The Good bank/Bad bank campaigners were seen off in the Treasury decision on restructuring RBS. Those of us who wanted to see more than one competing UK clearing bank formed from the parts of RBS were also disappointed.
However, the new policy does include selling off Citizens, the US banking Group owned by RBS, and further reductions to the Investment Bank, whether by divestment or slimming down. These are both policies I have called for in the past.
The bad news still continues from RBS. The Bank reported more losses and still pays no dividends. It has published a report on its own small and medium sized business lending and service which is extremely critical.
The new Chief Executive sounded the right note, when he admitted past mistakes and promised full attention to creating a better quality more responsible UK clearing bank. He pledged himself and his team to being a better bank for UK business, and a more attentive and helpful bank towards its retail customers.
The Chancellor was able to welcome all this by saying there is now a new strategy. This new approach is designed to make RBS an asset rather than a burden for the UK economy. It is time RBS was available to make a full contribution to UK economic recovery.
RBS has got its portfolio of bad loans down to a mere ÂŁ38bn, a relatively small sum for a bank of its size. The plan is to sell more of these on from within the ring fenced bad bank RBS will itself continue to own.
I wish the new management well. Splitting up RBS more fundamentally would have been a good idea 5 years ago or even 3 years ago. Now we need what is left to work better for UK economic recovery. We also need to speed the day when RBS can make profits and pay dividends, to get some of the taxpayers’ money back. Labour made a very bad investment. They should have broken up RBS at the time of its collapse, and only supported with loans those bits essential to the UK’s money transmission and deposit system. Now we have to move on, and manage the inherited mistakes as well as possible.
November 2, 2013
No surprise that the incoming Chief Executive should proclaim how awful things are that he has taken over, as he has another cup of coffee and worries how to bank his salary. Of course he would do this. Now any half way decent performance and on a continued rebound with the economy recovering is going to make him look a hero.
November 2, 2013
Labour indeed made a very bad investment indeed in RBS which was entirely predictable at the time as “save the world” Brown rescued it is such an incompetent way.
Over the past 5 years or so RBS has been one of the biggest causes of the lack of growth. They have just gone about called in huge number of perfectly good loans, from perfectly good customers restricting their customers investments and development hugely or forcing them to move elsewhere at considerable cost and inconvenience or just charging them huge rates if they are unable to easily move away.
They should indeed have been broken up RBS at the time of its collapse while protecting the sound UK business lending from being pulled back.
There is a desperate need for more competition in lending to business in the UK, the UK banks still get away with huge rates and fees or do not lend at all. The barriers to entry in banking are far too high. Of course if we had a pro business, less regulation, cheaper energy, sensible employment laws, government (rather than the opposite as now) it would help business borrowing hugely too.
The main problem at the bank was never losses on UK lending to business but losses on idiotic investment and gambling elsewhere. UK business just paid the price of this banking incompetence, with the resultant damage we have seen.
November 2, 2013
Perhaps I have been too hard on the integrity of MPs. It seems many really are too dim to make sensible decision on the Rescuing RBS, the Climate Change Act, HS2, energy production, transport systems and the likes:-
A total of 97 MPs were asked this probability problem: if you spin a coin twice, what is the probability of getting two heads?*
Among Conservative members, 47% gave the wrong answer, which is disappointing enough. But of the 44 Labour MPs who took part, 77% answered incorrectly.
http://www.bbc.co.uk/news/uk-19801666
What chance have we got? I mentioned before sampling error, from the passenger perspective of (for example) bus and train actually occupancy yet these people are not up to 12 year old maths basics sums.
http://www.bbc.co.uk/news/uk-19801666
But they do know, perhaps, that accommodation has two ccs and two mms and that is very important to them.
November 4, 2013
Brown didn’t ‘rescue’ RBS, the US Fed did. Brown just bought RBS with other people’s money and at a very bad price.
November 2, 2013
As you imply, JR, wrong or at least sub-optimal decisions were taken in the past and it is now too late to rectify most of those mistakes.
My own idea was that as the Bank of England was being induced to embark on money printing it could have printed enough to fund a state-owned Resolution Bank, which would have bought the “toxic assets” from the commercial banks at provisional prices and quickly got them out of the mainstream of the financial system, and sold them on when possible for the best available prices, and then squared its accounts with each commercial bank over a long period, say up to twenty years, to make absolutely sure that the Bank (and therefore the taxpayer) did not lose out from rescuing the banks.
