...... "Quantitative Easing"

    The moment that this was introduced was the point in time when the Treasury took note of the fact that the total available finances of UK PLC were not enough to re-balance the debt.

    I am looking forward to the final accounting for this period... when we can read some true figures of the actual amounts used. Only then will we be able to understand whether the Western Casino saved us from collapsing banks or abused us by supporting them and them only. My own experience would lead me to believe that the re-capitalisation of the banks has led to an abuse of the individual as well as a fundamental change in many previously believed ethical/moral rules.
    Absolute power corrupts absolutely.

  • Comment number 60.

    57. At 3:51pm on 03 Nov 2009, distressedone

    That is a very accurate picture of the realities of 'selling in a falling market' - something which the Government have not really grasped properly when they talk about 'making profit for the tax payer'.

    I mean look at the friends re-united saga - or the property market.

    People only sell what is worthless first, they save their prized posessions until there is no turning back.

  • Comment number 61.

    Hi Robert,

    Bank Bailout Number 6 plus 175billion QE and still no credit flowing to SMEs....

  • Comment number 62.

    Brown and Darling are both putting so much spin on the new loans that I fear they will both disappear where the sun does not shine.
    Where is all the money coming from to fund the new loans.
    Just how much is the national debt now.

  • Comment number 63.

    There are two figures that ALL banks should be required by law to provide to the government which the government should publish.

    1) A total of all bonuses paid to managerial staff upwards in the last 10 years.

    2) A total of all bad debts written off split by country in descending order over the last 10 years.

    Both figures should be available easily from their accounting records.

    I am sure others will be able to add to my list of two - the key criteria for appearing on the list are that the information must be readily available and quantifiable as this then would avoid any excuse and delay over providing the information.

  • Comment number 64.

    It's not good business. It's the collective action of a group of ministers who know they'll be out of a job in 6 months. If I were George Osborne, I'd be asking around the Shadow Cabinet to see if anyone wanted to swap jobs. It's probable Lloyds will manage to climb out of the hole they're in; less so RBS, who will find itself in direct competition with the buyers of the branch network and brands they're being forced to divest. Even so, share value of both banks will fall, first when government spending slows, second when quantative easing stops, and third if employment and consumer confidence drops as a result of the first 2; and also, in the case of RBS, because when the European Union gets it way it will be a much smaller trading unit. So it will take a lot longer than Alastair Darling says for us to get our money back. Hedge funds normally go for shorter term plays, but they have to show a return to their investors. Not so the Treasury, which has squandered taxpayers' money for the last 9 years with no discernible improvement.

  • Comment number 65.

    It is scandalous. What is also scandalous is that no national broadcaster has done a proper detailed expose on Gordon the Moron and his band of incompetent ministers. It is quite staggering, almost unbelievable and worthy of a movie that almost single-handedly, one man, Gordon Brown, has destroyed a country. You could have a whole documentary series on it, starting with the pensions grab, the PFI scandal, the vastly bloated increase in public sector jobs and so on. The voters should be reminded of jsut how stupid, disorganised, dishonest and incompetent Gordon Brown is/has been. If he was in any other job he would definitely have been sacked and possibly even arrested for corruption, fraud. In fact the BBC should do it and title it "Gordon is a moron" - title credits to the Jilted John and in fact there is already a book by Vernon Coleman so all the material is there ready and waiting. Please please please will the person responsible for documentaries commission this program so that those who, as yet have not fully understood how dangerous this man is to the UK, get the chance to appreciate this. Who knows it may even open the eyes of some of the Labour robots who think he is the messiah....

  • Comment number 66.

    59. At 4:15pm on 03 Nov 2009, chilloutzone

    Very true.

    In fact the 'tools' (and I mean that in the politest way ;-)) that the Government have used all point to reaching that point - i.e. QE and low interest rates.

    ....but what is clever about these tools is they are almost invisible to the naked eye - whereas 98% tax is certainly not.

