Now we’re getting somewhere

by John Quiggin on October 12, 2008

The British government has abandoned proposals for non-voting preference shares and is moving towards full-scale nationalisation of the banking sector. According to the London Times(h/t Felix Salmon) the latest proposals would leave the government owning 70 per cent of Royal Bank of Scotland and 50 per cent of Halifax. The London stockmarket is likely to be closed, and it seems unlikely that many banks will remain private by the time it reopens. Presumably, with Morgan Stanley and Goldman Sachs in deep strife, the US can’t be far behind, though Paulson is still talking nonsense about non-voting shares. Still, it’s only three weeks ago that he was opposing any kind of public equity, and only six weeks ago that he was claiming that there were no real problems.

As the Times says, no-one knows how much toxic sludge will turn up when the government finally gets access to the books, but it seems unlikely that most governments will be overwhelmed in the way that Iceland has been. The capacity of developed-country governments to raise additional revenue is huge, easily enough to cover trillions in bad debt over a few years. So, once the sector is nationalised it should be possible to get lending flowing again. And, the prospects for an orderly shutdown of the massively overgrown markets for derivatives like credit default swaps suddenly seem a lot better.

It’s fascinating to wonder how Gordon Brown and Alistair Darling must feel about all this. Having long abandoned their youthful leftism, they have suddenly been forced by circumstances to implement something that looks superficially like socialism, and might even lead to a genuine restructuring of society (utopian I know, but who would have thought a month ago that we would have been wondering what to do with a nationalised finance sector). At the very least, Brown and Darling must have found it easier to adapt to the sudden collapse of the existing order than those who have never imagined anything else.

{ 47 comments }

1

jeff 10.12.08 at 3:02 pm

Who would have ever thought Ronald Reagan would kill capitalism?

2

engels 10.12.08 at 3:12 pm

“If the Venezuelan government, for example, approves a law to protect consumers, they say, ‘Take notice, Chavez is a tyrant!'” said Chavez, speaking in one of his recent weekly television shows.

“Or they say, ‘Chavez is regulating prices. He is violating the laws of the marketplace.’ How many times have they criticised me for nationalising the phone company? They say, ‘The state shouldn’t get involved in that.’ But now they don’t criticize Bush for having to nationalise (the biggest banks in the world.) Comrade Bush, how are you?

Warming to his theme, he added: “Comrade Bush is heading toward socialism.”

Nicaragua Congressman Edwin Castro agreed: “We think the Bush administration should follow the same policies that they and the International Monetary Fund have always told us to follow when we have economic problems — a structural adjustment that requires cutting government spending and reducing the role of government.”

3

F. Connell 10.12.08 at 3:21 pm

I would be stunned if any of the predictions you make here — total nationalization of banking sector in the UK, meaningful nationalization of biggest banks in the US, ending of the CDS market, let alone a “genuine restructuring of society” — happen. Certainly in the US, I assume that once the crisis passes, the government will unwind its stake. I think you are vastly overestimating the taste for socialism or the respect for government in the US.

4

lemuel pitkin 10.12.08 at 3:36 pm

it seems unlikely that most governments will be overwhelmed in the way that Iceland has been. The capacity of developed-country governments to raise additional revenue is huge, easily enough to cover trillions in bad debt over a few years.

I agree, but this represents a bit of an evolution in your views, no?

But then there are the small countries like Iceland. Surely a lesson for them is that capital account liberalization is a recipe for disaster? (On the other hand, that also should have been the lesson of crises n-1, n-2, etc. On the third hand, the lesson may be easier to learn with the Washington Consensus in tatters.)

5

a 10.12.08 at 3:42 pm

“The capacity of developed-country governments to raise additional revenue is huge, easily enough to cover trillions in bad debt over a few years.”

I hope you’re right.

6

MarkUp 10.12.08 at 4:18 pm

After reading about Citi launching a $60 billion suit over the Wachovia deal, and given all the wonderful value and values they have brought and bought, I have a recommendation for the first full take over in the US… We can call it the Unprivatization Act of 2008. Isn’t turnabout fair play?

