What should we do about RBS?
Photo credit: ell brown
June 20, 2013 // By: Tony Greenham
Last night the Chancellor delivered his Mansion House Speech. Among the usual bonhomie, tributes to the departing Mervyn (now Lord) King and mutual backslapping about what a wonderful thing the City is, was some very important news about the future of Lloyds and RBS – the two banks taxpayers had to rescue with £67 billon of public money during the financial crisis.
Let’s recall the background to this speech.
The Chancellor has been itching to return these shares to the stock market. Earlier this month, Policy Exchange (supposedly the Chancellor’s favourite think-tank) published a proposal for a pre-election showpiece privatisation of both Lloyds and RBS - a bad idea on many levels. In March 2012 he even toyed with selling a large stake at a massive loss to the Abu Dhabi Investment Authority, so desperate was he to pursue privatisation at all costs.
However, yesterday the Parliamentary Commission on Banking Standards gave its final report in which it recommended getting on with selling Lloyds shares to institutional investors (as we recommended earlier this week), but to hold fire on privatising RBS until all the options for the banks future are considered in terms of what would best suit the UK economy.
The Chancellor appeared to follow their advice:
“Our objectives for our shareholdings in Lloyds and RBS are exactly the same. We want to maximise the ability of these important banks to support the British economy. We want to get the best value for money for the taxpayer. And we want to do what we can to return them to private ownership.”
He announced that Lloyds shares could start to be sold soon, but RBS was some way off. Most commentators have interpreted this as meaning that any sale is unlikely before the 2015 general election.
This is good news, because the future of RBS remains open for a future government to determine. The bank will be encouraged to pursue its strategy of refocusing on its UK retail business, selling its US bank and shrinking the global investment bank (I suspect this is the real reason for Hester’s departure, as he was committed to keeping both). This is sensible.
But here is the bad news.
First, the Treasury is in effect only interested in whether to carry out a ‘good bank, bad bank’ split – taking the assets and loans with the greatest uncertainty of repayment off the bank before selling it. The idea is that the increase in price that investors will be willing to pay for a less risky bank will more than offset the losses on the dodgy loans kept by the Government.
Secondly, the Treasury will lead the enquiry and choose the external experts it wants.
This review will not therefore be able to examine what’s in the best interests of the UK economy as a whole. There will be no opportunity for independent experts to examine alternative proposals in public hearings.
There seems to be a presumption, not up for debate, that privatising RBS as a national bank is the best option. This is based on ideology rather than practical economics, or indeed on evidence, of which there is plenty to support the merits of greater banking diversity and of local stakeholder banks in particular.
We need to liberate ourselves from the ghosts of 1970s failed nationalised industries and understand that publicly owned is not the same as state run. The German public savings banks are managed by bankers, not politicians, but they are run to serve the interests of the local economy and of citizens, rather than those of remote shareholders. Their managers are held much more accountable for incompetent lending than has proved the case with the private sector managers that drove their businesses to bankruptcy whilst exploiting their customers with mis-sold products.
Surely now it is time for Vince Cable to demand a say as the champion of British business and of regional growth. And what he should say is that the option of turning RBS into a network of regional banks must be properly considered, and we must not be dogmatic about ownership. After all, the best value for the British taxpayer might be the long-term ownership of a successful bank that supports the British economy.
What should we do about RBS?