Is Curbing Executive Pay the Right Thing to do?

Vince Cable is in his element. He has the sort of face that seems to say he has it in for someone and he has. In his line of fire are the executives of public owned companies and he is proposing to curb their pay. His reasoning is that over the last few years the combined performance of the top companies in Britain in terms of share price has been static at best while in that period executive pay has risen 13% each year, every year. He has a point.

Or has he? After all these companies have survived a recession, haven't they? And we should be glad of that. Besides, the incentive schemes that executives may be on could be bottom line related and we all know that share price has not always reflected the actual performance of companies in terms of profit making but is more a barometer of the market generally - perhaps more exactly, the sentiment of a select few traders of shares in the world and dastardly computer systems.

It also belittles how a company may be managed in terms of its performance measures. After all, some companies may be going through a transition and require large investment and less profit for a while, others may actually measure profit per head which may increase despite overall profits decreasing. Key Performance Indicators may vary from company to company depending on market conditions and just looking at share price is a very narrow way of assessing the overall success or lack of it for companies. But Vince Cable does have a point.

We have seen spectacular pay offs for executives who fail rapidly and monumentally - take Fred Goodwin for one. But it is becoming the norm. The faster and more effectively you fail, the more you can get in terms of a severance package - so why succeed? This is something most of us find abhorrent in modern day business.

It would seem the way forward being proposed is to reward long term share performance and to let shareholders have some kind of binding say in the matter. That's not always practicable. After all, the significant shareholders in companies may be pension funds managed by well-off mangers who actually only look at a short window of up to 5 years maximum. Why would these significant shareholders vote against a pay award if there are not in for the long run? It may be fanciful to believe that small shareholders can actually club together and organise a revolt that's binding as there may be thousands of individuals to organise.

And what happens when the markets recover? Business will boom and everyone will want the most hung-ho, highly rewarded executive no matter what. Worrying about exact pay now is only a symptom of the austere times we are in. When Britain's back on its legs, no one will worry how filthy rich an executive gets so long as we are all earning something. Isn't that right?

Anyway, lets' get to the nub of this matter. What we are all unhappy about is not so much executive pay but the pay of a thin wedge of incredibly well paid people in the finance sector. In truth, the finance sector only accounts for around 9% of our GDP, yet there is a disproportionate amount of money earned by specific staff within that sector, nearly all working in the City. These are the people who over the last 15 years have hardly increased share price, netted out the profits of their companies to zero at best and in many cases drove their companies to the brink of oblivion. Yet in that same period they earned on average around £3m each and it is rising this year to around £4m each.

Let's face it, these are the people who have made sure that we have extra tax to pay for the next 30 years. Even as we speak, the CEO of RBS, Stephen Hester, will receive a substantial bonus even though the value of our 83% holding in the company is still showing over a 40% loss.

These companies and their high earning staff remain untouchable. They are supposedly regulated by the FSA whose own staff actually received bonuses as they presided over the implosion of the British banking system and their response was to pick on the array of Independent Financial Advisers and drive most of them out of business while bank executives named their salaries and bonuses despite owing us a fortune.

No, Vince, you are looking in the wrong direction. Focus on what's really wrong first before hacking at the general melee of executives. There is a specific, massive problem that affects each and every one of us because we underwrite their failure. We have skin in the game. Our call is to pick on bank traders and executives first - curb the way they earn, how they earn, what its paid for and what they can trade. Then pick on the other guys who also do need curbing too.

The price of failure in banking is always laid upon the general retail banking staff and the taxpayer. And failure wins bonuses. With logic like that, banks should be the first port of call.

It's Management, Stupid!

I have always believed that banking has been stocked with poor managers - I don't mean retail banking but the stuff where they make the profits and blow them. Regularly.

This is not a new phenomenon. Indeed, Gordon Brown has always labelled the Conservatives as 'Boom and Bust' merchants and that description was largely attributed to their cycles driven by investment banks making big profits and then blowing them in relatively short order. Nicholas Taleb contests that banks only ever really make money out of loans, mortgages and other products to businesses and people - all the other profits they make they surrender.

