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Lloyds to cut use of taxpayer insurance

Robert Peston | 11:15 UK time, Thursday, 10 September 2009

Conditions in the banking market have improved markedly since the start of the year.

Loans are going bad at a slower rate than the worst case scenarios of six months ago. And bank share prices have risen very sharply indeed.

Branch of Lloyds bankFor those are interest in that sort of calculation, taxpayers were sitting on an unrealised profit of £1.1bn on their ginormous holdings in Royal Bank of Scotland and Lloyds as of this morning - consisting of a £2.8bn gain on Royal and a £1.7bn loss on Lloyds.

Now I don't expect Stephen Hester to crack open the bubbly when I see him later this morning, to interview him for the last in the current series of Leading Questions (which you can see on the News Channel this weekend).

His way is always to accentuate the negative in interviews, with the hope of delivering results that are better than expected. So I anticipate hearing that it's still a little too early to say we're over the worst.

By contrast, Lloyds is acting on the basis that it is past the peak risk of disaster - in that I can confirm that it wants to reduce its use of the Treasury's asset protection scheme, or even do without it altogether (though I think zero use of the scheme by Lloyds is the least likely outcome).

You will recall that when the outlook for banks looked particularly bleak, Lloyds announced its intention to place £260bn of loans and investments into this scheme

This would have meant that taxpayers would bear 90% of future losses on these loans, after Lloyds incurred a first loss of £35.2bn.

It was a way of insuring Lloyds against losses that could have wiped out its capital and bankrupted it.

And for our trouble, taxpayers were to receive a hefty fee, in the form of £15.6bn of non-voting shares - that would have lifted our effective stake in Lloyds to 62%, from 43%.

Now I have spoken to a number of Lloyds big shareholders and they have told me that they regard the scheme as less necessary than it was, because loans are no longer going bad at the rate feared a few months ago.

And they say that with stock markets rising, they are prepared to subscribe new capital to Lloyds, to increase its buffer against future losses, as an alternative to the scheme.

Lloyds is working on such a fund-raising alternative to the asset protection scheme.

One option is a combination of a rights issue and an offer to holders of £7bn of so-called preferred securities, to convert this lower quality capital into higher quality ordinary shares (higher quality from the perspective of the regulator, rather than investors).

Naturally Lloyds can do nothing without the agreement of the Financial Services Authority and UK Financial Investments, which looks after taxpayers' interest in Lloyds.

Both are agnostic about whether Lloyds strengthens itself by using the asset protection scheme or by issuing new shares.

In other words, Lloyds has the green light to come up with an alternative to the asset protection scheme.

And, as I have said, I would expect it to announce a hybrid approach, that it will be raising billions of new equity capital and putting far fewer loans and investments into the asset protection scheme than originally announced.

There is however one big outstanding issue.

Will the Treasury demand that we taxpayers be paid a fee for the way we have underwritten this bank over the past six months by promising the asset protection scheme? (The US treasury is making such fee requests of banks that don't want to take up promised support of this sort.) This is a fraught and controversial question.

Anyway, what Lloyds plans in scaling back its use of the asset protection scheme is another sign that the economy is in better shape than it was.

Now I wonder what Stephen Hester will tell me in a few minutes when I ask him whether Royal Bank still needs the asset protection scheme.


  • Comment number 1.

    What about the 130Bln in loans that will have to be re financed soon? (50% of their loan book)

  • Comment number 2.

    what could i do if i had a brilliant idea for a bbc 1 program?

  • Comment number 3.

    Fascinating stuff. As was the programme on the crash of the late 1920's last night. Everyone should see it for it shows how the banks manipulated the markets and left small investors bankrupt.

    Sounds familier so history does repeat itself and bankers still manipulate the markets with government help of course.

    No-one is yet sure of the outcome of QE but in the short term it sure is helping the banks and investors.

    Housing losses are now propped up so no further rightdowns required for the moment. Therefore banks should no longer need guarantees from the taxpayer. Only then will we really know the banking crisis is over.

    A bubble in the stock markets which is an ideal time for the government to start selling the taxpayers stakes in the banks before the plug is once again pulled.

    A good time for the taxpayer for the QE model is working its way through the financial services sector. Just as long as the govrnment takes advantage of it now to the taxpayers advantage. Everything at the moment is short term so that time could quickly run out.

