That Lloyds merger again

Here on this site:

27th September 2008

“Nationalisation is the worst option….By all means strengthen deposit protection. By all means act behind the scenes to help a private sector solution, but do not promise to buy it or take it over”

November 4th 2008:
“It’s great news that another group want second thoughts on this deal.(LLoyds/HBOS) Let’s hope they can come up with a persuasive enough proposal for more shareholders to vote for it.
It would be better if the government vetoed the merger on competition grounds. They should stand behind any bank as lender of last resort, but should not be buying shares and acting as midwives to mergers which cut competition, choice,and pressure for more efficient banks.”

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12 Comments

  1. an ex-apprentice
    Posted February 16, 2009 at 8:46 am | Permalink

    Alisdair Darling agrees with you in every respect!

    Via Bloomberg:

    “I have made it clear on many, many occasions that we believe that banks are best run on a commercial basis in the private sector, properly supervised and regulated,” Darling told reporters in Rome. “That’s our clear preference and our clear belief.”

    Do you think he’s heard of Northern Rock, Bradford and Bingley or RBS?

  2. alan jutson
    Posted February 16, 2009 at 9:12 am | Permalink

    Says it all really.

    If only.

    But who knew the real/true situation on the scale of possible losses.

    The Auditors seem not to have had a clue, or if they did, they seem to have clouded their reports so as not to be obvious.
    Do they have Proffessional Indemnity Insurance ?????.

    On second thoughts perhaps not, as we may then get an Insurance collapse.

    But how about a class action by shareholders. These Banks went to the shareholders for additional investments on the basis that everything was Ok, they just needed a bit of extra working capital.

    Really. !!!!!

  3. Not an Economist
    Posted February 16, 2009 at 9:19 am | Permalink

    Gordon’s “I saved the World” comment is beginning to look a bit sad now me thinks …

  4. tim holden
    Posted February 16, 2009 at 9:27 am | Permalink

    The Lloyds merger negotiations were occurring during the buildup to the Glenrothes byelection. A critical element in the arrangements made was that anti-monopoly rules would be waived, and that jobs would not be rationalised in Edinburgh. Do not underestimate how much Brown is prepared to pay for a vote.

    Similarly, the emphasis in the bonuses for bankers scandal has shifted. Villainise those at the very top – but pay “the tellers”. Given the perilous financial situation of the banks there is the clear implication that votes are being bought.

    As an SME businessman, I note that the reported value of these bonuses is £1.2 billion. Given that the proposed value of additional bank finance through the government schemes (my application has been submitted and is yet unprocessed since the day it was announced) is £1.3 billion, it would appear that the rescue of small SMEs is only marginally more important that the futile attempt to bribe portions of the electorate.

    It all presents a unique twist to the line from Burns:

    “We were bought and sold for English gold”.

  5. Hugh
    Posted February 16, 2009 at 10:19 am | Permalink

    John,

    I understood from the paper yesterday that the City/Lloyds had all been expecting losses from HBOS of about £5 bn, and that the discrepancy between that and the actual figure is mostly caused by Lloyds increasing provisions against the HBOS corporate loan book.

    Such a change is an inevitable result of the application of more prudent and demonstrably better Lloyds TSB Management.

    Demonstrably better in view of the Paul Moore revelations that HBOS Management were warned but chose to ignore these problems in 2003/2004.

    Surely LloydsTSB Management only agreed to take on HBOS on the basis that it was recapitalised by HMG, as we know it was, and there must also have been a provision for adjusting the purchase price for changes to valuation of working capital. LloydsTSB have been demonstrably better managers, they cannot have missed that trick.

    What were the LloydsTSB Management and their big Institutional Shareholders up to if such simple safeguards were not taken, were they clunked?

    Two questions come to mind.

    A. Who was on the HBOS board in 2002/5 with the skills and experience to support Paul Moore, the creative tension between Prudent Accountants and Marketers is not new. That is what experienced non-execs are for.

    B. What has happened to LloydsTSB’s judgement or is this just another scare story got up by the BBC and their acolytes?

  6. Waramess
    Posted February 16, 2009 at 11:13 am | Permalink

    Slowly the mood is changing and more opinions are moving towards letting the banks fail.