    If you told the country that the pound in their pocket had been devalued by at least 7% this year (175 Billion (QE) of 2 Trillion (GDP)) then people might react differently to QE.

    Especially if the proposal was to increase taxation by 7% to achieve the same effect (although it would have to be by considerably more as not everyone is working) - then you would have public outcry.

    Remember to additional facts here:

    1) This doesn't account for low interest rates and is just a ball-park figure from QE
    2) They're proposing to expand QE - and I very much suspect they will.

    As I said yesterday, when the Government needs to sell something off we're in an inflationary environment - however their actions (or rather that of the central bank) are saying something completely different.

    Having read the front page of a 'free city paper' this morning - apparently the signs of recovery are coming through in droves (I think they're talking about manufacturing rise yesterday) - such is the absurdity of the situation - it's easier to believe the lie than face the truth.

    ...but logic dictates that with HSBC and RBS announcing branch closures and job losses - these newly unemployed will contribute further to the depression we're already in.

    yes - that's right folks, I stuck my colours to the mast on Friday - which is the point I believe the depression started.

    If I am right - then I should be made chancellor - because it's a damn sight more accurate a picture than our current encumbant.

    The markets seem to agree with me today - but only time will tell. You can only live the lie for so long before it envelops you and you can no longer see the truth.

  • Comment number 67.

    Bonuses, bonuses, bonuses - what is it with everyone. Bonuses are not, were not the cause of the problem. This is a complete red herring the politicians have latched onto to cover up the fact that politicians, law makers, central banks, regulatory authorities have as much responsibility for this mess as the banks and other financial institutions. Everyone forgets the fact that Bill Clinton's administration was directly responsible for the developement of the sub-prime mortgage disaster. Why? Social mobility. Equality. All socialists should be rounded up and sent to Scotland. They can winge, moan and ruin that country is instead of ruining ours.

  • Comment number 68.

    64. At 4:51pm on 03 Nov 2009, Webgraham001 wrote:

    "It's probable Lloyds will manage to climb out of the hole they're in"

    ...only by using their dominant position to overcharge consumers for credit (although some would argue that's all they have ever done)

    "We should all sacrafice ourselves for the common good"

    I'll be found lying in the street outside the Lloyds building having donated all my worldly goods to saving this inept and incompetent beast.

    Lloyds survive - You pay
    Lloyds fail - You pay

    Take your choice.

  • Comment number 69.

    It always was the plan to sell off our bank investments. At considerably more than we paid for them. Sales that will pay-down debts caused by the temporary drop in Corporation Tax receipts this year that have caused the government deficit.
    Letting British banks go bust - as the Tories wanted - was and is madness. But that policy grabbed big headlines. Even though it would make this American created recession far deeper and longer.

  • Comment number 70.

    Re my tipping point - WOTW has made me think of another possible tipping point.

    This is the point at which even if all workers in the private sector are taxed at 100% this still would not pay for the net pay of the public sector, child benefit, pensions and unemployment benefits.

    I have one crumb of comfort - I have had a few months away from this blog and have returned because I am dumbfounded at the lack of anger, worry, concern etc in day to day society - everyone seems to think everything is okay - as only about 50 different people have contributed to this blog today it suggests we are all in the minority - so don't worry everyone it's going to be okay!!

  • Comment number 71.

    Bob
    How are the "Hedge Fund managers" Darling and Brown doing in creating a profit for the taxpayers from Northern Rock as promised in February 2008? How much exactly are the taxpayers underwriting?

    I wouldn't trust Brown as a Hedge fund manager, it was after all him who sold our Gold reserves.

  • Comment number 72.

    Where will this leave the share holders?

  • Comment number 73.

    Robert, I think you are spot on with your analysis of Lloyds Bank. I cannot confirm what you say with RBS because I do not know enough about them. I have several worries

    One. As you say, the top team at Lloyds is the one that led this prudent well run bank into disaster in accepting the merger from the Halifax. It is not good enough to say they shouldn't get bonuses at all. They should be out. They have cost the owners of their business (the shareholders) dear. As I have said before, a penny a share would have been too much to pay for HBOS yet these morons paid 61p.


