A Sad Demise

Would you want to be a shareholder in Lloyds Banking Group right now?

Those who own Lloyds shares will wistfully remember the good times of a steady bank which paid good dividends, made some shrewd acquisitions and maintained a good share price. Theirs were a share renowned for a good long term performance and a company for its sensible management.

Just about a year ago, all that changed. From a peak of £8.20 the shares of the bank dropped to a low of 25p. In the face of the credit crunch, the bank made its most disastrous move in its long history when it made a bid for the beleaguered HBOS, who had been guilty of some of the most reckless corporate lending amongst other sins. As the bank suddenly realised the extent of HBOS' woes and the incredible strain on its own finances as the crunch took hold, it frantically tried to renegotiate the deal and even back out, despite the fact that EU competition rules were temporarily waived to allow the new group to own a whacking 28% of the UK mortgage market.

It was a collision of management incompetence and all consuming greed.

Then in stepped the final bunch of meddlers - the Government. It is widely believed that the PM himself personally intervened at the 11th hour to urge this merger to go through. Incredibly, the handshakes had barely stopped when Lloyds saw the folly of what they had done, tried to mess with the price of the deal and then went cap in hand to the Government to shore up the group's finances in order for the deal to go ahead and for the two companies to survive. As the whole mess unravelled, the taxpayer came to the rescue and took a 43% stake in the new group to stop BOTH banks sinking. The shareholders at Lloyds, after years of content, suddenly saw their investments collapse to virtually nothing.

So here we go again. Today, Lloyds launch the biggest rights issue in history. A further £21bn is required to shore up its capital which is only around £22b now, principally so that it does not have to join the Asset Protection Scheme (APS), the euphemistic name for the financial cesspit where toxic debt is to be parked and underwritten, in full, by the taxpayer - the premiums for which, Lloyds deem too expensive.

It's remarkable. They deem the insurance premium for APS too expensive - less than a year ago, they would have paid anything to be saved. As taxpayers, we should be happy, I suppose. Lloyds was always a dedicated stock market performer, so it would make sense to see it steadily rise again so that our 43% can be sold and returned to us. In the short term we will need to pay a further £4bn as our part of the rights issue so our stake rises but we would all believe it is money well placed?

That's if the management know what they are doing. Remember, the same bunch of individuals, which is a truism of all the management of all banks with the exception of RBS, the Lloyds Chairman and Andy Hornby of HBOS, are running the show. The daft investments they all made are being made again across the board as banks feed on the frenzy of a nicely depreciated market courtesy of the taxpayer. Across the globe, banks are accruing nice bonus pots for their good work and in the Sunday Times, the CEO of Goldman Sachs claims that his bank is doing 'God's work'.

Many economists are now coming to the conclusion that it would have been better and cheaper in the long term to have just guaranteed the deposits of savers, created a central mortgage bank and let the rest go down the swanny with the idiots who took them there with it. We would not be talking about bonuses and reforms now, we would have a new look banking system based around sensible criteria and practice.

I find the fact that genteel Lloyds shareholders having to stump up to pay for the whims of a management that nearly bankrupted the company abhorrent. Further, to pay for the suicidal practices that led to this sad demise of a once great bank, 5,000 staff at Lloyds will have to lose their jobs - people who were not involved in the abysmal decision making that got them to this point. That act alone has been described by unions as 'arrogance' and I agree. At all banks, we see low level staff paying the price while people like Stephen Hester at RBS accrue bonuses equivalent to the salary bill saved - in just one year at the helm of a company propped up by the taxpayer so that he could not possibly fail. Even then, he has us all pay more and been let off around £10bn of debt he owes us - for that he accrues £9.6m.

You could not write a script with such a plot as no one would buy the book - it would have been deemed too far fetched. The problem is that within a year, we will have all forgotten what and how it all happened. We will carry on and allow the whole process of rebuilding the house of cards again, ready for the next gust of ill wind to sink the whole lot.

Monumental hubris and arrogance at the most senior level in the banks, the regulators and the Government are at the witch's cauldron stirring up a foul future for the lot us. They will do nicely though, thanks to the taxpayer.

