Four banking tales

 
Bank logos: Lloyds; Co-op; RBS and Barclays

Here is a tale of four big British banks - RBS, Barclays, Co-op Bank and Lloyds, all doing interesting stuff five years after the great banking crash, not all of it good news, but none of it threatening (phew) to the wealth of savers.

Let's start with Royal Bank of Scotland - since I have learned a little smidgeon of new news.

RBS is close to announcing the sale, forced by the European Commission, of a small business banking operation (315 branches serving 250,000 small businesses and two million retail customers).

What I have learned is that the offer from a consortium of mainstream investment institutions, led and chaired by the former Tesco finance director, Andy Higginson, has been rejected.

Its rejection by RBS may spark some controversy, since its offer was the only one to offer de facto full separation from the off, with a plan to float the whole thing on the London Stock Exchange.

However RBS's board has concluded that the two other offers, from private equity consortia - one led by Corsair and the other by Blackstone - offer better value, in that they both involve RBS keeping a stake in the separated small-business bank for a while, which should allow it to share in any future increase in the value of the bank.

Now Barclays, which yesterday formally launched its jumbo rights issue to raise £5.8bn.

The rights-issue prospectus discloses that it has been warned by the Financial Conduct Agency that it has been found guilty of breaching London rules for raising money from the sale of listed securities.

This may sound terribly technical and dull, and Barclays is contesting the findings, but the implications of the FCA's verdict are serious.

To be clear, it is not the proposed fine of £50m which is the big headache for Barclays.

The much bigger concern is the FCA's conclusion that a £322m payment by Barclays to Qatar Holdings, an investment arm of the Qatari state, was to "make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings".

What do "additional payments, which would not be disclosed" for services rendered, sound like to you?

Barclays is well aware what those payments look and smell like, because it also discloses that "the Serious Fraud Office is investigating the same agreements", and that the US Department of Justice and Securities and Exchange Commission are "undertaking an investigation into whether the Group's relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act".

The SEC and DoJ "are also investigating" the £322m payment to the Qataris and the "the US Federal Reserves has requested to be kept informed".

This is hair-raising stuff. The US authorities take breaches of the Foreign Corrupt Practices Act very seriously indeed.

Then there is the Co-op.

You will recall that Co-op Group is trying to rescue Co-op Bank - whose capital has been seriously depleted by losses - by forcing £500m of losses on owners of £1.3bn of bonds and preference shares, and injecting into the bank £1bn from the sale of assets and its own resources.

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Whether or not Co-op Bank could be called 'Co-op' when separated from the co-operative movement and owned by hedge funds is moot”

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Well, a bunch of hedge funds and other sophisticated professional investors, controlling roughly 30% of the £1.3bn of the bonds, don't like the offer - and there is enough of them to stymie it.

Instead they propose all the £1.3bn of bonds should be converted into shares, which would leave Co-op Group with zero ownership of the bank and the investment institutions owning the whole thing.

This would be revolution. Whether or not Co-op Bank could be called "Co-op" when separated from the co-operative movement and owned by hedge funds is moot.

However, this can be seen as a pretty aggressive play in a negotiation. And goodness only knows where it will end up.

Finally, back to the historic first stage in the privatisation of Lloyds.

A year ago, when Lloyds shares were languishing at almost half today's level, the notion that the Treasury could sell a big chunk of them for a profit would have seemed absurd.

So the Chancellor has inevitably hailed the sale of 6% of the bank for 75 pence, above the 73.6 pence paid by taxpayers when bailing out Lloyds, as an important step towards getting our money back.

The £3.2bn sale yields a cash profit of £61m for the Exchequer - although the National Audit Office will eventually say there was no real profit on the deal, after adjustment is made for the cost of locking up all those billions of pounds in shares that didn't pay a dividend for all those years.

Also, many investors believe Lloyds shares are almost certain to rise in coming weeks, partly because the British economy seems to be reviving and partly for the mechanistic reason that the government has fewer shares left to sell.

So some may query whether George Osborne should have waited for a better price - although experienced investors know that waiting for the best price means never selling.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -1

    Comment number 275.

    No other industry on earth is allowed to create money out of thin air except the banking industry.

    Even that was not enough. Ever increasing bets based on lower and lower stakes.

    Then it all came home to roost.

    Does anyone at all understand Fractional Reserve Banking. It's generally a good thing, like nuclear power, until it gets abused by a few to the detriment of man.

    Jail those in charge,

  • rate this
    0

    Comment number 274.

    272.

    To answer your question. Bank shares have doubled in the last year. Why? Because they have quadrupled their spread. They pay savers nothing and charge lenders high rates. For the first few years this covered defaulting costs but now it has a clear effect on the bottom line.

  • rate this
    -1

    Comment number 273.

    The banking industry has not changed. 2008 crash can and will happen again.

    Tough talking by the Govt but effectively NOTHING HAS CHANGED.

    Expect more £BN bailouts.

    Barclays are massive crooks, yet no one goes to jail.

    If you kill one person you get life, if you bleed to death millions you get a peerage.

    Money is debt.

    House prices are false.

    UK banking system is still rotten.

