What do Lloyds and Carphone teach us?

Carphone Warehouse

There are two stories today of big corporate deals done in 2008 bearing some kind of fruit in the spring of 2013.

And what has emerged, not all of it juicy and succulent, tells us something about the soil of rather uneven quality that is today's British and global economy.

So, for example, in April 2008 Carphone Warehouse sold half of its core operation to the US electronics giant Best Buy for £1.15bn.

And although that core business has done OK since then, and it is in one bit of retail that doesn't look too hairy (smartphones and tablets), Best Buy itself has not done so brilliantly. And to state the obvious, British and European retail isn't exactly flavour of the month with investors, for all the obvious reasons.

So Carphone is buying back that half share for less than half what Best Buy paid. Which looks like a pretty nice job for the company created by Charles Dunstone - who is about £30m wealthier this morning, as a result of an 11% rise in Carphone's share price.

And then there is Lloyds, which rather controversially reinforced its position as the UK's largest retail bank towards the end of 2008, with the rescue takeover of ailing HBOS.

With its massive market power, there was always going to be a strong profits recovery at Lloyds - although the past few years have probably seen the worst case of indigestion from one British company swallowing another, as losses on HBOS's reckless lending have been eye-poppingly vast.

Years later than Lloyds' management hoped, that recovery has arrived, with underlying profits trebling in the first three months of the year to £1.5bn, and statutory or official profits increasing more than seven times to £2bn.

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Big profits also means substantial tax payable, of £500m for the three months”

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The recovery has been at some cost to lives and British prosperity, with tens of thousands of job losses, curtailed lending and the disposal of poor quality assets.

But Lloyds insists it is supporting the British economy again - with net lending to small businesses rising against the trend of what other banks are doing, and overall lending down only a fraction.

Big profits also means substantial tax payable, of £500m for the three months, most of it to the UK Exchequer (although I am unclear whether much of that will actually turn up in the government's coffers for some years, given that for the time being Lloyds can presumably minimize its tax payments by utilising - to use the jargon - all those enormous tax losses generated by HBOS loans that went bad).

And Lloyds' rehabilitation brings forward the day when taxpayers' 39% stake in the bank can be privatized. If, as seems likely, regulators allow Lloyds to resume dividend payments in about 2015, sale of at least some of the state's holding should take place around that time.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 14.

    in reply to 3. Actionr

    I'll just add that Eric Daniels, previous CEO at Lloyds, did have to fall on his sword for the HBOS takeover, despite having done a pretty good job at Lloyds beforehand.

  • rate this

    Comment number 13.

    #1 On Dunstone the answer is that is makes no difference to his tax position. His shares have gone up in value but until he actually sells them and makes a profit there is no tax payable.

    As for Lloyds they were not bankrupt until they bought HBOS. Bad decision, ineptly implemented and egged on by Gordon Brown.

  • rate this

    Comment number 12.

    re. 1 Watriler - It's only taxable if he sells it. He has the same right to enjoy an increase in the value of his company as you have to enjoy an increase in the value of your home.

    re. 2 Leo - So you prefer a company employs more people than it needs to sustain employment for a year and then goes bust? Great selfish short-term thinking. Employment is not a goal, it's a function of a company.

  • rate this

    Comment number 11.

    Robert, I am a little disturbed by your straight acceptance that Lloyds has turned its business round. What are they doing to make their business so much more profitable? I suspect these small businesses are being made to pay through the nose in interest charges. If straight banking has achieved this, then the economy is booming, which means the GDP figures are totally utterly WRONG!

  • rate this

    Comment number 10.

    in reply to 3. Actionr ah, yet more nonsense on this matter. You do realise that Lloyds themselves were not in difficulty until they were forced to takeover HBOS? Who do you suggest we punish for this essential action?

  • rate this

    Comment number 9.

    So its good news on paper Robert ?

    We see a lot of these pseudo headlines about how much profit these banks make and how well they are doing .... however there tax payments dont match once accountancy is done.

    There will be even more profits for them as we now provide mortgages and small business loan money , just what is it they do again ?

    I look forward to hearing npowers excuses later.

  • rate this

    Comment number 8.

    3. Actionr
    It would have been much better if we had allowed these banks to fail and the persons in charge (along with the regulators) to go to prison.
    In the real world to send someone to prison you actually have to find them guilty of a crime in court. Normally incompetence isn't actually a crime.

  • rate this

    Comment number 7.

    @3 Actionr - I don't think you are aware of what would have happened should we followed your preferred course of action. People would have lost their homes, businesses would have been wound up, etc etc. The banks wouldn't have just forgotten all the money they lent out, they would have called it all in at once. It's not as simple as you suggest.

  • rate this

    Comment number 6.

    Banks and phones? I want to see bricks and mortar.

  • rate this

    Comment number 5.

    "Years later than Lloyds' management hoped"

    I think you meant to say earlier however whilst this is all very welcome the fact is this is not money made as a result of better or greater productivity it is as a result of someone else's incompetence being replaced with a bit of aptitude.
    In the end it's just a better set of figures on a balance sheet not a rebalancing of how GDP is generated.

  • rate this

    Comment number 4.

    When it comes to cases of indigestion after an ill-advised takeover, Marconi set a benchmark which is pretty hard to beat, even for a bank. They just kept going back for more.....

  • rate this

    Comment number 3.

    It would have been much better if we had allowed these banks to fail and the persons in charge (along with the regulators) to go to prison.

    How much have we lost from this wrong decision? And who will resign for this?

  • rate this

    Comment number 2.

    A business improving it's profitability at the cost of jobs is not "benefiting the economy". If Lloyds was too large to be profitable, then it should have been broken up into several smaller businesses, retaining or even increasing, the workforce employed. The initial cost of the breakup would be more than mitigated over time through that employment.

  • rate this

    Comment number 1.

    So Dunstone is £30M better off but what value has been added to the country and to customers. Is it taxable but what tax will he pay?
    Technically Lloyds and HBOS were bankrupt so what advantage will the country and citizens will see for their investment and subsidy even if the bank is sold off at 75p a share after seven years of 'recovery'. UKFI could have done so much more had it not slept on it


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