Eight years of banking pain and still no end in sight

Co-Op bank has put itself up for sale today. Ouch, even after a big bailout from new shareholders, there seems to be no way for it to actually turn a profit on its customer base. Frankly with low interest rates and non-banks piling into the market, there is not much to be said for retail banking. They never did get there way on charging for current accounts...


Add this to RBS, being denounced in the press for being about to launch another mass redundancy round to try and cope with its 9th annual multi-billion loss. Again, similar to Co-Op, it can't make money from its business - certainly only a couple of billion from what it has left after shutting down investment and international banking. This  two billion is dwarfed every year by payouts for the sins of the past misdemeanours.


2007/8 feels like a long time ago, but many of the problems in the banking system are still working through. The medicine of Quantitative Easing, which was hard to argue against at the time, has persisted long past its use by date. The Bank of England has always found a reason to keep the taps on to help the economy.


However, the underlying system is now very screwed by this approach. With no interest rate differential in the markets, banks struggle to make money. The regulatory burden, necessarily increased after the great crash, is expensive. Instead of the Banks making good, new entrants, with lower costs have come to the market and started to feast. This is good capitalism and as it should be, but will make for a big taxpayer write-off on the RBS investment.


Perhaps we should just do it and move on, rather like Co-Op group did with Co-Op bank.

RBS: Government owned until 2020

RBS has another year of losses to add to its list. Eight straight years, it is hard to think of another business outside the Guardian newspaper that can sustain such a dire record.

And not just a small loss either, a £2.5 billion loss. Yes it can be argued that the main cause here is yet more fines and covering for litigation and fallout from the financial crisis, plus the need to plus a huge hole in its pension deficit. On this basis the core bank is making money, is still the largest SME lender and gearing back up in the mortgage market with Natwest soon to top best buy mortgage tables once more.

However, a loss is a loss. The share price is around half of where it needs to be to break even in a Government sale. 50% loss of £48 billion. At least, with a tier one ratio of 16% we can be assured that the bank could survive another recession.

Pity its shareholders though, every year is the promise of Jam tomorrow in terms of dividends and profits. Every year it does not happen, we are far closer to the next recession than the last too; will RBS make it out of Government control before 2020, I would not bet on it.

RBS share sale; too little, too late

The Government decision to sell-off RBS shows how poorly Governments play the markets and how well they do politics.

RBS shares have been more or less the same for 3 years or more, see below:




They only came close in early 2010 right in the aftermath of the crash when the stock markets bounced prior to the Euro Crisis of 2010/11.

The awesome power of hindsight tells us that then was the time to get shot of RBS for the taxpayer. ADIA had approached the Government about buying at a modest discount the majority of the Bank. The politics was bad, with the Government wary of allowing the Bank to fall to the Gulf ownership.

Plus of course the Coalition was looking forward to the shares recovering like Lloyds and a profit being made (note on my calcs, the total profit to be made on Lloyds privatisation is less than the loss incurred today on 5% sale of RBS). As usual, Vince Cable put the kibosh on any sale and was totally wrong.

Once that window was missed, then anytime from Jan 2013 would have been fine to sell the Bank, the market worth has fluctuated around a mean of the price it is now. But it did not suit the Government to sell the Bank 'at a loss' before the election.

Now it is safe to do so....for a lower price and for the cost of the debt interest incurred on Gilts issued to buy the bank in the first place.

RBS is a fraction of what it was as Iain Martin explains well here, so the money is not coming back.

The sadder part is that this has been the case for years and years and the time would have been better spent selling the Bank off and keeping the losses lower. Now we will be another 2 years or more paying interest in Gilts to keep the Bank on state books.

The idea that RBS will suddenly be worth £5.50p per share or more is for the birds.

Baking results - when is a one-off provision not a one-off?

Interesting to see the most of the UK bank's half year results this week;

Pick of the bunch is RBS, whose underlying profits came in much higher than expected. The Bank has over a long period done a good job of selling down its Real Estate debts. However, in the long-term the more of less closing of its investment bank make it a much less appealing business. It's grip on UK SME business and personal business is strong and will remain so, enabling it to retain a core income. This maybe under-threat as its new CEO is very keen on retail banking and credit cards - but still, no one in the Treasury can argue it is a risky bank anymore. Shame the resulting value of the bank is about 50% of what was paid to bail it out. Somehow I doubt future Chancellor's are going to want to put that write down into the books - making it tricky to see the end of state aid.