7

Bob B 10.12.08 at 5:01 pm

Of course, among other things, these events blow up the comforting myth that the Scots have a special talent for managing banks – both RBS and HBOS have headquarters in Edinburgh. But what’s new? The motivation for the Acts of Union of 1706 and 1707 was that the Scottish state was bankrupt at the time and needed a bail-out from England.
http://en.wikipedia.org/wiki/Acts_of_Union_1707

8

James Wimberley 10.12.08 at 5:15 pm

#2: The British government’s debt stood at 290% of GDP in 1815 and 250% in 1950. Now it’s about 45%. (Link to refs here.) There’s a vast reserve of borrowing credibility in hand – and this time the new borrowing will be matched by a large pile of mostly valuable assets (mortgages and business loans), not empty battlefields.
The argument doesn’t necessarily hold for small countries with overgrown financial sectors – Switzerland as well as Iceland.

9

Jim Harrison 10.12.08 at 5:55 pm

Taking comfort in the relatively small size of government debt may be an error. In previous periods, nations had before them the prospect of a vast enlargement of revenues made possible by economic growth. If, as may be the great underlying fact of the current situation, the world economy is indeed bumping up against limits to growth, taking on debt may not be so benign and a debt that’s 45% of current GDP may be a more serious matter than a debt of 250% of GDP in 1950.

10

John Quiggin 10.12.08 at 8:11 pm

“I agree, but this represents a bit of an evolution in your views, no?”

I’m puzzled by this, LP. I’ve been arguing for an increase in the public sector (revenue and expenditure) share of national income for decades.

11

MarkUp 10.12.08 at 8:16 pm

Gov’t debt is never a real issue so long as the private sector can continue to feed the gov’t; so one has to involve the relationships of how much gov debt is owed to concerns outside the borders and how much of a debt load the private sector has. Those are indeed ugly trend charts for US.

12

PersonFromPorlock 10.12.08 at 8:41 pm

Doctrinaire questions aside, is there any evidence that the British government is even as capable as private enterprise at running banks? As a non-Brit, I have the (perhaps erroneous) impression that they are not too good at what they do.

13

John Quiggin 10.12.08 at 10:25 pm

“is there any evidence that the British government is even as capable as private enterprise at running banks?’

Well there’s the fact that the existing managers appear to have driven their enterprises into insolvency. But I guess there’s not much specifically British evidence on this score, since bank nationalisation has not been a big deal. OTOH, the contrast between decades of boring public ownership of Icelandic banks, and their spectacular career following privatisation a few years ago is pretty impressive.

14

Steve LaBonne 10.12.08 at 10:52 pm

Banking is supposed to be boring. When it gets exciting, it invariably does so in the way we’re seeing now, which is not exactly desirable. And government bureaucrats are the very quintessence of boredom. Therefore yes, they are inherently better suited to running banks than too-clever-by-half private sector financial manipulators.

15

Bob B 10.12.08 at 11:15 pm

Note the latest news on Monday morning which leaves some issues still unresolved:

“The Chancellor will move to take control of Royal Bank of Scotland today by injecting £20 billion of taxpayers’ money. The Government is also expected to take over HBOS in the most dramatic extension of state ownership in the British economy since the war.”
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4932250.ece

“Halifax Bank of Scotland’s (HBOS) £12 billion rescue deal with LloydsTSB has been thrown into uncertainty because of the bank’s request for an emergency capital injection from the government.

“The deal between HBOS and Lloyds, which was brokered by Gordon Brown, was based on the value of the banks’ shares at the time it was arranged three weeks ago.

“However, since then the financial markets have fallen dramatically leading to a halving in HBOS’s value. By comparison Lloyds’ shares have fallen by only a third, making its shareholders comparatively worse off if the deal goes ahead.”
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4932185.ece

16

P O'Neill 10.12.08 at 11:20 pm

On Morgan Stanley, is there much that the US government can do besides giving Mitsubishi UFJ legal immunity to buy the whole thing with the money they are now putting down to get 20%? Otherwise they seem to be toast and the reversal of the Lehman policy would be yet another humiliation.