    Two. Fund managers followed the corporate line when it was obvious to anybody with half an eye that the deal should have been blocked by Lloyds shareholders. Every fund manager who controlled LLoyds TSB shares and did not vote against the merger should be fired. I have heard nothing about these morons being called to account.

    Three, what about Barclays and HSBC? OK, they have survived, and HSBC are moving to Hong Kong. But they are both hugely influential in our economy and both are "too big to fail." Both are capable of catastrophic collapse at some time in the future and nothing has been done to say how we will be defended if HSBC or barc,lays corporately fail by speculating on some latter day equivalent to CDOs

    Four, yes the government is running a hedge fund. This is unlikely to be in the skill set of career civil servants. We have a government that is hot on micromanagement and control freakery. We have the potential for disaster on a massive scale if they get it wrong. It needs to be managed independently by politically disinterested people who will play everything straight back down the middle.

  • Comment number 74.

    Darling is more like bookies runner for Brown and Lord Meddlesome

  • Comment number 75.

    Robert, you said: "To be clear, it was the current top team at Lloyds that (unlike their opposite numbers at Royal Bank) were the architects of the bank's woes. Which is why some might say that cancelling bonuses would perhaps be more appropriate than postponing them."
    Prior to merging with HBoS, Lloyds was a conservative and well run bank. The board made one big horrible mistake - they thought they could rescue HBoS - a crazy idea but a hugely valuable one to the government at the time. Is that the sin they should pay for? If so, why not punish your friends in number 10 and 11 Downing Street who were accomplices to the crime?


  • Comment number 76.

    #73. At 6:31pm on 03 Nov 2009, Henry_Quimper wrote:

    "Every fund manager who controlled LLoyds TSB shares and did not vote against the merger should be fired."

    But then again, if as fund managers they also controlled HBOS shares (which could have wiped out if it sank without trace) what else could they do?

  • Comment number 77.

    Absolutely agree with majorroadaheadagain2 watching Working lunch these days is more like "Consumers champion direct" rather than a programme about business which was what it used to be about. Plenty of those sort of programmes on in the evening Watchdog, rogue traders or what ever the rest are called.

    Still suppose it grabs a headline or two , you only have to watch a time or two at the aggressive interview techniques employed for those brought to the court of Curry and Munchetty - their use of childish humour would be used on the beach with Punch and Judy. Let's have the programme back to where it was please.

    Daily politics today was equally condemned headline headline headlines about taxpayers 30 million, with absolutely no detail. No explanation that the Government 5.5 billion in to Lloyds was to ensure their stake remained in the same percentage as the other shareholders, including small ones who have already stumped up for one lot of rights to retain their position in the company.

    No, headlines make the feature and that is why all rhetoric only ever refers to banks and bankers, although rather belatedly one or two more enlightened commentators are using the word "investment" in front of bankers which probably relates to less than 1% of the industry. Yet the world is convinced that everyone within the industry is of that ilk and have been on the "take" and frivalous - though not in my high street certainly.

    If their guilty by association then the whole house of commons should resign on the back of the expenses scandal.

    Right next myth. Banks won't lend. Well they never had unless the individual/ business deserved it. ... like in the "good old days" before the headlong flight in to pawnbroking based on ever increasing property values (whoops ! ) and for all those businessmen crying over giving guarantees or security, take a time trip back to the 50's 60's and 70's and you will find the same conditions existed then as today. What's different oh the free and easy credit available in the last two decades - made everyone soft and not prepared for the medicine.

    Can someone explain, when a bank provides a borrowing facility to a business to provide the cash to service their ongoing daily cashflow needs it is called an overdraft facility (working capital etc) ..... but when the banks receive money ...it is called a bail out, because intrinsically it's the same , just in higher figures. That support used to come quietly from the Bank of England and the world carried on as if nothing had happened - so what we get now are headlines to make a story on the front page. Let's face it the taxpayers aren't exactly "giving it away" wasn't 12% once mentioned.