Instead when the Bank started printing money it was clear from the start that it would not be buying and quarantining any “toxic assets” in order to cleanse the financial system, it would only be buying good quality assets which were doing no harm to the system, and then it quickly became clear that in fact it was using virtually all the new money to buy previously issued gilts and almost none to buy private sector assets such as corporate bonds. At the time I likened it to a crazily designed dialysis machine which left the toxins in the bloodstream and instead removed the healthy red cells.
And Darling’s reason for that was to have the Bank rig the gilts market to ensure that the Treasury could sell enough new gilts to fund the government’s budget deficit in the year leading up to the general election, a cunning ploy which succeeded brilliantly in duping the voters into believing that things weren’t really all that bad – after all, the government was still able to make all the usual payments as they fell due, no public sector worker had to be told that the government had no choice but to slash his salary, no welfare recipient or pensioner had his payments suddenly reduced by 20%, and so on.
November 2, 2013
I noticed your failed to explain why people in the public sector, those on welfare, and pensioners should have to pay for the problems caused by the banks.
November 3, 2013
Uanime5
“I noticed your failed to explain why people in the public sector, those on welfare, and pensioners should have to pay for the problems caused by the banks.”
You’d have to ask gordon Brown, Ed Balls and the Labour Party that, it was their idea.
No private sector organisation or charity of any kind should ever be in receipt of tax payers money.
November 3, 2013
It’s what happened in other countries where the government ran out of money, some in the eurozone and some not in the eurozone. I don’t attempt to justify ordinary people getting badly hurt because of the incompetence of their governments in regulating the banks or in other ways, beyond the fact that when a country is a democracy it is ordinary people who have voted in the government. But nor do I think it possible to justify politicians setting out to deceive ordinary people about what has been done in order to save them from being badly hurt so that they are grossly ill-informed about the true position of their country when they come to vote at the next election.
November 3, 2013
I would like you to say something about the practise of giving people on benefits platinum credit cards. I know it happened, and can prove it. Irresponsible lending was deplorable, but who in their right mind takes on a debt they know they can’t repay?
And who was it that should have seen this coming and did something about it, but instead preferred to stand at the despatch box vainly crowing about ‘the longest period of sustained economic growth’ (that actually began four years before Labour took office) that was fuelled by massive personal debt?
Labour still say that the crisis wasn’t of their making, it started in the US. Truth is, they were asleep at the wheel, and if we’re not careful, this nation is going to let them ‘Mr Balls’ it up all over again.
November 2, 2013
The banks are still in a huge mess. Here’s an illustration from Barclays. I’m told that they aren’t interested in cash deposits as they can get all the funds they want cheaply form the government’s Funding For Lending scheme. They use these weasel words to justify paying 0.6% pa gross interest on six-figure Sterling deposits.
I recently wanted to take out a structured note investment with Barclays, but as the bulk of my money is tied up in another investment with them until mid-December I did not have the funds available. The investment guy I deal with came up with an idea – a six-figure overdraft for 2 months at 1% above base rate would effectively act as a bridging loan and allow me to take out the new investment and hold the existing one until maturity. It shouldn’t be a problem, should it, after all they can get all the funds they want cheaply form the government’s Funding For Lending scheme?
But sadly no, in spite of the fact that they could hold my existing investment as collateral against the overdraft and in spite of my having a large sum of cash deposited with them, and in spite of both six-figure investments being with Barclays, and in spite of my having a perfect credit record and having been a customer of Barclays for 40 years, in the end their back-office ‘credit team’ decided against it. This has not exactly mad me feel enamoured of either Barclays or the UK banking system, or indeed the government’s stupid Funding For Lending scheme which only seems to have succeeded in impoverishing savers further while doing nothing to improve access to loans for SME’s or individuals. If I had a successful business that couldn’t expand because of this ridiculous attitude by the banks I would be extremely angry indeed.
November 2, 2013
Why lend, totally unsecured, to a bank for negative return after inflationwhen you can cut out the middle man and lend directly and well secured against solid assets for a positive return of 5 to 10 times greater?
