Changing RBS

 

         The Chancellor’s Mansion House Speech on Wednesday night marked an important new policy towards UK banks.

          He clearly supported policies to promote more banking competition within the UK market. He underlined the importance of more competitive banking capacity in  the Uk domestic market to finance the recovery.

           Challenger banks will be created and sold from both Lloyds/HBOS and RBS. TSB will be floated off by Lloyds soon as a newly quoted  bank in the marketplace.

            The biggest changes will be at RBS. They are asked to sell off US based  Citizens Bank. I have never seen the point of UK taxpayers owning a wide ranging global banking group that still holds good business assets like Citizens, when they can be sold and the capital realeased to assist in the rebuilding of the rest of RBS. They will sell off a challenger business in the UK. They will slim their Investment bank more. This could include sales of talent and assets where it can be profitable in the future.

             The Chancellor is also going to undertake a rapid review in the Treasury of whether to have a Bad bank/Good bank division. This might speed the sale of the good bank and permit the Good Bank to make a bigger contribution to financing the recovery. There are capital issues for the Bad bank, and the view of the minority shareholders to accommodate.

             The Chancellor rightly said “While the bank (RBS) is healing, let’s be frank it has not healed as quickly as we all hoped”. I am pleased he is now taking action to split it up and speed its recovery and improve the contribution it can make to the UK economy. It was an unusually important Mansion House Speech.

              I disagree with those who say the government should not  intervene or influence strategy in this way. The government  is the taxpayers’ representative, and is  responsible for the overall economy. It is good to see them making decisions about RBS, as the future of this bank is central to our economic progress. The UK economy has done well in the last 3 years taking into account that it has been against the very strong headwind of its largest commercial bank shedding £900 billion from its balance sheet.

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65 Comments

  1. lifelogic
    Posted June 21, 2013 at 5:29 am | Permalink

    Lack of sensible bank lending has been a huge hold on growth and jobs. Had the government sorted out the banks particularly Lloydstsb & RBS/Natwest more quickly (and they are still totally unhelpful and uncompetitive to perfectly solid customers) it could have made a huge difference.

    Even now Natwest are not only not lending to many companies, but in an attempt to call back old low margin loans in are even preventing existing customers taking second charges on assets and then borrowing from other, perfectly willing, lenders so they can get on with other building or investments.

    This is a criminal waste of resources. The government owners should tell them to stop this outrage immediately, but given what Hester says publicly, does he or the government even know what has really been going on at RBS? Helpful Banking and NatYes as they absurdly like to brand it. Actually just this idiotic government shooting itself in the foot as usual.

    The government should have made them sell good assets and stopped them squeezing the life out of UK SMEs as they have been doing so effectively. Also change the regulations that encourage them to lend to governments rather than the productive sector.

    • Ralph Musgrave
      Posted June 21, 2013 at 1:05 pm | Permalink

      Where is the actual evidence that “lack of sensible bank lending” is a problem? The following employer surveys indicate that lack of access to credit comes a long way down employers’ list of problems.

      http://www.ft.com/cms/s/0/41d9bc4e-fbc7-11dd-bcad-000077b07658.html#axzz2WV0ffia0

      p.7 here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/193555/bis-13-p74-small-business-survey-2012-sme-employers.pdf

      Section 2.7 here: http://www.britishmarine.co.uk/upload_pub/Industrytrendsreport%28Nov11toMay12%29.pdf

      • lifelogic
        Posted June 23, 2013 at 9:30 am | Permalink

        Indeed credit is only one of the restrictions, but if a builder cannot fund his £3M build project or has to do it more slowly that clearly hits demand, growth and jobs. The problems are clear, too big a state sector relative to the private, too much regulation, lack of confidence in Cameron and Miliband soon, too much and over complex tax, expensive energy by green religion decree, daft employment laws and banks sucking back the life blood of industry whenever they can (or just over charging for it).

    • Bazman
      Posted June 21, 2013 at 6:45 pm | Permalink

      What would you consider ‘sensible’ lending. Property I presume. Isn’t that what got the banks into a mess in the first place? What is need is more investment in manufacturing and other services that create jobs. Not just another venture into property speculation that every speculator says to the bank is ‘sensible’. What property venture would anyone go to the bank that is ‘absurd’ and should the banks give preference to property ventures given their past incompetence in deciding what is good and bad?

