We want our money back from RBS: and why is RBS buying risky Euro sovereign bonds?

 

            I was against the state bailing out RBS lock, stock and derivative. I wanted the last government to preside over putting it into an orderly administration, where depositors and other  essential interests were protected. The rest should have suffered  losses to sort the mess out quickly. A managed administration could have avoided worse systemic damage than we experienced going the government’s way.

            I wanted them to sell off the overseas banks, the Investment bank, the insurance company and the rest, and let the shareholders and the bondholders take the losses they deserved. Instead the Labour government decided to subsidise and prop the whole range of businesses trading under the RBS Group. The incoming government largely continued the previous government’s strategy.  The idea is to let the management sort the Group out, with only modest disposals, with a view to selling the state’s shareholdings at a profit in due course.

                So how are they getting on at RBS? Last week the shares slumped to a new low of 24 pence, meaning we taxpayer enforced  shareholders at today’s prices  have lost more than half the money we  were made  to invest in the Group’s shares. Anyone who knows the history of UK nationalisation will not be surprised.

                   The Group produced its half yearly results recently.  These showed that the bank has done a good job complying with regulatory requirements to have much more cash and capital relative to its business activities, and to get its loans below the level of the deposits. I would say it needs to do no more to strengthen its balance sheet according to regulatory measurements. It has gone from a  Tier One Core Capital ratio of a too small 4% to an impressive 11.1%, and has moved from leverage of a mind blowing 28.7 times to a more conservative 17.8 times. Job done.

                 What is altogether more disturbing are the losses still being incurred, and some of the investment decisions being made.  In the first half the Group lost £678 million before tax. Those losses are largely down to the taxpayer to pay. No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable. Yet those losses represent the excess of RBS spending and cost over its revenues. If it cannot get its revenues up it has to get its costs down.

            In Quarter Two 2010 income was £396 million lower than Quarter Two 2010. Costs were only £211 million lower. That is not the way to bring a company into profit.  Core total income for the half year fell by £1177 million, whilst costs rose by £36 million.  The half year saw losses of £850 million on Payment Protection Insurance recognised, and £733 million losses on Greek sovereign debts. The management calls these “issues of the past”.

           I can sympathise with them about the PPI. That is largely  down to previous managements. I hold the present management to account for the Greek sovereign debts. Why would anyone have held Greek debt over the last couple of years? Have they not been reading the warnings and hearing the alarms sounded like the rest of us? What part of Euro crisis and Greek bankruptcy – the Greek state’s inability to borrow in the normal way in the markets to pay its bills – did they not understand?  Why was a state bank still in Greek debt?

           For that matter why did RBS increase its holdings of Italian debt to £955 million in time for the crisis in their bonds? And why was it adding a little to its Spanish debt position? Total debt securities are up by £12 billion on the quarter, and £26 billion over the half year.

            Its portfolio of sovereign and financial bonds rose by 12% or £26 billion whilst its portfolio of loans and advances to customers fell 2% or £9.5 billion. It did meet its UK business lending target. It still holds £394 billion in derivatives and £95 billion in loans to other banks, compared to £545 billion of customer loans. It has a substantial US and European business on top of its UK business, and  a large investment bank.

              I see no reason for UK taxpayers to be subsidising the losses of such a Group. The bank should be told to make more rapid progress with selling off its different businesses to cut risk and bring in cash. UK taxpayers should not be punting in Euro sovereign debts in the middle of such a crisis. It would be easy to cut the size of the RBS balance sheet, cut  the risks and get some cash back.

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70 Comments

  1. Mike Stallard
    Posted August 14, 2011 at 7:24 am | Permalink

    Economy comes from the Greek meaning “household management”. My wife and I live as thriftily as we can and we get by. How? Because we cut out all unnecessary things. Here the RBS is talking millions – and indeed billions. The government needs to cut that out by selling it all off now.
    In just the same way, we would sell anything else that was costing us money, however small.

    Well noticed!

  2. Mick Anderson
    Posted August 14, 2011 at 7:24 am | Permalink

    Are the non-taxpayer-supported UK banks making the same (potential) mistake? Do Barclays and HSBC hold large stakes in Greece and are they buying Euro bonds? If not, my suspicion is that someone in Government is anonymously “advising” RBS to make these holdings and purchases.

    When Lloyds TSB were persuaded to buy HBOS without doing checks that would normally be done as part of due diligence, the LSTB took such a hit that they were driven into the same state as RBS. It’s entirely possible that a similar nudge and a wink from somewhere on high is part of the reason that RBS are sinking UK taxpayers money into propping up the Euro.

    Reply: I haven’t checked the private sector banks, as they are profitable and we do not have to pay for the mistakes. I don’t think the authorities have asked RBS to buy dodgy Euro sovereign debt.

    • Paul H
      Posted August 14, 2011 at 8:44 am | Permalink

      At the risk of appearing picky, the banks now in public ownership were previously in private hands yet somehow (ie due to the incompetence of Brown and Darling) we ended up paying for their mistakes – while many of those individuals who had profited from the mistakes carry on as before. I wish I could be certain that Cameron and Osborne are markedly more competent.

    • Mick Anderson
      Posted August 14, 2011 at 10:28 am | Permalink

      History suggests that if the private sector banks dig themselves into a deep enough hole, UK taxpayers are forced to bail them out. I don’t see enough difference between Mr Darling and Mr Osborne to believe things will less expensive if there is a repeat performance. Yes, I remember that Barclays turned down Public aid in favour of private funds, but that won’t necessarily be available if there is a next time.

      So, although your theory is quite correct, experience makes me doubt the extrapolation.

      One could also say that if RBS are making more risky investment decisions than the private sector competition, management should be either warned or replaced. If profitable banks are making the same decisions, I will accept the precident (albeit grudgingly).