While the above statements are not entirely accurate, banking is one of the few industries where an incredible focus goes on making money with money to lavish huge rewards and then as busts come, they simply surrender the profits, make a ton of backroom people redundant and then carry on as if nothing has happened. Why would you run a business to do that?

This particular cycle, although a massive crisis around the world that has taken more then just surrendering profits to resolve, is not different. At the core of it is not just the bonus culture, it is not even the derivative type products that can be so destructive, it is not even that the financial system has its own in-built self-destruct or that many of the products are for banks alone to play with - all of which are highly toxic when mixed together. Nope, you can survive all these things so long as you have decent management - and that has always been what was missing.

If we drove our car recklessly and crashed it as a result, we would tend to learn our lesson and so not do it again. But there are those in life who actually thrive on the risk of crashes and love the sensation of speed. Normally, such people would try their hand at racing cars and exercise their urge at purpose made circuits where their activities are well managed and the dangers are minimised. But there are those who insist on continuing their hobby on our roads - they are a huge danger not just to themselves but to us all. Their activities can damage our cars or even hurt us. In extreme, they can kill.

In all cases, these people can, at some point, do it again. Unless, that is, we make them drive slower. We can put cameras and signs up, put bumps in the road or more traffic lights but ultimately if they want to speed, they will. The only real way to slow them down is to make their cars slower.

This analogy is like management. Managers will be reckless if left in an environment where there are few controls, all of which can be ignored if not enforced rigorously. Even the threat of transgression fuels the urge. Not until the business is modified so it cannot do the dangerous things, will managers stop doing them. In banking, this is precisely the issue. They are driving fast cars on our roads and they can kill. Unless we make them modify their cars, they will kill just as they have done in the last year.

The heart of the issue is not the free availability of fuel (money), it is not the way they transact business (the roads), it is not they way they drive (their bonus culture) - it is the cars they use. Give them lesser cars and they can only drive slower.

This will take a different type of manager.

The management of banks, having suffered their reprimands having caused untold damage have clambered straight back in and they are driving just as, or even faster than, before.

Henry Mintzberg, Professor of Management at McGill University, has an interview in this month's Director Magazine. It augments exactly the point I make.

When Savings Got A Bad Name

When I was young, my parents and grandparents drummed it into my head that I should always save some money. I followed their advice when I could, starting my first bank account as early as possible and setting money aside.

Their advice certainly helped me buy my first home soon after I started work as I had plenty for the deposit. Bizarrely, I followed the advice of a rugby playing mate and went for a 100% mortgage and a whopping life insurance policy on an interest-only mortgage despite being single - his advice was to blow my savings on material things that had no long term value. Later, after meeting and marrying an Independent Financial Adviser (IFA), I got things back in check. But it was only when she opened my eyes to what I would need in retirement without the buffer of one of those super company or public service pensions that I started to really save.

Over the last 10 years or so, there has been a huge focus on getting credit in Britain. Banks and credit card companies have fallen over backwards to literally throw cash at us, not just to buy homes but to fund a fantastic lifestyle of flashy cars, superb holidays, up to date whizz gadgets and big TVs and much more. We have never had it so good as we used our own financial instruments to supplement our dwindling (on average) household incomes. In the meantime, our level of real savings has been negative. It was almost crazy to save, in fact, so cheap was the money thrown at us.

Pensions probably fared worst but savings generally have been negative in comparison to our monthly income. Beyond my pension, my wife and I save with ISAs regularly and this year we cashed some of those in at a lowish point and then bought back in using a scheme I had no idea existed called OICs. By doing this we have fared very well and the OIC alone has increased nearly 40% so we have not lost anything during the crisis and our savings are still tax free.