      • lifelogic
        Posted June 23, 2013 at 9:33 am | Permalink

        Lending, secured on property, very often funds other business activity. Or it buys property off others who then fund other activity.

    • henfer
      Posted June 22, 2013 at 11:45 am | Permalink

      As long as the Basel rules on capital adequacy give a risk rating of zero to loans to government (i.e., holding government bonds), 1.6 to loans to other banks, 4 to loans to residental mortgages and 8 to loans to companies, why would one expect banks to behave differently. And the Basel rules (I, II and III) have been defined by bankers, so at least those guys are consistent in their lending behaviour!

      • lifelogic
        Posted June 23, 2013 at 9:35 am | Permalink

        Indeed these rules are absurd, one should look at the real risks. Often lending to a business is very well secured on property or other assets that are low risk. It is trying to run things from the top down one size fits all and forcing banks to lend to tax borrow and waste governments. Many of which are broke.

        • Bazman
          Posted June 25, 2013 at 6:19 pm | Permalink

          The problem for the banks is they are banks not estate agents and selling the property is a real headache for them if the business fails. Hence fire sale prices on repossessions. They are also private businesses and do not have to lend you money. Even the state owned ones…

  2. Gary
    Posted June 21, 2013 at 6:07 am | Permalink

    Good bank, bad bank. Guess who gets to keep the bad bank?

    The govt cares for the taxpayer in a relationship that resembles a protection racket.

    Why are no bankers in jail, and why have no banks been allowed to fail ? You know, as in a capitalist system of laws. This resembles a politburo and serfs. etc

    Reply Taxpayers own most of the “bad bank” Assets and stand behind it already.

    • Jerry
      Posted June 21, 2013 at 6:26 am | Permalink

      @Gary: “Why are no bankers in jail

      I’m getting a bit feed up with people thinking that the law can be changed and then used against people who at the time had not committed any offence. I would prefer to live under EU/European style laws than this apparent new UK system that decided what should have been illegal and then prosecutes retrospectively, have complete with hurried retribution rather than a fair trial.

      • lifelogic
        Posted June 21, 2013 at 11:39 am | Permalink

        There were indeed already plenty of laws in place that cover some of their actions. The auditors and accounting rules too need to be considered in detail.

      • Iain Gill
        Posted June 21, 2013 at 12:06 pm | Permalink

        actually fraud has been a criminal offence for quite a while

        you dont need retrospective legislation to deal with the bankers if the political will was there

        • Jerry
          Posted June 21, 2013 at 5:04 pm | Permalink

          @LL & Iain Gill: Yes there are laws on fraud etc. but first the police need some evidence that crimes have been committed, then the CPS has to be satisfied that there is a reasonable chance of proving guilt – the legal system should not be used simply because some want retribution and someone to “pay” the price with their freedom. Thus I assume those calling for these ‘bankers’ to be in jail must know more than others, if they do then they really should be talking to the police and not mouthing off on the internet…

          • lifelogic
            Posted June 23, 2013 at 9:37 am | Permalink

            Perhaps they should looks at the interesting RBS rights issue document, just before it collapsed.

          • Bazman
            Posted June 24, 2013 at 7:10 pm | Permalink

            Giving executive powers to managers is never a good idea and this is the root cause of the banking crisis.

        • uanime5
          Posted June 21, 2013 at 9:23 pm | Permalink

          The problem is that making too many bad business decisions isn’t fraud.

          • Iain Gill
            Posted June 22, 2013 at 7:34 am | Permalink

            plenty of fraud took place too, manipulating the interest rates for one.

          • Jerry
            Posted June 22, 2013 at 8:20 am | Permalink

            @U5: Exactly! Thank you U5…

          • APL
            Posted June 22, 2013 at 10:06 am | Permalink

            uanime5: “The problem is that making too many bad business decisions isn’t fraud.”

            The problem is, too many Politicians were too intimately involved with the machinations of the banks for the police to be given a free hand.

            etc

            Reply This is a false allegation. The police are not being influenced by politicians to avoid the banks. If a banker faces serious allegations with some evidence to support, then the police will investigate independently. Many bankers made decisions that turned out to be rash in the light of what happened next, but that does not make them criminals. Nor should we ignore the role of the Regulators and Central banks in the crisis.