The system is bonkers.
A loan to me (secured on my main house) might cost 1% over base yet on a loan to me for my business (equally low risk) guaranteed by me and fully tax deductible (but secured on commercial property) then the banks might want to charge base plus up to 5%. The new regulations they are complying with are totally bonkers. The should be concerned with risk of default and the quality of the borrower and security – not absurd half baked equity rules from the EU and incompetent politicians and bureaucrats.
November 2, 2013
Steve
I agree that Funding for Lending has crucified savers, because the Banks do not need or want depositors money any more.
Knock on effect on Annuities as well.
QE has also not helped the Prudent.
Seems every one is bending over backwards to help those in debt !
Those who have attempted to be self sufficient are simply treated as fools.
November 2, 2013
Who, really and truly would benefit from splitting the RBS up, which firms would benefit from this in the management of capital? Why has it been postponed until the next government?
November 2, 2013
You say “RBS has got its portfolio of bad loans down to a mere ÂŁ38bn, a relatively small sum for a bank of its size.”
Do you know how big the sum was when the government took control of the bank? If it was very substantial it seems that Mr Hester`s time in charge was not entirely wasted.
November 2, 2013
This is part of a comment I posted here back in March:
http://johnredwoodsdiary.com/2013/03/07/support-from-mervyn-king-and-vince-cable/
“It may be recalled that in early 2009 Alistair Darling set up “Darling Insurance”, aka the Asset Protection Scheme, basically to offer insurance to banks against losses on the “toxic assets” which had turned them into “bad banks” … but as it turned out only Lloyds and RBS took up the offer, Lloyds withdrew within a few months and RBS withdrew last October:
http://www.guardian.co.uk/business/2012/oct/17/rbs-leaves-asset-protection-scheme
And it said there about the “toxic assets” held by RBS:
“Some ÂŁ282bn of troubled loans were first insured by the APS but this has now fallen to ÂŁ105bn as the loans have been sold off.”
That was over four months ago, so presumably the residue will now be lower than ÂŁ105bn, meaning that maybe 70% of the job has now been done?”
So the answer to your question seems to be that it was at least that ÂŁ282bn.
November 2, 2013
Hester was able to reduce the bad debt by including it in the parts of the bank that he sold off. Some bad loans were also written off (the bank made a loss but they no longer appear on the portfolio).
November 2, 2013
The mistake was, and always is, to use taxpayers money to prop up any business at any time for any reason. It never, ever works because no government can manage a business that does not get it’s customers by force – either by law or monopoly of service. It’s entire core philosophy is that of coercion and cannot change that to a business that relies on actually providing a service that people want to use. Can anyone think of any state run service that is efficient, trustworthy, cost effective and pleasant to use? I can’t.
November 2, 2013
Andy–You might of course see it differently if it was your bank going down the tube especially if you had all your money placed with it
November 2, 2013
No, it would have been totally irresponsible and economically disastrous for the government to have stood back while the banks suddenly shut up shop.
You could ask people in Cyprus about that.
November 3, 2013
Denis Cooper: “No, it would have been totally irresponsible and economically disastrous for the government … ”
Only because the government (or its appointed regulator, snigger) allowed RBS to grow like topsy under its nose over a period of twenty years, buying up such ‘dogs’ as Ulster bank, which you pretty much can’t give away now. All so that (man ed) Gordon Brown could preen himself at the Mansion house dinner each year.
If RBS had been properly regulated, it would have been split up ten years ago or its acquisition programme halted.
Therefor you scenario would not have come about.
November 2, 2013
Could you tell us of an equivalent privately owned one that is? Or are you comparing the Ritz to a state doss house? Running down the work of millions of police, NHS, tax, council and any other worker for a private company that does work for the state? Rotten privately owned companies ripping off the taxpayer and then blaming the taxpayer for not employing the right staff will not wash and often the privately owned companies are ran by their state heads who know all the tricks and scams. Silly fantasy.
November 2, 2013
They are quite efficient at mugging motorist for being 30 seconds late on their parking in London anyway – does that count?
November 3, 2013
Parking was controlled by the police a number of years ago and now it is done by private companies who have targets to meet so indeedy they are now much more efficient at issuing fines instead of asking you to move your vehicle.