Barclays has many similarities to RBS, for a longtime the bank was far superior in coping with the crisis, but the last two years have seen the end of that. It's new CEO also is looking at closing down the investment bank and pushing up retail banking - if all the Banks have the same strategy this may prove good for customers, but not for shareholders. It's results are underwhelming, but provisions are low suggesting little systemic risk.

Lloyds is the average of the bunch. Like the other banks it is keen to show off underlying profits, less keen to highlight the one-offs' that drag its profit down. The PPI mis-selling provisions keeps going up, there are huge fines for various pieces of LIBOR fixing and market abuse. All in all over £1 billion.

All the banks play the standard accounting trick of including these items as one-off. But there they are, year after year, going up and up and up. PPI Provisions have increased for over 2 years, they are hardly one-off's.

No wonder the shareprices lag the markets and are at 50% of where they were in 2007/8. One day perhaps all the bad news will be in the public domain, but the various CEO's have been saying the end of the road is in sight for seven years - I think there will still be two or three to run and then we will be into the next recession in any event!

Trouble at Tesco, & RBS

Enough of the international scene: back to business.  The Tesco crisis seems to have come to a head - well, the head has been chopped off, anyway.  Mr Q will have a better-informed view, but as a simple punter I'm bemused. 

The bottom line is the bottom line, of course, but as I go about my shopping Tesco doesn't seem to have screwed up visibly (unlike, say, M&S clothing).  In fact, I'd say my local 'superstore' has been steadily upgraded year on year, prices are OK, and if you are in a position to optimise the various promotions they run (particularly by buying in bulk and playing tunes on the petrol points) there is quite a lot of £££ to be saved.

I also thought that they'd responded intelligently to the recession with their phoney 'discount brands'.  But no, it seems not, and Aldi & Lidl have done for them.  Old man Cohen would never have let that happen: but since the days of MacLaurin they have been resolutely pushing the brand away from the bargain basement.  To have been caught in a pincer from below (the Germans), and from above (M&S Foods and Waitrose) is a strange outcome.

The new man ('Drastic Dave' Lewis - sounds promising) comes from Unilever.  By a curious coincidence I happen to know a bit about the energy purchasing operations of that company and of Tesco, and have been moderately impressed by both.  This may have nothing to do with the issue at hand but it's a data-point.

With an operation and asset-base as big as Tesco there is huge scope for turning things around: (they could start by selling land).  Sainsbury was languishing for years, but was never a lost cause and has engineered an up-cycle.  Surely Tesco will eventually figure out a formula for the 21st century.

Which is more than can be said for the recidivists at RBS.  Yesterday in the comments, Hovis brought our attention to this, the latest episode in what appears to be a disgraceful story we looked at back in February.  Were RBS putting the squeeze on SME customers in order to drive the into the hands of their investment arm at knock-down prices ?  It doesn't help their case when senior management is caught being economical with the truth.

As with Lloyds, the taxpayer-owner of these wretched institutions can only marvel that, across all the years we have owned the turkeys no-one from Whitehall has taken the management to the back of the bike sheds and marked their cards for them. 

ND

Bankers' Heads Should Roll, part 94

Channel 4 had an excellent scoop last night, a whistle-blower from the RBS 'Global Restructuring Group' who told how, in the wake of 2008 many of the bank's SME clients were transferred to the tender mercies of the GRG, which then systematically ramped up substantial and spurious fees to the point where - he alleges - not a few of them went under quite needlessly.  Then their assets were seized and sold at knock-down prices to an investment arm of RBS, he claims.  Needless to say, RBS protests its innocence.  

But Mr Whistleblower's story, replete with details and background 'colour', conveyed a strong whiff of plausibility.  Perhaps one of the several inquiries into Fred Goodwin's wretched monster will get to the bottom of it all.