      As for whether the authorities actually asked RBS to buy duff debt, perhaps they didn’t. However, I still wish they had explicitly prohibited it!

    • Single Acts
      Posted August 14, 2011 at 9:06 pm | Permalink

      “I don’t think the authorities have asked RBS to buy dodgy Euro sovereign debt”

      Then you presumably think it is just an error of judgement? Really?

      So I am employing someone (at vast remuneration) who thinks to himself “Hmm, Greek government debt, any reason why that is stupid? No, no problem there”

      Really?

  3. lifelogic
    Posted August 14, 2011 at 7:41 am | Permalink

    Furthermore their approach to perfectly good (unnamed or not identified-ed)UK customers and existing perfectly good and well secured lending has been appalling. Calling back perfectly good loans part way through developments, charging huge margins and fees where they can not be repaid. Often forcing businesses to make decisions that are not in the interest of the company or even the bank.

    Also going back on offers of lending part way and generally treating its good customers with complete and utter contempt. Causing pointless unemployment and reducing growth just so it can waste its money on other loss making “investments” as you have show above. This a bank under government control perhaps it is hardy surprising that it is getting into the state sector general dis-functional approach we see at much of HMRC, NHS, the education system, local government, bank regulation, the CSA and so many other arms of the state.

    Reply: RBS would doubtless disagree with this description of its approach. I suggest you take up the individual cases on your mind with the Bank or your local MP.

    • lifelogic
      Posted August 14, 2011 at 8:05 am | Permalink

      Reported today “George Osborne has sent out his strongest signal yet that he will announce plans to scrap the 50p top rate of income tax next year – branding it “very uncompetitive.””

      What on earth is he waiting for the next election?

      Also he might note that CGT, NI, IHT rates, the green energy costs, general employment costs, over large state sector, riots and the general over regulation of everything are “very uncompetitive” as well.

      • lifelogic
        Posted August 14, 2011 at 8:20 am | Permalink

        As is the prospect of Labour in under about 3+ years time.

      • Single Acts
        Posted August 14, 2011 at 9:10 pm | Permalink

        “George Osborne has sent out his strongest signal yet that he will announce plans to scrap the 50p top rate of income tax next year – branding it “very uncompetitive.”

        Delete the words ‘the 50p top rate of’ and we would be out of recession in 12 months, (oh and to quote Mandela, free at last)

    • lifelogic
      Posted August 14, 2011 at 1:00 pm | Permalink

      A bank manager at HSBC recently told me that most refinancing requests he is getting are come from RBS group who are being most unhelpful to existing good borrowers.

      • lifelogic
        Posted August 14, 2011 at 1:33 pm | Permalink

        The particular cases I had in mind with RBS/Natwest seem now to have been resolved but I would stand by my comments in general. Hopefully things will improve soon in bank funding generally but a (fully justified) lack of confidence in Cameron and the coalition so far does not help.

    • RoyalBanksters
      Posted November 28, 2011 at 4:29 pm | Permalink

      Ihave also personal experience of RBS pulling out of perfectly good development loans even when back by the previous goverments EFG and killing decades old businesses, this bank is shocking and should no longer be on the high street. When Hester admitted to bailout money leaking into Bankster bonuses he should have been fired immediately.

  4. Ralph Musgrave
    Posted August 14, 2011 at 7:56 am | Permalink

    JR’s point can actually be put in more general terms. We currently have a system under which banks use money from state guaranteed small deposit accounts to make risky investments. This amounts to a taxpayer subsidy of commerce (and PIG bonds). That is a blatant misallocation of resources. Or as Mervyn King put it, “If there is a need for genuinely safe deposits, the only way they can be provided, while ensuring cost and benefits are fully aligned, is to insist such deposits do not coexist with risky assets.”

    The above misallocation of resources is quite rightly attacked in a submission to the Independent Banking Commission by Positive Money, Prof R.A.Werner and the New Economics Foundation. See:

    http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

    This submission advocates a system under which depositors have a choice. 1, put your money in 100% safe state backed accounts. In this case the money is lodged at the Bank of England and earns little or no interest. 2, put your money into an account which DOES involve your bank lending your money on to commerce, mortgage applicants, etc. These accounts will earn a significant rate of interest, but if it all goes belly up, there is no state bailout for you.

    • Tedgo
      Posted August 14, 2011 at 12:13 pm | Permalink

      I think we need to go back and encourage old fashion mutual Building Societies who only lend a useful proportion of what they take in as customer deposits. Building Societies went down hill when they started borrowing on the money markets, so they could increase their turnover, and 100% plus loans.

      Lean well run Building Societies should be able to offer 4% interest with mortgages at 6%.

      We also need to put indexed capital gains tax on all houses to avoid them inflating away, houses are for living in.

      • Mark
        Posted August 14, 2011 at 5:13 pm | Permalink

        There’s no need for CGT on people’s homes (at the moment it would actually provide a tax shelter for gains on other assets for someone who bought their house close to the top of the bubble): such a move simply ensures that people can’t move if they are going to incur any significant tax liability, so they become accidental landlords and renters. Much better is simply to allow mortgage rates to rise instead of all the subsidy provided by artificially low interest rates.

        • Mick Anderson
          Posted August 14, 2011 at 9:46 pm | Permalink

          Mark

          GCT is only payable on a house if it is not your main residence, and has not been within the last couple of years. So, if you need to move (for example, to follow a job) and can’t sell immediately, there is a period of grace before CGT would be applied.

          Perhaps you are referring to Stamp Duty, which is the tax you pay based on the price of a house you are purchasing. It might be a disincentive to move, but it would not leave you with a spare house that would have to be rented out.