November 2, 2013
Indeed.
November 2, 2013
Care to explain why most European countries have state controlled rail ways that are cheaper and better run than the UK’s railways.
You also seem to have forgotten that after privatisation many state services (rail, water, energy) became less efficient, less trustworthy, less cost effective (above inflation price rises so that their directors can have bigger bonuses), and more difficult to use. So it seems that in some cases the public sector is better than the private sector.
Reply The UK’s tracks and signals are in public ownership and management, and the ECML has nationalised trains.
November 2, 2013
What is your assessment of the role and performance of UKFI in this?
November 2, 2013
Not a single senior banker in jail.
We live in a crony Kleptocracy.
November 3, 2013
Gary: “We live in a crony Kleptocracy.”
Yep, and it’s disguised as a two party system.
November 3, 2013
gary
A quick google found more than 25 senior traders, partners and bankers jailed for fraud, plus the recent rate fixing scandal still to be sentenced since 2008
November 2, 2013
Off topicf but delightful.
Data released by one of the largest green energy companies shows wind farms producing enough electricity only to boil two to three kettles at a time.
At one stage last week, three big wind farms even took electricity out of the National Grid – to run basic power supplies on site – rather than actually supplying electricity to households.
The wind farms’ owner said that in still conditions electricty “import” can occur for a few hours until the wind picks up. Such a phenomenon is known in the industry as “parasitic consumption”.
The data reveals just how much electricity is being generated by each wind farm at a given moment.
It is published by RWE npower renewables, a subsidiary of a German energy company operating 27 wind farms across England, Scotland and Wales,
The figures show just how little electricity giant turbines produce at certain times bolstering claims by critics that wind turbines cannot be relied upon to provide a constant source of electricity.
The Telegraph examined a snapshot of RWE’s own figures on Thursday afternoon last week. One wind farm Trysglwyn, which is in Anglesey in Wales, was producing a total of 6 kilowatts (KW) – just enough to boil two kettles each with 3KW of power.
The wind farm has 14 turbines and a theoretical capacity of 5.6 megawatts (MW). In other words, the wind farm was producing just 0.001 per cent of its maximum capacity.
Little Cheyne Court wind farm, which consists of 26 turbines each of them 377ft high, was producing 129KW of electricity last Thursday afternoon.
The wind farm, which was hugely controversial when it was built at a cost of ÂŁ50 million on the site of Romney Marsh in Kent, is the largest in the south east of England.
Its supply last Thursday was equivalent to the boiling of just 43 kettles – or 0.002 per cent of its maximum capacity of 59.8MW.
At the same time in the very north of Scotland, near Wick, Bilbster wind farm was producing 268KW of electricity, the equivalent of boiling 89 kettles. The wind farm consists of three turbines each 295ft high.
According to RWE’s own data, three wind farms on Thursday afternoon appeared to be taking electricity from the National Grid rather than supplying it.
The eight turbines at Knabs Ridge, which is close to Harrogate in Yorkshire, used up 86KW of electricity while Lambrigg wind farm’s five turbines in Cumbria took 10KW from the grid.
Llyn Alaw wind farm, which is in Anglesey, and consists of 34 turbines also produced a negative output, according to RWE’s own data, of minus 80KW.
RWE is thought to be the only one of the major electricity generating companies to publish such detailed, instantaneous information on the power supplied by its wind farms.
Opponents of wind turbines, who claim they are also costly to run and unsightly, say RWE’s figures show just how unreliable wind energy is.
While the snapshot analysed by the Telegraph shows how little electricity was produced by some wind farms on still, summer days, there have been other times in the past month when wind farm owners have been paid by the National Grid to shut down in order not to over load the electricity supply system.
Such payments – known as constraint payments – have reached £7.5 million for the first three weeks of August.
In other words, claim critics, there are times when turbines produce too much electricity and moments when they do not produce enough.
The Government has been keen to promote wind energy in its attempt to meet a European Union-wide target of providing 15 per cent of energy needs from renewable energy by 2020. The Labour government introduced a consumer subsidy, added on to electricity bills, to encourage the construction of wind farms.
That subsidy is predicted to rise to ÂŁ6 billion by 2020.