    Some of these banks are said to have a leverage of 25 to 30 times equity although I confess to not having bothered to check this out yet. Nevertheless it seems quite obvious that unless you can establish some co-relationship between equity and bad assets then an infusion of equity will not be the answer.

    It must be clear to all concerned that any attempt to save the banks is not only a shot (or a series of shots) in the dark but is likely to be such an extraordinary financial burden that it should be avoided at all cost.

    In attempting to save the banks the government is doing no more than socialising a problem that should have been rightfully left for those who took the risk: the shareholders.

    Had the £37 billion been used to capitalise a new bank for example, which might then have leveraged itself and bought the good assets from the failing banks, the situation now would now have been quite different.

    That of course always pre-supposes the government were intent on getting into the banking business in the first place.

    It would be very interesting to hear a rational argument for rescuing the banks, as opposed to a major auto manufacturer, engineering company or house-builder, or should we just save them all? After all they all have creditors.

  7. figurewizard
    Posted February 16, 2009 at 11:13 am | Permalink

    Quite apart from the competition issue is the question ‘what is it that defines a bank?’ I would have thought that the first requirement for any bank would be for it to possess liquid assets of a value that were manifestly greater than its liabilities. It would seem that this was definitely not the case where HBOS was concerned during the time that Gordon Brown and Alistair Darling were putting the squeeze on Lloyds to take it over. Such a rescue however prevented them from having to mount a politically damaging government rescue. This would have dented Brown’s new image, so laboriously crafted by his spin doctors as the ‘saviour of the world.’

    What we should really be worrying about now is that not only does the latest news on HBOS reveal the staggering ignorance and ineptitude of this government but the questionable urgency with which this deal was forced through at the time, without ensuring that it would not result in putting yet another bank at risk.

  8. Acorn
    Posted February 16, 2009 at 11:17 am | Permalink

    “The mood of the nation”, that’s a difficult one. There is a young celebrity dieing in a hospital bed. A thirteen year old commits statutory rape and looks to make a fortune out of it. There has got to be a couple of TV series here. “Celebrity Teens Knocked-Up” and “Celebrity Strictly Terminal X-it Factor”.

    Now if we could theme them on an anti-NuLabour, anti-Keynesian basis, we will be home and dry at the next election.

    Alas, it is an ill wind that blows nobody any good at times like these. So can I direct Redwoodians to this bit in the NYT. I don’t know if the same is happening in the UK. Read at the end what happened to the debt of Terrible Herbst. Who was the looser?

    “Failed Banks Pose Test for Regulators”

    http://www.nytimes.com/2009/02/14/business/economy/14assets.html?scp=1&sq=Failed%20Banks%20Pose%20Test%20for%20Regulators%20&st=Search

    And a bit from Alice on Bank size,

    http://ukhousebubble.blogspot.com/2009/02/just-how-big-are-uk-banks.html

  9. Waramess
    Posted February 16, 2009 at 11:44 am | Permalink

    You might find a blog on the Adam Smith blog site entitled “debt for equity” an interesting alternative to spending government money

  10. A. Sedgwick
    Posted February 16, 2009 at 2:25 pm | Permalink

    The continuing calamitous state of this Government now transcends the running of the economy. We have a discredited, incompetent and unelected PM, who in all probability is going to continue until the bitter end in the hope of forming a coalition with the Libdems. Cable in for Darling, Campbell as Speaker and a cabinet post for Clegg.The delaying of the budget is a further example of hoping a miracle will occur or perhaps it is all a dream. The Conservatives need to pledge four year fixed terms and a PM can only serve after winning a general election in their manifesto. The Government has to be more accountable to the people.

  11. mike stallard
    Posted February 16, 2009 at 9:28 pm | Permalink

    I could not understand why you were so aerated about bank nationalisation at the time. I thought it was an angels dancing on the point of a needle sort of discussion.
    Then Iceland failed.
    Then I got to thinking: “Banks deal in trillions; governments deal in billions.”

  12. rugfish
    Posted February 17, 2009 at 7:37 am | Permalink

    I am waiting for a politician to give the people an itemised breakdown of what the bailout funds have been used for.

    Why isn’t the Conservative Party calling for this?

    reply: I do ask for this in Parliament and will continue to do so.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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