It struck me though, that savings seem to be the last thing on everyone's mind. Although the level of debt on credit cards has actually come down by the odd percent for the first time in ages, outside mortgages, Britons have over £1 trillion of unsecured loans. In trying to kick start the economy, one of the first things that was focused on was rekindling the 'Asset Backed Security Market', or housing markets to us mere mortals. While it made sense to get money into people's pockets in the short term by leveraging their assets, it was clearly exactly the same plan that had got the nation into a financial mess. So long term, there has to be a plan to get Britain saving more.

The problem is that it is not as easy as it sounds - we all know the score. Just when I think I'm on top of things, the washing machine breaks down or the carpet gets stained, the floor needs repairing, the lounge suite is suddenly wearing. With all the juicy sales on all year round these days, there is a temptation to think we are getting a bargain all the time and if we don't spend we will miss out. Saving in a disciplined manner is a hard task in our current environment of materialism fuelled by cheap credit. At least when interest rates were high we could see our savings grow and we borrowed less. Now, my Halifax building society account offers zero interest on our balance and we have had to go elsewhere to get something for our small monthly savings - it's crazy.

The whole market seems geared against savings. There is little focus nationally on pensions and saving for retirement and my wife's IFA business has changed dramatically over the years with structuring and restructuring credit as being her main business versus investment and retirement planning. She firmly puts this down to the attitude of Government, banks and people - it cannot be any one of those alone, it has the right combination and time. At this time, saving for the future is not a priority generally and the whole market is geared toward lending more.

In her opinion, as it is mine, the whole credit crunch was an accident waiting to happen.

Warren Buffett calls it 'capitalism overshooting periodically'. At the height of the crash he invested $5bn into Goldman Sachs and is now sitting pretty. My meagre funds went into the OIC. I am no Buffett but thanks to equally sage advice I have ridden out the storm well. Like Buffett, my pension is down around 25% still, as are his overall assets, but in reality my whole financial situation is as good as it could be in the face of what we have experienced and my pension is clearly for the long term. I am now focused on saving as much as I can. We reduced overall credit card debt to zero by releasing our Halifax savings to make sure we paid no interest while I have been putting as much as I can into my pension.

But how many others have done the same? In fact, the whole panic that has gripped us has seen the focus shift toward getting credit back to previous levels. Britain will soon get back to borrowing more and saving less. Surely, at some point that vicious upward spiral has to end and let's hope it is not as spectacular as last time.

My point here is not a swipe at the Government who have their share to blame. It is not even at the banks who fuel their cash by lending more in their bizarre world of finance. It really is a swipe at us, the public. It really is time to save and invest as the future could get nasty if we don't. Pensions should be brought to front and centre for every working individual and, personally, I don't think retirement planning should be voluntary. I think there should be massive tax incentives to save, instead we get tax on pension dividends, I think insurance premiums should have no tax attached, I think there should be no tax on savings generally.

Realistically, the Government should plan long term - the more we save, the less we will burden the state in our old age. It just makes sense.

Current finances in the country are a mess and it will take a bold Government that thinks long term in this way. However, it really is not rocket science. The more we all save today, the less vulnerable we are to downturns, the less of a burden we will be on the State and the less the system will incentivise us to borrow as banks will see the profit in investments over debt in the end - hopefully.

I have a feeling that pigs may fly first, but I live in hope.

Beware of The Glossy Adverts

I love a good advert and my bank uses the one with a small child saying goodbye to its pet iguana or something as the family has to move - then sees the same pet in the new house in San Francisco or somewhere. Details are hazy but you know the one.

HSBC. Don't get me wrong, 90% of the time they are fine. In fact I run 90% of my business banking on the internet and so I rarely have to speak to anyone and only go to the Bank to get cash. The HSBC Internet Banking service is pretty good - I can set up new suppliers and pay them easily and I can transfer money to my private account for wages and expenses instantly. It isn't as reliable as it should be and there have been several times of late, annoyingly at month end, when the portal has been down. But, again, 90% of the time it's fine and meets my expectations.