All That Education And Nothing To Show For It

To some of us, academic achievement did not always come easy. To some, whizzing by exams and getting firsts at some Oxbridge College ensured a lifetime of achievement. All they had to do was turn up.

For those who fit into that bracket at the FSA, that's about all they did do. Today, the Chairman of the FSA, Lord Adair Turner, was giving his interpretation of events leading up to the world's worst financial crisis since the Great Depression of the 1930s to the Treasury Committee.

The Light Touch

We have heard the contrition at these committees from the likes of Andy Hornby, former CEO of HBOS, who was very sorry indeed - more sorry than Fred Goodwin, ex of RBS and Eric Daniels, CEO of the new Lloyds Banking Group. After an estimated £1.3 trillion of liabilities hurled at the taxpayer, sorry doesn't seem to quite cut it. I think for many of us, exile in Guantanamo Bay would not be good enough for them - sadly President Obama has shut it down too hastily.

This time we had the turn of the vicious city watchdog, whose job it was to watch over 10 major banks and in that time only 5 of them went bust - it could have happened to anyone. Turner alluded to a 'Light Touch' that was 'politically preferred' and so the FSA complied. That part was easy, most Chairmen of watchdogs have several other jobs so it easy to get distracted. Not the same could be said for the highly paid Hector Sants, CEO of the FSA. His lucrative salary was plenty enough to turn a blind eye to the obvious.

Intelligence Lacking

Let's face it, most of us with half an ounce of intelligence knew that the housing market was massively overcooked. The relentless price rises, year after year were fuelled by a flawed business model in banks which allowed them to leverage each new debt to raise new money to fund the next debt and the next capital. It was an upward spiral that simply had to implode because at some point the connection between the debts and the value had to disconnect. This is where the genius Gordon Brown tries to blame sub-prime but that was just a manifestation of the fragility of the model - it could have just as well have happened anywhere. The funny thing was that because the UK did not have many sub-prime mortgages, it was reckoned we would not be vulnerable. The problem was that there were many points of weakness in the model, any one of which could have taken the one thing out of the equation upon which all other things depended - Trust that the assets were at their original value when the original loan bargain was struck. Britain always stood to lose the most if this was ever recognised as our house rise was way ahead of others.

Wallop! The moment the flawed model was exposed, everybody was caught up in the web of debt swapping, derivative flinging, exotic swallowing, option swilling daftness that was the model. Trust was lost and the one thing they all needed to survive was credit and it simply dried up as no one knew who held what debt.

The FSA couldn't see that because they did not have the time in their busy days, they operated their 'Light Touch' very lightly, they had not the intelligence to notice, they were well heeled enough not to care or they were part of the deception system that allowed the whole scam to survive and flourish (delete as necessary).

What Does A watchdog Do?

Some of Lord Turner's answers were so pathetic as to wonder why he was not summarily dismissed from his post for not at least taking the time to come up with more plausible excuses. His constant references to 'political assumptions' make you suspect that perhaps the Government were pulling his strings but you would think a successful businessman in the past would have more guts than to just sit at a desk and do nothing.

But it's what he and all the highly paid idiots there did.

It beggars belief that he and Sants still have jobs anywhere, frankly. They have presided over the unhinging of 50% of the British banking set up and allowed the taxpayer to become liable for all their lunacy. Not once did he or anyone else step in to ask questions over business models and methodology. Yet he thinks the way the FSA acted was 'competent'.

Lucky for us it wasn't 'incompetent' or else we would have really been in trouble.

Independence

Lord Turner consistently referred to political assumptions and lack of independence and I think there is no smoke without fire. It seems the Government tack was to tone down the role of the regulator and this probably is endemic in all the watchdogs. Each are manned by Chairmen who have at least 5 or more other Non-Executive roles, are paid lucrative salaries and and are hand picked for their abilities to do what they are told.

So what happened to the CEOs? Surely the same can't be said of the well paid Hector Sants? Well the sum of it came when he outlined what was the only consideration to be taken into of when a senior banker was put into a post - whether he had a criminal record or not. It reminded me so much of the Monty Python sketch of the guy being interviewed for the Secret Service - he was asked, 'Can you keep a secret? Well you're in.' It would be funny if it wasn't so real as this was in response to HBOS appointing an executive to be in charge of risk at the bank who had no previous experience of the field.