17

sg 10.13.08 at 7:46 am

PersonfromPorlock: The british couldn’t organise a root in a brothel, whether it was government-sponsored or privately run. In my (admittedly limited) experience of Britain, it’s hard to tell who is worse, private or public. Is the cinema that doesn’t know how to sell cinema tickets worse than the government organisations who can’t decide how to sell me the data it’s their job to sell me? Or is the post office which has lost 3 of my parcels (in 5 attempts!) worse than the private bus company which tried to destroy my computer in baggage processing? I just can’t tell…

I find it amusing that a year ago the Japanese government privatised the post office so they could use the postal savings to help with economic growth (presumably through riskier investments). Good timing, Mr. Koizumi… the first half of the privatisation took hold in December last year, and by December this year most of the rest of the world’s banks will be nationalised…

18

ajay 10.13.08 at 10:18 am

But I guess there’s not much specifically British evidence on this score, since bank nationalisation has not been a big deal

Well, there’s the National Savings and Investments scheme, which a) is an entirely government-owned and government-run bank and b) has not collapsed.

among other things, these events blow up the comforting myth that the Scots have a special talent for managing banks – both RBS and HBOS have headquarters in Edinburgh

The CEO and chairman of HBOS are both, in fact, English – as were the chairman and CEO of Northern Rock. Lehman Brothers, Landesbank, IKB, Kaupthing, Merrill Lynch, Wachovia, Morgan Stanley, Bear Stearns, Freddie Mac, Fannie Mae, IndyMac and Washington Mutual are, similarly, not run by Scots.

19

ajay 10.13.08 at 10:21 am

Anyway, Bob B, aren’t you getting your offensive ethnic stereotypes muddled up? I thought it was the Jews who were supposed to be “clever with money”. The Scots are just supposed to be tight-fisted. Next you’ll be making some crack about the Welsh having “natural rhythm”.

20

Laleh 10.13.08 at 11:31 am

sg (17), all anecdotal evidence. my experience of UK post has been brilliant, of NHS stellar (i have chronic illnesses and have had two kids on the NHS), of the public transport system (well, the buses) absolutely amazing. as for the education students get in the state schools here, incomparable to other places i have seen. it’s a shame that fetishisation of private ownership has meant that resources have been re-routed into pockets of supposed private sector saviours.

21

Bob B 10.13.08 at 1:12 pm

“Anyway, Bob B, aren’t you getting your offensive ethnic stereotypes muddled up?”

Just look at the evidence as reported by the BBC:

“The men at the top of Scotland’s two big banks are to go, after the government announced a £37bn bail-out. . . “
http://news.bbc.co.uk/1/hi/scotland/7666647.stm

22

ajay 10.13.08 at 1:28 pm

Yes, I see that, Bob. And your point is?

23

Bob B 10.13.08 at 1:42 pm

“Yes, I see that, Bob. And your point is?”

Let’s consult the oracle:

“There is no doubt about the Englishman’s inbred conviction that those who live to the south of him are his inferiors; even our foreign policy is governed by it to some extent.”
http://www.george-orwell.org/North_And_South/0.html

Whatever Orwell concluded, there can be little doubt now that in Britain, banking practices have been the more unstable the further north the head offices of banks are located. Recent events have destroyed the myth that the Scots have some special talent for banking.

As for ethnic stereotyping, presumably the United Nations and the London Times are also in on the plot to denigrate Scotland. Try this:

“A UNITED Nations report has labelled Scotland the most violent country in the developed world, with people three times more likely to be assaulted than in America. England and Wales recorded the second highest number of violent assaults while Northern Ireland recorded the fewest.”
http://www.timesonline.co.uk/article/0,,2-1786945,00.html

24

Bob B 10.13.08 at 1:58 pm

Of course, by reports in the Scottish press, there’s a straight forward explanation for these features of life in Scotland:

“THE rate of alcohol-related deaths in Scotland is rising – and is more than double the rate for the UK as a whole, figures out yesterday showed. Figures from the Office for National Statistics (ONS) revealed that in 2006, there were 13.4 deaths per 100,000 people linked to alcohol in the UK – up from 12.9 the previous year.”
http://thescotsman.scotsman.com/health/Scots-alcohol-death-rate-twice.3714009.jp

25

michael e sullivan 10.13.08 at 2:31 pm

Who would have ever thought Ronald Reagan would kill capitalism?