As so often is the case, it is when you have to deal with human beings when things start to go wrong. Last month I was on a business trip to Valencia (lovely city by the way) and I had stayed at a Hilton Hotel there. So I checked out and paid my bill with my business card and then met a potential client in the restaurant for lunch. I tried to pay the bill and my business card was refused. The lady thought there may be a fault with the machine and so I counted out the last of my cash and paid. It was a very unimpressive sight for my potential client who has since declined to do business with me although it would be a stretch to say because of that incident but it certainly gave no real confidence that he was dealing with a guy from the UK with sound backing. The hammer blow came as we walked through reception as the cashier told me there was a problem with my bill payment. I bade farewell to my potential client, who by this time probably thought I was a serial crook, and tried to sort things out. It appeared that my bank had tried to take the money on the card twice. They ascertained that the bill looked as it was paid and all was well.

A short while later, I tried to fill up the hire car with fuel and pay with my card. Again it was refused. This time I had to use a private card as I had no cash left. Meanwhile, the hotel had tried to call me again and had left a message on my mobile that they were not sure if the bill was paid correctly and suddenly I was panicking. I was in a foreign country, my business card had failed and I had a very big hotel bill outstanding, no cash and only a private card left which was close to its limit.

That's when the fight started, so they say. I called the HSBC customer support line and was routed to somewhere very foreign and to someone who got completely the wrong end of the stick. They thought this was a private card and could not relate it to my business, firstly. Secondly, they told me that they had put me on security hold as the Hilton Hotel had tried to take the payment twice and so looked fraudulent. We had an esoteric discussion of who Hilton Hotels were and how hotels take a pre-authorisation for the approximate amount beforehand, and whether this constituted fraudulent behaviour. I also pointed out that I had stayed at the exact same hotel some weeks earlier and spent a similar amount of money. I had bought air tickets and car hire in Valencia before. As they wanted me to 'heads up' where I am going on business, I told them if they observed my account they would have noticed that I had travelled to Spain at least 5 times in the last few months, Sweden twice, Italy 3 times, France 5 times, Denmark, and Germany. The pattern of my spending would have indicated that I was likely to be on business again and so the Hilton transaction would have made sense.

But sense and logic does not come into it. The block was finally removed and I asked for a manager to call me so that we could understand each other. No such call came although my 'Personal Banking Relationship Manager' did try to call on my home phone in business hours when I was in Sweden and quite how she was involved, I don't know.

The whole thing seemed to have subsided. Then a week or so before the end of June, I got several notices from online suppliers that my card details were due to expire - fairly important suppliers for my online back up, web hosting, email hosting, business travel booking and anti-virus software, all of which were due to be renewed in the final month of my fiscal year, July. I checked the card and it was due to expire at the end of July so I thought I would check this was ok. I went to my HSBC branch and had a short meeting with a Business Banking executive who called card services and everyone reassured me that my card was good for all July and the new one would be sent at the end of July. I also asked about why a manager had not contacted me and they said it would be looked into. No call has been received since.

Inevitably, the card was refused on 1 July by my online suppliers and I had the nasty situation of online backups stopping, and my web services about to be withdrawn. I called HSBC who said all the suppliers were wrong which I informed them did not actually help resolve the situation. The new card was due at the end of the month and that was that.

Business Cards are vital for cashflow in my small business. I book all my travel through Expedia who also indicated my card was dead, and many of my suppliers are paid that way as they do not give me a credit account - my card becomes that credit line. So to be denied it when I had a business strip to Sweden, South Africa and Germany coming up, was crippling as well as for other suppliers - I could be defaulting on payments which would look very bad on a small business.

So I got angry. I made my first futile gesture - I tried to call a manager. Managers at HSBC, like many firms to be fair, do not take calls. That is what the call centre does. Escalation is via email and managers do not speak to customers. I have no idea whether the HSBC CEO, Paul Thurston, thinks that is good business practice but he ought to try talking to a call centre when he gets involved with a supplier letting his business down. Of course, it is different for small businesses - if I were a sprawling corporation I would have an account manager, golf days and rugby tickets plus a bat phone to someone who gives a damn.