Did I say 'whiff' ?  Stench would be more like it - the stench of decay.  'Global restructuring' used to be an honourable capitalist calling, and was (for example) in large measure responsible for accelerating recovery from the ghastly financial chaos in the Asian & Eastern markets back in 1997-98.  Likewise, in its heyday Enron's restructuring prowess was instrumental in digging many a floundering utility and large industrial energy user out of a hole.  The creative use of derivatives and various other financial tools and tricks of the trade is a wonderful thing to behold when used to assemble a win-win package that puts a company back on its feet.  

Of course there are rewards for the restructurer: a successful restructuring deal is as great a value-added proposition as can be imagined.  But - having done a few of these transactions myself - when you have a client who is almost in tears of gratitude for the service you've done them, you know the fees have been properly earned.

The official RBS response has been to claim that's pretty much what they still do.  But what Mr Whistleblower has described is a perversion of this noble art.  If he's right, then ways should be found to lock 'em all up. 

ND
   

Will they, won't they split RBS?

Politics and Banking have has an interesting relationship this past 5 years or so. What with the small matter of the Financial Crisis and part-nationalisation of major banks and full nationalisation of some smaller ones. The Poltiicians have been firmly in control, of what they know not.

The latest project to come up is what to do with RBS. Lloyds has been set forth on the road to full privitisation with a sucessful sale of shares the other month. Next year will see the Government holding whittled down to next to nothing, in plenty of time for the election, natch.

RBS presents a more worrisome challenge. The banks historic incompetencie's are vast, with a huge array of mis-selling, rigging and general lending splurge having laid waste to both its management and balance sheet. Stephen Hester did a good job of steering the bank away from the brink and now new management has the job of building for the future. The bank though is still brought low by its bad debts - a sterling job has been done to sell its non-core assets down from £350 million to more like £80 million, but the buffer that was trading profit that allowed it to balance profits and losses (well, sort of, RBS has been the least profitable of the big banks by far since 2008) has been closed down. This leaves a steadier income stream from corporate and SME banking, but a less profitable future.

So clever Mergers and Acquisitions advisors at Blackrock have been telling the Government to split the bank to make the good part easier to put back into the private sector. meanwhile the bad part can sit on government books just like Northern Wreck and slowly lose taxpayers money into the distant future. The split and sale has a positive outcome for those wishing to see deal activity and also for a stock market which likes nice easy bets, like the Royal Mail.

Also a thorny issue for the Government though is that the most under-performing part of RBS is its Ulster Bank - a part of the UK which needs help and does not need a banking crisis of sudden call in of credit lines. This issue is the main one which has driven the Government side of the need to split the bank.

From the bank side a split would be disastrous, the need to split out employees, systems and balance sheet is a hard job. So hard that Santander got bored of waiting to acquire a mere 5% of the bank and walked away from its deal to buy Williams and Glynn after 18 months. To inflict another large change on the bank would surely cripple its market focus and suck in all resources for another 2 years.

So a lot depends on the results on Friday, which should be announced with the decision about whether to make a split into a bad bank. If things have continued to turn around, perhaps the Government will leave it be, with a fig leaf of a faster closure of the investment bank or an 'internal' split of the bank, pushing its restructuring and Non Core units together. if things have nor progressed, then the dealmakers will have their day and RBS will be consigned to the same bin as Northern Rock, having turned our only to have managed to have its suspended for 5 years and then imposed after all.

RBS/Lloyds need a simpler solution

More and more the Government seems to be moving towards trying to raise some much needed cash from RBS and Lloyds by selling its stake as soon as possible. There are also other reasons, such as the about to be broken EU State Aid ruling which means the said banks should be broken up a bit, which has not happened. Best if the Government was not in line for the fine on this....

However, the real issue has centred for a long-time around the shareprice. I was all in favour last year of the concept of giving away the shares to the public and a think tank has come out today with the same idea. The idea still has much merit in that it is after all our money the Government has used. it is a good counter-point to the socialists who use our money for their gain, for the Conservatives to present back to the public their own investment - at a loss incurred by the socialists too.

there is though a better idea. The Government does not need to make a loss at all. All they need to do is instruct the bank, soon to be making profits once more, to engage in share buyback processes. This way, by cancelling shares, the price of the shares will rise. At some point in the not too far future they will be above the strike price and every further purchase will be a profit for the taxpayer or alternatively a real Sovereign Wealth Fund buyer can be found.

