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After the deluge

Douglas Fraser | 16:14 UK time, Saturday, 8 August 2009

You wouldn't want to be a Fred Goodwin lookalike, would you? Not if you value your personal safety. But what about a double for Stephen Hester? I was outside the Royal Bank of Scotland's London headquarters this week, where I was mistaken for the chief executive.

There's frankly not much similarity, but if I look that rich and powerful, I'm certainly going to ask for a ´óÏó´«Ã½ bonus package to match that status. And the £1.2m basic salary wouldn't be so bad either.

I was there to meet the bank boss for an interview. And duly quizzed on public fury about bank bonus culture, his response was to empathise with the common man. His first annual bank pay was £3000, he pointed out. That's less than he earns each day now - though, no, he didn't point that out. His first job, he said, was on a production line, packing Polo mints.

The point of this was to show the breadth of his experience, but it struck me that there's one striking similarity - just like a Polo, the Royal Bank of Scotland could also be described as a mint, of the money-making variety, which has had a very large hole in it.

Anyway, Stephen Hester was part of a mixed week for Britain's banks, from Barclays bonanza to Lloyds' losses - a Jekyll and Hyde, yin and yang, Donald and Selina sort of week. It's not just that some banks have done well, and some not. It's also that some banks are doing obscenely well and spectacularly badly at the same time, depending which bits you look at.

Of those largely owned by the Government because of their well-publicised problems, Lloyds threw the kitchen sink into its losses, blamed the Scots who ran the Bank of Scotland Corporate division as if the bank had a licence to print money - which, in one sense, of course it does - and then it promised things are about to get better.

The Royal Bank of Scotland said its half year figures were OK, but warned of grim times ahead, this year and next. The Lloyds' cup was half full: the Royal Bank's half empty.

The markets meanwhile were behaving as if the boss was on his Mediterranean yacht while the summer intern had hacked into the online trading account, and was making merry with it.

Stocks were buoyed by good indicators on housing and home prices, manufacturing and improving confidence. But then the mood changed. I was in London on Thursday when a dark ominous cloud descended on the humid city, deluging it in warm rain just as the Bank of England was flooding it with hot money - some 50 billion quid. The Old Lady's message was clear: don't think we're over this yet. This economic patient still needs shock treatment.

Fifty billion - a sum so large it's hard to comprehend, but the amount pumped into the economy so far is a bit like bolting the productive capacity of another Scotland onto the British economy. The new money is like adding Wales and Northern Ireland as well.

And where's it all gone? Business says it's not seeing the benefits in lending. A respected Financial Times columnist compares it to water being poured into a plumbing system that's either clogged or broken. So far, she suggested, it's sitting in a sort of stagnant pool of liquid cash. But beware of backflow as more is poured in. This could get messy.

Amid all these mixed signals, some seemed to think this was the week the economy turned. By week's end, it felt more like it was bouncing around the bottom. It will surely recover, but it's uncertain what shape that recovery curve will take: a sharply upward V, a hesitant U, a double-dip W, or even a VW - you could call that the Beetle recession.

Comments

  • Comment number 1.

    Continuing the glass metaphor (half empty/half full), I still get the impression that liquid is being poured in [at the top] without first bunging up the hole near the bottom through which it is almost as quickly draining away, evaporating into clouds of nothingness in the heat of the financial services sector.

    Perhaps the most alarming factor in the banking meltdown is that even those with access to the most detailed (and specific) information continue to profess ignorance as to the overall magnitude of the difficulties in which we find ourselves.

    Are they being disingenuous (if we knew the true extent, we would lower our heads, proclaiming "We're all doomed!) or is the culture of concealing bad news so endemic to bonus-driven banking salaries that no one knows where all of the bodies are buried?

  • Comment number 2.

    Bet you wish his paymasters would also make the same mistake !

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