But small businesses are nobodies, just profit machines as we pay for everything we use.

So having been thwarted by the lunacy of invisible, deaf and dumb managers, I had to listen to the pathetic attempts to put things right. The one thing everyone agreed upon was to not issue a new card and cancel the card about to be sent as this would automatically cancel the current card which could still be used in retail outlets. So my only recourse was to wait for the new card and somehow manage my suppliers in my final month of the year.

Then I took a potential new client to lunch last week and my card was refused. I tried to make light of the situation but his comment floored me as he said, 'I am sure times are hard for small businesses.' It was bye, bye to a £50k project as he subsequently went with a larger firm for his services.

I called HSBC to find why they had done the one thing they had said they would NOT do, which was to send out a new card immediately and cancel the current one. They even compounded it all by lying - they said the new card had been sent the week before. Spookily, it never arrived, so what had actually happened was that someone simply cancelled the old card.

Where that leaves me is with a mass of suppliers awaiting their payment, no ability to book travel and run my expenses unless I do it on my private card and have another battle with HMRC as to whether my expenses are for private consumption or business and lose out.

HSBC, still no sign of any manager to speak to, called and even offered a derisory £100 as a 'goodwill' gesture to stop me taking this to the Banking Ombudsman. They warned that the Banking Ombudsman does not recognise the time I have lost in trying to sort this out when I cannot do billable work for clients and so will offer nothing for it.

And there's the rub. Until banks get hurt by their stupidity in the real world, then they will never do anything about it.

HSBC has a lot going for it - it is a good bank for most things. But when it lets customers down, there must be a way to get things done properly, quickly and without all this rubbish about call centres. Managers must get involved and get mobilised, make calls and really own issues and do the things that not only solve the problems but reassure the customers that a) they care and b) they have access, should they need it, to people who can get problems solved.

Banks and so many other companies employ this whole defence mechanism which shields managers from the real issues businesses face and it is because they are more interested in the make -believe profits of the investment world rather than the bread and butter customers who yield the only sustainable profits they make. That's why when they cut jobs after making billions of losses in the investment sector it is always at the customer facing end.

I don't know if I have the time and inclination to either fight HSBC on this or to take it to the Banking Ombudsman but it really galls me that banks have so little focus on customer service.

Is The Banking Crisis Over?

It seems a couple of months is a long time in banking terms. Last up we had a good set of results from Barclays, who we don't own. This time around it was RBS, and we own above 70% of them.

The results were good enough to have Robert Peston declaring that the worst is over. I am not so sure we are getting the right messages.

RBS's results showed it generated record income over the first 3 months of £9.7bn - very similar to Barclays. The amazing recovery in performance came from a stunning performance in the RBS Investment Banking arm. Again, very similar to Barclays. Perhaps the most amazing is that RBS has managed to hold onto and even gain some new customers. Naturally, most of this income was wiped out by write offs for loans, investments and bad debts - around £5.7bn of them. The end result was a small loss of £44m which would have been 50% less if there had not been pension top ups for Goodwin and the Deputy CEO.

At this point Peston coos that RBS is on the road to recovery which he believes is good for us as we will see our 70% stake bring us a profit at some point.

The Devil Is In The Detail

With the income at RBS and Barclays riding against the markets, there has to be warning bells about how these banks are again making their money. The FSA should be all over these results and understanding exactly what sort of deals have beat the markets and made serious money when everyone around is struggling. It really is not rocket science but it has to be that the banks are up to their old tricks again of conjuring massive profits out of nowhere.

I don't pretend to know enough about investment banking to understand whether these are good profits or bad but my instinct tells me we should be scrutinising every transaction and deal to drill down to the detail so that we are satisfied that the profits are real and sustainable.