John Constable, director of Renewable Energy Foundation, a think tank which has been critical of wind farms, said: “Professional analysts have long known that fluctuating wind turbine output is poorly correlated with demand, but RWE’s new website is a very valuable addition to the data available to the general public, and will encourage informed debate about the relative potential for different renewable technologies.
“The truth will be painful for some, but the facts have to be faced sooner or later.”
Dr Constable added: “The uncontrollably variable output of wind power already imposes significant grid and system management costs on the consumer, costs which are set to grow dramatically; we need to ask ourselves whether the EU renewables targets for 2020 are really affordable.”
RWE said the company through wind farms and hydroelectric schemes had the capacity to produce enough renewable energy for 800,000 households. RWE npower renewables is the UK subsidiary of RWE Innogy and one of the UK’s leading renewable energy developers and operators.
A spokeswoman said: “Low wind speeds were the primary cause of the figures observed at the sites in question yesterday. For a few hours these sites had no generation or a very small amount of import.
“In very low wind conditions import can occur to power wind farm control systems and keep turbines ready to respond when the wind picks up. These are very small amounts of consumption.
“August is generally a low wind month and also one of the lower months for consumption.
“Wind turbines generate clean energy in the region of 80-85% of the time from fuel delivered straight to the point of generation without the impacts from extraction, transportation or supply security challenges. As such wind energy is inherently efficient.”
RenewableUK, the trade body representing the wind industry, said the UK possessed “the best wind resource in Europe”.
Maf Smith, its deputy chief executive, said: “You need to look at the year as a whole – the latest Government figures show that in 2012, more than 11 per cent of the UK’s electricity came from renewable sources, with wind providing the lion’s share.
“We hit a new record in March when we generated enough electricity from wind at one point to power four out of 10 British homes.
“So while our critics may choose to pick out individual examples of periods when it was less windy, we prefer to look at the bigger picture as that’s far more representative overall.”
Wind farms: how they performed
The electricity produced by RWE wind farms at approximately 5pm on Thursday August 22:
Bilbster, Caithness, 268KW
Knabs Ridge, North Yorkshire, -86KW
Lambrigg, Cumbria, -10KW
Little Cheyne Court, Kent, 129KW
Llyn Alaw, Anglesey, -80KW
Tow Law, County Durham, 30KW
Trysglwyn, Anglesey, 6KW
November 3, 2013
A good and interesting read Ian, and I want to express my own sincere gratitude, but it’s not all bad news. Just think how many birds didn’t get minced whilst the blades weren’t turning.
Tad
November 2, 2013
RBS should have been made to go into bankruptcy ; it had made extremely bad decisions , it had grown irresponsibly , it had not got the management skills or experience to oversee the sort of portfolio it had at the time of its collapse . It should not be allowed now to spin off its toxic debts – this would simply spread into the future a general weakness into the entire banking system . When it is offered for sale , its condition will reflect whatever its financial standing is in an open market ; if it was offered without the content of toxic debt , it would be valued artificially and the management would be given a credibility it did not earn or deserve. I support the decision George Osborne reached .
November 2, 2013
We don’t even know how bust these banks are because they lie, they cook their books with official sanction. They hide their losses
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9922668/British-banks-may-have-30bn-hidden-losses.html
Where else can you lie like this and get a bonus ?
November 2, 2013
Bill Black wrote that the best way to rob a bank is to own one and I never understood why Darling didn’t nationalise RBS at day one. There would have been no liquidity or solvency worries as the government, being the currency issuer, would issue new currency as required by the bank. Any foreign currency debts would have been managed down by the worlds Central Banks (just like they did for WW2).
All published accounts by banks are works of fiction. They are being allowed to make massive profits to write off toxic loans from balance sheets. In ten years, the government could make more money in dividends, that it would specify, than selling it. The bank could make loans to any one it liked, at rates the BoE would be happy with and pull the other commercial banks back to normal profits.
The word is that Euro-zone banks are sitting on a €1,000 billion of toxic loans and the way the Euro / ECB works, makes it all, effectively, in a foreign currency.
