Nov 10 2009
Barclays Bank and its critics
Last autumn Vince Cable was busily talking down Barclays. He was keen for Barclays to accept taxpayer subsidy. He cast aspersions on the stability, financing and business model of the bank. I thought this wrong at the time, as I did not believe Barclays needed taxpayer support. He was not the only one. Sources close to the government appeared to cast doubt on Barclays ability to remain independent of state aid. I could not understand why leading UK politicians seemed to want to make the banking problems worse. Loose talk in the conditions of last year could cost banks’ lives. This site avoided all negative forecasts about individual banks at risk for obvious reasons. The government and their regulators created a very high hurdle for Barclays to surmount, in their ill judged stress tests conducted in public at the height of the crisis. Barclays passed, much to the apparent surprise of those who wanted Barclays in the government subsidy scheme.
Today, a year on, Barclays has produced some solid profit figures, shows its bad debts are under control, and has avoided all need for taxpayer subsidy. The government, and Mr Cable, should be rejoicing – and apologising – for what they said and did last autumn. Barclays purchase of most of Lehmans looks like a good deal for the bank.
It remains a huge pity for the UK that the government did not allow Lloyds to do the same as Barclays and survive without taxpayer subsidy. All the government had to do was to resist the temptation to urge the HBOS deal on Lloyds. This autumn it is bad news that the government has decided to throw yet more taxpayer cash at RBS, when they need to be told to cut their costs and sell some assets to shape up. The government should be in the business of reducing taxpayer risk. Given the way they handled things last autumn they seemed to be in the business of maximising taxpayer risk. We are fortunate indeed that Barclays was made of sterner stuff and resisted the plan to make them dependent on the state as well.
19 Responses to “Barclays Bank and its critics”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
But Vince Cable is never wrong @BBC
After Afghanistan this is the most important issue in British politics. It is extraordinary that you are the only politician to have consistently opposed the bank bail-outs and subsidies. Of course the majority of MPs don’t understand the issue nor what they are talking about. Mr Cable is the one-eyed man in the Kingdom of the Blind which must be why he has been given such airtime and continues to be even after he has been exposed as having talked nonsense on this and other subjects. The media should pay more attention to the fact that there are clear sighted politicians available. It would be good if the Conservative front bench would take a more robust line on this. When the history books are written you will be recognised for your foresight – but it would have been better if more attention was paid now.
Yes the Government brokering the merger of HBOS and Lloyds TSB was a very large error, which we are now all paying for.
Thank goodness Barclays rejected Government help and went their own way.
Bravo Barclays and what price the BBC pull up Mr Cable for being dead wrong?
I’m not holding my breath.
I agree with your comments. However, I am also keen to know the Government’s vision for the medium-term future of UK banking. How many narrow banks should there be and how many full service banks? Is there to be a plan to build firewalls so that casino banking cannot bring down banks too big to fail? How big should the sector be compared to other parts of the economy?
The most pressing problem is that vast numbers of the general public would welcome the emergence of new banks which put customer service before head office telephone number salaries and bonuses. The public also wants banks that are too small and too efficient to fail and which will keep their deposits safe from casino operations. How about a bank that is an employee partnership along the same lines as John Lewis?
I do not believe the Government has any vision for the banks beyond 10pm on election day. This leaves a gap in the market for the Conservative Party to fill. DC and GO should go for it. As ever, the quality of the media debate has been pathetic.
Of course the government wanted to talk down Barclays – they represented the Labour view of the Tory position that the banks were best left to themselves. The ‘do nothing’ option led to catastrophe, so they said, nationalisation was the only option. Barclays have shown how wrong the government were, despite (as you say) the best efforts to talk them down.
By contrast, Lloyds and Iceland suffered heavily and needlessly, both thanks to the intervention of the PM. The next time anyone suggests that the beloved leader handled this crisis well, we must remind them that it was he who held the shotgun at the Lloyds-HBOS marriage and it was he who caused a run on Iceland’s banks (by using anti terrorist laws?ed). God help us if this man were to actually win the 2010 election.
John, I agree with your point but you did not mention that Barclays needed billions from Arab sovereign wealth funds to stay independent. Barclays is now substantially foreign owned and is as British as the Minarets on the Bradford skyline.