This way too the shareholders, mainly pension funds and retail investors, will see some return for their investment. RBS is currently valued at £37 billion, if it can clear £2 billion a year profits, which is entirely possible for this year, then that is 6% of equity bought back. The price will go up considerably over time and at little cost and with no expensive IPO or share hand-out process. Lloyds would be largely in the same bracket.

Share buybacks - the simple solution to a difficult problem. There is still the idea of break-up, but this is just silly and I will come back to later in the week.

RBS Bonus row, part 69....

It is fairly wearying reading the wild gnashing of teeth about the latest developments at our state owned RBS bank. The bank is due to announce a fine for LIBOR trading that will be in excess of Barclays but somewhere short of the UBS fine, where the criminal behaviours will be tested in court.

But at £500 million, of taxpayers money, much of it will go to the US Treasury, at a time when our own deficit is climbing and the share of the state taken by our Government is climbing too (back to 49% of GDP now and rising).

Moreover, £250 million is set aside for bonus's to bankers at RBS, this will really stick in the craw of the public. Whipped into a frenzy of hate against bankers by the Anarchists and an ex-Labour Government who seek to apportion blame for their failings elsewhere.

Yet RBS has shrunk its Investment bank, where much of the damage that led to a £45 billion state bailout was done, by some 70%. Of those, not all would have been in place in 2008. So we reach a moment where those under attack are not those who committed the acts of folly.

Luckily, the bank does not have clawbacks in its bonus system that will enable it to reclaim much of the past bonus's of those who have failed. The system is improving. However the principals have not changed and I am at a loss to understand why. Clearly bonus's are paid for performance and if the overall performance is leading to losses then extra rewards should be verboten.

There are plenty of unemployed bankers, and increasingly, algorithms, that can replace traders who say they are special at RBS. Also there are plenty of good people there who will not leave. If the price of respectability at the institution is another few years of no bonus's until the place really is on the mend, then that is the most sensible course. Why every year they go through this charade and wind-up is beyond me, performance related pay should mean just that, performance of oneself and one's organisation.

I note that this week politicians are also voting on their own pay rises again, but more on that tomorrow...

Virgin to bid for RBS?

I really like Richard Branson, his companies have really changed things and his approach to new ventures and branding ia amazing. One thing he loves to do is make a big splash where there is in fact little chance of real activity. He did this, making a big noise about buying Northern Rock during 2007, which whilst Virgin bought bits in the end, it never really was serious about taking on the whole thing.

Here we are in 2012 and it is the same with the RBS branch network. Virgin have little capital, a poor brand in banking and there is currently not much money to be made in banking. Also, Santander, who having bought Abbey, Bradford and Bingley and a few other banks has lots of experience in bank integration, could not make a deal with RBS work over 2 years!

Yet Virgin is touted as a bidder - it is a great way to get some headlines, but it will never happen. Great PR - Branson at his cheeky best.

RBS in the mire again

 

News breaks after the markets have closed on Friday (always a bad sign) that the Project Rainbow deal - being the RBS sale to Santander of 20% of its branches, has collapsed. The main reasons given are that the IT infrastructure was not going to be transferred in time for February 2013 and that the Spaniard’s patience with a deal whose heads of terms were signed in March 2010 had run out.
There are other reasons no doubt behind this too. Santander is after all a Spanish business and I can’t imagine the Spanish regulators are very happy about seeing precious capital get allocated to a non-Spanish institution.  Santander UK has also postponed its IPO indefinitely in an additional sign of trouble for the bank.
For RBS, this is a much bigger headache though. Under EU regulations concerning state aid it has to divest itself of the bank by Feb 2013. This just can’t happen now.  There may be no real chance of finding another buyer in short order and in any event, such a small bank is of little use to anyone except perhaps Co-Op and they already have a similar challenge trying to buy a business off Lloyds. This leaves the IPO route, but again, a small bank like this is hardly a tasty morsel for the worst IPO markets in decades.
All this means then that the price action on RBS is going to look pretty bad on Monday. The £1.3 billion is a decent chunk of the equity in the bank and you would expect that 3% of potential equity is gone, which was the sale price. In reality, the markets will not take that so easily is my view. RBS has had a good run in the last couple of weeks as bank liquidity has eased up it has gained nearly 40p on its price  - after this news it will be a real struggle to stay above 220p by the end of next week in my opinion.
Another interesting element is the effect on Lloyds Banking Group, its Project Verde deal to sell branches to the Co-op will have many of the same challenges - can that be completed? This will also likely weigh on the Lloyds shareprice too which has risen to 38p in the last week. Again, expect this to give up recent gains and head back below 35p next week.
Banks used to be boring, will they ever be again?

