I am pleased to announce losses of £28 billion from our recently acquired RBS subsidiary and £1.4 billion for Northern Rock, acquired over a year ago. These losses are a pleasant surprise, as we did no due diligence before the acquisitions and were therefore unsure of just how big the loss making potential of these talented concerns might be.
We will be announcing these results to the markets at some point in the future, but our 7 by 24 news mangement requires me to write to all of you about them now they are generally known in the media, with added explanation to give them some news traction. I have decided they do not need to be the subject of an oral statement in Parliament, as our investments in subsidiaries are held at arms length.
One of the most pleasing features is the consistency of the results. UK shareholders may recall that RBS is twenty times the size of Northern Rock, and has come in with exactly twenty times the size of Northern Rock’s losses. This shows the skill of all involved in crafting these losses, despite the two banks running on very different strategies over the time period in question. I am sure you will agree we should pay bonuses to those involved. Northern was in run off, under orders to reduce its activities, whilst RBS was asked to increase lending to 2007 levels. For the coming year we are recommending both banks run on the same strategy, lending more money, which should make it easier for them to continue their welcome consistency.
The management of RBS has proposed splitting the assets they currently own into good and bad assets. The idea would then be to commit the taxpayers fully to the bad assets, and leave our experienced subsidiary to trade through the good assets that remain. I was at first concerned about this suggestion, given our corporate aim is “Nationalisation puts the losses back into British business”. However, I have been reassured by the thought that we could always change the accounting procedures to make sure we do record the losses people expect of a nationalised activity. I should also point out it is not that easy distinguishing a loss making from a profit making asset in these conditions, so even a “good bank” can end up losing money.
As we have now written off substantial sums there is always the danger of a profit appearing. We will seek to expand our lending to try to avoid this happening.
February 24, 2009
Why don’t we ever see much of you on Question Time or R4 when these matters are discussed?
February 24, 2009
Surely “bad asset” is an oxymoron?
February 24, 2009
Brilliant stuff. These missives are being sent around the Board of the Great British plc where I work so that our management team can pick up tips.
February 24, 2009
When will this nightmare end?
February 24, 2009
A brilliant couple of posts. It’s amazing what throwing a little clarity and realism at an allegedly intractable problem will do.
February 24, 2009
John does irony!
Nice one!
February 24, 2009
Just heard on the radio that the Post Office Pension scheme is 9 billion in the red.
If the Fund is in that much deficite, then the benefits should be looked at.
Surely not another taxpayer bail out.
When is someone going to say STOP WE CANNOT AFFORD ANY MORE !!!!!!!!
February 24, 2009
I’ve been of the opinion for some months now, that no sane person can support these nonsensical bailouts and what we are seeing is a kind of economic scorched-earth vandalism. This is designed to shatter the economy and leave nothing for the incoming tory government. High politics indeed, but desperate for anyone trying to honestly make a living.
February 24, 2009
By the way, over the years we have delegated the responsibility, to agenices and authorities, of the running of many organisations quite sucessfully and remunerating lots of our friends well.
For instance – the banks. We can rightly take credit for any success and let others take the blame if something goes wrong. The use of agencies and authorities to manage our businesses has been very successful. The FSA were there to take the blame for this chaos of the Banks and not us while we took the credit in the good times. The independence of the Bank of England allows us to blame someone else for the inflation/deflation.
Outsourcing has on the whole been successful. It has allowed us to sack workers without blame.
The regular loss of data has been dealt with badly by the agencies. The Government was getting far too much blame for this. Also there are many more customers starting to blame us for utility bills being high.
Harringey Council has caused a few problems. We had to replace the Director of Social Services with someone earning twice as much. Clearly we want to continue underpaying for roles and keep costs down (at least to those who are not our favoured employees)
Our (MPs’) expense allowances are a fantastic form of remuneration but we are apparently still saving money compared to our competitor MEPs as our Business Director keeps telling me.
Any new Management wouls not be able to manage as well as we have.
February 24, 2009
Says it all really, excellent post. Hope you sent it to DC, he has only just found out that there is a problem.
It is good to find one source of sense amidst the rubbish churned out by the lorry load, thank you.