In principle? V.I.Lenin.

My hippie profs at Simon’s rock created a curriculum in which every student was required to read _Imperialism, the Highest Stage of Capitalism_ (alongside _The Wealth of Nations_ and _On Liberty_ to be sure, but you can nonetheless imagine how this rankled our few young reaganites). Lenin was insightful enough about what happens in a capitalist economy and state structure (incentives align so that moneyed interests ultimately take over the state). The problem with Lenin was not his analysis of capitalism, but that he failed to realize (or didn’t really care) that a communist revolution doesn’t solve the problem. It merely exchanges one group of power mongers for another while dramatically reducing the incentives for the resulting power mongers to act in ways that enrich anyone but themselves on their way up.

But in his prediction that capitalism in the presence of any state would ultimately sow the seeds of fascism absent constant vigilance, he was not far off.

26

MarkUp 10.13.08 at 3:35 pm

”The Scots are just supposed to be …

…there’s a straight forward explanation for these features of life in Scotland:”

Are we talking he Scots as a nation or as a ‘unique’ species/race [tha, I am one, and fwiw my fists are presently relaxed]. The straight forward explanation can readily be tracked to immigration rise, and as pointed out the Decider[s] were not Scotsfolk. Of course one can also track the [negative] liberalization of banking there to the fall of spoken Gaelic and eaten haggis.

27

lemuel pitkin 10.13.08 at 3:40 pm

I’ve been arguing for an increase in the public sector (revenue and expenditure) share of national income for decades.

I was thinking of your September 19 post, when you suggested that it would be logical to downgrade the US government’s credit rating in response to the bailout, implying — I thought — some doubts about the federal government’s fiscal capacity to absorb banking system liabilities on the scale you’re talking about here.

28

engels 10.13.08 at 4:13 pm

Chris Brooke quotes Brown’s Labour election manifesto from 1983:

Finance for industry

It is essential that industry has the finance it needs to support our plans for increased investment. Our proposals are set out in full in our Conference statement, The Financial Institutions. We will:

* Establish a National Investment Bank to put new resources from private institutions and from the government – including North Sea oil revenues – on a large scale into our industrial priorities. The bank will attract and channel savings, by agreement, in a way that guarantees these savings and improves the quality of investment in the UK.
* Exercise, through the Bank of England, much closer direct control over bank lending. Agreed development plans will be concluded with the banks and other financial institutions.
* Create a public bank operating through post offices, by merging the National Girobank, National Savings Bank and the Paymaster General’s Office.
* Set up a Securities Commission to regulate the institutions and markets of the City, including Lloyds, within a clear statutory framework.
* Introduce a new Pension Schemes Act to strengthen members’ rights in occupational pension schemes, clarify the role of trustees, and give members a right to equal representation, through their trade unions, on controlling bodies of the schemes.
* Set up a tripartite investment monitoring agency to advise trustees and encourage improvements in investment practices and strategies.

We expect the major clearing banks to co operate with us fully on these reforms, in the national interest. However, should they fail to do so, we shall stand ready to take one or more of them into public ownership. This will not in any way affect the integrity of customers’ deposits.

29

ajay 10.13.08 at 4:24 pm

Bob, on the other hand, is doing his best to reinforce the myth that people called Bob have a special talent for making no sense whatsoever. Apparently Newcastle is in Scotland, and the reason that HBOS has run into trouble is that its CEO (who is Scottish in a sort of nebulous non-factual sense) spends all his time drunk and getting into knife fights with the management of Royal Bank of Scotland – or, as they’re better known, Young-Young Mental St. Andrew’s Square. AND THE DEAD SOCIALIST AUTHORS SUPPORT HIM IN EMAIL!

