Next step for banks provides further vindication of Osborne
David Blackburn 1:22pm
Alistair Darling has unveiled the initial phase of his plan to get the majority state owned banks back into private ownership. RBS and Lloyds will dispose of more than 918 retail branches across the country over the next four years and will receive up to £40bn of taxpayer funds to strengthen their capital bases. In exchange for this injection, both banks have deferred cash bonuses for 2009. Also, Lloyds will not join the government’s asset protection scheme by securing £13.5bn privately through a rights issue.
There is an argument that the government should have gone further and demanded the complete separation of retail and investment arms, followed by additional demergers, and John Redwood makes a clear case as ever. But with both banks still on shaky ground, caution seems wise. Darling is correct that prospective private investment in Lloyds represents a positive development, but that the group requires such a sum is an indication of the recklessness of its previous board, and of just quite how foolhardy the Prime Minister was in insisting that Lloyds buy HBOS. RBS’ £25.5bn requirements and the £8bn contingency facility have rendered me speechless. The simple upshot is that credit remains paralysed and what recovery there has been in the financial sector owes next to nothing to the government’s policy, which remains intent on further borrowing.
The government is adopting aspects of Osborne’s approach, a partial reflection that its own is impotent. The Tories have been calling for the downscaling of these banking giants and increased competition for six months, now the government agree. Likewise, the trade off with no cash bonuses was unacceptable to the government last week, but is now central policy. It’s like nom-doms all over again. Osborne’s most powerful criticism is that there is no guarantee that this latest injection will be anymore successful than the first, a point that Darling fails to answer consistently. After a slow start, there is no doubt that he’s winning the argument.
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Hawkeye
November 3rd, 2009 2:14pm Report this commentOK - I'm obviously stupid. How does getting rid of these banks involve lending them even more money? Another "£40bn of taxpayer funds".
I have missed something?
Dave Lowry
November 3rd, 2009 2:19pm Report this comment"both banks have deferred cash bonuses for 2009"
Blimey... with only two months left of 2009, that doesn't seem a particularly harsh condition.
Irene
November 3rd, 2009 2:37pm Report this commentBrown is giving the impression it was him and Darling who decided all this when in fact it was forced on them by the EU.
Why are they pumping even more money into the banks, I thought the last lot was supposed to get the banks lending again.
I'm confused.com.
Chris lancashire
November 3rd, 2009 3:38pm Report this commentI am absolutely stunned at the amounts now being pumped in when this was all supposed to have been settled months ago by yet another Brown masterstroke.
Has anyone indicated whether this automatically adds to the 2009 or 2010 (projected) record budget defecits. If these amounts are on top of the £175bn (government declared), £200bn (honest) defecit for 2009 then expect the £ in your pocket to lose another 10%.
R
November 3rd, 2009 4:24pm Report this comment40Bn of additional funds required is a disaster. RBS's previous management look worse than ever, & the Lloyds/HBoS hook up a big mistake - HBoS should have been propped up while being wound up. The ban on cash bonuses might be politically necessary but is just populism. These firms weren't massive payers by City standards anyway, and by forcing payment in stock it is likely that key employees will either a) leave now markets are looking up or b) demand so much stock that they end up getting paid more than they would otherwise.
TomTom
November 3rd, 2009 4:40pm Report this commentSince Darling/Paulson let Lehman go belly up it was impossible for HBOS to refinance £160,000,000,000 of rollover funding. Had the Government stepped in and guaranteed £160 billion HBOS could have continued without having to foreclose on mortgages and re-possess houses it would have blown the PSBR to smithereens.
So Brown got the 6th safest bank in the world to shoulder the burden on its credit rating and find the rollover funds.....and contaminated Britain's best hope of rebuilding a vibrant banking system able to lend and keep credit flowing.
Because The Treasury was not prepared to fund the equivalent of Health + Education Budgets to rollover HBOS credit lines it wiped out Lloyds Shareholders and various pension funds instead
Irene
November 3rd, 2009 7:06pm Report this commentThis is what should be on the front pages tomorrow but you can bet your life it will be Cameron and the EU.
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