  • Comment number 4.

    anybody else think we were "conned" by the banks? it was never as bad as they said,they managed to get the taxpayer to pay for their losses and continued to take bonuses..... those "write downs" were not "write offs"... the "recovery" is simply "writing up" the previous "write downs"....

  • Comment number 5.

    Bad debts are still going bad at an alarming rate. Allowing them to value toxic debt at their own models is a recipe for disaster. If the government can sell the stake to some gullible buyers before the accountants change the rules we could do well. The problem will remain, however. Give me the figures you have about bad debts going bad slower. That is what you should be writing about. I remember the Chairman also telling us all the HBOS bad debt had been accounted for!
    When will you learn Robert, the general population wan RETAIL BANKS AND INVESTMENT BANKS to be seperated. We no longer want investment banks gambling with our hard earned money. Report for the people, not for the banks.

  • Comment number 6.

    Perhaps the taxpayers should treat the banks the way the banks treat the taxpayers. Caledonian Comment

  • Comment number 7.

    Superficially looking back over the last year, it is easy to say it wasn't as bad as we thought it would be. But if we think that we are fooling ourselves.

    There is a fundamental shortage of loans in the housing market. Yes if you can get a loan the interest rate is not bad but it is not a reflection of Bank Rate. Current figures are 3.5% over BR. That compares with a loan a colleague has on a buy to let property of 0.7% over BR taken out 5 years ago and reflected his high capital investment then and today (less than 50% geared). But not only is the 3.5% over base bad, it is reflected on a 60% LTV. Risk averse? Do the banks/building societies know something I don't? Or do they still not have the funds to lend after the billions printed electronically to cancel the government debt held by the banks.

    The housing market cannot return to normal until this reality is addressed? Do we really expect a first time buyer to save 20-40% of the purchase price? If they can't they get hit with interest rates closer to 7%. What will happen when interest rates trend even to recent averages?

    Cloud cookland still exists. Discuss.

  • Comment number 8.

    I am not an expert in this area but I have two observations:

    - If I or my business takes out an insurance policy to protect me from risk for some period of time and that risk does not materialise the insurance fee is not waived. If I cancel the cover early, I would expect to end up paying a lower fee than initially agreed of course.

    - It is good news that the banking sector is recovering as we all depend on it in various ways. However we desperately need to get billions of pounds into the public purse, and we should not pass up a reasonable opportunity to get a contribution to this from a rich and powerful part of the private sector which is as dependent on us as we are on it.

  • Comment number 9.

    The banks are as insolvent as they were before as their assets are overvalued on their books. If they were forced to liquidate them, they would be bankrupt. Value as you choose boys is the current mantra that has resolved their previously dire predicament. Nothing has changed other than the pressure of over-sight has been lifted.
    The only difference is that they have more cash on their books. Insufficient to make them viable, but as they have increased their margins and have vast amounts thrown at them by the BOE they look cashed up, reluctant to lend, and less risky. This belies the reality and their share price recovery demonstrates a herd mentality. Here comes the Big W - Truly a Mel Brooks Mad Mad Mad Mad World.

  • Comment number 10.

    I just wish car insurance companies offered the same deal. Free coverage from the beginning of the year while you think about whether you really need the insurance and then the chance to only insure those cars which have already crashed.

    We are in a new form of feudal society with bankers and civil servants taking the place of the landed gentry.

  • Comment number 11.


    'If the government can sell the stake to some gullible buyers before the accountants change the rules we could do well.'

    Nice try! But we would in all proability lose, you see it would be OUR pensions ‘invested’ in these carp stocks.

    We are slaves. This is a system in which you cannot win in, nor can you opt out.

  • Comment number 12.

    I too saw the programme about 1929 last night.
    Remarkable similarity between then and now.
    Amazing how the "herd mentality" can lead us all straight to disaster.
    We all piled into it in 1926-29 and we all piled into it in 2004-07.
    It's greed of course....capitalisms' great driver and capitalisms' achilles heel.
    The Halifax part of Lloyds was also sucked into the "herd mentality, hence the great losses.
    In future all bankers and finance ministers should be forced to attend a monthly briefing given by Vince Cable......the risk of future disaster would be greatly reduced.
    Robert Peston very professionally reports on financial disasters after they happen.
    Vince Cable very professionally reports on financial disasters BEFORE they happen.

