The Bankwatch

Tracking the consumer evolution of financial services

Losses at RBS and Lloyds highlight hamstrung government owners

While Lloyds has an operating profit of £2.7 billion, losses from mis-selling of payment protection insurance, new writedowns on loans made by HBOS  and restructuring costs mean the bank will suffer a loss of £3.5 billion.  This would normally be just another bad bank story, but the visibility surrounding Lloyds and RBS which demonstrates similar losses serves to highlight the payment of bonuses yet again. 

£4bn losses for bailed-out banks | Sunday Times

Nonetheless, he is due to receive shares worth about £660,000 that were awarded as part of the £2m bonus he was handed for his 2010 performance. Senior executives will share about £11m from deferred bonuses over coming weeks.

Hester is expected to justify the pay deals by outlining the internal targets the bank has been working to since he took over late in 2008. The bank has sold assets worth hundreds of billions of pounds, sharply reducing its dependence on wholesale funding.

Bonuses are really not the issue per se.  The issue of how these government owned banks are being managed is.  If these were normal times, the shareholders would insist on appropriate governance and direction from the board.  However as Governments are really not very good at this, and find themselves hamstrung by politics.  I had predicted that government would be taking the opposite action from what we see, by controlling these banks and turning them into utility like bureaucracies.  For now the opposite is happening, apparently in some kind of fear that the City is some kind of fragile, crystal vase that will shatter if they do anything. 

This is a situation where it needs to be recognised that there is a difference between over-regulation and owner intervention.  The former is a battle ongoing with the Euro countries and France in particular.  That is not the issue in regard to the management of RBS and Lloyds.  It is also not a matter of employment contracts negotiated by the former Labour government. 

It is time to set politics aside and act like owners with regard to Lloyds and RBS.  It will be better for those banks in the long run to force them into properly profit motivated organisations that banks ought to be.

Written by Colin Henderson

February 19, 2012 at 03:03

Posted in Uncategorized

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