          • Mark
            Posted August 14, 2011 at 11:14 pm | Permalink

            Tedgo suggested (indexed linked) CGT on ALL houses – that includes people’s homes: I know second homes and property portfolios are subject to CGT currently, give or take some of the ways of avoiding at least some of the bill. I think his idea was that the tax would lower house prices: I don’t think it would – I think people would tend to avoid buying and selling houses instead. I’d agree with him that CGT generally ought to be index linked – at present it is a vicious wealth tax on realising long held assets.

            If you had to pay say ~15% of the sale price as your CGT bill, that would eat substantially into any equity you could put down on a subsequent purchase – putting you on a house snake, not a house ladder. To avoid that, if you needed to move it would make better sense to rent out your house and rent where you need to be. Stamp duty isn’t quite a big enough disincentive on its own, especially as many of the higher priced properties manage to be traded in ways that avoid the 5% charge.

      • Single Acts
        Posted August 14, 2011 at 9:12 pm | Permalink

        “Lean well run Building Societies should be able to offer 4% interest with mortgages at 6%”

        Perhaps you could tell us what food price should be?

        “We also need to put indexed capital gains tax on all houses to avoid them inflating away”

        How would increasing taxes cut inflation in house prices?

        • Tedgo
          Posted August 14, 2011 at 11:31 pm | Permalink

          Not sure what you are trying to say, I bought my house with mortgage rates between 11% and 15.5%. Fortunately the house was only 3 times my salary.

          House prices are now too high, over the years they have shot up well ahead of inflation. Prices need to drop by half so young people can get chance at buying one. Had indexed CGT been applied in the past house prices would still be affordable as it would have taken some of the greed out of the market.

    • Denis Cooper
      Posted August 14, 2011 at 2:10 pm | Permalink

      I completely disagree with this approach, which unnecessarily presupposes a binary choice between allowing personal savings to rot away with inflation but in perfect safety – putting banknotes in a biscuit tin and burying it in the garden would be just as good and less trouble – and putting money aside in a bank savings account paying a modest rate of interest, hopefully above the rate of inflation, but accepting the risk that you might suddenly lose the lot.

      Do we, or do we not, want to encourage everyone to build up whatever personal savings and investments they can, so that they are less likely to be thrown into dependency on others and especially on the state?

      The starting point for building up personal savings and investments from scratch must always be a simple, reassuringly risk-free, savings account paying interest which is normally above the rate of inflation, and that is exactly what you wish to rule out.

      Why?

      We managed over a hundred years without a run on a retail bank, with ordinary people suddenly panicking that they could lose their hard-won savings if they didn’t immediately join the queue to get their money out, and it’s hardly a coincidence that this happened after Gordon Brown had done what the EU wanted and transferred the prudential supervision of banks from the Bank of England to a bunch of incompetent novices at the Financial Services Authority.

  5. Martin
    Posted August 14, 2011 at 8:16 am | Permalink

    Dodgy lending by banks – whatever next. The banks have at various times acted like madmen pumping up the property market like there is no tomorrow.

    At least Greek governement debt is just that. As for Derivatives what are they a derivation of? Rubbish reduced to fools gold?

    Maybe we are back at thinking of splitting up the bank. One half the old RBS/Nat West high street bank, the other the Ground Nut/Black Tulip/South Sea bubble stuff.

  6. A.Sedgwick
    Posted August 14, 2011 at 8:41 am | Permalink

    Good piece – there is not much to add apart from repeating that Governments do not do blindingly obvious.

  7. Sue
    Posted August 14, 2011 at 9:09 am | Permalink

    Why don’t you ask your bosses? One would think you weren’t a member of the government. You’re hardly the average blogger. It’s us that should be asking YOU what’s happening and getting some answers that make sense.

    It’s a sad state of affairs when people like Hannan, Carswell and yourself don’t know what the hell is going on.

    They don’t listen to the electorate that’s obvious. Propping up the Eurozone is their genius idea! Perhaps Cameron & Osborne have been bribed to become traitors to the people they are meant to represent!

    Reply: I am not a member of the government. I am a Member of Parliament. I am asking this question in public, following a question on RBS to the Chancellor last week which I raised in the Commons. Of course Messrs Osborne and Cameron have not been bribed.

    • Sue
      Posted August 14, 2011 at 11:12 pm | Permalink

      Mr Redwood, you are the MP for Wokingham. That in most peoples’ minds makes you a member of the government. You were obviously on the “approved” list for candidates suitable to be a Conservative MP., so that implies some sort of “trust” in your ability to tow the party line.

      You’re telling me that you don’t actually get to speak to the PM? He’s an all powerful dictator who doesn’t speak to his generals??????

      Let’s completely frank here, the “government” tells us plebs that pay it’s wages nothing it doesn’t want us to hear. Infact, it’s a dab hand at keeping secrets or sneaking the facts out under cover of some superficial crisis. Even those who didn’t get a privileged public school education like me aren’t that stupid!

      We kind of expect YOU TO FIND OUT what’s going on….. or what good are you?

      How do you know they’re not being bribed? You obviously don’t have the privilege of ACTUALLY SPEAKING TO THEM or you wouldn’t be asking us for the answers!

      Reply: Of course I speak to the PM and senior Ministers – that is part of my job. I am not, however,a member of the government so I do not have to stick to the government line in what I say. Ministers help form government policy in private meetings on the inside, and in return have to defend the agreed line whatever it is, whetehr they liked it or not. Backbench MPs seek to influence the government line through public debate and Parliamentary exchanges, and are not required to agree with everything the government does.
      I often ask quesitons of the electorate – it is called staying in touch. I also offer a lot of advice and guidance on what I think is happening, as I am doing in this case with the banks.