The saga continues tomorrow - I just wish I could make it all go away. The shower of total incompetence belies the intelligence of the people involved. Surely they had more sense of conviction to do the job properly no matter what the Government said? How can they be kept in these jobs for the future if they didn't care before?

For a fraction of the £900,000 a year Hector Sants earns anyone who read the papers and could add up could have done his job the proper way. But that of course would presuppose that they cared enough to take it seriously in the first place.

Amazing But True

They could be showcases in Mr. Ripley's amazing exhibitions but we have become immune to some of the amazing statistics we have been fed lately.

I nearly cried when I found that Andy Hornby, the lad next door former Marketing Manager at Asda who rose to become CEO of HBOS and made a good and proper show of ending the Bank's life by clocking up a £10bn loss, has waived his right to a monthly retainer. In a show of public-spiritedness which will no doubt twang the heart-strings of every warm blooded mammal he has voluntarily given up his right to a £60,000 month retainer at the bank. If the details of the £10bn loss had somehow slipped past the press, I dare say he would have carried on drawing the money reluctantly as reward for crashing what was a perfectly decent bank at some point.

Of course, I dare say he learnt the art of asking for pocket-ripping retainers from Ron Sandler, who got his 'Happy Gilmore' monthly pay out for 'rescuing' Northern Rock which we now own as taxpayers. We all happily agreed to his £90,000 per month retainer and the fact he has pulled in an army of consultants to whoop it up on the taxpayer bonanza to 'put the bank right' again and even showed his generosity on our behalf by paying staff a 10% bonus just for paying the back some of the money they borrowed - from us.

Easy Money

Even that does not take the biscuit. My perennial blog target, John Thain, former CEO at Merrill's who did an 'Oliver' and asked for more bonus himself having wrecked the bank so much it had to be bought by BoA - he only wanted $10m. But he had the last laugh as the stingy Board turned him down. At that point they were not aware he had signed $billions in executive bonuses to his pals just days before the takeover at BoA went through, and had somehow blown $1.2m on redecorating his office which he has now admitted was a 'mistake' and has agreed to pay back. What a guy.

But dear old Fred Goodwin now former CEO of RBS, has proven to be a generous sort as well. Despite his bank clocking up a £30bn loss and has laid off 13,000 staff so far, tears will well-up when everyone finds out that just a few weeks before he got so unfairly sacked for busting the bank, he signed off several lucrative contracts to individuals to become 'global ambassadors' to RBS. With contracts up to 5 years, these 'ambassadors' include Zara Phillips, Jack Nicklaus, Jackie Stewart and Sachin Tendulkar - and their job was to just stand about ambassadoring. RBS was always a bit choked that rival HSBC had bought space in all airport jetways and so it began on a global campaign to hijack every sporting event it could think of and now sponsors Williams Formula 1 Team, the Rugby Six Nations (Wales are Grand Slam holders), the Nat West series in cricket, the British Open in Golf and the World Underwater Nude Tiddlywinks Championship this year in Watford swimming baths - this latter one is still pending approval as I only sent the application off this morning.

We should mourn 'Sir Fred' for his overwhelming largess. But that wasn't as generous as his leaving terms as he earned £4.2m a year and although he was rather spitefully not given a wedge of cash for his failure, he did exit with an £8.4m pension pot.

Bank officials are now a little bit cheesed off that they cannot undo some of these daft deals but that would mean someone getting off their backside, employing a decent lawyer, calling up Sachin, Zara and her brother Peter who oversees the Williams F1 deal in Asia for RBS, and telling them to take a hike. But that would be impolite - besides it's only a collective £200m of taxpayer money at stake.

Let's not stop there. As Gordon Brown surrounds himself with fabulously rich banking advisers which is a really great idea as they advise us all to bail out banks and allow them to carry paying themselves fat bonuses, we are slowly finding out his who's who of the banking world are some of richest, dodgiest fat cats of them all. Latest on the list of dodgy dealers is the former US Citigroup banker who managed get himself a $42m pay off. A mere 45 years old, Michael Klein, former Vice Chairman of making money at Citigroup, quit last July just before the spectactulars really kicked in and Citigroup had to get $45bn to save itself and got his massive pay off. So he would be superbly qualified to advise Brown on how to rescue the banking system, then.