Derek
February 24, 2009
The CEO has also not mentioned the other piece of outstanding news today – that UK PLC is proposing to take on the pension scheme of Royal Mail with its £5.9 bn deficit, which is apparently likely to rise further to £8-9 bn. Since this scheme, according to its Chairman of Trustees, could not even fund 50% of member benefits if it was wound up, it is clearly a part of Royal Mail that really knows how to lose money. It would therefore be an ideal fit for our overall strategy.
And UK PLC is of course proposing to sell 30% of the Mail to the private sector, so this should minimise any danger of exposure to profits from the business in the future.
February 24, 2009
Good stuff. Have you read Liam Byrne article with the Telegraph defending the governments spending since ’97. It makes great fantasy fiction, shame he doesn’t read your Blog.
February 24, 2009
John,
Alan Jutson mentions the Post Office pension fund deficit.
What I find puzzling, is why the Conservatives are promising to support the Govt in their proposed partial sell off. Govt gets its hands on a few quid from TNT or someone else AND immediately takes over £20 billion of PO pension fund real assets. This in exchange for a promise to keep on paying the pensions into the future, out of tax revenue (and probably out of office).
You don’t imagine that much of that £20 billion will still be there for when you take over next year, do you? Are you sure that Cameron has his tactics right on this? Why can’t he oppose the Govt’s bill, cause it to fall, embarass Brown and save the family jewels for later. I feel sure that in a year or so, Cameron will find it expedient to review the situation.
Btw, isn’t Brown due for a vote of confidence sometime soon?
February 24, 2009
Share Cur Price Purch Date Mark Price Gov Price Size Take Up Shares Funding Profit
LON:HBOS .0 12/01/2009 84.1 113.6 8,500 99.76% 7,482 45 -8,525
LON:RBS 22.1 28/11/2008 52.7 65.5 15,000 99.80% 22,901 162 -10,081
LON:RBS 22.1 31.75 31.75 5,000 100.00% 15,748 0 -1,520
LON:LLOY 53.9 12/01/2009 140.7 173.3 4,500 99.50% 2,597 24 -3,109
B&B
HERITABLE 7,124 5
KAUPTHING
ICESAVE
LSB 01/12/2008 9,000 100.00% 0 -9,000
NROCK 05/08/2008 3,000 100.00% 75 -3,075
TOTAL 45,000 306 -32,864
Preference Today Issue Rate Borrowing SizeHBOS->LLOY
Non-RBS 24/02/2009 01/01/2009 12.00% 4.00% 4,000 60.50% 47
TOTAL -32,817
Borrowing Rate 4.5
FSCS is borrowing 3 billion a year to bail out the failed banks for 3 years
Funding on this loan is ignored
Last Updated 24/02/2009
33 Billion down. You need to include the 9 billion that’s gone from the FSCS.
Does anyone actually know what penal rate of interest Northern rock is paying? And whether its actually paid anything or if the penal rate is being rolled over?
Nick
Reply: Thanks for that – very useful. I do not know the Rock rate.
February 24, 2009
It’s worse John.
We do know what NR have been borrowing. We have quarterly figures for the amount being borrowed.
1. We don’t know the rate they are paying.
2. We don’t even know if they have paid any interest.
In otherwords we are being kept in the dark about the losses.
That is intolerable if you are playing with tax payer’s money.
We are getting hints that its 1.5 trillion on the guarantee front for the other banks. Given we can find out the CDS rate for the banks, and the guarantee is at least 5 years, practically, we can work out what should be paid for the guarantee.
Chances of it being paid, zero
Try reformating into a fixed width font the details, and it’s laid out better.
February 24, 2009
I think you should have George Osbourne’s job. Or at least Ken Clarke’s.
Reply: I think David Cameron should appoint who he wishes. Mr Osborne has my full support. I think BERR should be abolished to save money, with the bits we do need going to HMT, and with regulatory budgets runs form the Cabinet Office to begin getting down the costs of those regulations that are needless and contradictory.
February 25, 2009
42 million is somewhat more than the government is allocating to the current wars in Iraq and Afghanistan and all the other theatres where our armed forces are operating.
February 25, 2009
Several further questions though.
I presume the costs quoted are the absolute worst case scenarios. What are the likely costs going to be?
Also what happens if everyone who is entitled to benefit would finally pluck up the courage or remove their own misconceived shame, filled in all the forms to claim their benefits entitlement, not to mention the Child Trust Funds, and the inevitable compensation arising from Equitable Life.