          • Jerry
            Posted June 22, 2013 at 1:14 pm | Permalink

            @Iain Gill: YOU know that, best YOU tell the authorities then, less YOU are accused of perverting the course of justice, or was your comment based on just your opinion?…

            I’m sure that if the Police/SFO had the evidence they would take action.

          • zorro
            Posted June 22, 2013 at 3:41 pm | Permalink

            @Jerry – Does that mean that the police will investigate politicians or ministers if they have been publicly accused by people of child sex offences?

            zorro

          • Jerry
            Posted June 23, 2013 at 10:58 am | Permalink

            @Zorro: If a/. the victim comes forward and makes a complaint, and b/. the evidence is credible, then I would expect them to do so, someone mouthing off, especially to the press or on the internet, that they have reasons to think that Mr XYZ did such and such to little kids 40 years ago might not fit either or both a/. and b/.

          • APL
            Posted June 23, 2013 at 2:37 pm | Permalink

            JR: “This is a false allegation. The police are not being influenced by politicians to avoid the banks.”

            I am so glad to hear that. It is a comfort to know that the criminal justice system in not open to political influence.

            En passant, could you just explain why Chris Huhne is out of prison after wasting police time for over ten years.

            And perhaps offer an instance where someone outside the political system could expect to put off prosecution for a decade?

            But I am especially pleased to hear that MPs integrity is such that none of ’em would consider pulling any plums out of the Parliamentary expenses pie. Nor would any of ’em be caught doing anything ‘outside’ the rules.

            Good. That’s my mind at rest.

    • lojolondon
      Posted June 21, 2013 at 11:58 am | Permalink

      Gary, the reason that no bankers are in jail is because none of them have broken the laws, in the UK that is how it works.
      But I believe that some other non-banking people should be in jail, how about the person who, as Chancellor, broke up the Bank Of England, created a three-way system of financial regulation where no one part had control or authority, then told everyone that ‘light regulation’ was the strategy. Maybe the law should change so that politicians who replace good regulation with bad should go to jail? Perhaps people who run NHS trusts where many, many new-born children and newly-delivered mums die should go to jail?

      There is a real bias in the media, lead by the BBC, featuring a clamouring for rich people who make errors of judgement in the line of their work being repeatedly threatened with custodial sentences while the (Labour) politicians who facilitated serious lapses/changes of policy which resulted in these situations are given golden handshakes and extremely valuable pensions.

      • Jerry
        Posted June 22, 2013 at 8:29 am | Permalink

        @lojolondon: Well yes, many would have loved to see Mrs T in jail, after all many on the centre and left would suggest that many of the changes in regulation (not just within banking and finance) replaced good regulation with bad – ho-hum…

        How about people try and look at the issue without party political bias, and then these self-same ‘ranters’ then claim that the BBC is being biased, talk about dirty pots and kettles! 🙁

        Reply All of Mrs T’s successful regulation of the banks was swept aside by Mr Brown, who set up a new system in 1997. It was his system which failed us 2005-9.

        • Jerry
          Posted June 22, 2013 at 1:29 pm | Permalink

          @JR reply: Well without the Big Bang non of what followed would have happened, Brown would not have had the free hand he did in 1997 etc. etc. As I said, ho-hum…

          Good law needs to work within any shade of outside political influence, highly polarised laws usually make for very bad law.

        • sjb
          Posted June 22, 2013 at 8:51 pm | Permalink

          @JR’s reply
          Was Mrs T’s regulation successful, though? With regard to banking consider the following failures:

          1991 BCCI (BoE’s lack of supervision of banks’ overseas ops)
          1995 Baring’s (rogue trader)

          Widening the net to other financial areas: Maxwell pensions scandal; misselling of personal pensions; and Barlow-Clowes.

  3. Jerry
    Posted June 21, 2013 at 6:16 am | Permalink

    The last things the UK banking sector (and their customers) needs are hasty decisions made simply because an election is looming and HMT needs some readies to make the books look better or ever more competition that then leads to ever more imaginative marketing of the “products”.

    Reply The Chancellor is opting to remodel RBS instead of trying to sell shares in the exisiting bank. the opposite of your criticism.

    • Jerry
      Posted June 21, 2013 at 6:34 am | Permalink

      @JR reply: Sorry if I miss understood what you meant when you said “Challenger banks will be created and sold from both Lloyds/HBOS and RBS”, that sure sounded like there is the prospect of more banks – even more so when the TSB is in the process of being de-merged from Lloyds.

