A new taxpayer-owned mega-bank
The great fear in the City about the Treasury taking stakes in three of our biggest banks is that this partial nationalisation will turn them into non-commercial public services.
No bad thing, some might say.
But it's not what the chancellor and prime minister want.
So they are putting the shares that will be acquired for taxpayers in Royal Bank of Scotland, HBOS and Lloyds TSB into a new company that will be owned by the Treasury, but will be managed at arms length.
That company will be chaired by a former finance director of Lloyds TSB, Sir Philip Hampton, who is currently chairman of the supermarket group Sainsbury.
He knows banking better than most.
And his job will be to force the banks to:-
- continue lending to homeowners and small businesses,
- to prevent the banks senior directors from being paid more than is deemed to be fair and appropriate, and
- to make sure that the banks grow their profits in a sustainable way.
Is there a contradiction between the Treasury's determination to sell its shares at a profit as soon as possible and its insistence that the banks must keep the lending taps open as the economy contracts, with the attendant risk some of the new loans will go bad?
Hampton, who is a shrewd banker, not only thinks that these are reconcilable ambitions, but that the interests of his new company will be closely aligned with those of other shareholders in the banks.
Which is as much to say that he could easily find himself siding with the City and not with ministers, if there were a dispute over - for example - whether the banks were lending quite enough to those viewed in Westminster as deserving cases.
So the Treasury is taking something of a risk by appointing him.
And there's a further risk in its decision to create the vehicle for owning the bank stakes as a formal Companies Act company.
Well as the chairman of a proper company, Sir Philip could not be formally directed to take this or that action by ministers.
If they were to dislike how this new company operates, they could sack him. But that would be jolly embarrassing for them. So, in practice, Sir Philip - and his chief executive, John Kingman, who is being seconded from the Treasury - will have considerable autonomy.
Oh, and by the way, the new company will also take control of Northern rock and the rump of Bradford & Bingley.
So Sir Philip is not taking on a small enterprise. In fact, what the Treasury has dubbed UK Financial Investments Limited will end up as one of the biggest bank holding companies in the entire world.