  • Comment number 13.

    And I see that Lloyd Blankfein, the chairman of Goldman Sachs no less, is calling for "clawback" of excessive bonuses, and an end to multi-year bonuses in the finance industry.
    This guy gets my vote.
    A top banker with a sense of fairness in society?
    Well done, Mr Blankfein.....more please.

  • Comment number 14.


    "For those are interest in that sort of calculation, taxpayers were sitting on an unrealised profit of £1.1bn on their ginormous holdings in Royal Bank of Scotland and Lloyds as of this morning - consisting of a £2.8bn gain on Royal and a £1.7bn loss on Lloyds."

    Lets not mislead people here - if you take into account the HUGE DISCOUNT these shares will have to be sold at in order to prevent a flood of the market - then the picture is much less rosy. Unrealised profit is 'dream profit' - especially when you're talking about such a large holding.

    If anyone wants to make sense of this then look at it this way, when the Govt. bought up the stake in RBS the shares were basicaly worth 0 (or very close to) as the bank was heading down the tubes and only a recovery amount (which is non-existant for equities) would have been applied.

    The reason the share price did not reach 0 was because of the Government intervention, by propping up the share price.

    If you take the true value of the shares (lets call it 0.5p for arguments sake). I understand the stake was bought at 50.5p, so there has been an increase of 6.60p on today's share price, which if you take the true value equates to a whacking loss of 43.4p per share.

    I would also warn people about the effects of QE on this 'profit'. If we come out of this holding and make money (in sterling) - will the fall in value of sterling be taken into account? If I took a holding in a Zimbabwe comapny and reported profits of 6 million - what would that actually be worth relative to the rest of the world?

    This is all based on the premise that the share price will continue to rise, however investors will eventually work out that the profits (or lack of losses) are mainly due to Government intervention (which is short term) and in line with yesterday's story, the revenue stream (lending) seems to have all but dried up.

    Whilst I'm sure the bean counters at the Treasury will make it look like we've made a profit regardless, I'm not sure we actually will.

    Doesn't anyone read the small print? Investments in the stock market are a LONG TERM investment. Something the Government (and Mr Peston) clearly never read....

    I'm going to start keeping a track of the number of times this story of 'could make a profit' goes around - because it seems clear to me there is no basis for this (other than hope) and yet it's been getting more and more air-time.

  • Comment number 15.

    If the government are to demand a fee for the offer of insurance will Lloyds demand a fee for the service provided to the government in bailing out HBOS. Additionally will they publish transcripts of all meetings to demonstrate that the government forced them into this deal against their judgement thereby causing massive losses to Lloyds shareholders.

  • Comment number 16.

    Hmmm, a profit for the taxpayer you say? All very nice in theory, but when you take into account some other equally valid views such as that of David Rosenberg of Glusken Sheff who says “We did some digging and found that all the world’s economic rebound in 2009 – that is, 100% and then some – is being accounted for by fiscal stimulus, and for 2010 we calculate that 80% of the growth that the consensus is penning in is derived from the public sector”, it becomes clear what is driving the 'recovery' and exactly who's paying for it. £1.1bn? Peanuts......

  • Comment number 17.

    I hope if we only end up with the more risky tranche of LTSB/HBOS loans we charge a higher premium rate.

  • Comment number 18.

    I am glad that the TV show has enlightened many of you last night, however if we had a decent education system then you would have all read J.K.Galbraiths book called 'The Great crash' which accurately depicts the situation during 1929 and demonstrates that our political classes have learnt nothing.

    Interestingly the son of J.K.Galbraith was on radio 4 last night to be asked about the comments of Greenspan yesterday.

    He astutely made the point that "if Greenspan knew this why didn't he do anything about it when he was in a position to do so - not now that it's too late".
    ...which was effectively ignored by the reporter who simply wanted to ask if it was true that speculative bubbles will always occur (she was obviously another one who has never read Das Kapital)
    Nevertheless - a good question for Mr Greenspan.

    This is how they get away with it - the answers are simple to get if you ask the right questions - sadly the quality of journalism (as well as the knowledge of the public on the matter) is sadly lacking in this area.

    There is no real challenger to the surplus value thoery and yet most people don't realise what it is - a bit like the pyramid schemes in the past where people simpy trusted in them rather than thinking about it logically for a moment.

