Britannia Radio

The latest disaster to hit Britain is the further enormous loss - way 
above expectations - at the HBOS element of the new Lloyds Banking 
Group.    It would seem that Lloyds TSB would have been able to 
continue on its own had it not been pressurised to 'rescue' HBOS.  
That pressure at the time was said to have included some from the 
personal close relationship of the then chairman wioth Gordon Brown.  
~As a result Lloyds-TSB did not unearth the can of worms it was 
expected to swallow.

As a commentator this morning put it - "This merger was rushed 
through without proper thought or scrutiny. This is the result: a 
complete dog's breakfast & the taxpayer being told they will have to 
bail out the resulting superbank. The Govt should have told HBOS 
savers that they would guarantee their investments and then let it 
fail."

But the government's policy has been to save the banks at any cost.  
We are gradually learning what that cost is to be, which we will have 
to pay until long after many of us are dead.

xxxxxxxxxxxxxxx cs
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JOHN REDWOOD's DIARY    14.2.09
Another bubble?
Published by John Redwood

Alan Greenspan became a popular figure. Everytime there was the 
threat of a downturn or a suggestion the US should draw in its belt, 
he slashed interest rates, created more money and allowed the good 
times to go on rolling.

More recently he has become less popular. His successor, fighting to 
deflate the bubble his policies helped create, has attracted some 
support for the view that Mr Greenspan overdid the bubbles   It was 
Mr Bernanke's decision with colleagues to deflate the bubble and 
restore some balance in the US economy that helped create current 
conditions. In the UK the Bank of England followed a similar course 
with its interest rate strategy over the last ten years, preferring 
always to inflate the housing bubble than to correct the imbalances 
until they became so gross around three years ago.

When governments saw the results of their monetary authorities new 
austerity they moved from "teach them a lesson" to "let's panic". 
They now want the authorities to try to puff up a bubble again. In 
the UK the governemnt thinks one more puff will enable them to emerge 
from the electoral hole of the opinion polls, and in the US  Mr 
Obama, only used to being popular, thinks one more bubble could make 
him a hero just as Mr Greenspan used to be.

That's why they want to support rather than mend the banks. That's 
why they are committing unbelievable sums of money to underwriting 
business that has gone wrong, more large sums to "reflationary 
packages" and still more money to what they hope will be new lending. 
They are gambling the credit worthiness of the state on the hope that 
short term it will spark things back into life.

I have news for them. The way out of this mess is not another bubble, 
but working through all the past excess and winding it up, paying it 
off or netting it out with as little loss as possible. The private 
sector banks should take the hits, not the taxpayer. The Central 
banks should stand behind the banks that have a solvent future, and 
should force the pace of making the larger banks solvent in the long 
term by insisting they raise more of their own capital by asset 
sales, cost reductions and other marks of better management. We can 
neither afford to lose a major bank, nor afford to feather bed it 
with state capital. If in need the authorities should lend short term 
money against promises of better management and against what security 
they can find.

The loss of most of the £37 billion the UK government foolishly 
tipped into three banks here in just two months should be a warning 
to them. The rate of loss is too high. They should have blocked the 
LLoyds/HBOS deal, as advised here, so LLoyds was untainted by all 
this. They should have required substantial change at HBOS for any 
loans they asked for from the state to tide them over. They should 
have demanded that RBS wind up, sell or otherwise reduce the extent 
of its risks in the investment banking side of its activities. We 
have a large bank attached to a medium sized government. The bank is 
in danger of capsizing the public finances.
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Today, Radio 4 at 08:59   14.02.09
Lloyds takeover of HBOS "a disaster", says Ken Clarke

Kenneth Clarke, Shadow Business Secretary

Mr Clarke said that the acquisition of HBOS by Lloyds had been a 
disaster for the bank and questioned the government moves to push 
through the merger.

"They could have been kept separate and what on earth was the point 
when so much public money was gong, in to waive competition rules?" 
he said.

He added: "Had the government decided there was no point in forcing 
this shotgun marriage through Lloyds-TSB, their shareholders and 
everyone concerned with it might be in a better state of mind"

However Mr Clarke accepted that had the government not stepped in 
HBOS "would have been nationalised long ago".
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THE TIMES   14.2.09
Lloyds Banking Group rocked by shock losses in HBOS
Embarrassment for Brown as Lloyds shares slump

Patrick Hosking, Banking Editor, and Philip Webster, Political Editor

Taxpayers could have to spend billions bailing out the banks again 
after massive and unexpected losses were disclosed by Britain's new 
superbank.
Shares in Lloyds Banking Group fell 32 per cent to 61.4p yesterday 
after it reported losses of £10 billion in HBOS, making it worth far 
less than thought when it was taken over in November.

The news, a huge embarrassment for Gordon Brown, who helped 
[personally -cs]  to broker the deal, triggered speculation that the 
bank will have to come back to the Government for more capital.

George Osborne, the Shadow Chancellor, suggested that the cash pumped 
in for the first bailout in October was "all but wiped out" by these 
losses. He said: "HBOS bankers like James Crosby bear a heavy 
responsibility, but so too does his ally Gordon Brown who created the 
system of bank regulation that allowed this reckless risk-taking to 
run amok."

Alistair Darling, the Chancellor, defended his role in helping to 
push through the takeover, saying: "We had a matter of days and then 
hours to stop the entire banking system collapsing."

The timing of the profits warning to the Stock Exchange was 
particularly embarrassing the Lloyds chief, Eric Daniels, who gave no 
hint of it three days ago when he was grilled by MPs on the Treasury 
Select Committee.
Lloyds said that it had only just appreciated the scale of the 
problem, having completed the purchase on January 19. The losses were 
£1.6 billion worse than Lloyds expected in November when it gave 
shareholders its reasons for buying HBOS.

The Government put £17 billion into the banks just before the deal 
was completed and owns 43 per cent of the enlarged Lloyds. That stake 
is now worth £8.3 billion less, a loss equivalent to 2,5p on income 
tax. The brunt of the losses were incurred in HBOS's corporate 
division, which was investing in property-backed deals long after 
other banks had stopped. It lost £7 billion. Peter Cummings, [paid 
more than his boss James Crosby -cs] who headed the division, is said 
to have left in January with a payoff of about £660,000 and a £6 
million pension pot.

John McFall, chairman of the select committee, said its inquiry 
showed that due diligence checks should be at the centre of any 
takeover. Mr Daniels had admitted that he had not been able [what 
does "nor been able" mean ?  Surely that was a good enough reason not 
to  buty HBOS ? -cs] to conduct as much of it as he would have liked. 
"That is now shown to be a massive understatement," Mr McFall said