  8. Dr Alf Oldman
    Posted August 14, 2011 at 9:18 am | Permalink

    I agree, well spotted!

    I totally support your argument.

    Surely, greater RBS support for SMEs (supported by guarantees etc) would have been more beneficial than sovereign debt?

    Large businesses are sitting on cash mountains, and on Wall Street there seems to be enthusiasm for stock buy-backs. With major corporates being risk averse (because of political risk) perhaps it’s the time to give SME’s a helping hand? Perhaps you could encourage your colleagues in Government to create incentives for banks to finance SME investment in capital expenditure proposals supported by business plans etc?

    On a related theme, I would argue that we need more competition in UK domestic banking, so I would support wider break-up & disposal of assets.

  9. JimF
    Posted August 14, 2011 at 9:44 am | Permalink

    Yes this is the bank that tried to charge our business 3% from spot for forex of a 6-figure £ sum, transferring between two of our European currency accounts with them.

    You are right to ask these questions, and it would be interesting to hear the CEO’s reply to them. Is he in any way proud to be in charge of such an unprofitable bag of bones?

  10. Acorn
    Posted August 14, 2011 at 9:45 am | Permalink

    I have always been told that balance sheets for banks are a work of fiction. Sovereign debt held to maturity assumed risk free. Stuff held in trading accounts and off balance sheet. Stuff held in special purpose vehicles on another planet. Marked to market suspended on anything dodgy courtesy of the regulator.

    Have you any idea how much of RBS junk is held by the Treasury “Asset Purchase Scheme” and the BoE “Asset Purchase Facility”? I thought these two bailout vehicles were the same, but apparently they are totally separate?
    How does anyone know how much RBS or Lloyds is actually worth?

    Reply: Bank accounts and balance sheets contain large amounts of information, and are independently audited. It is possible to work out quite a lot about them if you work your way through the large number of pages. The accounts usually explain the basis on which the numbers are calculated.

    • Denis Cooper
      Posted August 14, 2011 at 12:53 pm | Permalink

      But when I put “Asset Purchase Scheme” into google the (UK) references go back to the Bank of England’s Asset Purchase Facility:

      http://www.bankofengland.co.uk/markets/apf/results.htm

      It seems that “Asset Purchase Scheme” was journalese at the time the Labour government and the Bank of England were working round to, in effect, printing money to fund the government’s budget deficit – eg from 29 January 2009:

      http://uk.reuters.com/article/2009/01/29/uk-britain-bank-assetpurchase-sb-idUKTRE50S4FH20090129

      “FACTBOX – Features of Asset Purchase Scheme”

      “(Reuters) – Chancellor Alistair Darling and Bank of England Governor Mervyn King provided more details on how the central bank could buy up assets under a scheme aimed at getting credit flowing again.

      Below are some key features of the plan.

      The Bank will focus initially on purchases of corporate bonds, commercial paper and paper issued under the Credit Guarantee Scheme.

      The Bank will also consult with market participants about purchasing syndicated loans and asset backed securities created in viable securitisation structures …

      … The Bank will review on an ongoing basis the case for proposing that the list of eligible assets and currencies be expanded.”

      And again on 6 February 2009:

      http://uk.reuters.com/article/2009/02/06/uk-britain-bank-assetpurchase-sb-idUKTRE5154EB20090206

      “FACTBOX – Bank to launch asset purchase scheme”

      LONDON (Reuters) – The Bank of England provided more detail on Friday on how its 50 billion pound Asset Purchase Facility will operate. The scheme, announced as part of the government’s second bank bailout package last month, is aimed at kick-starting lending on the capital markets …”

      and the following day:

      http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5679624.ece

      “Bank of England to tackle clogged credit with £50bn asset purchase scheme”

      “The Bank of England will start pumping money into British businesses next week as the number of companies that have failed jumped by more than 50 per cent last year.”

      In the end the £200 billion of newly created money was not used like that, but instead roughly as shown in the first link:

      £0.8 billion for corporate bonds.

      Close to zero for commercial paper.

      £198 billion for previously issued gilts to prop up (rig) the gilts market and make it easier for the Labour government to sell new gilts and cover its budget deficit.

      • Acorn
        Posted August 14, 2011 at 7:38 pm | Permalink

        Denis, see the following, it is a Treasury insurance company for RBS.

        http://www.hm-treasury.gov.uk/apa.htm

        • Denis Cooper
          Posted August 14, 2011 at 11:37 pm | Permalink

          But that’s the “Asset Protection Scheme”, the scheme set up by Darling to insure dodgy assets still held by the banks.

          “The APS operates like a conventional insurance policy. RBS pays an annual fee to participate in the APS (like the “premium” in a standard insurance policy), in return for which the Government insures the value of certain assets that RBS owns. “

          • Acorn
            Posted August 15, 2011 at 10:00 am | Permalink

            Agreed Denis

    • lifelogic
      Posted August 14, 2011 at 8:12 pm | Permalink

      How exactly did RBS manage to issue their rights issue prospectus. Raise very considerable funds on the basis of that document and then collapse in ruins very, very soon afterwards?

  11. Peter Campbell
    Posted August 14, 2011 at 9:49 am | Permalink

    How often have we heard that bonuses and excessive salaries are justified to get the best talent? If the RBS board are the best talent then no wonder the country is so stuffed. Buying terrible investments, not selling the rubbish when they can, losing business – fantastic. The only good part is not meeting lending targets which are stupid. They should only lend to good risks and if there aren’t enough then better not to lend at all. Apart from that I’d say there are tens of thousands of people selling stuff at boot sales that morning that are better businessmen than RBS management and they’d be a lot less money.