The issue has always been that now we have rescued the system, we have to stop them from going back to what they did before because the country, the taxpayers, and industry simply cannot afford a repeat of the disaster of the last 12 months.

Warning bells are sounding in my head. I think we are setting ourselves up for another future crash of similar proportions. We have let the banks carry on without significant reform or augmenting the regulatory bodies. In fact, very little has changed at all.

Do MP Expenses Mirror Business?

I must say I am getting numb to this whole drip, drip series of revelations. Perhaps the Telegraph should bite the bullet and produce a Government-style 'League Table' of MP Expenses rating the most criminal at the top, down to the likes of Hilary Benn at the bottom who only claimed £140 in an entire year. At least they are all then put out of their misery.

It is the calls for reform which now intrigue me. Only when the rotten business is exposed did the very people who have been systematically abusing it suddenly take a 'righteous pill' and start harping on about how it should be changed and that it was not right. Hazel Blears takes the biscuit saying that she knew we all hated it. It makes you wonder what kind of morals they had to have knowingly abused a system they knew was wrong. Aren't MPs supposed to make moral stands on issues?

Ah, I see. That was the old days - now it's all nod at the leaders' orders however daft or deadly they may be and keep filling your pockets.

Politics A Metaphor For Business?

It does remind me about how businesses go from one reporting cycle to another, systematically going up the wrong alley, losing money or market share and then suddenly having to do a public report. At this point they realise that the outside world will know how badly the business was doing and so they 'on the back of a fag packet' make a load of cuts or 'strategic changes' in order to make it look as though they are now doing something about it.

As if this announcement of recognition of their bad performance and the changes they recommend are in fact indications of sound management.

Rather like it taking a public airing to galvanise MPS into realising that they have been stealing money off us, companies seem to manage by reporting cycles. Only when they have to publicly show their figures do they actually do anything about it. Again, like MPs, the feeling internally is that by showing it they realise the last however many months or years have been wrong, and that they are actually both paragons of virtue and super businessmen for doing so.

Managing By Planning

One of the reasons that many companies have 'Hit The Wall' in this recession is that they manage by reporting cycles. It's as if the process of airing their performance that they have an epiphany about how bad it is. Inevitably, it means they resort to the only tools available to fix problems and start to make cuts. Few companies seem to be able to manage their business by constantly going through the normal planning process, doing reviews of performance and prospects rigorously and regularly and making the important changes as they move along.

Much of it is wishful thinking, much of it is habit. Most of it is just bad management. In many cases, even they know something is wrong, just like MPs, they carry on doing it because the clock has not yet struck reporting time. The imperative to action has not arrived.

Planning is a useful process whether you are doing well or badly. In fact, people love to plan when the figures look good. They don't concentrate on the bad things just keep the good things going. A bit like the whole banking collapse - everyone seems to have known there were systemic problems yet they carried on milking the system until it profoundly broke. Then we get some fantastic analysis of why it all happened by the guy who was meant to have stopped it - Lord Adair Turner. It is seen as good management that he can have 'virtually have predicted' the problems in hindsight (you have think that phrase through) yet did not see it or chose not to as the whole system blundered into a blind alley, with its vision covered in greed.

But many other businesses have also done the same. Not reading the warning signs about slowdowns and recessions and then taking a look at their own business and its dependencies, has meant that so many 'good businesses' have been decimated or gone bust. It has exposed slim business models, over-dependence on gearing, lack of diversification in customer bases, over-reliance on specific customers - the whole gamut.

Just this week we hear that Corus is shutting down its steel making plants on Teesside as a single contract, which accounted for 80% of its production, has been rescinded. And that management, and Unions, bleat that it was the consortium's fault as they were contractually bound to take the steel.

Hello! There is a recession on. If the consortium can't use it then they cannot buy it.

It's this kind of lack of planning that has allowed Corus to cruise into a dead end and do the only thing it thinks it should which is mothball the plants and lay off the workers. Everyone knows the cost of re-opening a plant like that, so any upswing in demand would have to be huge to get Teesside making steel again.