    Given the lack of recompense to shareholders by those organisations fully under control of the government... Northern Rock etc but the fact the elements will be sold - no doubt at a profit, their temporary funding exercise has taken control from those that owned it whilst doing what banks are expected (demanded) to do each day and provide working capital for businesses. What that organisation needed was help with funding , strong management and trade out of their position, not queues outside their door full of pensioners.

    Which takes me back even further - to the start of this "recession" - many still feel the Banks are wholly responsible, but are they ?

    Let's go back to the loss of the tax benefits once available to pension fund managers .... that "simple" revenue earner for the Government to shell out monies on all their pet projects, was probably the catalyst for subsequent disasters.....

    As stock values dropped .. the managers got jumpy and one by one switched in to the bond markets causing further falls and shortfalls in pension funds ...at which stage some became "insolvent" based on funding criteria of the lifetime of their employees.. companies started looking for savings (I spoke to one business today who downsized and sold assets just to make up funding a pension shortfall) The government becoming anxious at the failures set up a protection scheme , which costs the funds yet more money and the contraction continued yet further to a stage where very few new employees in the UK will enjoy the benefits of their predecessors - if only they had left alone, the funds would probably be at least 30 % richer - the markets would be booming and releasing yet more cash into the economy ..... that's where the FSA could have come in and started to reign in the 125 % mortgages and a gentle tightening of credit lines ( if they were in control ) although politically that would have been very hard for Brown et al to swallow given the infamous "Britain has never had it so good" ..Oh really, not under your watch kind sir, even the pensioners who have done the right thing all all their lives had their retirement nest eggs hit by retrospective legislation and low interest rates.

    One final question. Given a mortgage is taken out and paid for over 25 years what is the average rate for the last 25 years ...don't claim the low rates of today are expensive, I reckon I could say that without the calculation.

  • Comment number 78.

    I have the growing feeling that all this stuff was engineered. Too many things have happened too quickly for them not to be planned in advance.

    I smell a rat.

  • Comment number 79.

    Good to have you back Robert.

    I am confused in a very big way on how we are exiting the ‘recession’.

    1 Our banks are all bust, but now the UK Taxpayer is instead – Whoops, he don’t know it yet but when the point comes where the central bank admits that they newly created money will ACTUALLY come into existence and will not be burnt by HMG – That is the point where our inflation will spiral.

    Conclusion : The banks are re capitalised with worthless Sterling.

    2. Our banks are now in the jolly position in which they can lend, as their capital ratios are just the jinkies. Let’s forget who owns them, it’s just funny money anyway.

    3. All we need now are some Jolly consumers who want to borrow, WHOOPS!

    3.a. Consumer Group 1 = Halfway to bankruptcy, so they cannot borrow squat (for at least 6 years)

    3.b Consumer Group 2 = Too indebted, and too s**t scared to even borrow the 30p require to acquire a packet of opel fruits.

    Conclusion?

    We have some banks with ‘whole balance sheets’ but a diminishing customer base. What future for our banks Mr Darling? The truth of the matter is, we should have let every last one of them go bust!!! The result? A Chinese invasion of eastern money looking for a place to obtain growth.


    It’s going to happen very soon Folks 银行

  • Comment number 80.

    GRIMUPNORTH

    "So don't worry. Everyone is going to be OK"

    You have been away for a few months. Welcome back. You are right although your post may have been a bit on the sardonic side? Everything is always better than it seems at the time. Each decade brings its own disasters and some people go under but on the whole it always turns out alright for the majority. Except in Africa, where people live in pieces of tin in the sand with no food. They don't give a damn about bankers or sub-prime mortgages. They just want water and whatever scraps of food we give them.

    So when you hear people sounding on these posts like the gods of doom are at our door they are out there but not at our door. When I was a young man I could have said that to Neville Chamberlain, and I would have been wrong. But today's bogymen are just transitory things on our shoes that we trod in. As you say everything is going to be OK. Except in Africa.

