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 54.

    #38 banks already mark to market their loan portfolio under IFRS although I think this has been relaxed earlier this year. It makes sense to mark to market loans that you intend to trade but not loans which you are holding until maturity.

    Mark to market accounting for banks on all loans was a major mistake and drove banks to trade loans rather than hold

  • rate this

    Comment number 53.

    28. Leo

    A nice Romantic view of business but sadly Leo it doesn't work like that. Most businesses benefit from economies of scale up to a certain point. The MMC prevents such EOS as being detrimental to competition. Sadly to divide a bank up into its small constituent parts wouldn't automatically employ the same no. of people as they simply wouldn't have the scale to operate.

  • rate this

    Comment number 52.

    Lloyds in profit ?. I thought they owed us a fortune still ?

  • rate this

    Comment number 51.

    The two stories are closely connected: Charles Dunstone, founder of Carphone Warehouse, was non-executive chairman of HBOS's risk control committee - which monitored the implementation of the policies that resulted in the Lloyds and then the taxpayer bailouts.

  • rate this

    Comment number 50.

    For a lot of people, their good job has continued, mortgages are low and all seems ok. However, as No 47 says the global prospects for the UK are still not looking good. There are more cuts to come in the public sector as the debt is still massive. A lot of private sector workers have no or tiny pension provision, the only hope now is that you work to 70 or more in a reasonably paid job.

  • rate this

    Comment number 49.

    Lloyds should have gone bust years ago when all the American claims came in after Lloyds insured the asbestos industry.
    The snakey worms wriggled out of that ok.
    As for Carphone Warehouse?
    They make carphones anymore and with service providers having their own shops their a dying duck.

  • rate this

    Comment number 48.

    It teaches me that with big talk & taking big risks with other peoples money usually gets you a Knighthood, massive bonuses and early retirement on a massive pension when it all goes belly up for a variety of reasons.
    With a fair wind & good sense those with desire & vested interest in their own business, can grow it. Those people don't get £1m bonuses just for turning up.

  • rate this

    Comment number 47.

    Re-balance the economy!
    The problem with that is e.g. those poor textile workers who died in the collapsed building were earning £23 a month which is 21 times my rent so I would have to be 21 times more productive just to compete that is of course if I stopped eating and never switched on a light and never had a penny so the problem is unsurmountable given where we are

  • rate this

    Comment number 46.

    40 bmac1
    Actually when house prices dive there is no reason for that to affect banks. Certainly all the government need do is change accounting rules. As even if prices collapse that does not mean the people with the mortgages have any different ability or legal duty to pay.Change in prices only changes a paper relationship of secured debt on an asset. Borrowers still owe and have to pay whatever.

  • rate this

    Comment number 45.

    Any bank would be negligent & crazy if it was to substantially increase loans in current UK economic condition.
    Majority of austerity cuts still have not been implemented, which still means huge loss of jobs, meaning many more failed mortgages & loans.

    It makes you wonder if banks are withholding loans etc from public employees because they are still much higher risk at losing jobs

  • rate this

    Comment number 44.

    Well...that really wasn't worth reading, here is a tip for you. The BBC have a HYS page, why not put links to ALL the articles on that page?

    It's not rocket science!

  • rate this

    Comment number 43.

    "Let's not pretend. The banks are bust. If house prices dive.."

    If house prices do not dive there will be no economic recovery at all!

    So one way or another we are shafted!

    The stupid rush for a housing bubble, or as now, re-inflating the bubble is daft! (Osborne = fool!) It never was a good idea & it only ever impoverishes the common people.

    Cheap houses for workers to live in!

  • rate this

    Comment number 42.

    3.Actionr - It would have been better if we had allowed these banks to fail and those in charge (and the regulators) to go to prison. How much have we lost from this wrong decision? Who will resign for this?

    Agreed. Weird that no-one is in jail. Happily, the politicians responsible were voted out so can no longer resign . But crucially, for the sake of UKplc -- LET'S NEVER VOTE THEM IN AGAIN!

  • rate this

    Comment number 41.

    Re-balance the economy!

    This MUST mean that all BANKS must shrink & other sectors of the economy grow. (Banks incl. all quasi banks - financial services sector.)

    Depression will last another couple of decades if past history of such events is anything to go by. (1870 Long Depression)

    World will be a very different place by 2030 - most of us will be dead & executors will have sold our houses!

  • rate this

    Comment number 40.

    Let's not pretend.
    The banks are bust.
    If house prices dive which they will then the losses will be astronomical.
    Hence funding for lending,mortgage guarantee scheme, special liquidity scheme, near zero interest rates (not passed on) , bank bailouts and bail ins in Europe ,financial stability pact. Spain bailing out Greece, Cyprus bailing out Portugal, Portugal bailing out Spain etc..Next meltdown

  • rate this

    Comment number 39.

    @31 Actionr - what blackmail are you referring to? I'm saying that if a major retail bank went down, it would bring down hundreds of companies with it, thousands of people would lose their jobs, their home, their savings. I'm not sure how that would be better than the current situation?
    @36 Muppet Master - the money they lent out for mortgages doesn't exist? Or to businesses for loans?

  • rate this

    Comment number 38.


    Please remember that the way that all Banks keep their accounts the result published are very much on the basis of what number would you like - and frankly the management hasn't any real clue if the numbers are even close to being 'true and fair' - and nor do their auditors.

    We MUST get to full 'Mark to Market' ASAP.

    (Except this WILL of course show that they are ALL BANKRUPT!)

  • rate this

    Comment number 37.

    A few big companies might be doing OK, but the reality is that vast numbers of UK citizens have been driven into poverty and left with no prospects for a brighter future, hindered at every turn by government policy that impedes attempts to find real work or improve job prospects...

  • rate this

    Comment number 36.

    "The banks wouldn't have just forgotten all the money they lent out, they would have called it all in at once"

    But here's the snag: They wouldn't get that money; Today, tomorrow, or ever. Because it didn't, doesn't and never will exist. The banks have simply 'manufactured' it out of thin air

  • rate this

    Comment number 35.

    Robert we have learned nothing here I used to work for one of the nationalized banks and what sprang to mind on how they operated was the Emperors New Cloths and the Golden Goose all in one. We need to get the balance right in all business and reign in the sales part as they are the key to how we ar in this position in the first place also forget recovery unless you are talking 2018-19


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