  12. Bill
    Posted August 14, 2011 at 10:02 am | Permalink

    My sipp provider, or investor, has bought me some Greek bonds and I think Spanish bonds several months ago…think they said something on the lines of it afforded good rates of interest that have risk factor built in.

    Suspect that RBS following a similar line, but if they get it wrong it’s the taxpayer that picks up the tab, you would have thought that they would follow a safer strategy.

    Good that you spotted this, but the bandwagon has moved on….government is more bothered about convincing us that we will get out of the mire by achieving growth rates that are pie in the sky.

  13. Nick
    Posted August 14, 2011 at 10:04 am | Permalink

    On a similar note I want my money back fro that other set of looters, the civil service. They have just refused to publish their credit cared thefts

    • APL
      Posted August 14, 2011 at 10:43 pm | Permalink

      Nick: “They have just refused to publish their credit cared thefts.”

      You are on a role Nick,

      Seconded!

      • APL
        Posted August 14, 2011 at 10:46 pm | Permalink

        opps!

        ‘roll’

  14. Brian Tomkinson
    Posted August 14, 2011 at 10:27 am | Permalink

    The government appointees to the RBS board are clearly not doing a very good job. To whom are they accountable and what real accountability is being exercised by government? The answer seems to be none.

  15. GJ Wyatt
    Posted August 14, 2011 at 10:27 am | Permalink

    The public shareholding is managed by UK Financial Investments Ltd (UKFI) which says it “is committed to an active, engaged shareholder role”. UKFI should extract answers from RBS management to your questions, and let you and us, the owners, know the score.

  16. alan jutson
    Posted August 14, 2011 at 10:36 am | Permalink

    John

    Yes, the bank seems to be living beyond its income, but what example is the government setting, it has the same problem, expenditure is still rising more than its income, so its not a good example from the top is it.

    You will be telling us next, that the bank will be paying out large bonuses again for meeting certain targets, again set by the government, although probably the last one.

    On another subject, I see a number of the Sunday papers are now saying that enough is enough with the present welfare state, where people are paid for years for doing absolutely nothing, from a system into which they have never paid a penny.

    I also see that Boris (Mail on Sunday) says general crime has gone down dramatically, since there have been more police on the streets. Well Surprise, surprise.

    Given that the average policeman it is reported spends at least 75% of his time on paperwork, and only a maximum of 25% of his time being visible on the streets, rather than increase numbers by double at huge extra expense, cut the paperwork by half (or more) and you get the same effect, for no increase in cost.

    Just out of interest the police could learn how to patrol the streets from the army. Instead of walking side by side and having a nice conversation, the army when on patrol walk individually about 10 meters apart, staggered on opposite sides of the road, not just to cover each other, but to see what is possibly going on from a different view/angle, whilst still close enough to give support when it matters.
    It is thus more efficient.
    Fast tracking people from university to senior positions in the police may be part of the probem, if they have never completed the basics of policing, and stood on the front line themselves, you have to ask, what do they really know other than theory.

    Why is it that so much that is wrong with this country, remains unresolved when the answer is simple commonsense, often known by the man in the street.

    I liken it to the workings of the management consultant, who is bought in (at huge expense) by top management to find a solution to all of their problems, he just interviews workers at the sharp end, formulates all of their comments into a report, presents it to management after a few weeks (to underline his fee), who then think he is wonderful, without realising it is their own poor management which has been the problem all along and the solution was in house all along.

    I see the civil service are also being reported as being obstructive to being transparent about the gold taxpayer funded credit cards again.

    Problem once again is poor management by most politicians, who have never run anything in their lives before, and have little idea of finance, management, the commercial world and industry.

    Perhaps we will wake up one day, but then perhaps pigs may fly.

  17. English Pensioner
    Posted August 14, 2011 at 10:48 am | Permalink

    I note your re;ply to Mick Anderson indicating that you don’t think the authorities have put pressure on RBS to buy dodgy Euro debt, but find it hard to accept.
    I read recently that Barclays and HSBC had reduced their exposure to Euro debt over the last couple of years and I find it hard to understand why anyone would wish to increase such exposure. Surely it can only be for one of two reasons,
    1. The whole Board are totally incompetent – some would say stark raving mad
    2. Pressure is being applied by someone, the Chancellor, the Treasury, the Bank of England or the EU authorities.
    I cannot see any other explanation.

    • alan jutson
      Posted August 14, 2011 at 12:27 pm | Permalink

      English Pensioner

      The simple explanation, the taxpayer will underwrite any losses, so they can afford to take higher risks to earn their bonuses.

      The commercial competition have no such safety net.

    • A David H
      Posted August 14, 2011 at 11:13 pm | Permalink

      Who did Barclays and HSBC unload their Euro debt onto, not RBS surely? I have no inside knowledge but if you’ve got something that no sane person would buy at a good price, then where else to go but the nearest tax paying milch cow?

  18. Publius
    Posted August 14, 2011 at 10:49 am | Permalink

    Mr Redwood writes: “Reply: I haven’t checked the private sector banks, as they are profitable and we do not have to pay for the mistakes. ”

    Isn’t that what was said about RBS not so long ago?

    • Epigenes
      Posted August 14, 2011 at 6:49 pm | Permalink

      Err, so what?

      Why do you not do a detailed report on all the private sector banks?

      Maybe Mr Redwood would let you post the details here.

  19. Eric Arthur Blair
    Posted August 14, 2011 at 10:55 am | Permalink

    How about Lloyds TSB, John?

    I’ve a credit card with them. Yes, I know – spare me the lectures!

    Anyway, over ten years, I’ve made £16K worth of transactions and have paid them £20K back – raw profit to them of £4K.

    Yet they claim I still owe them £8K. At an interest rate of 28% APR.

    This is the bank that was bailed out with – what – £2oK for every man, woman and child in the country? Interest free? That we will possibly never get back?