    • JimF
      Posted June 21, 2013 at 6:59 am | Permalink

      Hardly hasty!
      They have spent 3 years going nowhere apart from shrinking a bubble which should have been allowed to burst when that would have been the market solution, and would have applied to any other business. It is all very well for Mr R to applaud this apparent willingness to actually take a decision, but in another (more Conservative with a T) world we could have spawned a number of new and vibrant lenders by now out of the ashes of this zombie behemoth.

      • Jerry
        Posted June 21, 2013 at 5:16 pm | Permalink

        @JimF: I agree that it is hardly hasty in one respect but then in another, all of a sudden – with less than 23 months till the next GE – there is a flurry of activity…

        As for letting the bubble burst, yes that would have been the normal way that capitalism would have sorted out a toffee apple manufacture who borrowed to much or allowed to much credit but did anyone really have the appetite for a 1920s style banking/stock market crash, least of all those who might have faced the longest drops in to the basement.

        • davidb
          Posted June 22, 2013 at 12:45 pm | Permalink

          We are where we are, however I for one do not believe that the scenario you suggest would have happened.

          There is no shortage of capital in the world. All that would have happened is that the profitable, healthy bits of the banks would have been snapped up – possibly on the cheap – by Arab, Russian, Chinese and the like. The heads would have rolled, the employees sacked losing their precious bonuses, bad debts would have been written off, and we would all be back growing again. Iceland walked away from their debts. They are growing. We would have had a one of really deep shock and then it would have kicked off again. And in truth if the world caved in perhaps we would wake up and get rid of the burdens of high taxation, bloated government and petty regulation at the nadir of it all too.

          All the printer of money needed to guarantee was the deposits by ordinary people.

          We have ended up with the perpetrators walking off with the bonus ball, and a system of banks which dont lend money to businesses, nor pay interest to depositors. We are now enduring a sixth year of recession, and the economic ship appears rudderless. I work in the private sector. My losses are not borne by taxpayers. That capitalist free market system works so well that even China has started doing it!

          • zorro
            Posted June 22, 2013 at 3:46 pm | Permalink

            ‘All that would have happened is that the profitable, healthy bits of the banks would have been snapped up – possibly on the cheap – by Arab, Russian, Chinese and the like.’……..Yo have a point there…..Maybe that’s why the Western banksters got bailouts, and we got to pay their bills through taxes and devaluation….. 🙁

            zorro

          • Jerry
            Posted June 23, 2013 at 11:02 am | Permalink

            @Zorro: I think the bus you are worried about left many years ago, for example, who owns the Midland Bank (now a part of HSBC)?

          • zorro
            Posted June 24, 2013 at 3:26 pm | Permalink

            @Jerry – As I am sure that you know, that should have happened in 2007, rather than leaving us in tax servitude.

            zorro

  4. Mike Stallard
    Posted June 21, 2013 at 6:17 am | Permalink

    In all fairness, you have been talking about this for some time now (years actually). It is a good thing to see that, at long last, the government is going to do something positive.

    Reply Yes, we are getting there. I proposed break up in 2008 instead of buying all those shares, and then repeated the advice when the Coalition took over in 2010.

    • lifelogic
      Posted June 21, 2013 at 6:37 am | Permalink

      Indeed the absurd way they were rescued by “save the World” Gordon Brown did not help but progress has been absurdly slow. Will it be sorted in time to hand it back to Ed Miliband & Balls in May 2015 as now looks almost inevitable? Doubtless they will do something daft with RBS then anyway.

      Meanwhile how many negligent deaths, at NHS hands are considered acceptable before anyone is prosecuted, sacked or even told off. Is it 1000, 10,000 or 100,000 one wonders?

      • uanime5
        Posted June 21, 2013 at 9:29 pm | Permalink

        Given the difficulties involved in prosecuting people for deaths caused by negligence (gross negligence manslaughter) I’d say there will be few prosecutions. Though many people in the organisation that tried to cover it up have been sacked.

        • lifelogic
          Posted June 23, 2013 at 9:39 am | Permalink

          I think they mainly went voluntarily and were not sacked at all.

          • Bazman
            Posted June 26, 2013 at 7:36 pm | Permalink

            They sacked themselves in effect. No revolver in the drawing room though unfortunately. You are telling us they just gave up a job paying so much and being so cushy?