  • Comment number 81.

    76. A valuable comment. At the time of the merger, HBOS was already down around 60p. Lloyds TSB had been dragged down from around 250p as soon as merger talk started. (Dragged down because those owning Lloyds shares could see what would happen!). If the merger had been voted down, fund managers would have had little to lose on the HBOS side as the next day HBOS would have had to call in the receivers. But Lloyds TSB had a huge upside when the penny dropped that it wouldn't happen. Fund managers aren't supposed to be sheep and vote for a merger because the board want it. They would have dropped a lot less if they had voted it down by the inevitable rebound in Lloyds TSB shares. I still say they should be called to account.

  • Comment number 82.

    #79 JavaMan1984

    The banks have already identified and got on board those jolly borrowers.

    The banks ended up owning troubled assets. Property developers etc. that should have gone bust except they owed billions to the banks who simply grabbed them.

    So the banks get money from the government, us, then lend\give it to their own troubled assets.

    All a bit incestuous?
    Neelie needs to follow the money.

  • Comment number 83.

    Morning Robert,
    A Note For Posterity:-
    RBS had a cash problem and through a rights issue raised £12 billion (to see them through) in Apr 2008.
    RBS had another cash problem later the same year (despite Mr Turners stress tests) and received £20 billion from Treasury in Nov 2008.
    RBS have another cash problem and will receive £25 billion from the Treasury in Nov 2009.
    This is more money than the great American City-Corp received!

    Lloyds didn't admit to any cash problems in Apr 2008.
    Lloyds had a cash problem in Nov 2008 and received £7 billion from the Treasury plus another £10 billion for taking over HBOS.
    Lloyds are to receive another £6 billion from the Treasury in Nov 2009.

    Nothing has changed in the last 18 months, the toxic assets are still there (hidden from the public and financial reporters view).

    The Government want to sell the revised Northern Rock (Good Bank) with another injection from the Treasury of £8 billion pounds. Who will buy this good bank if the big five are forbidden to bid? (My guess is that it will go to Santander just like the good bit of B&B because those guys know a bargain when they see one).

    I have asked publically on this blog many times, Robert, what did the banks spend the money on that they received from the Treasury? Someone must know but they ain't tellin!

    As an aside to a previous blogger, China will be the next bubble to pop (all the signs are there if you care to look).
    When Europe and Japan put an end to their quantitive easing (which they desperatly want to) we will see the next banking collapse in the West.

  • Comment number 84.

    The FSA spent it's time faffing about with things like loan insurance, instead of taking a long term view of the whole picture; the banking system comes close to collapse.

    Now, the government starts sticking it's big clumsy oar into the banking industry instead of taking a long term view pertaining to the running of the country. And to be fair, most of them are assuming they're not going to be in a job in six months time. "Lessons have been learnt"? Really?

    Oh, and normally, when one body aquires a "controlling" share (30%+) of a company they have to make an offer for all of the shares? Why does the government/UKFI not have to do this? Shame really, because as I understand it, the compulsory offer would have to be set at no less than the highest price paid for shares by them in the last year - about 128p for LBG shares I think? I could do with selling mine for 128p each... any takers?

    This country is a mess, this country is a mess, this country is a mess... And before you say "well why don't you move then you muppet", it's because my pounds' worth has plummeted so much that all I could afford abroad is a life herding goats in Ethiopia - and I get sunburnt too easily, so I'm stuck. :(

    Maybe MP's should have their salaries (and expenses, of course) deferred for 3 years and paid in Bank shares... that might make them perk things up a bit. Or resign. Truth is, "Bankers" are no better at politics than politicians are at Banking, so these current hybrid organisations (LBG & RBS) run by Bankers with the occasional "suggestion", order, or U-turn (ie regarding competition levels) are going to be going round in circles for ages...