30

Bob B- 10.13.08 at 4:24 pm

Yes, that’s right. As documented, the Labour Party borrowed the idea of a National Investment Bank/Board from Mussolini:

“However it was with the idea of a state planning agency that [Stuart] Holland [Labour MP for Vauxhall, Lambeth 1979-89, political assistant in Downing St to the PM 1967/8, and shadow Financial Secretary to the Treasury 1987-9] hoped to show the new possibilities open to a more just economy. He looked to the Italian example of the IRI (the Industrial Reconstruction Institute), set up by Mussolini and used by subsequent Italian governments to develop the economy. This had, of course, already been tried through the IRC (the Industrial Reorganization Corporation) set up as part of [Britain’s] National Plan in 1966, but the IRC had been too small to have much effect on the British economy. A revamped IRC in the form of a National Enterprise Board would, however, have a major effect in stimulating the private sector through an active policy of state intervention and direction.”
Geoffrey Foote: The Labour Party’s Political Thought: A History (Palgrave 3rd edition (1997)) p.311.

31

Bob B 10.13.08 at 4:41 pm

“Bob, on the other hand, is doing his best to reinforce the myth that people called Bob have a special talent for making no sense whatsoever. “

Ajay, I’m just quoting mainstream published sources along with the relevant citations.

It’s sad if you find the sources offensive.

32

engels 10.13.08 at 4:47 pm

Bob knows the darkness that lurks within us all. But especially if we happen to be Scottish.

33

ajay 10.13.08 at 5:55 pm

Yes, but you’re quoting irrelevant mainstream published sources.

It’s gone like this.

Bob: Ha! RBS and HBOS are in trouble! That shows that the Jocks are no good at banking after all!
Me: Actually, HBOS’ top chaps are both English. Most of the banks that have got into trouble aren’t run by Scots. And anyway, isn’t it a bit dodgy to go around stereotyping particular ethnic groups as being “clever with money”?
Bob: No, look here! The BBC says HBOS’ top bods are resigning! That proves it!
Me: Well, yes, they are. But they still aren’t Scottish.
Bob: Look! Porridge wogs have a high rate of violent crime! And alcoholism! You’re a mad conspiracy theorist!
Me: Bob, you aren’t making any sense at all.
Bob: Well excuuuuuse me. Obviously the truth hurts.

34

john b 10.13.08 at 6:36 pm

Notwithstanding Bob B’s rant, it is interesting that of the top 10 UK banks as of 2007, those headquartered outside of London (HBOS, B&B, NR, A&L, RBS) have all failed except the Co-Op, while the London-headquartered banks (Lloyds, Barclays, HSBC, StanChar) have remained in reasonable (FCVO) shape.

Whether that reflects the relative talent pools, the desire of ‘provincial upstarts’ to grow where London banks wouldn’t, the fact that regulators can’t be bothered to spend 3 hours on a train, or sheer coincidence, is less clear.

35

Alex 10.13.08 at 7:03 pm

Is that perhaps because banks 1 to 4 are all smaller and more specialised in a) mortgage lending and b) UK mortgage lending and c) specially risky classes of UK mortgage lending and d) the same, funded from the wholesale market, Standard Chartered doesn’t do business in anywhere that took part in the property mania and never has, and Lloyds is off to the Treasury confessional anyway?

That only leaves HSBC and Barclays – which are highly diversified global universal banks, like Citigroup, and haven’t shared the fate of the mortgage monkeys.

And RBS; which is adequately explained by Goodwin’s fit of God disease last year when he levered up crazy to win a bidding war at the top of the market for another, painfully overleveraged, bank.

36

Bob B 10.13.08 at 7:14 pm

The stockmarket prices of those UK banks which are not taking state-aids seem to be doing rather well:
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/shares/3/498/0/default.stm

By the look of it, shares in HBOS, Lloyds TSB (which is planning to takeover HBOS) and the RSB – all of which are taking state-aids – have taken a battering.