      • Credible
        Posted June 21, 2013 at 10:06 pm | Permalink

        Any deaths that may be associated with medical negligence in the NHS pale into insignificance compared to the number of people who die worldwide because of malnutrition, but nobody seems to care very much about that.

        Reply On the contrary, the UK does a great deal to help alleviate the poor world’s food crisis

  5. Andyvan
    Posted June 21, 2013 at 6:48 am | Permalink

    So why has it taken all these years? Was George too busy? Not important to sort out the banking sector? Government policy has prevented free markets from correcting the mess they’ve made of banking and their interest rate policy has destroyed savers. Not wonder the economy is in a mess. Sell off all the banks to whoever will pay money for them, remove all the regulatory hurdles to new banks starting up and then stay out of the way George. No way are you or any of your flunkies smart enough to control an economy and that is becoming clearer every single day.

  6. Denis Cooper
    Posted June 21, 2013 at 7:43 am | Permalink

    Given that RBS and Lloyds were too systemically important to be allowed to simply shut their doors, I suggested that the government should set up a state owned body to relieve them of their dubious assets and get them back on a sound footing ASAP.

    It could have been called the Resolution Bank, or it could have been called something else that didn’t have the word “bank” in its name, such as the Resolution Fund; it could have been funded by loans from the Bank of England and it could have bought the dodgy assets from the commercial banks and gradually sold them off at the best obtainable prices.

    To make sure that the taxpayer did not lose out, the prices paid for the assets would have been provisional prices subject to later correction, with each commercial bank entering into a contract under which it accepted the liability to make good any losses incurred by the state body on resale of the assets, but with the compensating payments to the state body made out of the bank’s profits gradually over a period of up to twenty years.

    This mechanism could even have been combined with the QE programme to help fund the government’s budget deficit, with the commercial banks being obliged to use part of the receipts to buy and hold gilts as safe assets to replace the dodgy assets on their balance sheets; so instead of the Bank of England accumulating a stock of gilts to the value of £375 billion it would now own loans to the state resolution body of that or a greater magnitude, and the £375 billion of gilts would now be owned by the commercial banks, and the Treasury would still have been able to sell the volume of new gilts needed to cover the government’s deficit.

    But four years on it seems too late to talk about doing this, because as I understand both Lloyds and RBS are well on the way to having cleaned up their balance sheets by the gradual disposal of their dodgy assets.

    • Hope
      Posted June 21, 2013 at 10:31 am | Permalink

      What about the politicians’ liability in this? Lloyds appeared to be okay before they took advice and/or received direction from politicians. Why was Fred Goodwin knighted if he did not have the support of politicians? No, once more bankers have felt the heat, but what happened about the policiticians? They do not seem to feature in the recent report by the select committee. Why should the EU be able to tell/force conditions upon UK banks? Is the EU likely to act in our national interest? The Treasury is currently taking the EU to court to prevent it from harming our financial industry. The UK still being told what to do by the EU- yet there are fanatical Europhiles who think there is a top table not a 26 to 1 voting system against the UK.

      • Denis Cooper
        Posted June 22, 2013 at 3:58 pm | Permalink

        I can’t disagree with any of that!

      • APL
        Posted June 23, 2013 at 2:47 pm | Permalink

        Hope: “What about the politicians’ liability in this? Lloyds appeared to be okay before they took advice and/or received direction from politicians. Why was Fred Goodwin knighted if he did not have the support of politicians?”

        NOPE We have just been reassured that there was no influence peddling going on between the Politicians and Bankers.

        That’s good enough for me.

    • Denis Cooper
      Posted June 23, 2013 at 7:11 am | Permalink

      I note today:

      http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10137044/Investors-turn-on-Osborne-over-RBS-interference.html

      In particular:

      ““[Mr] Osborne had previously shown little enthusiasm for a good bank/bad bank split. We thought he recognised that with only £52bn of residual non-core loans, there is little point,” said Investec’s Ian Gordon.”

      In other words, it may have been a good idea some years ago it’s now too late.

  7. Brian Tomkinson
    Posted June 21, 2013 at 7:55 am | Permalink

    JR: “He clearly supported policies to promote more banking competition within the UK market.”
    It is amazing that you describe such an attitude from a Conservative Chancellor as marking an important new policy towards UK banks. Do you really know what is planned for RBS? Are steps being taken to split it into two banks? You also say there is to be review of such action. If the decision is made why the review? How’s the recruitment of a new CEO for RBS going? I don’t get the impression of a well thought out strategy by Osborne – far from it.