We could go on endlessly but Corus is good example of a business that just got reliant on the status quo and there was not a single manager in there who maybe a year or two years ago thought, 'We are horribly over-dependent on one contract - what happens if that contract goes wrong and they require less steel or none at all? Perhaps we had better find some other customers, just in case.'

Planning For Failure

If you actually plan regularly, you can slot in 'what ifs' like customer or market failures and see how that might affect your business. Many managers have moaned over the years that understanding their business is dependent on these sophisticated data management tools and dashboards - yet those businesses who have spent a fortune on such systems still fail. Mainly because business is about the obvious and the pragmatic things. Like looking at each sales forecast and questioning every deal - like looking at how many customers constitute 80% of your business or more. Reading the warning signs are easy if that's what you are looking for.

Most managers seem blunder through data - presenting it and re-presenting it in many different ways to prove points they want to make. But few seem to grasp the real meaning of what they are looking at and what they should do about it. Only at reporting time, when the only figures that really matter are presented, does reality hit like a wet kipper in the face.

I have blogged many times on planning and re-budgeting as a daily management process. Companies who have been hit badly should take heed. The MPs who abused their own system should do too.

Waiting for public airings is not the way to manage a business or govern a country.

Bull Market Or Just Plain Bull?

The Sunday Times and today’s Telegraph are very much trying to talk up the current stock market. But are we calling a new Bull Market too early?

The green shoots of revival are hardly upon us and already there is a bit of a lather about the market. The stock market rally, if you can call it that as it is still some way off its position 12 months ago, is not confined to banking shares, although they are certainly leading the way.

Banks as a sector had to improve when you think about it. After having substantial new capital injected into them and new ownership, they were hardly likely to fall further. Some, though, represented very good bets. Barclays remained aloof to Government intervention and saw its shares hit a 22 year low of just 51p. Now, 450% of ascent later to 279p, people realise that their basic finances were sound and all that talk of having to sell the bank proved unfounded. Of course, over £5bn investment for 31% to Middle-Eastern investors helped, but the strategy looked good. To some extent, why other banks were not forced to do the same thing and save the taxpayer a load of money will forever bewilder us, but why should we care now.

Our investments are on the rise.

RBS, despite having to pay large pensions, has risen some 75% since we bought 73% of it and we will actually own a bit more once the asset protection scheme has washed through. Lloyds, another of our investments, has risen nicely lately with our 43% holding which will rise to 65% shortly. So we should be happy. Not quite popping the champagne corks yet as you have to remember that when we bought 73% of RBS for around £37bn, the bank was worth around £5bn in its entirety according to the stock market. So there is a good long way to go yet before we get our money back.

The best performing bank shares were HSBC, again not requiring our intervention. HSBC suffered a dip but nothing like the others and has risen 58% since its trough amid the knowledge that its funding gap was virtually zero whereas RBS’ was £161bn.

Lots of people have been rubbing their hands as Northern Rock is mooted to be sold later this year for around £2bn. Good news for us investors, I hear you say, as we hold 100% of its shares. Well that price would make it a 33% loss deal for us but we would still be lumbered with around £250bn of toxic assets. In fact, as we gleefully think we are on the mend, the isolated stinking debts of all the banks we have a share in are collectively around £1.3 trillion. So while they may actually earn profits now, it does nothing to bring down our potential liabilities.

So as we digest the bullish feelings of the City elite we all chipped in to save and who are now salivating over making more millions on the bounce at our expense, and notwithstanding the round of results still to come from these banks where there may be some more bad news, let’s get a modicum of perspective. While our pensions may have just recovered a bit, our tax bill is growing nicely. In fact, any upside on those bank profits will go straight into executive bonus packages as we, the taxpayer, forgot to ask for the right to veto them when we bought them.

Champagne all round, the City is back in business, doing what it does best – talking bull and making money.