    Over the years (certainly since I've been alive) all Governments have systematically sold off what we own (as a people) to a small number of individuals and firms. Whether it be obvious (like privatisation) or less obvious (like the bailout or defence spending) - no matter what public money is diverted to private individuals.

    Do you know the last system we had where a small number private individuals owned everything? - it was back in the slavery days where any crime could be committed - as long as you were rich - and the rights of individuals were at an all time low.

    Already it can be seen on the streets of London, people driving around Chelsea in their oversized jeeps already have an attitude of being more important than other road users. Cases where the criminal justice system has failed, but a civil case wins - opening the door for an unequal legal rights system based on your ability to pay. Speeding fines are another example - as are most vehicle based crimes.

  • Comment number 19.

    #14 writingsonthewall wrote:

    "If you take the true value of the shares (lets call it 0.5p for arguments sake). I understand the stake was bought at 50.5p, so there has been an increase of 6.60p on today's share price, which if you take the true value equates to a whacking loss of 43.4p per share."

    That is absolute nonsense - figures twisted far beyond any reason merely to support your relentlessly pessimistic and angry view of the world.

    Profit is, in its simplest form, merely the current price of an asset less the price paid for the asset. If, as you say, HMG paid 50.5p for each share and the share price today is 57p then the government has made a paper profit of 6.5p per share. Your "true value" is completely irrelevant.

    I bought 100,000 RBS shares at 13p. Are you really telling me I have also lost money? Utter nonsense.

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    This is off topic, but I see that another BBC economist is pointing out that some people want even lower interest rates than the 0.5 % that exists now, even negative rates! Could some reader of this blog tell me what effect this would have on the bank share value? Personally I'd guess quite a fall as even Britons would move their savings into the Euro and other currencies, but one thing I have learned is that the obvious is never clear.

  • Comment number 22.

    #18. writingsonthewall wrote:

    "she was obviously another one who has never read Das Kapital"

    - isn't that a recruitment question when hiring economics reporters - any knowledge of the history of the development of economic thought debars you from the post! It is a requirement that the reporter supports the status-quo and the banks that run the state. Don't rock the boat! Structurally we were destined to be failed by our reporters.

    Alan Greenspan is either a fool or an idiot - a fool if the thinks the public will not see through him when he denies responsibility and an idiot to claim it was not his responsibility. At least he has gone from office - why is Mervyn King still at the Bank of England - it was his responsibility to prevent the bubble economy in the first place yet he did nothing - so why does he still have a 5 million pound pension fund! As I have said elsewhere, this demonstrates just how far the state has been subverted by the private banks - and we must stop them!

  • Comment number 23.

    Hang on, the Treasury are 'agnostic'.... Isnt it going to be us ( taxpayer) paying for the new share subscription so as to avoid our stake being watered down? Wouldnt the Treasury be funding the new capital rasing to then avoid its own insurance scheme. Put me right if I am wrong, Robert.

  • Comment number 24.

    ok so i wait until my house burns down,and then take out insurance..! well that is basically what the banks have done. They have all the toxic assets insured AFTER they went toxic. Can someone tell me how this is allowed and why the taxpayer has to take this risk?

  • Comment number 25.

    Are these the same chaps who failed to identify the state of HBOS books and rushed into the merger?

  • Comment number 26.

    'I bought 100,000 RBS shares at 13p. Are you really telling me I have also lost money? Utter nonsense.'

    Have you sold them yet ;-)

  • Comment number 27.

    #19 rbs_temp

    Oh dear, you really are dangerous aren't you...don't you think things through?

    "I bought 100,000 RBS shares at 13p. Are you really telling me I have also lost money? Utter nonsense."

    ...but you only bought 100,000 of a market share of 5,636,572,000,000 making your measly portion 0.00000177% - which when you sell back to the market won't make any difference.

    However the Government holds 3,945,600,400,000 (assuming it's still 70%) which might move the market a tad when they are sold.

    I'd also challenge your definition of profit - which you describe as:
    "Profit is, in its simplest form, merely the current price of an asset less the price paid for the asset"

    Whereas the truth is profit is the excess work from the workforce which is unpaid or work which is paid at a reduced rate.

