Nov 03 2009
Stop being so nice to overstretched banks
The government is promising £31,200,000 more taxpayers money for two banks. It’s throwing printed money after borrowed. It’s bad for taxpayers, and not good for the banks either. It’s time to sort the banks out, not to prop them up with taxpayer cash. It’s also offering a backup of £8 billion more share capital for RBS, and insurance on a £282 billion portfolio of toxic assets.
What should they do? In the case of Lloyds, who at last want to extricate part of themselves from government clutches, the government should make it clear it will not subscribe to their rights issue. The government’s rights should be sold nil paid in the market as part of the transaction and any premium paid to taxpayers.
However, Lloyds is still 43% government owned. As the main owner the government should require the sale of HBOS, not yet fully merged into the wider group , and a TSB branch network bank or the equivalent. When sale proceeds come in for these assets the surplus on the transactions should be used to buy back the government’s shares so they can be cancelled.
RBS isn’t even trying to become independent. The government owns a majority. It should insist on major sales of overseas banks and the investment banking arm, to cut the problem down to size. Most of the proceeds should be returned to taxpayers in return for share cancellation. Some of the cash and capital coming in should be used to capitalise the remaining banks sensibly. The UK bank should be split into at least two retail chains and these then placed on the market. The end of the process would see all government shares purchased by the company and cancelled from the proceeds of asset sales. Minority shareholders in the holding group could have a choice of full pay out or retaining shareholdings in banks sold to new owners where this was a practical proposition.
21 Responses to “Stop being so nice to overstretched banks”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
Even if the current Chancellor takes your advice, the time available before the election is insufficient to complete any noticable changes to the banking infrastructure.
When such significant changes are being mooted by a (presumably) outgoing administration, they are effectively taking the role of Opposition.
As for throwing more money at the problems they have created, that’s just par for the course. So what if the Country is bankrupt in June 2010? They don’t expect to have to deal with it.
It doesn’t matter how over-ambitious, impractical or badly planned the Labour proposals are because they will never have to be tested – it’s only ever going to be a stick with which to beat the incoming administration.
John
Why is it that you seem to be a lone voice (that seems to make reasonable sense to me at least) in all of this.
Does no one else (in any Party) really understand, or are they too frightened to make comment, on account of being found out about their limited knowledge of finance when questioned.
What is the official Tory Party line on this, as I have yet to hear a shadow cabinet minister or DC make themselves as clear and precise as you tend to.
The BBC suggests this morning that Lloyds will be forced to sell of Cheltenham & Gloucester and possibly TSB which have been part of Lloyds for some years. Surely it would be far better to de-merge HBOS which can hardly have been integrated by now and is still being run as virtually a separate company. That in turn could be split into its two original parts.
But I suppose taking this obvious route would make the government look even more stupid than it actually is!
Well John, this is the “noughties” and Gordon has certainly made sure what noughts look like…
It would be churlish to describe the out going PM as very naughty, wouldn’t it?
I cannot see, myself, why the government does not simply withdraw the rug from under the banks and let them stand on their own two feet. What would happen if they did this?
Apart from the loss of several voters in the Labour heartlands, that is……
One of the reasons for keeping banks in Government ownership is to protect gilt sales.
Independent banks might have other views on the security and desireability of UK Gilts.
The Bank of England has printed £175bn and wasted it on Government spending. Most of it is now sat in the reserves of British banks as they do not have sufficient capital to lend it out! If they are going to stealth tax us savers/taxpayers to try to reflate asset prices, surely they should have used the printed cash on capitalising the banks then they could at least have lent the money.
The fact the printed money has driven down yields is irrelevant as companies cannot borrow to invest and the Govt debt is sucking in most of the capital.
We seem to be under the control of non elected Economists who are just making it up as they go along, happy to experiment with other peoples money. The first thing the Tories need to do is clear out the Economists and bring in some accountants. At least they deal in reality and not made up models which fail miserably everytime!!!
It’s more than £29 billion. First of all there is the extra £8 billion in contingent equity which is a promise to subscribe for more equity if the Tier 1 capital of the bank falls to 5%. Calling the extra £8 billion contingent is a bit like a roulette player who says he will only gamble the chips in his pocket after he has lost his chips on the table.
Then we have the £11 billion cash value of tax losses that RBS previously said they would forego but which the Treasury have consented to take on, and then there is the $282 billion in assets that the government has agreed to take on from RBS.
Finally there is the higher first loss position in the APS being taken by RBS. On the face of it this is being increased from £42 billion to £60 billion, but in reality since the governments stake in RBS is being increased from 70% to 84%, the loss taken by outside shareholders falls from £12.6 billion to £9.6 billion, which means that the government is taking an extra £3 billion of the first loss on the RBS assets in the APS. Still we can deduct the £9.6 billion from the government’s risk position.
A billion here, a billion there and it soon adds up to big numbers. I make that an extra £283 billion on top of the £29 billion.
Reply: Very true – we will soon be talking serious money.
The clue is in the initials as to why this Government is being “nice” to these banks,the scottish mafia strikes again!
Another £30bn to RBS and the whole country just shrugs it’s shoulder so innured we have become to hearing about these massive sums – £220bn borrowed for the fiscal year, debt predicted to hit a trillion in the not too distant future, £175bn of new money printed.
It was less than a month ago this government was trumpeting it’s ‘get tough on debt’ line by (optimistically) telling us that they were going to be raising £16bn from selling off assets owned by the government (i.e. us) – mainly land owned by councils from what I could make out.
