Parliamentary Standards Commission into the BOE/Treasury?

The HBOS leadership team is roundly and rightly condemned for the horrendous mess they made of HBOS. Under their watch a stable, non-investment bank was turned into a leverage monster which has blown up to a cost of something like £25 billion to UK taxpayers and now helps play a key role in crippling Lloyds and holding back our economic growth.

As I have said many times before, what has been done should be a crime and these men should be facing a long stretch in chokey - luckily for them the inept system that we have for tracking white collar crime means they are free instead to spend their ill-gotten gains and live the life of riley.

However, these constant reports into RBS, HBOS and such like play so nicely into the zeitgeist of banker bashing. But we all know that the decisions these men took must be put into context. Alan Greenspan had pumped up a huge bubble of leverage in America and the Bank of England had willingly followed his lead.

Moreover, the UK Government was blinded by its tax receipts and was inclined to watch on, glad of the money coming in which it could use to bribe voters with unrealistic promises of public services.

So where is the report into the Bank of England and the Government ministers of the time? I hope they are just waiting for St Mervyn to retire before taking him to the Tower, but somehow I doubt it.

Ego unbounded and unbent- Peter Cummings

It is very lucky today that I am going to work early enough to avoid breakfast; otherwise on reading the paper I may have choked this from the Telegraph:

"In a statement Mr Cummings said he rejected the FSA's findings but would not be appealing the fine.
He said: "Many people must bear collective responsibility for what happened, including governments and regulators as well as the boards of the banks themselves. But the fact that I am the only individual from HBOS to face investigation defies comprehension.
"The decision to single me out for investigation is even more grotesque given that even the FSA has to admit in its notice that other senior people were involved in the critical decisions for which I am taken to task. This is tokenism at its most sinister, and has made it feel throughout like institutional oppression."


Poor Mr Cummings, responsible in the main for signing off dodgy loans with markers like 'approved for business development purposes' when the Credit teams at HBOS had come back saying not to make the loans as they were too risky. Mr Cummings, who indulged in the ultimate 'pig and pork' banking whereby you lend equity and debt (senior and mezzanine) to a client who if they go belly up you will be guaranteed to be over-exposed and take a massive loss. Real banking 101 stuff. Lo and behold, HBOS lost so much money in 2008 a Government rescue via Lloyds was the only way out. Lloyds has not recovered, still writing off billions in losses on real estate loans, of which almost the whole book came from HBOS Corporate Banking wherein Mr Cummings was the boss.   Of course, he wants to blame regulators (who could have sacked him) or Politicians (who could have given backbone to the regulator) - but no one made him sign-off on these loans.   By my guesstimation he has ended up costing taxpayers a bailout of around £20 billion. A ban from working in the City and a fine is getting of lightly - in the US he would be looking at a long stretch, in China possibly the death penalty.   I generally am happy with the Government proposed reforms to the banking system, they will make it safer - but Mr Cummings did not do anything criminal under current or proposed laws. This should change, if it were me he would be done for treason.

Scottish Corproate Financial Blackmail, again

In 2008 we had the sad sight of a Scottish UK Prime Minister firstly bailing out the bust Bank Royal Bank of Scotland and then, allegedly, pushing the other bust Scottish Bank, HBOS into a disastrous merger with a healty Lloyds Bank.

As said at then and since, these banks were 'too big too fail.' The cost of closing them and the losses which would be incurred were deemed to great to bear, so instead £160,000,000,000 was handed to them in the way of guarantees. Half of this has now been paid back or withdrawn. The Government has also put in place legisaltion to ring-fence banks so that hopefully we do not get into the situation again of having Banks that are too big to fail.

By comparison, yesterday's vote by the Scottish Premier League is in financial terms a pittance in comparison. What is interesting though is the language used to defend the actions of Rangers Football club. The 'Newco' (Sevco) formed to takeover from Rangers wanted to stay in the Premier League and tried to hold the clubs to financial ransom - or at least make them overly aware of the consequences of not voting them a free entry. The fact that Rangers had over spent and effectively cheated for years using financial doping, the same way that RBS and HBOS has splurged on leverage, was neither here nor there.

In fact the new club, Sevco Scotland, have been at all the votes and trying hard to influence them - despite not being registered and by all rights the share that the SPL have should have been removed on the 4th of July. The clear financial implications have been spelt out, with 90% drop in prize money one of the outcomes. It is to the credit of the other clubs that they ignored this and voted to do the right thing by exiting Sevco and I hope they can deal with the consequences

It does not say much for the organisation of the Scottish game that such shenanigans are allowed, but the prospect of so much lost money tends to overide thoughts of principle - as my colleague Nick Drew often discuss on this blog. Players who have left under TUPE, improperly enacted, are even being threatened with being sued by the Newco (a very tenuous legal effort I was think) for example.