    They owe me far more than they claim I owe them!

    Any chance you could publish, in laymans terms, the exact amounts and terms of the money that the taxpayer had to give to Lloyds TSB, against our wishes?

    We talk about the chavs and gangstas and are repulsed by the looting…

    …but hasn’t the taxpayer also been looted here by people enslaving us through their use of money that never existed until they typed a few numbers into a computer?

    • alan jutson
      Posted August 14, 2011 at 12:31 pm | Permalink

      Eric

      Looks like they made a good investment in you, unless of course you had gone bankrupt in the meantime, but by now they have still had their money.

  20. John Galt
    Posted August 14, 2011 at 11:22 am | Permalink

    John.

    Well said, what a shame you appear to be a lone voice in Parliament, and even worse for what now passes as a conservative party.

    As for our countries gold reserves, oh thats right, they morphing into Euros as I know your well aware, but something that should be the first response to every time a lieberal / socialist starts to open their mouth about finance.

    I guess all you can do is just watching the whole sorry mess unfold. Personally I went on strike a long while ago.

    “Theres none so blind as those that won’t see”

  21. Richard1
    Posted August 14, 2011 at 11:44 am | Permalink

    Excellently set out. You must keep up the focus on this since, as you point out, no-one else does & unfortunately the Conservative front bench were caught like rabbits in a headlight when Brown embarked on his disasterous bank bail-out policy. (It is often cited in Brown’s defence that other countries applauded him: of course they did – if UK taxpayers hadnt taken the losses, foreign banks, bondholders, shareholders etc would have had to do so!)

    Also, the loss on the shares is only the tip of the iceberg. The taxpayer stands behind the whole of the balance sheet of RBS and other nationalised banks (& maybe in some way behind others’? Thats not clear). When the sums are done on this, it is the TOTAL cost (including cost of capital) which must be looked at. With the gold sale, PFI debt, increased official debt etc Gordon Brown was by far the worst, & for taxpayers most costly, Chancellor of the Exchequer in British history. Lets hope we never see his like again.

  22. Nick
    Posted August 14, 2011 at 11:54 am | Permalink

    Something doesn’t square.

    Losses = reduction in capital, since we have no new people mad enough to invest.

    Loans under the agreement with the project Merlin, are up.

    So gearing should be up.

    Someone, somewhere isn’t telling the truth.

  23. Cliff
    Posted August 14, 2011 at 11:55 am | Permalink

    John,

    What winds me up is the sponsorship deals the state owned banks have.
    How can NR justify sponsoring Newcastle United’s shirts? How much did they have to pay Newcastle for that?
    Why is Lloyds still a major sponsor of London 2012 and how much is that costing them/us? It seems that there is money going around and around within the state which eventually just disappears into thin air.
    I have made a personal decision not to do business with any business that sponsors London 2012. I love the Olympics, but I didn’t support our bid that, in my view, was more about boosting a few politicians egos rather than sport.

  24. Mark
    Posted August 14, 2011 at 11:59 am | Permalink

    The management at RBS learned that Central Banks dole out bailouts to the likes of them: they have seen it already in the EU, so they simply expect the bailouts to continue. Moreover, Basel risk factors tell them that it’s all risk free, and so do the ratings agencies until it’s too late.

    Also a concern is the extent to which forbearance is a hidden bomb in the accounts: the BoE seem concerned for UK banks generally as they explain here:

    http://www.bankofengland.co.uk/publications/fsr/2011/fsrfull1106.pdf

    Search for “Box 2”

    12% of £1,240bn of mortgages in unacknowledged trouble? Perhaps more than that, since the ones in trouble will tend to be higher value, more recent loans with little paid off.

    • Mark
      Posted August 14, 2011 at 11:17 pm | Permalink

      Does this thought frighten the horses?

  25. Demetrius
    Posted August 14, 2011 at 12:00 pm | Permalink

    17.8% leverage is still too high given current and likely future conditions. What few appreciate is that it is going to be necessary to revert to traditional norms that have almost been forgotten and this will be across the board. One aspect is that people will simply not be able to take on the levels of personal debt that are now common.

  26. forthurst
    Posted August 14, 2011 at 12:02 pm | Permalink

    I recall a time when the RBS was a staid high street bank. Presumably it had the management at all levels which was correspondingly capable of transacting its business efficently and profitably. I recall a later time when RBS became a financial supernova exploding into every area in which banks, legimately or illegitimately had dared to tread. (I had a contract with a major financial institition at the time which was asked by RBS to provide systems to support an expansion into one new business area and they wanted it yesterday).

    When a company expands with reckless speed into new business areas because it has a(n unwise man in a hurry -ed) at the helm, is there any likelihood that it will have put in place the best people, the best systems at all levels both at home and abroad to facilitate it? For that reason your original suggestion that RBS should have been dismembered back to its original core operation was doubly right. Taxpayers money looks to be seriously at risk; the government’s strategy (if it can be so graced) needs to be reconsidered.

  27. Denis Cooper
    Posted August 14, 2011 at 12:18 pm | Permalink

    I’ve come round to the view that a basically sound bank with a temporary liquidity problem can be assisted and allowed to survive, but once it requires a full-blown state bail-out then it should never be allowed to survive.

    On which basis, Northern Rock should no longer exist; there should be no bank trading under that name from those premises, carrying on as if nothing much had happened.

    However I don’t accept the extreme view that the government should have stood back and allowed RBS to collapse.

    That was the right thing to do with Baring’s, which was not systemically important and which did not have large numbers of ordinary retail customers who would have found that their current and savings accounts were frozen overnight and who could have lost most or all of their deposits.