Allegedly, the scoop at the Treasury, is that Klein has to approve everything before it becomes policy. Klein, now a freelance 'adviser', is described as a 'rainmaker' in the banking world. He certainly made it rain - it bloody well poured, all $45bn of it.

Failure Is A Good Thing

Clocking up $45bn and getting a $42m pay off is pretty spectacular even for a rainmaker. We see in business and sport that in fact it is far more lucrative to fail than succeed. In fact the more spectacularly and quickly you fail, the quicker you earn the value of your contract and resurface at a new job to start the jamboree all over again. Just ask Sven Goran Eriksson or Steve McLaren - there was zero incentive to succeed when you could earn as much in quicker time by failing. And the same goes for 'Big Phil' Scolari at Chelsea, who this week got fired from his wonder-job. Along with Jose Mourinho and Avram Grant, Chelsea have paid out a total of £28m to be rid of their failed managers (although in fairness Mourinho did win 6 trophies and Grant lost the European Champions League only on penalties).

You must think that Chelsea must have a small chimpanzee who makes out such stupid contracts. No way, it is the highly paid CEO, Peter Kenyon. You have to have real brains to be that stupid, believe me.

Of course, you would have to be really stupid to employ clever people who actually gave a damn about silly things at Watchdogs. They have really bared their teeth lately over at the FSA and copped an Essex Forex trader who allegedly had a £44m fraud going. Good stuff, they only missed the entire banking meltdown which has cost around £800bn so far in the process and the Madoff $50bn scam.

Good work everyone, bonuses and part time fat-cat jobs all round.

I Can Do That

The world would not seem right if we did not hear of a bit of management lunacy. We find this week that BT, that bastion of management common sense, is paying around 1,000 workers to do nothing.

These individuals are part of the Career Transition Centre and were set up to retrain employees to find work elsewhere in the business instead of BT resorting to redundancies. A noble thought, indeed.

Sadly, as the recession bit and lack of planning came to the fore, it meant that there are fewer posts to fill at struggling BT and last week it announced it has laid off around 9,500 workers. This has given rise to a large amount of employees who are languishing at home waiting for something to do. Cleverly, Ian Livingston, the CEO at BT, has focused his job cuts on consultants and contractors at BT - whole armies of them that sprang up to advise about how to outsource and ruin the business. The company has 90,000 UK employees and over 110,000 worldwide, some just sitting in small offices in foreign countries, advising. In fact, when you include contractors, BT had around 160,000 people working for it so the odd 1,000 sitting waiting to do something was neither here nor there.

You couldn't make it up.

Finally, Spare A Thought For....

Eric Daniels, CEO of the new Lloyds Banking Group who, with other banking alumni, was called up in front of the beaks this week. He described the takeover of HBOS as being expected to be painful but strategically good. Bong, a few days later we find £10bn went down the toilet and we, the taxpayer, stumped up for it - so yes that was indeed painful. Daniels should not have any excuse - the City did warn profusely that HBOS had been suicidal in its Corporate lending and many of their super bets have gone belly up including Stead & Simpson, Wyevale and Crest Nicholson.

Bless him - Daniels said that they would have normally have done a good deal more due diligence in such a takeover despite the obvious warning signs but frankly with a Government gun to his head he probably did not have much choice.

Now, on a final note about Andy Hornby, the former CEO at HBOS, who has given up his lucrative retainer, we will not have heard the last of him. After presiding over hiring and firing a £1m banker called Benny Higgins from RBS who had pleaded that HBOS should have a more conservative mortgage book so much so that HBOS sold only 8% of mortgages in the first 6 months of 2007, after Higgins had slashed the commission paid to brokers and advisers. Hornby fired him and soon spectacularly reversed that so that HBOS once again got to 22% of the mortgage market with some of the most daft lending and sales tactics you will find.

And he had the gall to ask for a £60,000 a month retainer - respect to the balls of the man. Now, who was the idiot who agreed to pay it? That's you, silly, the taxpayer. In fact we are stupid enough to unquestioningly pay for it all and will be doing so for some years to come.

The last laugh is on us.