Labour's chickens come home to roost - again

The fine of £290 million levied against Barclays Bank for a “fancy fiddle” in the financial markets will infuriate and confuse personal and business customers in equal measure.


Who exactly is being punished, and for what?

Nobody has been fired – yet – which is what many of us would like to see. Only the bonuses of multi-millionaire directors seem to be affected, and that on a voluntary basis for one year.

The “fine” will most likely come out of the pot available for lending, rather than the pockets of the guilty.

Immediately politicians have jumped onto their high horses to blame others for their own errors.

When Labour came to power in 1997 it changed the regulations for the financial sector. It could well be argued that many of the problems with the banks now stem from that.

Peter Mandelson told us Labour was “relaxed about people getting filthy rich”. Bankers certainly took him at his word.

The global financial crisis and the self-inflicted collapse of Northern Rock left the Coalition government with a mess, and a dilemma about what happens next.

They want to get the semi-nationalised banks back into the private sector, but to do that need them profitable.

They want them to lend to businesses to kick-start growth which the printing of money has so far failed to do.

And they want a banking crisis “never again” to happen, by making them build up their reserves (under an international agreement called Basel III, which typically the UK is implementing faster than anyone else) rather than lending out the money.

The banks need profits to pay dividends again, to build up the share price so they can be sold down, but they find it easier to do this by vast “casino-like” activities rather than take the risk of lending to large numbers of businesses, which might fail.

The Government had an imagination failure when it disposed of the shares it confiscated from Northern Rock shareholders rather than using the bank to push constructive lending, or turning it back into a building society.

It took a loss on the taxpayer’s investment to show it was being politically tough, rather than using its ownership in a positive and involved way.

With RBS (85% owned) and Lloyds (42% owned) it could enforce more reasonable senior pay levels and lending for growth. But it’s a hands off shareholder instead.

Recently I went to see a number of banks with a proposition that needed funding. Where I wasn’t laughed off the phone by banks with zero intention of lending, I found the terms that were so onerous that the project became unviable.

The reality from the bank manager’s office is that they won’t lend unless the Government forces them to, which it won’t do. Channelling some of the billions of “quantitative easing” into business lending really would give the economy a boost.

What they are doing instead is financial engineering – exactly the same crime of which Barclays has been found guilty.

But it’s the absence from Labour of an apology for the fine mess their policies gotten us into that particularly offends. Economic competence is the first requirement of Government. We all – and especially job-creating business – will do well to remember this.

North Rock in Private Eye Nov 2011

Just how good a banker is Richard Branson?

Well he’s not really a banker at all, according to the latest figures from his Virgin Money group, which will soon be replacing the Northern Rock name on the high street.

Virgin Money is a credit card business run in association with MasterCard and real banks such as Bank of America and until recently, Royal bank of Scotland. For 2010 it had a turnover of £74m, on which it made a pre-tax profit of £42.5m. Its income from loan business was just £156,000.Virgin Bank, formerly Church House Trust, acquired for £13 million, plus the existing unit trust, ISA and insurance business, is to be found in Virgin Money Holdings (UK), the parent also of Virgin Money. Banking produced revenues of just £1.2 million last year out of £91 million. These were dwarfed by the credit card income and by £28 million from “investment and protection”.

Banking produced a first year loss of £2.7 million (Church House was acquired for its banking licence; Virgin deposits were previously held at RBS), whereas the group profit was £36.5 million. There were further losses of £12 million due in part to “building a retailing banking platform”. Virgin Bank is in effect a start-up, as indicated by a loan book of just £21 million and total banking assets of £134 million.

The main UK parent for the Branson bank is Virgin Financial Services UK Holdings. Its cash flow statement showed an outflow of cash from operating activities in 20120 of £75 million, plus another £11 million on capital expenditure and investment. That hole was largely filled by Branson’s American partner, financier Wilbur Ross, who injected £96.5 million in return for 22 per cent of Virgin Money Holdings.

The Ross investment came from America’s home grown tax haven, the state of Delaware. But then the Virgin banking business, including now Northern Rock, all goes back to the equally tax-efficient British Virgin Islands, and those Branson discretionary family trusts.

 Does the lack of Virgin banking experience suggest that Northern Rock is seen more as an investment than a career, with the aim of selling off in part, via a flotation, or whole to a bigger rival sooner rather than later at a profit – unlike the government?

If anyone disputes the financial data we’d be happy to hear from them….

Chancellor has signed a bad deal for taxpayers with Northern Rock sale

Michael Stephenson, General Secretary of the Co-operative Party, said:



Today the Chancellor has signed a bad deal for the future of Northern Rock. George Osborne has missed a real opportunity to return the Rock as a new mutual, which would have signalled the government had learnt crucial lessons from the banking crisis. The sale to Virgin is a resurrection of the failed former model. This fire-sale demonstrates Osborne is not willing to think long term about how banks can serve their customers and reduce risk for taxpayers.

Lost opportunity in Northern Rock sale

The news today that the Government has sold our bank to Virgin Money is a great disappointment and a lost opportunity.

The deal in my view significantly undervalues the long term worth of a newly capitalised bank with few poor debts.

The price of £747 million plus perhaps further bonus payments is more about the Chancellor being able to make a political statement about Government getting out of the banking business than a fair deal for all.

And even at that price it should be remembered that it’s based on having expropriated our shares – something that didn’t happen to RBS or Lloyds. Maybe this was because they had more friends in high places in the City than we did.

The opportunity that’s been missed is to allow Northern Rock to have returned to the mutual sector and remain focussed on its historical role – financing homes for ordinary people.

No doubt the name will be swept away and replaced by one which has been used for cola, wedding dresses and a plethora of unsuccessful business activities.

It’s a sad day for all of us in the North East of England.


Robin Ashby

Zero value of Northern Rock shares is upheld

by Iain Laing, The Journal Oct 7 2011

A TRIBUNAL has turned down an appeal against the decision that Northern Rock shares had no value after the Government bail-out.

Shareholders challenged the valuation of the Newcastle bank’s shares at zero after the value of government aid given when it was nationalised in February 2008 was subtracted.

The Bank of England bailed out the business with emergency funds in 2007 when money markets froze and investors started the first run on a UK bank for a century leaving the bank unable to gain funding by securitizing its mortgages.

The decision by the Upper Tribunal Tax and Chancery Chamber affirming the valuer’s judgment was published yesterday.

The tribunal judge Nicholas Warren wrote in the final decision: “We have before us no evidence that the Government damaged Northern Rock.”