    And regarding "competition": The Government backed the LTSB takeover of HBOS and said that it was ok as far as the level of competition within the industry goes. Now, it says that it agrees with the EU's stance and orders to divvy up the assets. So, did it:

    (a) Lie to us then
    (b) Lie to us now
    (c) Make a total policy U-turn after cocking everything up
    (d) Not really understand what was going on, or
    (e) All of the above.

    You decide...

  • Comment number 85.

    Bloomberg gave a nice summary of this latest Lloyd's/RBS bailout:
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7GNUspBylyw
    I'm interpreting this as a mixed bag. On the one hand the banks need/get more taxpayers' money (despite having soaked up wads of bailout money + QE already). OTOH the government is finally taking steps to deal with "too big to fail". Kudos to the British - that's more than our American government has done. In fact, as the Bloomberg article crows, our "healthier" American banks have gotten bigger. Probably to ensure getting bailed out again when the commercial real estate market collapses.
    I wonder why this restructuring is happening so suddenly. Did something trigger it?
    As an aside, have any of you heard from JadedJean lately? I saw this obituary:
    http://news.bbc.co.uk/2/hi/europe/8341489.stm
    JJ hasn't posted since 10/27, and I seem to remember somebody posting that he/she was a French anthropologist. It would explain the moniker, and the familiarity with population statistics. I hope I'm wrong. :(

  • Comment number 86.

    70. At 5:22pm on 03 Nov 2009, GRIMUPNORTH77 wrote:

    "as only about 50 different people have contributed to this blog today it suggests we are all in the minority - so don't worry everyone it's going to be okay!!"


    Ahh but surely if this blog is representative we're clearly not going to be ok as there are very few posts of that sentiment.

    Either that or this blog tends to attract negative people!

  • Comment number 87.

    76. At 7:31pm on 03 Nov 2009, vegetable_grower


    The wonders of diversification - all based on the assumption that everything doesn't fall at once.

  • Comment number 88.

    The Times today makes Daniels into a sort of hero. Not that he saw Neelie Kroes coming, but just that by avoiding the APS he has spiked her guns.

    Yesterday it was Listen with Mother (Working Lunch) today it is Wake Up to Bunny. The one thing they had in common was David Buick. Yesterday he said that he thought the Lloyds rights issue would be at around the current market price (then around 85p). Today Mickey Clarke on WUTM suggested that there were rumours in the City that the Lloyds rights would be at 15p. FIFTEEN PENCE. David Buick's reaction to that was "GOSH". Nothing more.

    I usually find WUTM useful, and they do get some good interviews, but it all a bit short and constricted. Yet it is all that the BBC's Radio 5 Live offers on finance. Adam Shaw does a good bit at 6.15am on Radio 4 but again it is all far too short. During the day there is virtually nothing, and no wrap up of the stock market in any meaningful way. When you think that LLoyds has 2.8m shareholders it is odd that you can get hours of coverage of show jumping, Formula 1 etc but so little on finance.

    Robert - We need a half-hour Robert Peston show at 4.30pm each afternoon on Radio 4.

  • Comment number 89.

    For those that don't see the need for new banking competition on the High St, think on this.

    Do you have any confidence that the existing cartel of banks will not enforce base+3% mortgages in perpetuity if there is no new competition? They want to dig themselves out of their hole (and make big bonuses) by charging us through the nose for everything. ATM-use, current accounts, lousy interest on your deposits, etc.
    Only with fresh, debt-free competition can we have any hope that they will be honest.

    When Tesco gets too big (food, clothing, electronics, petrol, insurance, banking, whatever) we can break them up as well.

    Remember, the war never ends,
    Regards

  • Comment number 90.

    80. At 11:07pm on 03 Nov 2009, majorroadaheadagain2

    Isn't "Blind optimism" how we got here in the first place?

  • Comment number 91.

    83. At 11:51pm on 03 Nov 2009, splendidhashbrowns

    When you list out the events as you have it certainly looks like we're pumping more and more in and getting less and less in return.