  • rate this
    0

    Comment number 272.

    Robert, five years after the hiccup and nothing's changed, banks are still as vulnerable as ever and likely to take the UK economy down with them!
    10 yr Gilts now at 3% and climbing, Osborne scrambling for cash to boast how the ConDems reduced the debt pile!
    As an aside can anyone tell me why money managers wanted to buy shares in Lloyds? Have they been told something not in the public domain??

  • rate this
    0

    Comment number 271.

    266.

    The only thing wrong with banks is lack of competition. If our servants gave them a monopoly via an oligopoly and said nothing because the financial service sector was delivering 35% of HMRC revenue then the problem was lack of oversight.

  • rate this
    -1

    Comment number 270.

    David Lilley @269
    "Oligopolies will always fix prices"

    John_from_Hendon @266\
    Of George Osborne: "he works for the banks and not for the people"

    Are there grounds here for encouragement, that need for equal partnership might be coming near to consciousness?

  • rate this
    0

    Comment number 269.

    The big governance failing has been the blind eye to oligopolies. Oligopolies will always price fix. If not by the front door then by the back door. Four big banks, two big tobacco companies, four big supermarkets, petrol retailing, insurance, energy companies etc will always effectively mean one supplier.

  • rate this
    -1

    Comment number 268.

    Grounder @251
    "as far as I can see"
    A delayed pre-election 'recovery', with over-heating in London & SE?

    Employment 'restored' but part-time, on the back of which profits rising

    Growth in average income will come with growth in high incomes, taking us ever further from equal partnership democracy... except in terms of experience, perhaps instructive

    Meanwhile, JfH bangs the structuralist drum!

  • rate this
    0

    Comment number 267.

    Can anyone confirm if the Co-op bank lends to Co-op group.

    If this were the case, if Co-op group recapitalises Co-op bank, then would the bank effectively be recapitlising itself?

  • rate this
    -1

    Comment number 266.

    265.David Lilley "I am sure that George Osboure will get the best deal for the taxpayer"

    David please think again. hasn't it dawned on you that he works FOR the banks and not the people. All the evidence you present shows that the real winners are the banks - that should inform your opinion!

  • rate this
    0

    Comment number 265.

    I am sure that George Osboure will get the best deal for the taxpayer when selling Lloyds shares. But why involve high cost intermediaries? Why not just sell some shares now and again when the price is high?

  • rate this
    0

    Comment number 264.

    My main Bank account is with the Co-op Bank's pure internet bank:Smile. I also have accounts with other banks.

    If the Co-op Bank stopped being a genuine mutual, I'd move. And I fancy many others would too.

    Moreover, wouldn't a shareholder owned "co-op bank" be passing-off?

  • rate this
    -3

    Comment number 263.

    Te Tories can blame Labour all they like - with some justice - but their employers - Hedge Fund Alley - are richer than ever and it was Cameron who knighted Hector Sants.

    They hate us

  • rate this
    0

    Comment number 262.

    Are the "Too Big To Fails" still Too Big To Fail? Answer: Yes.

    WHY?

    More capital makes them EVEN BIGGER! Banking has gone spectacularly wrong if one or two going bust can take down an entire economy!

    R.P You are failing to do right by the British people by persistently failing to report why the Government is doing, has done, NOTHING about this...in FIVE years!

    It's about who you vote for!

  • rate this
    0

    Comment number 261.

    154.
    cantankerous

    Corporate governance collapsed at Barclays ... executives took an ever-increasing share of profits ... whilst slashing dividends to the owners. ..How did corporate governance fail so catastrophically?
    =
    Because Pensions legislation created behemoths who swamp small shareholders, make 2 electoral Colleges 1 for each.. None of the small LBG shareholders I know voted for HBOS.

  • rate this
    -1

    Comment number 260.

    Co Op the assassinated Mutual.
    Lloyds bought the dodgy Halifax (Lloyds isn't being privatised you can already buy their shares if you are mad enough)
    Barclays going to be turned over by the USA.
    Goldman Sachs Scot Free.
    How many MiddleEastern Banks needed bailing out ?

  • rate this
    -2

    Comment number 259.

    Will you be buying LLoyds shares Robert when they're available to the public?
    Alan

  • rate this
    -3

    Comment number 258.

    nothing ethical or moral about banking !
    a bunch of thieves dressed in suits would be a better description!
    they have one objective to make as much money out of you as possible.
    break the laws and stitch up as many customers as possible.
    they get away with it and still no jail time just more government cash!
    my advice to next generation stay well clear of banks insurance.

  • rate this
    -2

    Comment number 257.

    The well dodgy practices going on at the banks and other financial services companies is a side effect of the lack of working class jobs in the UK. From the ground - up, the UK produces not very much these days, people out of work have nothing and the government anesthetise them with benefits, people in work have big mortgages and ever increasing bills. Bring jobs back to the UK from 3rd World.

  • rate this
    -1

    Comment number 256.

    254

    True, some customers may bank with them because they claim to be 'ethical' but that may put off others who can see through the claim.
    If they were a normal bank they may attract a lot more customers, but only time will tell.

 

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