Small Businesses - The Forgotten Masses

Mighty big talk came from the newly manufactured peer, Lord Mandelson, regarding the great steps he was taking with banks to guarantee loans for small businesses. Just how much of that mighty big package of help that is filtering through is pretty minimal, it looks like.

Over the weekend, it was reported that banks are allowing around 120 small businesses go bust every day while large scale ones get bailed out completely. The so-called Enterprise Finance Guarantee (EFG) was set up by the Government with £1.3bn capital in the form of loans or overdrafts which would be 75% guaranteed by the Government. If you have a small business like mine, then my overdraft has been cut back and last year I was not allowed to flex it for a single month even though I had a capital bond with the same bank worth over 5 times the lending required for just a 30 day period.

Banks did not seem to want to lend even when you had cash and security at the very same branch.

The Scheme That Never Was

As with so much lately, the EFG was set up as a knee jerk reaction to the recession and credit crunch and as a sound bite to ward off criticism and show that the Government cared about small businesses while wasting billions on larger ones.

As has been the case with most things, it was mighty big talk without any action to show for it.

36,000 businesses will go bust this year according to BDO Stoy Hayward and that will cause the loss of over 150,000 jobs, and many affected by this squarely blame the banks. One firm of accountants claims that every single one of his clients who applied for a loan under the EFG had it turned down and that he had not yet heard of any firm that had been granted such a loan. Often the whole thing does not get past a first meeting with the bank.

A Sunday Times report shows that in fact many of the loans granted under the scheme are not new money at all but merely the transferring of an existing overdraft or loan facility with a small top up. In other words, banks have used the opportunity to protect current loans and get a 75% guarantee on them by transferring old loans under the scheme and making them qualify by offering a small bit more.

As has been the way in the this whole banking fiasco, it is the implementation of talk and plans which have lacked precision and diligence and then the Ministers involved either blame those below, the banks or anyone else they can think of when the schemes go wrong.

It is the attention to detail of such plans and their execution that determines their success not the assertive soundbites and words used at the journalistic launches.

The Real Facts

As this week Lloyds are planning to pay hefty bonuses to staff and executives after being bailed out by the taxpayer and despite our owning a decent chunk of them, it really does beggar belief that banks like Lloyds are letting businesses down.

The bail outs and daft schemes have had little or no effect other than to preserve the status quo and small businesses have been just left with the echoes of words from the likes of Mandelson to pull them through.

What companies need is action on these ideas. Banks should be compelled to instantly review cases for loans and answer them in a minimum period of time, certainly less than 6 but ideally 4 weeks from initial contact. Realistically, no small business puts in such a request unless it is urgent so there should be a mechanism to get bridging loans in as soon as the request is made.

To add to this, many businesses who apply for such loans are still being asked for security like their homes, yet up to 75% of the loan is being guaranteed by the EFG scheme - banks should step up to their side of the bargain and take the 25% risk themselves. In order to get faster decisions, the local branches should be given more authority to make the calls on these loans - the faster, the better. Too often such requests are lost in the system and people who know nothing of the business or bank relationship make the decisions in the ether.

Bank terms are changing rapidly and there should be far more notice for small businesses and more proactive help. Too often the first we know of change is after the first new statement is received.

Finally, it would really help if people like Mandelson and bank managers show more knowledge and understanding about the plight of small businesses. Soundbites are only a starting point - to make this work there has to be a flow of commitment and understanding down the entire process chain so that at each step and for each decision made, the goal is understood and the sympathy lies with the business concerned.

The speed at which this recession has struck is frightening and while I have pleaded in this blog with executives to plan ahead, too often businesses can turn from buoyant sales with upward growth to downward with 20 to 30% declines. For small businesses, it is hard to legislate for such incredible swings even with good forethought and so banks have to understand how usually good businesses can need a short term support to hold onto until the business can once again stand on its own two feet.

That will need proper execution of the EFG Plan and its failure flows right to the top. It's time to stand up and be counted for ministers and banks managers as business leaders will not forget how they let us down.