It would be interesting for you to comment on the level of foreign ownership of our key industries & utilities. Did the much needed Conservative reforms of the eighties & nineties envisage such takeovers and foreign control? The losses in taxation, outsourcing, relocating abroad and British R&D funding is destructively low.
Pilkington, BAA, British Ports, Blue Circle, Westinghouse, British Energy……..the list is long.
Of particular concern to me is the fact that EDF is 85% owned by the French government but now owns a huge percentage of British generating capacity, distribution and charge administration. Was that foreseen or planned? Ownership has moved from the British Taxpayer to the French taxpayer. The money is long spent.
Did Blair take away too much control in share ownership restrictions? There comes a point when the free market disadvantages Britain as a whole and we passed that a few years ago.
Regards
Paul
Reply Barclays only raised Middle Eastern money because the Regulator made them do it at an inconvenient time. I don’t think they needed it.
What matters is where the value is added and the jobs created, more than where the owner lives. If we are determined to import more than we export, then we have to go on selling our assets to foreigners to cover the deficit. The choice is ours.
The rubbishing of Barclays and all banks and bankers was necessary, in terms of Brownsian logic, in order to underline that they were responsible for the financial mess. This, it was thought, would draw attention away from the gross and, now manifest, failure of the Government’s economic management. All needed to be done to stop anyone asking when it was that the Chancellor ceased to have responsibility for economic management of the country and simply became the minister for taxation and expenditure.
Banks collectively became Brown’s scapegoat and alas the Shadow Chancellor now plays along with the Government’s position as he too appears to think that bankers’ bonuses are the root of all evil.
The focus needs to come away from the banks and instead we should be looking much more a the proper role of the Treasury in establish sound national economic policies. A Treasury whose policies in the past positively encouraged asset/credit bubbles is most definitely to be avoided.
Totally agree. The government’s attempts to destroy Barclays were outrageous. They convinced me that having the big banks in public ownership was in fact an objective of this government, and not something they saw as unfortunate.
It is also worth noting that the additional capital that they raised from private investors was not thought necessary by the bank’s management. It was forced on them by new government requirements. This capital was raised at rather a high cost, which is, of course, reducing their profits now.
Barclays has of course benefited from the most benign environment for banks that could be imagined (no competition, high interest rate margins, BoE buying gilts at silly high prices etc.), although the key to being able to enjoy it was not making too many bad errors as the financial bubble inflated before it burst.
Cable failed to understand that a sound bank would be enormously profitable in the rigged markets set up to disguise attempts at recapitalisation of failed banks. Brown wanted all banks in his scheme so that no comparisons could be made, and the secrets of the damage of his policies preserved at least a little while longer.
I don’t get Vince Cables holier than thou attitude. (piece discusses Mr Cable’s role and attitudes when working with BP – I think he worked for Shell – so I am concerned about the accuracy of the rest of the comments. The underlying question is did Mr Cable’s attitudes towards big business alter when he left serving a multinational to become a Lib Dem Spokesman? ed)
[...] again, John Redwood calls it right. On his blog yesterday he [...]
Barclays Bank’s position shows two important things.
First, as others have said above, it shows that government hand-outs were not necessary for it to survive and trade profitably. That is only part of the picture, however.
The second factor is that it has had to trade its way out of difficulties because the soft option of subsidy was rejected. The pressures on Barclays over the last year have been the commercial pressures that all businesses in all spheres of business must endure if they are to be efficient.
Overheads too high? Cut overheads if you can. Margins too low? Increase margins if you can. It is a remarkable feature of businesses operating according to market forces that they can find savings, efficiencies and opportunities to increase profit margins when their very survival depends on it. Of course some cannot do so and they go to the wall – but they only go to the wall because someone else is able to provide a better deal for customers.
State subsidy acts as a cushion against facing commercial reality. Why cut overheads, find efficiencies or increase margins when the man with the blank cheque is at your beck and call?
I was against the bail-outs for a number of reasons. One was that the very changes the banks had to make to have any chance of viability were made less likely by the presence of subsidy. Hats off to Barclays.
The way that Barclays Bank has conducted itself over the years is quietly pleasing: refusing to pay too much for acquisitions (e.g. ABN Amro), refusing to accept UK government support, and limiting their exposure to sub-prime. The aim of the Arabs is presumably to make a buck rather than long term control.