    Reply The Chancellor has announced a Treasury review of whether to split it into a bad bank/good bank. he has also announced the other sales as already decided policy.

  8. English Pensioner
    Posted June 21, 2013 at 8:45 am | Permalink

    There were far more banks when I was young, but past governments allowed/encouraged banks to grow by mergers, usually on the basis that “biggest is best”. This may be true in some industries, and might even be true in banking. However, events have shown that whilst “big” may have advantages, it certainly has major disadvantages when things go wrong. In my view, banks should be reduced in size by sales and de-mergers until they are no longer “Too big to be allowed to fail”
    This argument doesn’t only apply to banks, but to organisations like the NHS and our railways where management has become to remote from the “work face”.

  9. Leslie Singleton
    Posted June 21, 2013 at 9:20 am | Permalink

    All far too clever for my money, or anybody’s good, and I for one believe that Hester is right when he says that the problem is SME’s don’t want to borrow rather than the banks not wanting to lend–the latter idea being slightly ridiculous. I continue to think the bad bank idea is flawed simply because recovering bad loans is a skill that the government doesn’t have and which it cannot buy just as and when it likes–the skills need to be part of the culture of a good bank, one that knows what it is doing. So the Treasury is going to look at this. Ye Gods!! What have they been looking at these last five years? And I read that some Commission on the subject has recommended (roll of drums) a “review of options”, no less, with a decision by the Autumn (Wow!). The fact that lending is low (and assuming that that is a bad thing in any event which is perhaps not quite so obvious as is taken for granted given that debt everywhere is too high) does not prove a thing as to the cause and if the desire is to return Banks to the private sector it seems obvious to me that the way to do that is simply to trickle the shares in to the market over a longish period and to cut the fanfare (didn’t need a Mansion House speech). They could start that this afternoon. There is or was a banking Act in America (not terribly closely related to the present situation I readily admit and whose details I have forgotten) called something like “The Trickle Down Act” which I suggest the Treasury take a look at. Really heavy weather is being made of this.

  10. Roy Grainger
    Posted June 21, 2013 at 9:29 am | Permalink

    Just out of idle curiosity I wonder what Labour’s policy on these state-owned banks is ? Any idea ? As they nationalised them then surely they must have had an “exit strategy” planned too ? (only joking).

    • lifelogic
      Posted June 21, 2013 at 11:42 am | Permalink

      Ones assumes they will nationalise them fully, call them the people’s banks and then subsidise them for ever more from others taxes.

  11. Robert Taggart
    Posted June 21, 2013 at 10:57 am | Permalink

    RBS be a toxic brand – surely ?
    Whatever form the breakup takes, the RBS name should be binned.
    What to call the new brand ?…
    NatWest, methinks, has always sounded naff – even when ‘elongated’ !
    Coutts sounds good – and they be already an in-house branch. A rich bank for all us Plebs ??!

    • lifelogic
      Posted June 21, 2013 at 8:27 pm | Permalink

      Natwest and Coutts seem to be the brands being pushed. In the case of “NatYes” and “helpful banking” with rather satirical advertising.

  12. ian wragg
    Posted June 21, 2013 at 12:11 pm | Permalink

    I see borrowing for the last financial year is up. Still the BBC goes on about reductions. Public sector pay and headcount is rising. When are you going to get a grip John.
    Most people cannot comprehend what you’ve done to the military whilst increaseing foreign aid and bailing out the PIIGS.
    Your definitely going to be redundant after May 2015. Still thats whart Cameroon wants.

    • Pleb
      Posted June 21, 2013 at 10:22 pm | Permalink

      I agree, what a missed chance.

  13. forthurst
    Posted June 21, 2013 at 2:05 pm | Permalink

    So five years after a taxpayer bailout and three years into a Conservative-led government, the Treasury are to look urgently into creating a strategy for dealing with the RBS monstrosity. In 2009, 30% of its assets were bad, now 12%. Hester had suggested that it might take ten years to return the bank to the private sector; did he have in mind the beneficial effect of inflation on that ‘bad’ residue? Does it have any actual mark-to-market value?

