SIR BRIAN PITMAN, formerly the boss of Lloyds Bank, who engineered the takeover of the TSB and whose career stretched over five decades, told Channel 4's Jon Snow that the big banker now filling his shoes, Sir Eric Daniels, was doing a grand job in taking the long view, and that the new Lloyds Banking Group would eventually make a mint.
But at what cost? According to the old banker, his present-day successor knew when the takeover by Lloyds TSB was mooted, then waved through by Gordon Brown "without due diligence", that HBOS had a shockingly high level of bad debt from risky mortgag
e loans.
Sir Brian went further, he said Sir Eric Daniels was well aware HBOS had underestimated this bad debt and that's why these two Knights of the Realm (honoured for services to banking?) weren't fazed by the news this week that HBOS had ratcheted up a loss of £10 billion last year.
If they knew HBOS was in much more doo-doo than was believed in the summer/autumn of last year when shareholders had to vote to endorse or reject the takeover, weren't they selling Lloyds TSB shareholders short by keeping it to themselves? And since the two banks were re-capitalised with public money, did they share their knowledge with the Chancellor and Prime Minister? Was there any connection between the Prime Minister's decision to waive the normal rules governing takeovers and the secret known by Sir Eric as regards the true state of HBOS?
It was assumed after the evidence given to the Treasury Select Committee last week that the deal between the banks had been expedited by Gordon Brown. Did the PM knowingly also leave Lloyds TSB shareholders in the dark when they voted as the Government and their board advised?
And where was the body supposed to regulate banking practices, the Financial Services Authority, before the takeover? According to what we know now, the FSA had first noticed the change from the accepted level of risk to the cavalier "sub-prime" lending policies, encouraged by President Clinton and practised by the biggest mortgage lenders in America, as far back as 2002.
Later reports on HBOS carried out by the FSA showed the bank to be continuing with the mortgage policy devised by Sir James Crosby when he was the chief executive. When an HBOS risk manager, Paul Moore, raised the dangers of continuing with such a low level of risk management, he was sacked.
Let's assume Gordon Brown was blissfully unaware of the extent of the HBOS losses when he brokered the deal; should the FSA not have kept him fully informed of its reports? The PM says the reports on HBOS were run-of-the-mill and he wouldn't have expected to be told about them. Even when billions of public pounds are invested in the banks? And what about the shareholders, does the FSA have no duty to alert them if they are being knowingly, or unknowingly, misinformed before voting for such a drastic change?
But what does it matter if Sir Brian is correct in his judgement that Lloyds will win in the long run? It matters that public money can be deployed by sleight of hand. It matters that if the true facts about HBOS had been known, Lloyds TSB shareholders might have expressed a different perspective from the bank's executives.
Also, Gordon Brown said there was no alternative, when a completely different tack might have been taken by the shareholders of both banks had they known the timescale for recovery envisaged by Sir Eric Daniels, and had they been informed of the opinion expressed by Adair Turner, the new boss of the FSA – when asked by Andrew Marr on his TV show if HBOS could operate as an independent entity, even now, he answered "Yes".
I wonder if it makes sense to look again at the position of these two part-nationalised banks? We already know that the new group will be unlikely to survive as an entity because it so blatantly breaks competition rules. Could the Bank of Scotland be detached, nationalised if necessary until it's back on track, and re-constituted as a bank that likes to say "yes" to business?
Tories are all talkDAVID CAMERON, who looks ever more likely to be the next UK Prime Minister, says he'll build a better working relationship with Holyrood than the present phoney war that passes for inter-governmental cooperation between Downing St and Charlotte Square.
Don't count on it. The Tories are still split over the question of Scottish self-government, and if anyone doubts it, my advice would be to read the stuff being churned out by English "journalists" like Dominic Lawson, brother of Nigella and son of former Chancellor Nigel, who are blaming Scotland for the banking fiasco.