Meanwhile the news from Lloyds and RBS is disquieting. Lloyds are axing 5000 jobs because there is overlap in functions in the original Lloyds and HBOS. This is confirmation that both the government and the EU competition commissioner have accepted the Lloyds/HBOS merger as permanent. Meanwhile Lloyds have to sell off some bits and pieces such as some ex TSB branches. Are these independently viable?
The RBS CEO says that it will take 5 years to get RBS’s finances right. Too long. That suggests that he puts empire retention ahead of profitability and the interests of tax payers. RBS has ample scope for rapid sell offs.
How big should a bank be? John Redwood has good knowledge of banking and it would be helpful if he could write about the economies of scale and the diseconomies of scale that apply in banking. That would be helpful in determining the correct sell off policy.
Eric Daniels aka Fred Goodwin-Lite caught the last big disastrous deal available before the markets closed. Individual shareholders rejected the HBOS black-hole but The City Institutions jumped head first into that pit.
Lloyds has a poor record on acquisitions. Ellwood bought Scottish Widows and it became a dog, now Daniels has made himself a Business School case of how to implode in a market which you should have dominated as the fittest survivor.
Lloyds has a terrible management team which has destroyed shareholder and yet merely rolled over its bonuses to 2012. They will receive bonuses for this suicide run at HBOS no doubt we can called it “The Andy Horby Reputation Relief Fund”
The Lloyds-HBOS disaster represents the death of Shareholder Capitalism – this, coupled with the bankruptcy of PAYG State Pensions suggests enormous political upheaval ahead
Well, I’m certainly happy to see Barclays (with whom I have banked for 35 years) escape the clutches of the government, I am less than happy about the way that they are recapitalising their business paying ridiculous bonuses at the expense of honest savers. I have a six-figure sum on deposit with Barclays, and recently received my quarterly interest payment of £22. I have asked them to match or at least come close to offers for a 1 year fixed deposit from their state-owned competitors, who will pay up to 3%, but they refuse. So I am afraid that Barclays is going to be losing a large part of my custom. Screwing your long-term customers when the going gets tough is a guaranteed way of ensuring that you will have no long-term customers.
Well I’m certainly glad Barcap isn’t in the hands of the UK government. This is an argument that HSBC, and Barcap benefit by an implicit guarantee. If you end up with a large investment bank and a tiny retail bank joined together , the investment bank benefits by the fact that the government will bail out the organisation to save the retail bank.
Personally (and this is a personal) opinion, perhaps we should separate retail from investment banking by law (as the US used to do). Though it should be noted that investment banking had nothing to do with the failure of HBOS, though the government and BBC would have everyone believe differently.
Mr Redwood as usual has hit the correct buttons with his analysis. Mind you it does align with mine too.
Let me explain at the time of the crash I held several thousand pounds worth of Barclays shares in my self managed pension plan. These went down in value and I have lost – so far todate a significant part of their value. However, noting that they have good management with long term vision who had the sense to stay away from an over priced Ducth bank deal, and that they had the sense to stay from government ‘help’ I have been steadily buying more Barclays shares with the dividends from other shares in the portfolio. Eventually Barclays will get back to where they were but those that sipped from the poisoned chalice of government ‘help’ will, I bet, continue to be shadows of their former selves.
At the same time I sold all RBS shares and put them into something with better management. I did think of of investing in Lloyds who were getting good press at the time but once the takeover of HBOS was mooted I walked away. The reason for this was that no government sponsored large company deal has ever worked. This one hasn’t.
So far my fund is ahead of the market but down, at just 95% of where it was two years ago. So I think I have done Ok considering the bad news all round.
I am not an investment guru. I have never worked in a bank or a City firm. But I do study history and use the lessons that gives. Others could do the same. What a shame our politicians, present company excepted, can’t learn from history too. They think they can change it.
Mr Redwood is one of those who understands history and human vanity and knows what policies are needed.
As the major shareholder in RBS and Lloyds/TSB, the next government should tell both that they have got one year to get their houses in order or they will broken up and sold off piecemeal to those banks that do have a vague idea of how the business should be run.
The latter should then be told – get it right or you will be ‘railtracked’ i.e. nationalised without compensation to shareholders. If the engine rooms of capitalism and free markets cannot understand how it all works, they don’t deserve to be there and we are all stuffed.