This is a sad episode, not that the story of my own team Leeds is much different south of the border, but it bodes ill for Scotland as a whole that such a sorry mess can engulf one of the Countrys best known institutions.

Finally, what for Scottish Independence? As regulars readers will know I am a big fan of this, living in London and wanting a smaller military role in the World for the the Scots going their own way makes sense, taking their mad socialism with them. But with many of their major private institutions wrecked by former Directors will this have an impact on whether the Scots people trust themselves to govern and regulate effectively under their own steam?

£61.6 billion secret loans; no scandal

Lots written today about the Bank of England not disclosing the size of the loans to the bust banks last year. Some truth in that they could perhaps have been fully open beforehand.

However, the idea of a lender of last resort is that you take effective action and this is certainly one of the few times the Bank of England made the correct decision in the credit crunch.

Also, in its own way the Bank of England balance sheet, published weekly, made it quite clear huge sums were being lent, but not to whom. However, it was not rocket science to guess who was big enough and desperate enough to want the money; just check out the collapsing share prices of the biggest banks!

So all in all this is a bit of a storm in a teacup as I see it. If small shareholders in Lloyds think this is yet another aspect of deception then so be it; why don;t they campaign for Eric Daniels to go, he after all is the remaining architect of the deal?

Victor Blank scores a Blank

This Robert Peston interview with Sir Victor Blank, the recently deprated LLoyds Banking Group ex-Chairman, is amazing. Not for the fireworks or stunning Peston interview technique.

But for Blank's show of ignorance. Here is a 'City Grandee' dispalying all the worst characteristics that we have come to expect.

Sir Victor says they had no idea about the problems in HBOS; perhaps they could have done some due diligence to see what they were buying? No, not when Mr. Brown the Prime Minister had asked so politely.

In recent weeks I have had some conversations which suggest LLoyd's was uniquely poorly placed ot buy HBOS. Lloyds had never had a huge corporate bank and had not been on the other side of the mad deals HBOS had been winning. Barclays, RBS and HSBC would have known of the craziness of the business model promoted by Peter Cumming at HBOS.

Lloyds were ignorant and it has sure cost their shareholders.

Sir Victor also offers no mea culpa, instead there are weasel words about a need for change and someone having to take a fall. Let's face it he should have been sacked for incompetence and landing the Bank with such a bad deal.

Bankers: Apologies Fake, Stupidity Genuine

It’s easy to diagnose greed and assorted wickedness from the Select Committee hearings – for example, the whole outrageous Paul Moore / James Crosby saga that, as CU says, will rightly run and run. (CU UPDATE: Crosby has resigned from the FSA this morning)

But I want to highlight another aspect – the circle-jerk phenomenon where everyone is, err … drinking each other’s whisky and gets completely carried away. Hornby says he invested his bonus ££ in HBOS shares (and has thereby lost a packet), and Goodwin avers he never sold an RBS share.

This exactly mirrors the behaviour of almost all the senior Enron execs, most of whose personal wealth was in Enron stock, and similarly sank with the ship. The notable exceptions were head trader Lou Pai, who (uniquely) insisted on being paid cash bonuses: and the actual criminal mastermind Andy Fastow, whose ill-gotten gains were invested in … municipal bonds (well, he knew the score better than anyone). Which kinda suggests that the rest were not calculating crooks, but were swept along in the excitement of the whole adventure. Ditto Hornby and Goodwin, by the same token.

This is doubly remarkable, because as any banker (and Enron exec) should know, the first paradigm of risk management is Diversification (the other two are Hedging and Insurance, BTW): indeed, in RM circles diversification is known as the only free lunch. These guys were so caught up in what they were doing, they ignored first principles, even in their own personal decision-making. They weren't just being reckless with shareholders' wealth, but with their own as well. That’s how intoxicating the game becomes.