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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?

Sticking It To Fred Goodwin

If Jeff Skilling of Enron can be serving 24 years 4 months in gaol (with fine of $45 million for good measure), all because he misled investors, we've wondered here several times why UK banksters couldn't be pursued on similar grounds.

In fact, belatedly some of them are indeed being pursued - if only in a civil suit - on exactly that basis.  Not surprisingly it's Fred Goodwin and the RBS boys: let's face it, the RBS case was pretty egregious.

We'll be watching with interest.  The article linked above suggests that focus is on the prospectus for an RBS rights issue.  This is an aspect that I've never really understood: corporate lawyers are always very much more twitchy about what gets said in a prospectus than what gets written in annual reports and accounts.  As we know, many AR's are a crock of the rankest ordure, but a prospectus is held to higher standards.  Could one of our lawyers explain why this is ?

ND  

Banks still an accounting muddle as losses continue

RBS and Lloyds Banking Group have now both reported their 2011 results. And how disappointing that 4 years after the crash, they are still losing £5 billion a year between them. Compare and contrast HSBC and Barclays, yet to post a loss and still making multi-billion profits. Another example in fact of how wrong it is to tar all bankers with the same brush.

At the heart of the losses for both Lloyds and RBS are the continuing losses on loans made in the run up to the credit crunch. Every 'Non Core' sale results in another hefty loss being taken, as the banks shrink, their losses increase. At some point soon, probably next year, the worm will turn. The core retail banks are profitable as are the corporate bank loans made since 2008. The day will come when profits from these outweigh the losses of the old loans - indeed most loans are 5 years at the very most, so one would think that 2013 would be the turning point.

What is odd overall though is the impact of IFRS accounting. With all these bad loans, the banks are able to massage their figures, taking losses when they can. It's a bizarre bit of accounting that ignores mark to market in reality and fully embraces the more fun, mark to make believe. banks too cheat by rolling over bad loans at poor rates in order to not take the hit of closing out at a loss - this latter point is why 2013 won't be the end, but the beginning of the end of the crisis.

Worse new though is the impact of events. Every year the banks are facing more headwinds. This year is what the PPI scandal - a mis-selling tale that started a very long time before any of the current management were in place. Plus, of course, Greece. The thing is every year there is some external crisis - Eurozone, Japan, abysmal markets. It's hard to see when the excuses will stop. it's quite likely the taxpayers will get their money back on a nominal basis - but at a distant point in the future, inflation will have had its way on the real investment.

RBS: Still Shocking After All These Years

Now here's a thing. Jeff Skilling (Enron) is doing 24 years, with a $45 million fine, for the crime of making misleading statements about the company's activities and financial well-being.

And did you watch the Beeb programme on RBS tonight ? (if not, it's worth it - unless you lost a packet on the bastards and you value your TV screen.) We've known it all for years, of course, but the culpable stupidity is still quite a shocker.
The film relies heavily on actual recordings of shareholder meetings, analyst calls etc, so we can all form our own views. Just how many of those softly-spoken senior Scottish banking types made misleading statements that you heard ? On sub-prime, ABN-Amro ... right up until the crash, and then some - condemned out of their own mouths.

Just sayin' ...

ND

RBS/Lloyds privatisation

Interesting for Nick Clegg to raise this idea again. Firstly, we have discussed before here, when this idea was first floated by Policy Exchange and the Limp Dims.

In need of an electoral boost they are no doubt pushing this. Interestingly George Osborne floated this idea a long time ago when in opposition too - so with the top three in the Government in favour this is likely now to get a good hearing.