    Once again your disassociation from the actual source of profit allows you to assume that it presents itself from your wealing and dealing - whereas as you have produced nothing from dealing your shares - you have not 'made a profit' - but it was made for you, and you simply took it by being in a position to extract it from those who have to work for a living.

    ...and that folks is how banking and bankers get us into messes like this.....

    Regardless of that, the 'profit' Robert is talking about is not even paper profit, unless a very, very, very rich man (as rich as the UK Government) comes along and suddenly thinks RBS is worth this climate....and there are no other better opportunities....then any sale will depress the price back to is't true value - currently about 6.5p per share.

    You see that's the problem when Governments have to get involved - all the market theories go out of the window - or did no-one teach you at school that monopolies don't conform to market principles???

  • Comment number 28.

    Bankers made fortunes on fees for processing bad loans for unqualified borrowers but find it unacceptable that the public should secure a fee for taking their bad loans. I think if the whole system had been let to fail, things would have worked out better in the end, but because the banks own the governments, there was never a chance of that. This is all a bunch of posturing meant to serve some political purpose. The devil is playing the tune as the governments and media partner for the dance.

  • Comment number 29.

    24. At 3:34pm on 10 Sep 2009, jolo13 wrote:

    "ok so i wait until my house burns down,and then take out insurance..! well that is basically what the banks have done. They have all the toxic assets insured AFTER they went toxic. Can someone tell me how this is allowed and why the taxpayer has to take this risk?"'s called blackmail, the Government decided that the civil unrest caused by the banking system collapse was worse than the civil unrest they risk by bailing out the banks.

    like a bad debtor the Government chose to 'put it off for another day' rather than face the music there and then.

    One thing this whole episode shows is the pointlessness of money, so much is done to amass it but it's totally subject to mass devaluation based on a bad decision or two made at the top. People think they're getting richer, but most are getting poorer as it's now such a relative concept (since FIAT currency was introduced) it really has no bearing on true value.

    ...hence the rush for Gold....

  • Comment number 30.

    The banks have control of the state. Savers and normal borrowers are seeing their wealth transferred to the most profligate at an unprecedented rate - but apparently nobody is allowed to be alerted to this!

    The regulators are in the pocket of the banks. No longer do we hear that rates are set to meet some target in a couple of years time - all that we here is that we must prop up the banks now. Savers have seen their wealth abstracted and passed to the banks as have moderate borrowers - the only beneficiaries and the most profligate of borrowers who would otherwise have been forced into default (and this is why Lloyds does not need so much more of our dosh) and the banks themselves. This is outrageous and an appalling state of affairs.

    We have no political government and the whole country is being run for the total sole benefit of the banks, accidentally with the only individuals benefiting being the most profligate. Is this any way to run an economy? It is not only wrong economically, it is wrong morally and ethically.

    Mervyn King and the MPC talk of not reflating the credit bubble as a way out of the recession - but this is exactly what he and his cronies are doing. Enough is enough and we have unjustly suffered more than enough so that a few privileged obscenely wealthy bankers don't have to live on rations!

  • Comment number 31.

    " For those are interest in that sort of calculation, taxpayers were sitting on an unrealised profit of £1.1bn on their ginormous holdings in Royal Bank of Scotland and Lloyds as of this morning - consisting of a £2.8bn gain on Royal and a £1.7bn loss on Lloyds. "

    Yeah Peston... whatever. Did a rough calc and at today's volumes it would take something like 470 days of trading to offload the Government's stake in Lloyds. And that's assuming they are the only seller which is obviously not the case.
    For all intents and purposes the Government's investment in Lloyds is illiquid and the only way they'd offload it is in a big block OTC sale, probably taking a discount of 20 to 30% on any market value.

    My backside is also sitting on an unrealised profit... and it's equally worthless and irrelevant.

  • Comment number 32.

    26. At 3:53pm on 10 Sep 2009, JavaMan1984

    ...I'm more worried that they let rbs_temp loose with 13 grand to dabble in the markets.

    I had a friend - or rather associate, who was lauding it up over the shares he bought in Northern Rock after they tumbled (but before they were taken over by the bank) - following the lead of RAB Capital - oh how I had to bite my tongue when he cried foul after the event and now the lucky man is having to contribute towards court costs to get a 'fair value'.

    The big question which is being avoided at the moment is the one about when the banks will start to make money again. Following Robert's story yesterday (and the majority of comments regarding a reluctance to borrow) - I would suggest that the money lending business is going south for a while.