    Isn't this what happened in 1929? - or rather it didn't because they let the banks fail - this time they're taking the Government down with them.

  • Comment number 92.

    Just a reminder for everyone...

    That money we are borrowing at 3% is in the main off ourselves. The QE experiment by the Bank Of England is the main buyer of our debt. When this ends and we have to sell not only our gilts for that year but begin to sell what the Bank of England has bought then gilt yields are likely to rise substantially.

    You are falling for an illusion created by government action which can only be short-term Mr Peston. It may turn out to be not so different from what got us into this position.

  • Comment number 93.

    We increase our buy in to RBS and retain our stake in TSB.

    BUT then we create 3 competitors how is this going to end up as a good bet when disgruntled customers from these two banking dinosaurs leave in their droves....

  • Comment number 94.

    Maybe in FS the recession is over - over 55% of jobs posted in IT are for FS posts (FS is a 25% contributor to the ecomomy), and this is a good indication of the imbalance in the 'recovery'. Jobs funded by public money. If you've manufacturing skills in IT then forget it - less than 3%. Retail slumbers, construction is comatose. Even government IT jobs are drying up as budgets tighten. So jobs advertised considerably imbalanced with respect to the sector's contribution to the economy, suggesting a strong unidirectional bias, and something to be greatly concerned about.

    When a guy goes for an HGV job needing international experience and he is one of 350 fully qualified applicants then we know that the recovery is still limited to the few.

    It is the lack of basic jobs which is crippling society and whilst all the effort has been poured into preventing (short-term?) the collapse of the financial system, those at the sharp end, dependent on wide-scale economic recovery, continue to be ignored by government who continue to offer farcical employment incentives to employers without the underlying cash flow to support extra employment. What's more those unemployed people are growing more desparate as personal and public funds run out.

    For the vast majority it has been life-as-usual but with some belt tightening and being fleeced if you want to borrow money, but getting nice little incentives in VAT cuts and cheap cars. For those unemployed by the gross incompetence of the state and its significant tax patron Financial Services it has been a nasty period of being sacrificed and ignored for the common good

    Recovery? - not round here.



  • Comment number 95.

    48 GRIMUPNORTH77 wrote:
    "there must be a tipping point at which the workers in the private sector simply can't pay for the public sector and the unemployed."

    - a lot of people think that there would be a point at which there isn't enought tax to cover uneployment payouts but infact this is mathematically impossible:

    imagine that 90% of the workforce was unemployed and recieving benefits. They will be spending those benifits in order to survive and they are not going to be paying that money to other unemployed people - so all that money will be going to the remaining 10% who are still working. With all that money coming in thier wages will be huge and with an apropriatley high tax rate on those incomes, enough tax will be generated to cover the benifit payouts - a mathamatical certainty.

    The above equilibrium only breaks down if some of those still employed who have the highest income (let's call these individuals 'scum' in the interests of clarity) dodge thier tax by sending the money ofshore - then the whole system breaks down, which by the way, is what's happening now.

  • Comment number 96.

    Now, why would they the Treasury wish to be associated with the Term Hedge Fund ?

    Many Hedge Funds have existed purely to exploit the slower, less agile Investors (ie selling short other peoples Pension Funds etc).

    People have not forgotten this.

    Surely the Treasury would like to be seen as a long term Investor ?

    Any way, now Europe has commanded the breakup of LLoyds Hbos and Rbs, will they command the break up of Santanders far larger kingdom ?

    Abbey, Alliance and Leicester, Bradford and Bingley ..........

    Or is Santander exempt ?

    And will Northern Rock or Bradford and Bingley Shareholders ever see any compensation ? Its a fair bet they will get nothing back.

    Bank Shares under the current management style (ie big bonuses to staff before Shareholders regain any of their huge losses) are an investment to avoid.

  • Comment number 97.

    The Lloyds rights document is now out and Ian-the-Chopper or someone will correct me if make a hash of the maths.