However, having thought about this more since I last posted here are the pitfalls:

1. Who Qualifies - how about those who don;t pay any income tax, is this fair ( I guess they pay VAT etc?)
2. How to administer - 40 odd million people to be contacted, the 2011 UK census cost £500 million so that is a comparator to the kind of costs of contacting everyone and sending them something.
3. The Government needs to be paid off first,so only profits go to the proles - is this likely? This in itself adds another level of complexity
4. ISA really need to be set up for this to make it fair and kick start saving in the UK - but that will be too much to do at the same time no doubt?
5. The deficit is big enough and needs to come down, this is a tax cut...would it not be simpler to sell the banks to Sovereign Wealth funds, pocket the money and reduce taxes by the difference  - this would achieve much the same thing and be alot cheaper.

On the plus side, encouraging share ownership and an interest in companies I am all in favour of as a Capitalist - but the cost of doing this probably outweighs the benefits in this case.

Taxpayers nearly there in RBS

Well the wind is finally blowing a little behind the great taxpayer owned Bank of RBS. The bank has announced its full year results today and is still loss-making; but well on the way to recovery.

Some key points for us taxpayers are that it is making good progress on reducing its interbank lending, good progress on selling off Non Core assets and is profitable in its main remaining businesses (ex-Insurance which it is going to sell).

To come too are the sale of the Insurance business and the close of the deal to sell 300 branches to Santander.

Whilst Ulster losses have accelerated and impairments on loans remain steady rather than falling, all is not perfect in RBS world. Also to make profits the bank is piling into Resi mortgage lending, which is very profitable at the moment and helps the image as there is a perception in the market of a lack of mortgage finance (the price of it is another issue....).

The big outlier is the cost of the Government APS Insurance, the £1.1 billion of this (which is taxpayer profit in effect) is quite a hit to the balance sheet. No doubt management is considering a way to get out of this but in choppy markets it may not be able to do so.

Now the Government can relax a little in knowing that given another year, RBS is going to make a profit and will have finally turned the corner. At that point the Government can start selling down its position as owner; hopefully via public offering, but I somehow think the profit of selling to Qatari's will trump this people power proposition.

So if not Fred the Shred....?

The FSA has said today that it is not going to press any charges against RBS or its staff for their actions pre-the credit crunch.

Courtesy of The Telegraph

They are all accused of incompetence over the buying of ABN Amro and also trying to build the RBS investment bank too quickly. However, they are not criminals.

Of course, given the FSA was the regulatory body, this also handily helps them out of a hole as if RBS was guilty then they would be too by association.

The real focus should be on who is at fault though; because it is not the Greedy bankers on whom everything is currently blamed. Instead the approach to interest rates, the ending of boom and bust and the public sector spending are prime candidates, along with some very poor application of accounting standards. What this tells me is that the market was badly mis-regulated, more than the actors in the market were being criminal.

So at this rate, I would hope that Gordon Brown gets investigated by the FSA as he has a much bigger case to answer.

£850 billion investment for £30 billion loss

That is the sum of the news out today. In the last two years the confluence of plitics and business has been amazing, no where more so than in banking. Just this week RBS tried to push on the bonus issue with the Government, but look at the big guns coming into play. Just a day or two later the Government can have the NAO release horrific numbers that smash the RBS case; already RBS is backing down and bankers there won't get the pay they want.

I note the £20-50 billion loss the NAO expects is broadly similar to my own calcs that I did last month. I thought a £30 billion loss would be the total, nasty but not on the scale of the huge public sector deficit we have run up of nearly £500 billion.

Is this a price worth paying - well probably, letting the banks fail would have cost the economy far more than £30 billion.

Should this be the end of bonus culture? No, it is a free market and you should pay what is required. However, I can't see in the long-term how a state owned bank can also be a high risk investment bank. If RBS's book was in a better state then the best plan would be to sell of RBS GBM, its investment banking division. Lloyds does not have an investment banking arm which is also why there is less focus on it in this regard.

However, being state-owned and bailed out makes a difference and huge payments are just not going to happen politically these days. Time will tell if this is a good idea for the shareholders (i.e. us) or not. Maybe I am wrong and all will be work out fine and I can eat my cyber-hat again.

Overall though Labour is being led by the nose by the media on a populist witch-hunt of bankers, it is sad to watch a fag-end Government in this phase, with poor long-term decisions taken for purely populist, electoral reasons.

£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?