大象传媒

Darling v Mathewson and Burt

• Robert Peston
• 18 Nov 08, 12:15 PM

The chancellor has this morning delivered a swingeing kick to Sir George Mathewson, Sir Peter Burt and any HBOS shareholders who may think the battered mortgage bank has an exciting future as a state-supported independent bank.

The context is the proposed takeover of HBOS by Lloyds TSB, which has the blessing of the government, but which the veteran Scottish bankers, Burt and Mathewson, wish to blow up - as does the Scottish National Party.

Alistair Darling makes a number of pertinent points which will make many HBOS shareholders curse, but may persuade them that they have no alternative but to vote for the takeover.

First, he says that "there is no automatic right of access to the recapitalisation scheme" - which is not what Burt and Mathewson have believed to be the case.

Darling says that any institution applying for an injection of capital from taxpayers "must have a sustainable business model and delivery plan" and its "funding profile, sources and mix must be clear, broad-based and sustainable."

HBOS's own board determined that it flunked those tests, that the probable alternative to being taken over by Lloyds was full-scale nationalisation - hence its decision to agree to be taken over by Lloyds TSB.

The onus is therefore on Burt and Mathewson to prove that the HBOS board is wrong, that HBOS has a sustainable future as an independent organisation - in spite of its exposure to the tumbling British housing and commercial property markets, and in spite of its reliance on funding from the collapsed asset-backed securities market.

Mathewson and Burt may be right, and the HBOS board may be wrong.

But it's courageous of them to battle on in the teeth of the conspicuous doubts of HM Treasury.

Even if Mathewson and Burt were right, Darling has given HBOS shareholders a second reason for holding their noses and backing the takeover by Lloyds.

The chancellor has consistently made it clear that the terms of the capital injection for HBOS were agreed by him on the basis of the business plan presented by Lloyds and HBOS as a single, merged entity.

If that takeover were no longer to take place, he would wish to re-open the negotiation.

What does that mean?

Today's statement from the chancellor says that even if he were to agree to inject capital into an independent HBOS, that capital would be hugely more expensive.

All the new ordinary shares required by HBOS would be priced at an 8.5% discount to the prevailing market price. As of today, that would mean that the new capital would be priced at 61p, compared with 113.6p under the current recapitalisation plan (the plan that would collapse if the deal with Lloyds collapsed).

The implication is that taxpayers could end up with a stake of more than 70% in HBOS, on the conservative assumption that the FSA, the City watchdog, determined that HBOS only required 拢500m of additional capital (which HBOS's own board fears may be unrealistically low).

Many would see a 70% taxpayer shareholding as de facto nationalisation.

What's more, the Treasury has also said that the coupon or interest rate on the preference shares which HBOS is selling to taxpayers, along with the ordinary shares, would be re-set.

The new interest rate would be based on "the rate at which eligible institutions have announced the issue of such instruments recently" - which is a pointed reference to Barclays paying 14% on the "instruments" sold to the state funds and royals of Qatar and Abu Dhabi (see this morning's earlier note).

In other words, an independent HBOS - if it were allowed to remain in the private sector at all by the Treasury - would be paying a stonking 14% interest on the prefs, not the 12% negotiated as a bank being taken over by Lloyds.

So what do you get when you crunch the chancellor's technocratic statement into a single sentiment?

Hmmm.

It looks like a pretty blunt warning to HBOS's beleaguered shareholders that they would vote down the takeover by Lloyds at their severe potential peril.

• Permalink
• Comments (0)

Barclays is a bit sorry

• Robert Peston
• 18 Nov 08, 08:41 AM

There's a slightly odd statement from .

It says that "in recognition of the extraordinary circumstances" of the way it raised 拢5.8bn from a Qatar state investment fund and an Abu Dhabi royal, its executive directors are foregoing all bonuses for 2008 and all board members will offer themselves up for re-election at the annual meeting in April.

And Barclays is offering 拢500m of reserve capital instruments - which pay a fat 14% interest rate - to (mainly) British shareholders.

But gallingly for UK Investment institutions, they're not being offered any highly valuable and desirable warrants to buy Barclays shares: no warrants are being released by Qatar or Abu Dhabi.

Some will argue therefore that the claw back for British pension funds and other investors of the 拢500m represents Abu Dhabi and Qatar getting an even better return for taking even less risk.

So Barclays British shareholders will still be feeling miffed.

The background is that many Barclays shareholders are concerned that their bank has given away far too much to Abu Dhabi and Qatar when raising the essential billions from them (and see my previous notes on this saga).

Their complaint is that if Barclays had taken underwriting from British taxpayers, which was offered by the Treasury, the capital could probably have been raised more cheaply and British shareholders could have subscribed for most of it.

The charge against the Barclays board is that for emotional rather than rational reasons it preferred partial nationalisation by a couple of Gulf states to partial nationalisation by HM Treasury.

While not formally admitting they bogged it up, a quartet of Barclays executives have volunteered to do penance by surrendering any entitlement to this year's bonus and living on gruel rations - by their standards - for a year.

For Bob Diamond, the head of Barclays Capitals - the bank's investment bank - this means getting by on basic pay of 拢250,000 (more or less what the prime minister is paid, including his salary as an MP, allowances and benefits), compared with 拢21m last year

And then there's the "back us, or sack us" gesture, with Barclays taking the unprecedented step (I think) for a British bank of putting every board member up for re-election.

This is slightly redolent of John Major's decision in the mid 1990's to offer himself up for re-election as leader of the Tory Party, in an attempt to put paid to the rebels who were trying to oust him as premier.

Which may not be a complete coincidence, since Major's main political adviser then was Howell James - who just happens to be Barclays' newish director of comms.

Major of course won that contest, but many would say that he never really regained his authority as prime minister.

Does the same fate await Barclays directors, and its chairman, Marcus Agius, in particular?

That rather depends on how the bank performs between now and the April vote. And also on whether our government starts to meddle in a way perceived as irksome by the City in the affairs of those banks such as Royal Bank of Scotland that are taking capital from taxpayers.

It is inconceivable that the entire Barclays' board will be sacked, but the judgement of executives and non-executives has been called into question.

• Permalink
• Comments (0)