We are now more than a decade away from the first real crisis of the credit crunch era in the UK. That came on the 14th of September 2007 when Northern Rock applied for and received a liquidity support facility from the Bank of England as customers queued at its various branches in an effort to withdraw their deposits. Let us have a brief smile at this from the statement back then.

The FSA judges that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book.

It was in fact so solvent that it was nationalised early in 2008! In fact we see another feature of the crisis highlighted by this from the BBC back then.

Northern Rock is to be nationalised as a temporary measure, Chancellor Alistair Darling has said.

Hence the advent of more modern definitions of the word temporary as of course the bad part of Northern Rock still is in public hands.

Royal Bank of Scotland

In October 2008 RBS joined the bail out party. From the UK Government.

The Government is making capital investments to RBS, and upon successful merger, HBOS and Lloyds TSB, totaling £37 billion.

“Successful merger” eh?! I will look at Lloyds later but let us continue with RBS which in a clear example of failure was never actually nationalised as the UK establishment indulged its fantasy that enormous investments could be at arm’s-length. Indeed as the National Audit Office ( NAO ) tells us below the government in fact ended up have to have other goes at backing RBS,

To maintain financial stability at the height of the financial crisis, the government injected a total of £45.5 billion into the Royal Bank of Scotland (RBS) between October 2008 and December 2009.

Oh and….

The government intended to return RBS to the private sector as soon as possible

The NAO also calculated a cost for the investment.

The overall investment was equivalent to 502 pence per share.

Although if all the costs are factored in the cost gets even higher.

We have calculated that if the costs of financing the intervention are also taken into account, the government would have had to sell the shares at 625 pence each to break even.

Still with the UK economy having had 4 years of solid economic growth and stock markets around the world at or near all time highs then RBS must be benefiting surely? No as the price this morning is 272 pence per share. This makes even the 2015 sale of some shares look good.

On 4 August 2015, the government sold 630 million shares in RBS (5.4% of the bank) to institutional investors, reducing government’s holding to 72.9%.1 The shares sold for 330 pence each. This represented a 2.3% discount to the market price and raised £2.1 billion.

So a loss but less of a loss than we would see now. Except let us return to a fundamental problem which is that things are supposed to be better now! Or as the International Financing Review put it back in 2012.

In some ways, however, RBS is well ahead of the pack…….RBS was forced to concentrate on what it was good at and should come out of its current (second) restructuring as one of the more efficient banks in the industry.

Still along the way some have at least managed to keep a sense of humour as I pointed out on the 30th of November last year.

Dear Dragons Den, I have 80% share. Losses this year are £8 billion. I am paying out £0.5 billion in bonuses. Would you like to invest? #RBS ( @BlueBullet January 2014).

Yesterday we saw a change in the official response as Sky News reported this.

RBS Chairman has told Sky News taxpayers will not get all of their money back from Government’s bailout following the 2008 financial crisis.

I have a real problem with this which is that any form of honesty takes about a decade. This is far from a UK only problem as foreign bank bailouts have seen their share of misrepresentations and outright lies as well. The problem is the cost as let us start with the £12 billion Rights Issue of 2012 which was based on a prospectus that must have had more holes in it than a swiss cheese. We have seen many scandals which never seem to quite come to fruition as official reports remain a secret. Yet we are forever told that the bailouts were to raise trust in the banks.

Lloyds Bank

This had a more successful effort at selling the shares previously owned by the UK taxpayer. We even got our money back although care is needed as saying that assumes the money was pretty much free which back then it certainly was not. However over the weekend other problems have dogged Lloyds Bank and we are back to bailed out banks behaving badly. Here is the Financial Times on the financial scandal that unfolded at the Reading HBOS  ( Halifax Bank of Scotland) branch.

Yet Lloyds showed little interest in finding out what happened. Not only did the bank brush off Reade’s warnings at the time, but other victims who unearthed evidence of wrongdoing were treated equally dismissively. Far from calling in the police or regulatory authorities, Lloyds maintained right up until the trial’s conclusion that its own internal inquiries had revealed no sign of any criminality.

In other words the bank was able to behave for quite a long time as it was above the law and in fact even now seems able to be its own judge and jury in spite of the fact that it is plainly unfit to do so.

Nothing else can explain the fact that the task of examining Lloyds’ conduct has been given to . . . Lloyds. The bank has commissioned a former judge, Dame Linda Dobbs, to review its response to the Reading incident and whether it complied with all applicable rules and regulations. When complete, this will not be made public and will go only to the board, with a copy being dispatched to the Financial Conduct Authority.

Simply shameful.

Barclays

Barclays escaped an explicit bailout via an investment from the Qataris. That investment provoked all sorts of issues as it appeared some shareholders (them) were more equal than others. As Reuters put it in June.

The SFO charged Varley, Jenkins, the ex-chairman of its Middle East investment banking arm, Kalaris, a former CEO of the bank’s wealth division and Boath, a former European head of financial institutions, after investigating a two-part fundraising that included a $3 billion loan to Qatar.

What could go wrong with lending to someone who buys your shares? Oh and you pay some sweeteners as well. Let us move on noting that Barclays is also in court with Amanda Staveley who arranged another share deal with Abu Dhabi. Added to this is the fact that the current chief executive Jes Staley responded to a whistle-blower by attempting to unmask the person making the claim, thus breaking the most basic tenet of how to deal with such a situation.

The current state of play is summed up by this in the Financial Times.

Two years ago, Mr McFarlane set a target of doubling Barclays’ share price. But since then it has fallen by more than a quarter. The chairman has told colleagues he aims to stay at least until the shares regain their lost ground.

The words of Lawrence Oates seem both appropriate and inappropriate.

“I am just going outside and may be some time.”

As he faced troubles with courage and self-sacrifice we watch bankers facing trouble with denial and self-aggrandisement.

Comment

The bank bailouts were presented as saving the economy but as time has gone by we are increasingly faced with the issue that in many ways “the precious” has been prioritised over the rest of the economy. The claim of building trust in the system has had Fleetwood Mac on the sound system.

Tell me lies
Tell me sweet little lies
If I could turn the page
In time then I’d rearrange just a day or two
Close my, close my, close my eyes
But I couldn’t find a way
So I’ll settle for one day to believe in you
Tell me, tell me, tell me lies
Tell me lies

Now we find that there has been some progress ( Lloyds back in the private sector and some parts of Northern Rock and Bradford and Bingley sold) but also a long list of failures. How was nobody at the top responsible for some of the largest examples of fraud in human history? We are forever being told the world was “saved” but the reality was that it was what continue to look like zombie banks were saved at the cost of ossifying our economic system. To my mind it is one of the causes of our productivity problem.

It is clear to me that this industry has seen one of the clearest cases of regulatory capture that you could wish not to see.