If they do realise anything like that amount it has now been swallowed and much more besides in the blinking of an eye. Another part of Britain PLC hived off to the highest bidder.
Why are we being so nice to them when those bankers help cause this economic calamity ? Throwing cash at them so far has not got credit to good businesses going to the wall for lack of lending to business.We need to threaten a 3% interest charge on all money given to the banks by the government unless lending to business increases and that mortgage applications to people with a sound credit history who can afford the property concerned are substantially increased. That would reduce business failures & tackle unemployment by moderating job losses.By getting more people onto the property ladder you boost social mobility and more house purchases will help the real-estate market recover.
Defrosting the credit market is vital to any economic recovery and throwing money at the banks has not thawed things out and QE has yet to stop the dole queues getting longer as the economy contracts. Taking the gloves off and saying that the banks face 3% interest on all monies given them unless credit levels rose & bonuses if paid before the credit market defrosted could face retrospective action.
You could also say to the Bankers that the quicker the recovery in credit levels the quicker the progress towards ending the 50% tax band will be. As money talks Bankers might decide to start lending again to minimize their future tax bills.Saying no more bonuses until credit levels improve would certainly encourage them to lend again.
Socialists do not understand business and always think that nationalizing things and/or throwing money at them will improve them.Well hosing the banks with vast sums of money has not led to the increase in liquidity in the credit market needed for an economic recovery.But to ordinary folk losing their jobs and having pay cuts or to pensioners with a diminishing savings income (due to lower interest rates) vast bonuses to the bankers who nearly caused an economic depression just look insane and immoral. The government own these institutions – what private share-holders would tolerate this kind of conduct.
Time for action methinks !
John is far from the only reasonable vox out here…he is of course a saint in comparison with the bulk of li’ons who are very wicked indeed (tee hee). Its high time our dear friend was loosed again. Then again maybe he is just to honest in a world of fibbers John (who the master Loved) says it as it is.
“At least they deal in reality and not made up models which fail miserably every time!!!”
Short of ending Fiat money and reverting to LSD what can we do.
“you never give me you money you only give me your funny paper”
I am not an economist but I understand law, our laws have been corrupted by the socialist devils. Money is gold and silver and who knows maybe even platinum but it is not paper how every much we might like to think. “monies doesn’t grow on trees they say” It has to be dug from our mother.
They say the Lord has 7 lying tongues and this they are right. The work must be done in silence…that is the troth.
alan jutson @ 8:49 am
John Redwood is the exception that proves the rule: all politicians are in the wrong party because they are all monster raving loonies.
On a more serious note however, the sensible disposals are (from RBS) those parts of ABN Amro purchased at the top of the market, and there will be a loss on the sale of those assets, but the sale will bring in cash, and the disposal of NatWest and Birmingham Midshires, together with the financial services arm of that acquisition.
For Lloyds, the sensible disposal is HBOS, which has not yet been integrated with Lloyds/TSB/C&G, for whatever it can get for it. The loss of the liabilities from LLoyds balance sheet hould make that a worthwhile disposal even if lloyds has to pay someone to take it away.
Perhaps therre should be one new law passed to preven any one body, person, or concert party holding more than say 5% of the shares in any of the banks or subsidiaries disposed of, if they hare to have a banking licence in the UK.
Mr Redwood, I seem to remember many months ago your saying that the government should not make taxpayers’ money available to banks simply for them to bolster up their balance sheets; they should do that gradually through their normal profitable operations.
So the Labour government lent RBS and Lloyds £37Bn at 11% – which went straight onto their balance sheets.
As Matthew Reynolds points out, until lending to business increases and mortgages given to people with a sound credit history who can afford the property concerned, things will not change.
I would be interested to hear whether you feel that a large part of that £37Bn loan could be offered to banks to use for such loans at, say, only 3%, if so used?
I hope Conservative shadow ministers oppose this plan with the same vigour and clarity as you are doing.
As always should this be to plain cover it over !!! I am for the Right Reasons and the Right People. Later one of even greater power and insight will come. Rome was not built in a single day but by nightfall on day one the courner stone was placed.
248 842 777 leads to ***888***
Bull’s eye !!
Your suggestion has two problems:
1. It has the frankly ludicrous suggestion of attempting to reduce government borrowing
2. It misses the electrical importance of the Scottish seats to the Labour party. If the Scottish portion of these banks have to survive in the real world they will have to go through cost reductions which will mean job losses in constituencies that Labour must win if they are to avoid total wipe out.
I thought whoever at Lloyds worked out they could pump the taxpayer for yet more cash, under the guise of a rights issue, is a total genius. An evil genius, but as a private shareholder in Lloyds I’d sooner have the evil geniuses inside p——g out than outside, in.
Maybe Brown’s idea is that Salmond would have to agree to pay back the RBS and HBOS debt from Scotland’s resources if he wants independence.
As usual the whole thing has been made up as they go along. Exactly £2.5 billion to be paid by Lloyds for exiting the GAPS scheme (which Lloyds never actually entered). What was that for then? The government say it is for the “implied protection” Lloyds has had since February. What’s “implied protection” then? If I say I intend to insure my house, but never actually pay the premium, is the insurance company entitled to take the premium anyway a few months later? How did they arrive at that £2.5 billion figure anyway?
And then the government says it wants these banks returned to the private sector, but it is intending to subscribe to Lloyds’ rights issue – presumably to stop them escaping the clutches of government control.
The Lloyds management should publically offer to sell HBOS and whatever else it takes to repay every penny invested by the government, and see if the government has the guts to refuse. And they should politely and publically tell the government they’re not paying the £2.5 billion.