And this is why we need regulators that are permanently ready to intervene. And this is why politicians who instruct regulators to turn a blind eye (Brown, Blair, this means you) are utterly, utterly culpable.
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Footnote: a couple of interesting comments from the Grauniad’s Dan Roberts in their live coverage, one perceptive, the other unbelievably crass:

“McKillop and Goodwin have so much gravitas about them that you can almost see how they managed to con us all out of billions of pounds”

“They've now wasted best part of half an hour on an arcane row about a supposed whistleblower at HBOS. I wish we could get back to the meat”

ND

new footnote: Alex (comments) points to an alternative account of how Lou Pai made off with his Enron dosh

Wrong about the Treasury committee

Here was me thinking this morning that the bankers would smooth over any inappropriate talk, say sorry and disappear back to their mansions to live in champagne and shame.

How wrong I was, for Paul Moore's letter is pure dynamite; It is reported at length elsewhere.

The nub is though that HOS was brazen in trying to avoid whistleblowers. This has scandal like Enron and Worldcom written all over it.

Moreover, we warned last summer about the insanity of appointing the ex-HBOS head as the man to advise Gordon to save the UK financial system. Crosby was one of the blind leading the blind; he is not the man to lead us out of the desert.

This story will run and run; Crosby or his report cannot survive credibly.

Banks still a problem

Peston is reporting that there is trouble at Mill re the HBOS merger. Many HBOS ex-employees with shareholdings are aghast at the terms of the Lloyds deal. Sir Peter Burt,left, has form for this too. Earlier this year he was saying we should suspend accounting standards to help his old bank.

Well, good luck to them. Brown backed LLoyds to merge with them and the Government, slowly getting back some form of grip on events, is not going to get taken down on this. HBOS was in a terrible financial position and would not exist as an organisation today were it not for taxpayer support. The same cannot be said of Lloyds.

For all this though, the banks are still a huge cause of pain in the economy. Not lending money as they should, recalling loans and raising rates where they can on customers.

The policy of reviewing their books by the treasury and ordering them to take taxypayer support has still not worked. Libor is going down but is still high. The market are still prone to huge falls on any given day on the slightest bad news (and bounces too, as in all bear markets).

So, the Treasury plan is not working, interest rate drops look desperate. The Government, BOE and Treasury (..and FSA?) are still all flailing; and now they have hung out their credibility.

Expect more bad news until a more coherent plan is put together. The traditional muddling through has only stopped us being engulfed in the quick-sand, we are not free yet.

PS still on hols, back at the end of next week.

The Bank with no name

After all the turmoil of the HBoS and Lloyds TSB merger and the shocks of the last few days there is now talk of lessons being learned. But at least one lesson already seems to have been learned by the Prime Minister himself.
In the bad periods there is rarely the time for the sober measured reflection that there is in the good times. The luxury of consultations, focus groups, soundings, polls, samples, spin and reappraisals of the situation is unavailable. The job of the leader is to look at the evidence, ask advice of the experts, evaluate the options and decide on a course of action.
At last, after Northern Rock, the 10p tax cut u-turn, Vehicle excise duty flailing, Poca card account, corporation tax limits and the stamp duty holiday/non holiday announcement, the PM finally gets it.

The job of the leader is to lead.

Whether the decision to force a merger through, overriding regulations and precedents, will be judged to have been sound and wise is almost immaterial. If further adjustments or regulation is needed it can be done later.

Prime Minister Brown has learned to take action. Maybe that noose will feel just a little looser around his neck.

As Tuco said in The Good,The Bad and The Ugly

"When you have to shoot- - -Then shoot, don't talk."

Insanity Alert: Government recommended to help Banks by Banker

The title is the summary of the treasury report into the housing market today.

James Crosby, ex-CEO of HBOS (presumably owner of lots of shares in the company) has done what was entirely predictable.

He has said that the failed Fannie Mae, Freddie Mac scheme (the failed US mortgage scheme that has likely just cost US taxpayers a sum not unadjacent to our entire national debt) would not suit the UK - Well done Dr. S. Holmes!

Then the report has gone on to say it is important that the UK government assist the banking industry in avoiding a property meltdown that will further affect their shareholders (i.e. Jim and his money) - only they said it was to protect first-time buyers, poor put upon dears of course.

What tosh - potential first-time buyers are in the purple at the moment, house prices falling, more choice of property, more rentals coming onto the market. Who wants to buy a house in this market mess?

Only the banks are really against a steep correction in house prices as to protect their wasting portfolios; And which bank is the most exposed to the UK mortgage market? Yup you guessed it, HBOS- yet 'the plan' is for our Government to step in and securitise the loans for them that the market will not do.

Utter stupidity - the market saying is 'trying to catch falling knives.' The idea is so bad that it is likely the Treasury team whom I fisked yesterday will run with it.