Gordon Brown is not alone in thinking errant British bankers got off lightly in the 2008 financial crisis. We should also be worried that the former prime minister thinks the new criminal offence of reckless misconduct that causes a financial institution to fail, which was introduced after the crisis to address the perceived legislative weaknesses, may not be up to the job.
For a City audience, however, the jaw-dropper in the extract from Brown’s upcoming book will be his revelation that Barclays, in the midst of the crisis, tried to buy the failed Royal Bank of Scotland. This is astonishing and has not emerged from other front-line accounts, including those of Brown’s former chancellor, Alistair Darling.
Brown offers little detail about how seriously Barclays and its then-chief executive, John Varley, pursued the idea. But the mere fact the Barclays’ executives thought RBS could be within their sights speaks volumes about the blind risk-taking of those days.
This was October 2008, a month after Barclays had been blocked from attempting to rescue Lehman Brothers because the UK government refused to underwrite the adventure. The following week, however, Barclays had managed to buy Lehman’s US investment banking operation from the receivers for $1.75bn (£1.5bn). In itself, the purchase of the rump of Lehman represented a huge gamble for Barclays. The notion that it could simultaneously have tried to swallow the bust RBS, with its balance sheet many times the size of the UK economy, should have been a non-starter.
What were Barclays’ executives thinking? That bagging RBS would be sweet revenge for losing the bidding for ABN Amro the previous year? That the UK government, having ripped up the competition rules to allow Lloyds TSB to buy HBOS, would smile upon another anti-competititive carve-up?
The only certainty is that a Barclays/RBS combination would have made the UK’s banking crisis many times worse. RBS has clocked up accumulated losses of £58bn during the clean-up operation, a sum that would have felled Barclays as well. Given what we now know about the toxic assets within RBS – and, critically, the zero visibility at the time – it is staggering that Barclays could even have thought about a deal.
In the context of the full history of the UK’s banking crisis, Brown’s revelation about a deal that didn’t happen will rank as a footnote. But the tale is intriguing and, if the plan had reached the prime minister’s ears, one assumes there was some substance to it. Let us hope somebody now spills all the beans.
Greybull’s loose talks
How nice, Greybull Capital, owner of the collapsed Monarch airline, thinks it may have “a moral obligation” to help pay for the cost of flying 84,000 stranded passengers back to the UK. If it ends up making a profit out of Monarch’s fall into administration, Greybull would contribute to the £60m cost of the repatriation.
The problem with this promise, however, is that it’s not nailed down. What if Greybull, as the main secured creditor, were to collect, say, £40m from the administration, which is theoretically possible if administrator KPMG is allowed to sell Monarch’s main asset, its take-off and landing slots? What sum would Greybull regard as satisfying its moral obligation? There is a world of difference between handing over a small portion and the whole lot.
In one respect, you can’t blame Greybull for being vague. It was mirroring transport secretary Chris Grayling’s form of words when he spoke about creditors who “end up with money in their pocket” having “a moral obligation to contribute” to a bill that was shouldered by the public purse. And the firm is also anxious to sustain its argument that it behaved properly and did not take out dividends, interests and loan repayments since its first investment in Monarch in 2014.
All the same, this loose talk about moral obligations needs clarity – and the earlier the better. Grayling, and the transport select committee, should exert more pressure to get Greybull to define its commitment in terms that it can be held to.
Lloyd Blankfein “really enjoyed” his trip to Frankfurt earlier this month. And, it seems, he really loved the storm created by his tweet that he expects to be spend more time there. On Monday Goldman Sachs’ boss gave the Brexit pot another stir. Alongside a picture of the investment bank’s new £350m European headquarters off Fleet Street, he tweeted: “Expecting/hoping to fill it up, but so much outside our control.”
It’s entertaining stuff, but you have to wonder what Blankfein hopes to gain from these teasing tweets. Over at HBSC, the calculation about the impact of Brexit on the location of jobs seems to be roughly the same: the harder the terms of Brexit, the more jobs will go from London. But compare the delivery of that message.
HSBC chief executive Stuart Gulliver said his bank will wait as a long as possible before shifting jobs out of London but “up to” 1,000 roles could transfer to Paris. That is a sober policy, accompanied by a helpful clarity on numbers. Blankfein, by contrast, prefers veiled threats and ambiguity. Not for the first time, he sounds arrogant.
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