Tag Archives: Banking

Proposal for Post Offices to offer banking services

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As part of a political move to buy off suporters of an internal Labour Party rebellion against the proposed privatisation of the Royal Mail, Business Secretary Lord Mandelson wants to see the network of 12,000 Posst Office branches become a sort of national ‘Peoples’ Bank’.

This role is seen as plugging a gap in servives left by the banking collapses and would offer people an alternative to the so-called High Street Banks.

The proposal is seen as helping to secure the long term future of Post Offices. These already offer some limited banking services in association with the Bank of Ireland – like Credit Cards, mortgages and personal loans. The extended system would see Post Offices offer what are described as: ‘the full range of services associated with banks’.

Given the activities that are now indeed associated with banks, we can only hope that this was a carelessly chosen phrase.

Lloyds TSB sees Brown blink first in early face off

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Lloyds TSB, the recently part-nationalised bank tested the water yesterday and showed where the land lies in the post bail-out world of British banking. There were two key conditions attaching to the rescue deal Lloyds and others signed up to:

  • no dividends would be paid to shareholders until the Preference shares, owned by the Government for the taxpayer, had been paid
  • executive salaries and bonuses would be capped

Lloyds TSB announced yesterday that they would in fact pay dividends much sooner than the agreement dictated; and said flatly that they were not going to limit executive pay.

Gordon Brown simply talked about there being flexibility in the Government’s stance.

So, sooner than we could have imagined after the bail-out, we’ve had a face-off from a rescued bank and it was Gordon who blinked first, regardless of holding the purse strings. If this is a test case it does not augur well for a new focus on regulation. The other nationalised banks will be through the hole in the wall faster than you can shake a Darling at it.

The control issue – which we have consistently highlighted – also surfaced in the Lloyds manoevre. In making their announcement the bank said they were sure the Government would not wish to interfere with the way they made their commercial decisions. They seem to have forgotten – and so does Brown – that the Government operates the pubic shareholding in the bank and that shareholders have a vested interest in questioning commercial decisions.

This confrontation has quickly highlighted the essential contradiction in the post-part-nationalised  status of the banks.

The state now owns 40% of Lloyds HBOS – IF they merge (see earlier and accompanying articles). That is the major shareholding and would normally carry absolute clout. But the Government has refused control.

We’re now in a position where the largest shareholder, the skipper pf the lifeboat, is simply concerned to be inside the boat after the storm, relying on sheer weight to stabilise its direction.

In nautical terms, you can steer this way after a fashion – if the rudder is broken. But if the rudder is still in working order and its control is given over to someone with a different direction in mind, that will prevail.

FSA Chief concedes HBOS capable of independent survival

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Hector Sants, Chief Executive of the Financial Services Authority (FSA) is quoted as having said, in Edinburgh on Wednesday night (15th October), that he is ‘content that HBOS has sufficient capital to operate as an independent bank’. He was answering a question put to him by Jim Spowart of Intelligent Finance which is owned by HBOS and operates under its banking licence. Mr Spowart and Alex Neil, SNP MSP have been investigating the possibility of HBOS continuing independently and rejecting the proposed takeover by Lloyds TSB.

Mr Sants also said that the FSA, the UK Government and the Bank of England agreed that it was in the interests of financial stability for the takeover to go ahead.

After the report on Mr Sants remarks emerged, a spokesman for Scotland’s First Minister said that there are still questions about the merger but that, as things currently stand, it remains ‘the only option on the table’.

Malcolm Bruce, Lib Dem MP for Gordon, has written to Alastair Darling calling for the merger to be reviewed in the light of the impact of the Government’s bail-out. He also asked the UK Government to consider – on competition grounds – continuing to maintain two separate banks.

However, the injection of capital under the Government bail-out is conditional on the Lloyds takeover going ahead. Spokesman for HBOS, Shane O’Riordan, described the situation as ‘no deal, no capital injection’. This raises questions about the government’s motives if the authoritative view is that HBOS is capable of independent survival.

Brown takes a risk in trying to make political capital out of RBS and HBOS rescue

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With more than a touch of hubris, Gordon Brown tried an early shot at goal in the aftermath of the banking crisis that has seen the possible part-nationalisation of the Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS).

The Prime Minister, in talking to BBC Scotland and insisting that it was not the time for party politics, said: ‘We were able to act decisively with £37bn. That would not have been possible for a Scottish administration.’

There was something in this reminiscent of the stunt Tony Blair pulled at Hillsborough in Northern Ireland on the brink of an agreement. He said gravely that it was not a time for sound bites and immediately announced that ‘I feel the hand of history upon us’.

In Mr Blair’s case, a sharp witted woman opposed to the illegal invasion of Iraq into which he took the UK, said that she would like ‘the hand of history to feel his collar’.