From the comments posted here, it would seem that that even the stockmarket is now afflicted with a touch of xenophobia.

37

john b 10.13.08 at 7:36 pm

Yes, the northern banks had a UK retail focus – on the other hand, Abbey hasn’t collapsed (or at least, any desperate measures that Santander is taking to stave off Abbey’s collapse are being done very very very quietly), Lloyds appears to be doing OK for current values of OK [*], and Barclay’s is no HSBC or StanChar, deriving 57% of its 2007 revenue from the UK (and 40% from UK retail/commercial banking and credit cards).

I guess the question could be rephrased in “is there any underlying reason beyond coincidence for the fact that the UK mortgage banks who went for the riskiest growth strategies were headquartered outside of London and/or weren’t subsidiaries of leading global banks?”.

[*] The general view seems to be that Lloyds isn’t suffering desparately itself, but is taking the Treasury money to ensure it can take on HBOS’s liabilities and thereby be left in a very strong position when things stop being mad. This could be spin, but if so it’s fooling most of the people who normally write sane things as well as the hacks.

38

Bob B 10.13.08 at 8:32 pm

For those relatively unread on the causes of the present crisis, this recent piece from The Economist on: World on the edge, seems to me to be a good resume to start with:
http://www.economist.com/opinion/displaystory.cfm?story_id=12341996

What characterises the British banks which got into trouble – beyond being undercapitalised for the investment risks they were taking on – is that that only a small part of their new investments were being funded by actual deposits. The funding gap was filled by borrowing wholesale on the money markets. The banks in trouble came to grief as the costs of borrowing on the money markets soared and then dried up when trust between bankers evaporated.

As the chairman of Lloyds TSB explained in a BBC interview, bankers can increase their profitability – at least for a while – by investing in higher risk assets.

There were other incidentals as well. It was reported last year that Northern Rock had been offering 125% mortgages and mortgage applicants had been encouraged to lie or remain silent about their actual incomes, hence concerns about the extent of subprime mortgages in the bank’s portfolio and the ensuing rush of depositors to cash their deposits:
http://news.bbc.co.uk/1/hi/business/6996136.stm

There’s a wide consensus across the media that incentive bonus schemes in remuneration packages were generally flawed by being asymmetric: bankers and traders were rewarded for signing up new deals and trades but not penalised as and if the deals or trades turned sour.

39

guthrie 10.13.08 at 9:15 pm

Speaking as a pure bred mongrel Scot, born and brought up in Edinburgh, with a grandfather who worked for the British linen bank then the RBS, I am annoyed and entertained by the ranting about Scots. Given that the RBS and HBOS are Scottish in geographical location only, being multinational corporations with operations all over the planet, following economic ideas that could perhaps be described as Anglo-american if not downright fruitloop market worshipping madness, I fail to see how they can in any way be considered to represent the tradition of Scottish banking in the previous century or two(I.e. you didn’t get a loan unless the bank manager knew you personally and knew you could pay it back. ), and by extension that their failures represents something about Scotland.

40

Walt 10.13.08 at 9:18 pm

Guthrie, you Scots nearly killed us all. It’s time to take some responsibility. As punishment, we’re reassigning Hume and Adam Smith to the Germans.

41

ajay 10.13.08 at 9:23 pm

it is interesting that of the top 10 UK banks as of 2007, those headquartered outside of London (HBOS, B&B, NR, A&L, RBS) have all failed except the Co-Op, while the London-headquartered banks (Lloyds, Barclays, HSBC, StanChar) have remained in reasonable (FCVO) shape.

A&L didn’t fail, it was taken over by Santander. RBS hasn’t failed (yet). HBOS is being lined up for a takeover but hasn’t failed (yet) either. RBS and HBOS are both seeking government aid – but then so is Lloyds TSB, which you classed as “in reasonable shape”… HSBC and StanChart are both very different animals, being much more heavily into EM business. Basically, of the top ten, only Northern Rock and Bradford & Bingley have failed.

