I wrote here in November that ‘history may judge the HBOS men to have been the worst of the lot’, and the FSA, in its grindingly slow, bureacratic way, is finally about to catch up with them. The regulator has at last issued a ‘Final Notice’ to the Bank of Scotland arm of HBOS to the effect that its Corporate Banking Division, under the now comfortably retired Peter Cummings, ‘failed to take reasonable care to ensure that [it] adequately and prudently managed high value transactions which showed signs of stress’. In fact — I paraphrase — it seems to have taken no care at all, tearing up the banking textbooks as it piled on lending to the commercial property sector and took equity stakes in many of the deals as well. Rather than spreading risk prudently, the bank concentrated it in huge exposures to the raciest of its real estate customers: in March 2008, the top 30 borrowers were happy recipients of £34 billion of Bank of Scotland depositors’ cash between them.
What’s so remarkable about these revelations, even couched as they are in dessicated FSA lawyer-language that mentions no individuals by name, is that they are not about adventures in new-fangled securities or bold acquisitions that went wrong, as was the case with RBS, but in the bricks-and-mortar lending that every traditional British banker is supposed to understand to his fingertips and every bank board ought to be capable of calling a halt to when property markets start to overheat. Cummings, who joined Bank of Scotland as a teenage clerk in the 1970s, had worked through several previous boom-and-busts, yet he inculcated what the FSA calls a ‘culture of optimism’, underpinned by pressure for profit performance, that defied all past experience. ‘Some people look as though they are losing their nerve,’ he declared early in 2008. ‘Not us.’
A ‘very substantial’ financial penalty would have been appropriate to the corporate misconduct identified, says the FSA — except of course that Bank of Scotland has already imposed a very substantial penalty on you and me as taxpayers, by crippling Lloyds which ill-advisedly took over HBOS and had to accept a £21 billion Treasury bailout. Instead, ‘public censure’ is the strongest punishment the FSA can impose on the bank itself, coupled with the vague hope that lessons will be learned from the case. Unlike RBS, however, there is ‘ongoing’ but carefully unspecified ‘enforcement action’ in hand, so we may yet see Cummings and the miserably failed board above him brought, one way or another, to book.
Where do jobs come from?
I don’t suppose Barack Obama has a big stock of Irish jokes in his repertoire, but he might try out a very old one if David Cameron asks him how Britain can emulate the accelerating recovery of American jobs as the two of them waft around the skies in Air Force One this week. The addition of 233,000 ‘non-farm’ US jobs in February marks a third month of strong growth, well spread across business sectors, and the improving economic picture is beginning to make Obama’s re-election look close to a dead cert against such a mediocre choice of Republican runners.
But is it down to QE and low interest rates, or Obama’s own $800 billion Keynesian stimulus package — so derided by his opponents — or the rising wage costs in China that have made America’s own factories more competitive again? The answer is that it’s a combination of those things, plus a dose of America’s irrepressible spirit of renewal; but that it also helps to have a much smaller public sector in the first place, and let the private sector get on with the job. As the Irishman said when asked for directions, ‘You wouldn’t want to start from here.’
Smart ticketing
High Peak is a scenic district of Derbyshire which I have never had the pleasure of visiting, and likewise I hope never to have the pain of paying a High Peak rail fare, a new super-expensive category designed to deter me from taking rush-hour trains. Rail passengers numbers in the UK passed 1.4 billion last year, the highest in peacetime since 1920, and there could hardly be a more irritating response to rising demand than simply pushing fares higher at times when we most need to travel. But experience suggests the premium fare structure is more likely to be implemented than the £3.5 billion of efficiency savings transport secretary Justine Geening called for last week. The minister also wants ‘smart ticketing’, including Oyster cards, airline-style price flexing and sales through local shops, and fewer staff on and off the trains — all of which will be fiercely opposed by unions, that indefatigable old Trot Bob Crow of RMT to the fore.
The Chancellor clearly has higher priorities in next week’s Budget, but some time soon he should commission a radical thinker (perhaps our own James Delingpole, with his new enthusiasm for economics, but certainly not Steve Hilton, whose Californian sabbatical is a relief to us all) to address the question of whether it is really beneficial for prosperity and wellbeing to deter all but the richest from travelling by any means other than bicycle or bus.
I wrote last week of the prospect of the £100 family car fill-up, of which nearly £60 will be tax. Next month will see another near-10 per cent hike in UK Air Passenger Duty, already the highest in the world and a levy that the tourism lobby claims has cost several tens of thousands of jobs since the Treasury spotted it as a nifty revenue stream with green bonus points attached.
Answers to the problems of emissions and congestion lie in advances of technology and infrastructure planning, not in taxing travel beyond the means of ordinary folk or allowing it to be held to ransom by vested interests, as has happened to rail under three successive governments. The only consolation for the couple who will now pay £368 of duty to fly to Australia to see their grandchildren is that the whole journey will still work out cheaper than a first-class return rail fare from Aberdeen to Penzance.
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