In Mr Brown’s case, the Scottish First Minister was quick to point out that in giving the Prime Minsiter cross-party support in the current financial crisis, he had withheld from pointing out that the man who was dealing with the problem had also been the one to cause it.

Given that it was years of unregulated behaviour by the banks that led to the crisis and that Mr Brown, as long time Chancellor, presided knowingly over this period, his long shot at goal has left him open to a scoring run from the agile Mr Salmond.

The Glenrothes by-election will obviously be the referee.

Scotland’s banks now

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Feels like seeing what’s there as the air clears after a sandstorm, doesn’t it? The reputation of Scottish banking for a Caledonian conservatism has taken something of a beating but both Scottish banks survive. Both are losing their Chief Executives and their Chairmen. Both are part nationalised, with state ownership of RBS at 60% and HBOS/Lloyds, with the Lloyds takeover going ahead, at 43%. This situation is not intended to be permanent. The Government will sell their shares in the the institutions when the time is right. This is not likely to be in the near future.

HBOS will be part of a giant bank that, before this crisis, would not have been permitted by the Competition Commission. There will inevitably be job losses in the rationalisation of now duplicated local branches. Realistically, while the matter is still being contested, it’s hard to see the HQ of the new bank being in Scotland. The tokens tossed to retain some additional jobs and to satisfy national pride include:

  • the retention of the Bank of Scotland’s headquarters at The Mound in Edinburgh, which became the HQ for HBOS after the merger with the Halifax to form HBOS
  • an annual Scottish AGM
  • Scottish banknotes printed by the new bank, whose name is still to be decided

The Royal Bank of Scotland headquarters will remain in Edinburgh, out at Gogarburn. New Chief Executive, Stephen Hester is already in action and has begun to cut risk, concentrating, as we anticipated yesterday in our guide ‘What to do with your savings‘, on building the bank’s base of depositors, with a better customer oriented focus. The RBS has a suite of strong brands which Hester will build and he is known to want the bank to remain as an international force.

The battleground to come will be on the field of regulation. In the UK, the cutting away of regulatory procedures to free the banks to pursue profit-making in new ways began with Margaret Thatcher. It was enthusiastically developed by Gordon Brown as Chancellor through the almost-as-long Blair years. The Financial Services Authority, the formal regulator body, largely took a back seat and let the OK Corral approach to banking rip along almost unhindered. Few knew what was actually going on. Fewer, even inside the banks, understood it. Building Societies were given banking licences and joyously hit the ground running all over the place in a world they knew little about. Brutally, there was a general abdication of responsibility.

But, hey, we were doing well and in the good times who cared how we were doing it. Now we’re asking the questions. Many other countries are in the same position – but note Australia. The Australian banks are tightly regulated and that country has been relatively untouched by the banking crisis.

Scottish banking has a damaged reputation. Scotland will see job losses, directly in the banking world and more widely in the recession deepened by the banking crisis. Mortgages and loans will be available but the criteria governing them will be tightened. Our money is safe but will be drawn upon more deeply by inflation and will grow slowly in a depressed market looking at a long road to recovery. The Government’s borrowing, already high, many would say incautiously so, will rise significantly to finance the measures taken to stabiliise the financial system. These will be belt-tightening years.

Latest: no date set to implement rise of British bank savings guarantee to £50,000

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The British Government guarantee of bank deposits to £35,000 remains the case for the immediate future. No date has been set for the implementation of the rise in guarantee to £50,000 announced by Gordon Brown last night and confirmed this morning. The rise is also widely judged to be inadequate in the current circumstances. It has just emerged that continuing Treasury discussions on the matter were not very far advanced when Brown made his announcement last night – hence there is as yet no date set for the raised guarantee to come into operation.

Irish guarantee under EU competition law investigation as other countries follow lead

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The past 24 hours have seen the inevitable movement of money into the Irish banks now protected by the Irish Government’s two year unlimited guarantee of their deposits. This arrangement is now being investigated for breach of European competition law. Nevertheless, the French Government is said to be on the brink of adopting the Irish solution to safeguard their financial system. And the USA administration has just announced an addition to the bail-out deal Senate is to vote on tonight (Congress votes tomorrow). The addition is a guarantee of bank deposits rising from its current $100,000 to $250,000.

Pundits say that people do not need to panic in moving their money but psychologically, the action is defensible in seeking the most obviously secure place for savings. The consensus in financial expertise seems to suggest that, as we suggested last night, Gordon Brown’s raising of the British Government’s deposit guarantee from £35,000 to £50,000 is ‘neither here nor there’, too little to stabilise the savings deposits of British – and Scottish – banks. Moreover – and typical of Brown - there is no date yet set for the implementation of this rise so for the meantime – deposits in UK banks are guaranteed only to £35,000.

Brown’s action may have a sound theoretical basis but this is not the time for theory. It is the moment to understand the need for absolute reassurance as people deal with a profound sense of betrayal by a largely unregulated financial system, seeing their personal financial security collapse around them.