    At the time there was a lot of talk about the “toxic assets” held by RBS and other banks, and it would have been feasible to get them out of that mess by setting up a state body capitalised by the Bank of England to buy those “toxic assets” from the banks at provisional prices and gradually dispose of them, with a first charge on all the property of each bank so that there would be a guarantee of full recovery of the money supplied and the administrative costs.

    Instead the Bank of England created £200 billion of new money and used almost all of it buying up previously issued gilts, non-toxic, high quality assets, so that the Labour government could continue to sell new gilts to fund its budget deficit, while the banks were left still holding their “toxic assets” which were said to be poisoning the financial system.

    Since when, RBS and Lloyds have resumed the payment of massive bonuses based on short term performance, which was a principal cause of the original problem; but now those excessive and unwarranted bonuses are being paid essentially at the expense of the taxpayers as involuntary shareholders, and the government which should be protecting taxpayers’ interests has instead colluded with the bankers by permitting this to happen.

    This experience has shown very clearly there’s always going to be too much moral hazard in any state bail-out scheme for a private bank which doesn’t inevitably end with that bank ceasing to exist, not as a matter of government discretion but as a matter of law, and I would agree with the general procedure suggested in the first two paragraphs of the article.

    • A.Sedgwick
      Posted August 14, 2011 at 7:06 pm | Permalink

      “However I don’t accept the extreme view that the government should have stood back and allowed RBS to collapse.”

      I don’t think that would have happened with professional adminstration.

  28. Tedgo
    Posted August 14, 2011 at 1:02 pm | Permalink

    I see RBS and Lloyds TSB pension funds are now heavily exposed to stock market losses. No doubt more tax payers money will be needed to bail out these Bankers defined benefit pension funds.

    Pension trustees are supposed to invest the contributions they receive, not gamble then on the stock exchange. It seems to be a gross dereliction of trust doing so.

    Its about time investing pension funds on the equities market was banned.

  29. Conrad Jones (Cheam)
    Posted August 14, 2011 at 1:20 pm | Permalink

    Mr Redwood,

    Your views are becoming more and more popular.

    Not subsidising the Banks and only protecting the depositors was how Gordon Brown sold this scheme of Bailing out Banks.

    You did make a comment in a previous blog concerning feelings of jealously regarding Banker Bonuses. The term “Jealous” usually is associated with people who would like to be like – or possess their assets; of the people they are jealous of. I do not believe that is appropriate with regard to Bankers. I think the feelings are more akin to anger associated with benefit cheats – people who are sponging off the state and making our debt worse and pocketing the money.

    Unfortunately – despite the huge Lobbying Power of the City of London – it is not the Bankers who we should focus are anger against. It is the Politicians we elect who – for one reason or another; choose to help Bankers before anybody else.

    “RBS bankers get £950m in bonuses despite £1.1bn loss”

    http://www.guardian.co.uk/business/2011/feb/24/rbs-bankers-bonuses-despite-loss

    As always, you make a very powerful argument and raise questions concerning the legitimacy of funding a Financial System that seems not to care about risk as if the gamble goes wrong, the tax payer pays. Why did RBS increase it’s holdings of Italian debt? Very good question.

  30. lifelogic
    Posted August 14, 2011 at 1:27 pm | Permalink

    Indeed reducing the absurd burden of employment and the countless other regulations on businesses might well make the banks more willing to lend to businesses and inspire general confidence. But what do we get from Cameron the “no retirement rules” and the proposed “agency workers directive” and the no use of gender in insurance and yet more such nonsense.

    Property development lending in particular seems to be very hard to obtain on reasonable terms from any of the banks – so many developments and investment are in limbo as a result and many under employed builders.

  31. Damien
    Posted August 14, 2011 at 1:32 pm | Permalink

    The banks including RBS have moved from high bonuses to higher basic salaries therefore the failure for RBS to make a profit does not impact on its personnel as would have been the situation previously.

    The moral hazard that has been created by the nationalisation of the banks means that they have little incentive to reduce their costs (60% of which are personnel) and can gamble our money on Greek bonds and other risky enterprises. Private investors are entitled to take these risks using their own funds but RBS should be prevented risking taxpayers money in this way.

    By declining to dispose of its shares nor requiring the mandatory repayment of the taxpayer bailout money the government has made all taxpayers unwilling speculators in RBS. The same occurs when the government decides its knows the best time to sell public assets, speculation again. I am of the view that if the government does not pay down its credit card by every means possible we all may become hostages to fortune.

  32. oldtimer
    Posted August 14, 2011 at 1:56 pm | Permalink

    I was astonished to read this comment in your posts re the RBS losses:
    “No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable.”

    It reminded me of C Northcote Parkinson, famous for Parkinson`s Law ” ‘work expands to fill the time available for its completion’ and his more relevant, in this instance, Law of Triviality where everyone is an expert of the bicycle sheds but no one will discuss the really important subject. As a matter of curiosity does the HoC or one of its august committees actually discuss the HoC bicycle sheds? It might be a very revealing example of Parkinson`s Law of Triviality and provide an insight into the priorities of your fellow MPs..

  33. electro-kevin
    Posted August 14, 2011 at 2:31 pm | Permalink

    To tell you the truth the quicker Britain goes bust the better.

    It is clear that being rich has done us no good at all. The socialist elite has thrived because the rest of us were comfortable enough to pretend that it wasn’t happening.

    That all we will be able to afford in the ‘fight’ against crime is austere prisons and bamboo canes will be no bad thing.

    We won’t get those things ? The white collar classes haven’t kicked off yet. They will once the economy is broke – especially having seen how weak the courts and the police are.

  34. sm
    Posted August 14, 2011 at 2:54 pm | Permalink

    Article from Golen XIV.
    ‘A debt commision for publicly owned banks.’