    I wonder what they'll try to do to fill the hole?

    Lower savings rates? - well done that
    Increase bank charges? - perhaps not, unless the OFT case finds in their favour
    End of free banking? - difficult as some will still be able to offer it
    Higher mortgage rates? - well their trying now, but the Government keeps insisting they bring them down.

    I suspect it will be the good old favourite of hidden charges and fees, they can offer a very low interest rate, but what about arrangement fees, legal fees, surveyor fees, business advie fees etc.

    What the consumer must do is tread carefully and watch out.

    I think we're about to see if the banking system is a cartel or not.

  • Comment number 33.

    30. At 4:44pm on 10 Sep 2009, John_from_Hendon

    Hear hear

    Robert - why don't you put that in your pen before you start tomorrow - you can title it 'How the west was won'

  • Comment number 34.

    We (uk plc) were quite happy to live off the revenue from 'the city' when the going was good. Lloyds was either 'encouraged' to take on HBOS to save UK plc or was totally stupid - as a shareholder I hope that the 'board' was ahead of the game. This analysis was aided by half a bottle of gin.

  • Comment number 35.

    Is 1.1bn eye-wateringly large?

  • Comment number 36.

    writings I think you are on the cusp of becomming a gold standard supporter - come over to the golden side

  • Comment number 37.

    Morning Robert,
    I seem to remember that the offer price for the Taxpayers £15Billion stake in RBS was 65.5p.
    At a current price of 56p how have the taxpayers made a notional profit on their stake?

  • Comment number 38.

    I am sure that you are right, both with regard to what Lloyds is looking to do, regarding the APS, and also regarding the public stance being taken by Stephen Hester.
    (a) regarding Lloyds and the APS:
    The Lloyds package was very much more expensive that the RBS one, and was largely driven by the need to protect against the unexpected (and badly handled) toxicity of the HBOS purchase.

    RBS had a larger (and relatively less expensive) APS package, but also has a significantly higher current Government ownership level: that combination would make the task of replacing the APS with ‘private’ funds very much more difficult for RBS, as compared to Lloyds.

    However, for both banks, a number of things have changed for the better, since the panicky days in the 6 months from September 2008 to March 2009, including:

    · the ‘Armageddon’ threat to the financial system as a whole has passed (at least, for the time being!);

    · the credit markets have largely recovered to the pre-Lehman levels (both risk appetite, and pricing);

    · the global economic situation has improved, albeit still somewhat fragile;

    · the two APS packages will have reduced (through re-financing, or natural amortisation);

    · for most of the remaining APS exposures, the risk view will be clearer (and mostly improved);

    · the underlying profitability of the core operations of both banks has improved;

    · the ability of Lloyds and RBS to raise ‘private’ funds (equity and debt) has improved; and

    · the time to the next UK election date is now measured in months only.

    Against that background, I expect to see both APS packages reduced in size (Lloyds by more than RBS, proportionately), and the cost of each to also reduce – albeit maybe not so proportionately.

    I also expect to see Lloyds raise some or all of its Guarantee Fee payment by way of a Rights Issue, to which the UK Government will not contribute in full (and possibly, not at all).

    Such a capital-raising will have the particular benefit of ensuring that the UK Government’s stake in Lloyds does not increase – in fact, it would start the process of reducing the current stake.

    It is possible that RBS could try something similar.

    However, the recent public negative commentary by Stephen Hester (regarding the immediate prospects for the RBS bottom line) would make a capital-raising exercise a very challenging task, until the prospects have clearly improved (and he is willing to say so).

    The only ‘counter’ to that might be if the UK Government is able to call in some favours from some sovereign wealth funds, for them to take a placing of some of the current UK Government’s stake in RBS.

    At the present time, I would be doubtful if such a situation exists – at least, not on a big enough scale to make a meaningful dent in the UK Government’s RBS stake.

    More likely is that you will see some partial divestment (by market placing) of the RBS stake (as increased by the APS), beginning at the back-end of this year, or the first-quarter of 2010.

    That could still be in time for Gordon Brown and his colleagues to make valuable political capital from it, ahead of the 2010 General Election – which I assume will be in May 2010.

