The Great Debate UK
Sir Win Bischoff appears to relish a challenge. His brief spell as chairman of Citigroup was spent resisting regulators who wanted to break up the bank. If the veteran banker takes over as chairman of Lloyds Banking Group, his first fight will be with competition authorities in Brussels. This is one battle where it would be better if Sir Win did not live up to his name.
Neelie Kroes, Europe’s competition commissioner, says Lloyds and Royal Bank of Scotland could be forced to sell significant assets in order to win approval from Brussels for the vast amounts of government support they have received. Kroes has a track record in this area. Commerzbank and West LB have been forced to sell assets equivalent to about 40 percent of their balance sheets in return for EU approval of government recapitalisations.
The Commission has two objectives: to limit the duration of state aid, and minimise any competitive distortions that arise from public support. Typically, banks that receive state aid grow too big, too quickly, and have to shrink before they can stand on their own. The main question is how swiftly they should be forced to do so. Here, the Commission is prepared to be lenient. Commerzbank has apparently been given 2014 to sell its Eurohypo real estate division.
Three months is a long time in the markets, and particularly for banks. Alongside the rally in bank shares, investors have also bid up bank bonds, especially so-called tier 1 bonds which rank just above the equity in the list of creditors.
Sir Victor’s Blank cheque has finally bounced. Drawn on the Bank of Gordon, it looked like a dodgy piece of paper from the start, and now it has been sent back, marked “Refer to Drawer”.
Shares in Lloyds Banking Group rose in relief that someone, anyone, has finally agreed to take the rap for the disastrous takeover of HBoS, at the behest of the UK government, during last year’s financial panic.
Dazzled by the prospect of a market position in the UK which the competition authorities would never have allowed in normal times, Blank and his chief executive Eric Daniels failed to look their gift horse in the mouth, and discovered it was really a broken-down old nag.
The acquisition obscured the fact that the Black Horse itself was hardly in shape, and even without the handicap of HBoS, would almost certainly have been obliged to limp to the government for help. That is as much Daniels’ fault as Blank’s, and he will have to pay once a new chairman has been found.
This will not be easy. It would surely be too venal, even for this government, to impose finance minister Alistair Darling on the suffering shareholders, once he finds himself out of a job next year.
Lord Sandy Leitch, the Labour luvvie elevated to deputy chairman at the weekend, might fancy his chances, but his background is in insurance. The fashion for bank chairman who know nothing about banking has, mercifully, been blown away by the crisis.
More sensibly, Lord Mervyn Davies seems to have little to do since he quit Standard Chartered Bank <STAN.L> for the administration, while Doug Flint from HSBC would be a fine, and popular choice as chief executive if he could face the challenge. He’s a Scot, which would also play well in the Brown bunker.
However, John Kingman, the civil servant in charge of UK Financial Investments, the government’s fig leaf covering its 43 percent stake in the bank, had signally failed to endorse Blank’s re-election at the forthcoming annual meeting. Perhaps he is showing signs of independence after all.
Philip Hampton, who was ousted as finance director from Lloyds five years ago for urging a cut in the dividend, would have been the ideal candidate. Unfortunately, he was tapped to chair RBS last January.
Tuesday, May 12 was just another day in the twilight zone that is the market for bank debt and preference shares. As usual, that day’s dividends were paid on time, including the one due on Lloyds Banking Group 6.0884 percent preference shares.
– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –
Abracadabra! Yet again, Barclays has pulled another rabbit out of its hat. With just days to go before the end-March deadline for the bank to apply for a government guarantee of its dodgier loans, it may again wriggle out of state control.
from The Great Debate:
Nationalization of weak banks in Britain and the United States may be preferable to current plans for insurance and soft "bad banks" schemes which risk being swamped by future losses as assets, especially real estate, continue to crater.
An insurance program, getting banks to identify their riskiest assets to the government which will insure them for a fee, is one of the main planks of a UK plan to bail out banks unveiled this week.