    There are 27bn shares in issue now and Lloyds is looking for 13.5bn pounds. Thus the issue price would need to be 50p per share (or 25p on a 2 for 1) to give them their 13.5bn. And I thought it was going to be difficult.

    The PMQs today was disgusting. Brown kept harping on about Cameron and his "cast iron" referendum promise. He looked triumphant on the issue, but it wont be long before the electioneering starts, and hopefully Labour's 2005 manifesto "pledge" on a referendum will come back to haunt him. Cameron and Clegg both tried to get him to say the magic words of accepting all of the Kelly report, but he wouldn't utter the word "all". There were an unusually large number of planted questions on wicked Tory councils, which gives a further idea about the election ground.

  • Comment number 98.

    Robert,

    It's always worth remarking that Lloyds is only in its current position at the demand of the Prime Minister, who forced it to accept HBOS. If it was not for that, Lloyds would be the best-placed of all the UK banks.

    Although because many HBOS executives have secured roles in the new LBG senior management your comment about their bonuses isn't as harsh as it might have been!

  • Comment number 99.

    94. At 09:45am on 04 Nov 2009, p45builder

    You need to be a little careful about job availability. IT FS are notorious for having agencies who advertise jobs that simply don't exist (although the regulator / Government wil swear blind it's not the case)

    There is also a rebound in IT FS specifically as the initial panic hit the first reaction was to dump the majority of the 'expensive IT department' - just about now things will stop working and suddenly the business realise "oh that's what that guy used to do" - in an industry where "time is money" it's essential that systems remain available (especially as the front line threw away their maths books and traded it in for a computer.

    All you need to do is try to book a table at lunchtime in the city. 2 years ago you couldn't get one - especially at short notice - these days you can march up and get one anywhere.
    Slowly the businesses are going under - but it's no headline grabbing collapse as the media had hoped - but instead a slow painful decline lasting several years.

  • Comment number 100.

    98. At 1:18pm on 04 Nov 2009, Moik wrote:

    "It's always worth remarking that Lloyds is only in its current position at the demand of the Prime Minister, who forced it to accept HBOS. If it was not for that, Lloyds would be the best-placed of all the UK banks."

    Utter rubbish. Are you seriously expecting us to believe that Lloyds took on HBOS as a 'favour to Government'?

    Lloyds had to take on HBOS because nobody else would - but their interests were not the countries - or the Governments - but their own.

    If HBOS fell then Lloyds would have been in a precarious position as one of the largest UK banks - most exposed to a collapsed and bankrupt Government.

    Make no mistake the motive was self-preservation.

    It's also been convenient in hindsight to play the 'done wrong' card so that people like you believe they are the good guys. It also allows them to blame all their losses on HBOS loans (which of course is not true).

    Maybe the path they would have taen would be like Barclays - now owned in the majority by a foreign power and likely to have to make savage cuts to staff in order to satisfy those majority shareholders - and who ultimately might end up in a worse position than Lloyds as they have no Government backed guarantee (always a winner with many savers)

    I bet you're just another wingeing Lloyds shareholder - didn't you read the smallprint when you signed up? Were you protesting at the board meeting prior to the decision - or did you buy into something as a 'little fish' hoping that your interests would be shared by the 'big fish'?

    Oh the naeivity.

    This is why I say "Do not invest in stocks and shares with money you wouldn't be prepared to put on a horse".

    ....still I suppose you also think horse racing is a fair and even contest too do you?

    It's nice and easy to blame the Government, or the Prime minister for Lloyds troubles - but the reality is that they are a bank - the banks were in trouble - there were no exceptions. This is because bank staff do not understand how Capitalism works - they actually think you can make money from thin air.

    This was an oversight Lloyds were just as much a part of as anyone else - in fact more so as they are one of the most established and biggest around - i.e. should know better!

    ....you could also ask yourself why Lloyds board were paying themselves such large sums of money and yet capitulated in front of Government with what you describe as a 'bad deal' - of course that would mean blaming someone other than Government.

 

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