Eine Kleine Nichtmusik

Witty and pertinent observations on matters of great significance OR Incoherent jottings on total irrelevancies OR Something else altogether OR All of the above

Friday, October 23, 2009

The Liberal Democrats declare themselves unfit to run a menage (as they say in Glesca)

I'm nearing the end of a week's holiday up at our flat in Ballater, Aberdeenshire. While having a cappuccino and a black-pudding-and-egg roll at our favourite coffee place here, I read this article in the Press & Journal (the main regional daily paper) and I nearly choked. How, I asked myself, could this clown become the business spokesman for a party which once could claim to be a serious political force? To explain my near-apoplexy I need to run quickly through the recent history of the company I work for.

Once upon a time there was the Bank of Scotland, a perfectly normal Scottish bank founded in 1695 and proud of its history. In 2001 BoS merged with the Halifax Building Society, based in Yorkshire, England, to form HBOS. The Halifax dominated the UK mortgage market and the merger was felt to be a good commercial fit. For all that it was a merger and not a takeover, the centre of gravity of the merged organisation moved southwards, mostly because of the greater size of the Halifax par, though I dare say the usual post-merger pissing contests took place. Fast-forward to 2007, when HBOS had overstretched itself financially and was on the verge of collapse. (Not because of a huge amount of toxic debt, but because a large part of HBOS's lending was funded by borrowing on the inter-bank money market. As other banks' toxic assets eroded confidence in the whole system, the cost of such borrowing went through the roof and the cost of keeping trading was sucking us under.) Up stepped Lloyds TSB, also in trouble but with a big deposit base with which to fund lending. After much horse-trading the government (a) agreed to allow LTSB to take over HBOS despite the large market share of the combined entity (b) agreed to take a 43.5% stake in the new group to ensure liquidity. Much relief all round, as the only other likely options were that HBOS would fold completely or that we would have been nationalised. While a takeover generally has an impact on jobs in the combined firm, the effect of nationalisation or winding-up would have been far worse.

OK. Two more facts and we're ready. The European Competition Commissioner has stated on several occasions that she wants to see the Lloyds Banking Group (LBG) divesting itself of some parts of the organisation so as to reduce its market share, as with its public funding it is distorting competition. Also, the Governor of the Bank of England, Mervyn King, recently suggested that it would be a good idea if banking organisations were forced to separate their retail and investment arms (the former being the day-to-day prudent guys and the latter the Gordon Gekko types taking huge risks and making vast profits, or not).

Oh, and may I say that I quite agree with Lord Thurso that (a) LBG needs to be split up (it WILL happen, the EU are adamant) and (b) Bank of Scotland was a great bank and a wonderful Scottish institution (and I speak both as employee and customer).

Back to Lord Thurso. “I would start – I encourage the Treasury to think about this – by taking Bank of Scotland out of the Lloyds group and putting competition into Scotland by making it independent. I suspect that Europe may well ask the Treasury to do that anyway.”

Hmmm. Taking Bank of Scotland out of the Lloyds Group? Taking HBOS out of the Lloyds group might be possible, but may I draw His Lordship's attention to the fact that Bank of Scotland has had almost eight years of absorption into HBOS, to the extent that while the name is still on the letterhead there is almost nothing left separate to pull out. All the computer systems merged years ago. The branch counter systems (after much pain) were merged, the Bank of Scotland accounts were transferred onto the Halifax system (I wrote the program that did it!) until it would require considerable detective skill to tell what part of the organisation began life where. As to separation giving consumers more choice: if they bank online they won;t care less. If they use branches, the last thing they will want is to be told that their branch is no longer available because it used to be a Halifax one not an HBOS one, or that they will have to be patient but there is a new counter system being introduced. And who will write all the new systems to replace the decommissioned old Bank of Scotland ones? We don't even have any computers in Scotland any more! And how long will it take? And who will foot the bill?

To cap it all, the demerger he proposes simply pulls apart two retail+investment combos without addressing in any way at all the point that Mervyn King was making. It seems that Lord Thurso understands neither the difference between retail and investment banks, nor what kind of bank BoS and LTSB are. .

Thurso has as much chance of demerging Bank of Scotland from LBG (or HBOS) as he has of demerging the British Linen Bank from Bank of Scotland. Or to put it another way, my first bank as a teenager was the District Bank. Taken over by National Westminster, it now forms part of the Royal Bank of Scotland. I think it would be great for competition and for Manchester's regional pride if it got its bank back. So come on Thurso: let's demerge the District Bank from RBS. What do you mean you can't find it? No excuses, man!

Thank heavens nobody votes for the Lib Dems any more.

1 Comments:

At 28 October, 2009 20:41, Blogger JoeinVegas said...

How far backwards should things go? I know some companies get too big via aquisitions (look at most of ours) but after a short time it is impossible to extracate parts.
But reality has never bothered politicians.

 

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