A more interesting point might be: isn’t it interesting how all those demutualised building societies have done since they became banks? Northern Rock, Bradford & Bingley, Alliance & Leicester (taken over), Halifax (taken over), Abbey National (taken over), Bristol & West (taken over), Woolwich (taken over) … mostly regional companies, and therefore mostly headquartered outside London.

42

Bob B 10.13.08 at 9:44 pm

Hot news update:

“More than four centuries after she was executed in England for treason by her cousin, Elizabeth I, a row has broken out over the rightful resting place of Mary Queen of Scots, and her true place in the pantheon of Scottish heroes.

“For Christine Grahame, MSP, Mary was ‘an iconic historical Scots figure’ and this week the SNP member for the South of Scotland will begin a campaign in the Scottish Parliament to repatriate her remains from Westminster Abbey.”
http://www.timesonline.co.uk/tol/news/uk/scotland/article4932480.ece

For those who have an understandable lapse of memory as to who exactly Mary Queen of Scots was and her lamentable fate on the warrant of Elizabeth I, Queen of England, try this:
http://en.wikipedia.org/wiki/Mary_I_of_Scotland

Talk about political spin to divert attention from unpalatable issues . . .

43

John Quiggin 10.13.08 at 10:12 pm

I’d say needing partial nationalization counts as failure, but as ajay observes, that puts Lloyds among the failures. As a part-Scot, I’ve found this entertaining, but rather silly. Can we drop it now, please.

44

john b 10.13.08 at 10:49 pm

A&L didn’t fail, it was taken over by Santander

I’m counting “emergency takeover brokered as an alternative to collapse” as “failure” here, while “sale for a large premium to book value” is “success” (yes, this is quite a shareholder-focused view, but what ya gonna do?). Hence RBS and HBOS count as failure. Abbey was a success – its shareholders received an enormous amount of money from Santander – while A&L’s shareholders received very money from Santander (similarly, Woolwich was a success as Barclays paid a decent premium to its shareholders).

And as I said above, LTSB appears only to be taking the money to ensure it’s able to go through with the HBOS deal and win retail market share for the future.

all those demutualised building societies have done since they became banks… mostly regional companies, and therefore mostly headquartered outside London.

Which still raises the interesting question, if we’re assuming demutualised building societies are too uncommercial to compete successfully against banks but also lose the values that made them successful as mutuals, of why the South East ex-building societies understood this and sold out for a good pay-off, while the rest-of-England ex-building societies went on crazy errands that resulted in either collapse or fire-sale.

(sorry John Q if you’re viewing this as some anti-Scottery – was intending to take the discussion from where Bob put it to somewhere more interesting, but maybe the well was too poisoned to start with. Delete if you reckon that’s necessary)

45

john b 10.13.08 at 11:59 pm

My thoughts further developed here, for them as cares…

46

engel 10.14.08 at 1:08 am

I call for punitive taxes on haggis.

47

Bob B 10.14.08 at 5:23 am

No one has recently remarked on the timeliness of this deal reported as a minor, passing news item in the business press last July:

“Tesco is to compete with High Street banks [in Britain] after it has bought out RBS’s (RBS) 50% share in Tesco Personal Finance (TPF) in a deal worth £950 million.”
http://www.financemarkets.co.uk/2008/07/28/tesco-to-enter-banking-market-following-rbs-buyout/

Events in retail banking in Britain have moved on swiftly since. From the news on Monday:

“The men at the top of Scotland’s two big banks are to go, after the government announced a £37bn bail-out. RBS chief executive Sir Fred Goodwin has stepped down and RBS chairman Tom McKillop is to retire.”
http://news.bbc.co.uk/1/hi/scotland/7666647.stm

Standing in the checkout queue of my favourite supermarket this last Sunday lunchtime, the lady behind me, who was also buying a copy of the weekend edition of the FT, suggested that we’d probably all be better off if we simply let Tesco take over the government of Britain. On the evidence of performance, I was bound to agree. In terms of global sales, Tesco is now the third largest supermarket chain in the world, after Wal-Mart and Carrefour. At the start of the 1990s, it wasn’t even the largest in Britain.

Comments on this entry are closed.