November 2, 2013
Several cases in the banking industry around the world, and most recently, the Co-op bank in the UK show that Labour’s huge bank nationalisation costing ÂŁ75bn in equity and untold additional costs and liabilities assumed was completely unnecessary. This has to be the single worst economic error made by any British Govt in the modern era. Combine that with the Iraq war, the single worst foreign policy error, and its a wonder the Labour Party still exists as a political force.
November 2, 2013
As usual with the British government they look after the Scots (because they have a political voice) at the expense of the English (who have no political voice and can, therefore, be ignored).
November 2, 2013
Apologies in advance for posting a link, but I find this both interesting and relevant to this thread. I won’t insult your intelligence by saying how.
http://www.youtube.com/watch?v=mJmHY_iWsmA
Tad Davison
Cambridge
Reply I have watched some of this set of interviews. Their alarmism concerning the dollar, US state debt and current monetary policy is the view of a minority who so far have not proved to be right. Fiat currencies and large state debts can survive all the time people are confident – in this case in the dollar and the USA’s long term credit worthiness. I see no sign of world confidence in their claims on the US being about to collapse, and am glad it is not about to collapse.
November 3, 2013
Reply to reply:
I deliberately gave no commentary on the clip. However, I’m not sure how many times the debt ceiling can be raised. At some point, somebody has got to grasp the nettle. The same rationale applies equally elsewhere.
Tad
November 2, 2013
Oh dear … The Telegraph tells us David Cameron is today facing questions over (previously hidden) ties to an initiative run by Common Purpose, a leadership organisation whose founders set up one of the most vocal lobbying groups for media regulation.
Though I can appreciate why DC may have wished not to publicise this connection.
Philip Davies, Conservative MP is quoted as saying
““Common Purpose is a very secretive organisation which I think the Prime Minister would do well to be wary of.
“They are trying to get their tentacles into every nook and cranny of the Establishment to pursue their Leftist, pro-European political agenda.
“Of course, Common Purpose don’t want a free Press because a free Press exposes what they are up to.”
November 3, 2013
The lesson there has to be, one needs to be very careful with whom one associates. There’s usually an unforeseen admission price. Personally, I like to remain aloof and free from entanglements, but in Mr Cameron’s case, it would be interesting to see if he’s been leant on or influenced in any way. I don’t agree that the press should be allowed to wreck people’s lives with irresponsible journalism, but their freedom to report serious matters in an even-handed way must be preserved, and perhaps enhanced.
I doubt if Savile and the rest of the cess pit would have continued for so long, had the press not been thwarted by gagging orders.
Tad
November 3, 2013
Never forget that Gordon Brown paid too high for the RBS and LLoyds shares that he acquired by using taxpayers money. In 2008, he paid ÂŁ66 billion for shares that had fallen in value to ÂŁ33 billion by 2012 (and don’t forget 4 years of inflation). The share values have recovered a little bit now, in part due to the sugar rush of easy money that has created such exuberance.
For close on 5 years now, I have called for full disclosure of all the RBS and LLoyds toxic assets, the losses likely to be made on them, and the extent to which those losses depend on key prices such as house prices. This is the first time that RBS has come anywhere near supplying this information. Let’s have more details.
Regarding the proposed solution of a bad bank, we have to remember Gordon Gheko’s motto in the film Wall Street: “Privatise the profits and socialise the losses.” No, I say privatise the whole thing, warts and all, with full disclosure of the toxic assets, as soon as possible. That way, the government will receive a poor but honest price and the extent of the Labour government’s folly will be fully exposed. Don’t make it easy for them.
November 3, 2013
How many more scandals and evidence of corruption are going to be disclosed? As soon as we get on top of one another comes along. My faith in our governments ability to access these corrupt bankers accounts has been terminally shaken. I suspect most of the country would prefer to see some bankers in jail, and their ill gotten gains returned to us.
Reply Bankers have to live under the law of the land like the rest of us. If there is evidence of a UK banker breaking the law the authorities can and should bring them to trial.
November 3, 2013
You have much more faith in the ‘authorities’ than I do John. The more I look, the more I find, and the less I trust any of them!
I’m firmly with David.
Tad
November 3, 2013
Nobody is accusing anybody of breaking the law.
When you are too big to fail you can basically make government change the law and get governments to bend to your will.
You don’t break the law, you effectively make it.