    (b) regarding the public stance of Stephen Hester:

    In any company, a ‘turn-around’ CEO has a short initial window in which he can do some ‘kitchen-sink’ provisioning that he can blame fair and square on his benighted predecessor.
    At most he gets two stabs at it, provided those are both in the first 6 to 9 months of his tenure.
    After that, he is responsible for any further provisioning that might be necessary – even if it relates to business done under the predecessor (because he can’t explain why it took him so long to find it).

    Just look at UBS and ING, for examples of just this behaviour (although UBS clearly does have some wider issues as well).

    I think that RBS is a case where both (a) and (b) apply – especially the (b) bit.

    In addition, there is another factor that must be remembered in these ‘turnaround’ cases.

    The new CEO does not want to see a too-rapid recovery in his company, as that might lead to questioning of just how bad was it really, under his defenestrated predecessor.

    This is true in spades in the RBS case, given the controversial bonus package that Stephen Hester has negotiated for himself. It would be very difficult for him to retain that juicy bonus if the RBS figures rebounded quickly.

    It is very illustrative to compare his downbeat commentary against that from Eric Daniels at Lloyds.

    In my view, RBS is a better bank, because it has a significantly broader base of business, including a reasonable Investment Banking unit that is much bigger than Lloyds.

    However, Eric Daniels cannot afford for the workout of the HBOS acquisition to take too long – he really needs to be able to show clear benefits emerging by the end of 2009, or he is next for defenestration.

    On the other hand, such a pace of recovery would be a disaster for Stephen Hester.

  • Comment number 39.

    Well while you lot were reporting the impending doomsday of the banks, I was investing everything I could muster in the shares at last count, if I had bought the shares I own today at the peak and taking into account the rights issue dilution in Lloyds, it woul dhave cost me somewhere approaching 200k, it has cost me a fraction of this ammount. A leeson for everyone is that the media inflate the positive leading to boom and deflate the negative creating a bust as long as you hold faith that the truth is somewhere between the two you will make a lot of money. It's not too late, RBS sharesare still available for the price of a packet of crisps and Lloyds at just over £1 ar a bargain. Buy them and hold them for a year and you will be laughing!

  • Comment number 40.

    To clarify, the reason the shares are so low is because they are not payin dividends which instituions need to fund pension payments so once these return in the next year or so, the price will rocket sharply, just look at Barclays who have said they will pay a divi this year.

  • Comment number 41.

    36. At 10:07pm on 10 Sep 2009, truths33k3r wrote:

    "writings I think you are on the cusp of becomming a gold standard supporter - come over to the golden side"

    I always have been - but unfortunately the practicalities of going back would be possibly more disasterous than Gordon Brown's Chancellory.

    I mean the devaluation of everything would have to occur because there simply isn't enough gold in the world to support it (I believe the entire gold ever extracted would fit into a 20M squared container)

  • Comment number 42.

    #32. writingsonthewall wrote:

    "...I'm more worried that they let rbs_temp loose with 13 grand to dabble in the markets."

    Who is "they"? I simply decided that it was better to spend some of my savings on shares that were probably close to rock bottom (and which have provided a 350% return in 8 months) than have it earning 2% p.a. in a savings account. When I gamble I use no-one's money but my own. (Although I am, of course, grateful to the taxpayers who helped ensure that my investment did not turn to dust).

  • Comment number 43.

    well done Robert - keep it up

  • Comment number 44.

    The major Western banks only remain solvent as a result of it being discovered that they were too big to be allowed to fail, so, instead of being allowed to fail, they have all survived courtesy of enormous amounts of tax payers' money and a de facto tax payers' guarantee. This applies to Goldman Sachs and Barclays as much as to Lloyds TSB and RBS. If AIG and RBS had gone down would Goldmans or Barclays have been far behind? Now, because it is known that the big banks are too big to fail and are, therefore taxpayer guaranteed they can borrower cheaper than otherwise they could and can therefore make bigger profits and pay themselves bigger bonuses - good scheme!

    Normally, if a commercial organisation relies on a third party's guarantee they have to pay for it. Why not, therefore require those banks deemed to big to fail to pay an annual sum to the government for the de facto guarantee based on their balance sheet value weighted for risk. This would reward the taxpayer for actually carrying the risk as we do and would encourage, particularly the riskier bits of banking, to be devolved down into units small enough to fail and therefore not within the taxpayer's guarantee.


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