    The BoE (PRA) has given Nationwide to the end of the month, more urgency, to produce a plan to increase its capital to asset ratio from 2 to 3%, similarly with other banks. Much of the bad lending in the past has been because of the decision to strip local management of its role in assessing risk, based on local knowledge of people and businesses, and centralise the risk-management process. Can a computer defined algorithm sniff out a spiv on the make or a sound business proposition? So banks must become more financially conservative whilst partaking in the government’s asset-inflationary help-to-sell (buy) scheme.

  14. waramess
    Posted June 21, 2013 at 2:59 pm | Permalink

    “The government is the taxpayers’ representative, and is responsible for the overall economy”

    What a sad state to be in when the government can not allow a bank to fail and be liquidated like any other corporate. Did successive governments not think about this when they encouraged banks to consolidate?

    It would seem that the successive governments were not behaving very responsibly or, perhaps we might blame it all on the Bank of England for not thinking when they encouraged the mergers and aquisitions.

    Now the taxpayer must take responsibility for any losses connected to the bad assets which rather makes a nonsense of the concept of Bankruptcy and the risk reward of lenders to these banks.

    OK, the past was the past; mistakes were made and we should all move on (aka Blair), EXCEPT Governments continue to provide guarantees to most retail depositors which, in many cases they will be unable to honour.

    Perhaps this government of ours, “responsible” for the overall economy might take an urgent look at the size of the obligation relative to each bank and take action to ensure any state obligation to retail depositors can in fact be honoured without recourse to the taxpayer and ,if not, to make proper provisions to ensure that if called upon in the future it is able to do so.

    With this problem out of the way, the next time the banks slip on a banana skin the taxpayer will be spared the bruises and a proper liquidation made possible courtesy of a responsible government.

    Reply We are promsied controlled administration/bankruptcy for failing banks in the future. I opposed the purchase of shares in 2008, favouring forced restructuring then to avoid taxpayer losses.

  15. Leslie Singleton
    Posted June 21, 2013 at 3:18 pm | Permalink

    Postscript to earlier post–It has just come to me over lunch that the word I was groping for was not “trickle” bur “dribble” and the American regulation I am reminded is called “The Dribble Out Rule 144”. Simplifying dangerously, it forces a bank when realising certain kinds of stock to dribble it out gradually.

  16. Matthew
    Posted June 21, 2013 at 4:35 pm | Permalink

    JR has long advocated a restructure of the banks – it’s a shame that it has taken the government so long to arrive at a similar conclusion.
    An earlier split could have contributed to SME lending and assisted the economy, before the next election.

    That said, better late than never.

  17. Martin
    Posted June 21, 2013 at 5:39 pm | Permalink
    • Denis Cooper
      Posted June 22, 2013 at 4:02 pm | Permalink

      Nonsense, isn’t it?

      I suppose this means that Nationwide will have to reduce the interest paid on my savings even further, to help build up that extra £400 million.

  18. Credible
    Posted June 21, 2013 at 9:58 pm | Permalink

    ” The Chancellor rightly said “While the bank (RBS) is healing, let’s be frank it has not healed as quickly as we all hoped”. ”
    Well that really is rich coming from George Osborne, because lets be frank the economy has not healed as quickly as we all hoped. In fact the economy has not healed at all despite headwinds or crosswinds whatever.
    No doubt there will be a sell off of some sort before the next election. Some people in the establishment will get a nice cut from the dealings, the ordinary taxpayer won’t benefit at all, the country will have regained very little of the cost and reckless banking will continue.

  19. uanime5
    Posted June 21, 2013 at 10:08 pm | Permalink

    Given that the Government is also the majority shareholder of RBS there’s really no one other than the Government who can decide what RBS’s strategy should be.

  20. Lindsay McDougall
    Posted June 22, 2013 at 1:54 am | Permalink

    It appears to be the intention to sell RBS shares to the general public, instead of or in addition to selling shares to a company.

    There are several pieces of information that share purchasers would like to know:
    – What is the outstanding value of ‘toxic assets’? What prices do they depend upon?
    – What is the outstanding liability from PPI mis-selling?
    – What is the probable liability likely to arise from law suits in the USA regarding rigging of the LIBOR rate?

    A company buying a block of RBS would first do due diligence to determine this information. The public are not in a position to do so.

    So the sale should be in two stages:
    – 29.9% of State RBS shares should be sold to a company
    – the remainder should then be sold to the public.

  • 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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