    Why indeed would RBS buy the assets you have described?

    I ask because i believe that if you can create debt-money and lend it on for business purposes this gives those key decision makers a lot of power with limited democratic accountability? (A vision of Tanks and Banks is in my mind).

    How bonuses can be paid out in a loss making (indeed public) bank?

  35. Gary
    Posted August 14, 2011 at 4:08 pm | Permalink

    THIS is the real looting. Street looters are amateurs. The bankers have looted the world to its knees and you politicians did nothing about it. That is the outrage.

  36. Badger bill
    Posted August 14, 2011 at 5:24 pm | Permalink

    In response to Alan Jutson’s comment on the police, I served in the Met for 30 years. When the new CPS came into force the paperwork went up astronomically. I arrested a man for a minor offence just to see how long it took to complete the paperwork. 4.5 hours and I as a sergeant was used to form filling. Think of the young constable fresh out of training school. I still had one form to fill which I left to the gaoler. That would take half an hour.

    One chief uperintendent considered that the crime rate was at an acceptable level and then went on to discuss the colour of the canteen which was more important.

    The assessment is quite correct that the senior mamangers are just that. They are not policemen! Not long enougfh in the rank to learn the job. Quick to get away on the promotion ladder and pursue their career.

    One chief constable, currently in office, at the Christmas lunch had all the plastic knives thrown at him when he was a sergeant because he persecuted constables as it used to be the sure fire way to get on!

    Jobsworths in uniform and hopeless at leadership. Never lead from the front but sit in their offices finding out what questions were asked at the last promotion board!

    There is lots more to tell!!!

  37. Susan
    Posted August 15, 2011 at 10:20 am | Permalink

    I always have to smile when the subject of the banks comes up. I know I will read the inevitable comments about its all their fault, that Britain has the economic problems it has. It will not be too long before Ed Miliband will put all the problems of the riots at the bankers door and so on. I have to ask where was Mr Milibands moral compass for 13 years, when many of us could see that this credit mountain could not continue. A good majority of public also spent well beyond their means and took no responsibility for their actions, did it never enter their heads that borrowed money has to be paid back? Government spent too much also, all because people started to believe Gordon Browns ” no more boom and bust”. Yet the blame game in Britain continues.

    I too believed there was a much cheaper option for the taxpayer to bail out the banks, much along the lines you have said, Mr. Redwood. I remember I expressed this on many occasions. However, at the time, everyone chose to believe that not only had Gordon Brown saved the banks in this Country, but had saved the World from financial meltdown. Some still do believe this. Instead Brown cynically used the banking crisis for political advantage, making the bankers public enemy number one, to cover his own failings on the economy and the poor regulations he had introduced. The blame in Britain never ends up in the right places, and that is part of the problem in the UK culture. Individuals abdicate responsibility for the own actions and that includes a good majority of the public. The media of cause tells the public what to think, instead of laying out the actual facts and letting them think for themselves. I was actually surprised the banking crisis in Britain was not a lot worse than it turned out to be.

    The problems for the banks at the moment, I would have thought is not whether retail and investment banking are together under the same umbrella, as some seem to think, but how much they are exposed to sovereign debt from indebted Countries. Still I suppose the rush will be on to separate retail and investment banking, making it more expensive for the customer and we will see more financial institutions move out of the UK.

    As to why RBS is buying Sovereign debt in the EU, I believe the answer is very simple. I don’t believe that the political elite in Britain ever had, or ever will have, any intention of pulling away from the EU. I have always thought they actually see Britain eventually being right at the heart of it. They, therefore, have a vested interest in seeing it overcome its difficulties and succeed. Any noises they make to the contrary are merely for public consumption in England, a majority of whom are against the EU. That is why I believe that unless a referendum is given to the people of Britain, it is pointless discussing the EU, even though, I myself, am ideologically opposed to everything that it stands for.

  38. Neil Craig
    Posted August 15, 2011 at 2:07 pm | Permalink

    “why is RBS buying risky Euro sovereign bonds?

    Because it is nationalised and can be ordered to?

    • Winston's Black Dog
      Posted August 15, 2011 at 6:52 pm | Permalink

      The Europhile Cameron and his cronies desperately want to help bailout the Euro with UK taxpayers’ money.

      They’ve been rumbled doing it directly or via the IMF so they are now doing it by stealth through their “pet” bank RBS. They lobbed (our) money at Bank of Ireland recently to help bail that out and now they are buying worthless bonds to support the Euro by stealth and “burying the bad news” because the fortuitous riots are keeping everything else off the TV and radio and out of the papers.

  39. Socrato
    Posted August 18, 2011 at 1:09 am | Permalink

    The body responsible for looking after taxpayer interests in publicly owned banks is UK Financial Investments. A description of what they do is listed on their website http://www.ukfi.co.uk/about-us/what-we-do/ . The first point of its self-declared remit is ‘maximising sustainable value for the taxpayer, taking account of risk;’. It is clear to me that given the exposure we had to Ireland – a year after it was well flagged that problems were arising in EUroland, ditto our exposure to Greek sovereigns, our exposure to Italian sovereigns etc, that they cannot be serious about their task. UKFI owns RBS (and other nationalised bank) equity and the government (via the taxpayer) guarantees RBS bonds. I would like to know who has, and should have, more say in the way these banks are run – in particular with respect to risk – reckless bondholders (who have not suffered at all – but have in fact gained as a result of taxpayer guarantees) or public equity investors supposedly looked after by UKFI? The second point regarding ‘taking account of risk’ is our exposure to residential and commercial property portfolios of RBS and other nationalised institutions. I would like to ask what steps are being taken to limit taxpayer exposure to potentially massive destabilising negative price moves in this asset class.? Thanks in advance.

  • 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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