Tuesday, 14 October 2008

Government as shareowner

Here's a great line from a journo mate of mine writing in Financial News (you'll need a sub to read the whole thing) that hammers home the point about the failure of shareholders as owners -

"The Government achieved the ousting of RBS chief executive Sir Fred Goodwin, who took advantage of lax market conditions to purchase Dutch bank ABN Amro at the top of the market. Despite his mistake, shareholders had failed to achieve Goodwin’s ousting, despite consistently grumbling about the deal. You cannot get a better example of a Government forcing a solution on a market that cannot achieve results on its own."


And here's a bit of commentary from the TUC in the same territory -

In RBS at least, the Government is now the majority owner, and in other banks it will be by far the biggest shareholder. It now has major responsibilities as an owner that cannot be passed to an arms-length body. The lack of proper control by the owners of banks - shareholders and investment funds - has been a key cause of the crisis.

The banks today have received as much cash as the annual defence budget. Tax payers will want to see big changes in return. It is not enough to limit cash boardroom bonuses for a year and accept a few ritual resignations. There cannot be big pay-offs for those who go, as was the case with Northern Rock. There needs to be a wholesale review of bonuses and pay throughout the upper levels of these banks, not just a year long ban on boardroom cash bonuses.

5 comments:

Paulie said...

Tom,

A few idiot questions;

Does any of this change the way that Northern Rock was nationalised rather gingerly?

Surely, now that the other banks can't moan about unfair state competition, we (er.. you and I *gloat*) could hang on to Northern Rock, trade more competitively (attracting depositors) and give the taxpayer the dividend over a longer period that was previously envisaged.

Whaddaythink?

Tom P said...

I've been thinking the same thing. The level of state 'interference' in RBS & lloydsTSB/Hbos arguably goes further than that in NR, which might open up the possibility of doing something interesting with it.

but... the Govt will be under a lot pf pressure to stick to the original plan from the Tories, the City etc. I get the impression from a few policy twonks that there is/was a moment where everything is/was up for grabs but it may even have already passed. and being a bit sceptical I wouldn't be surprised to see a return to something not too dissimilar to the way things were.

that said, there is nothing to stop us pushing for a real break with the past.

I think I've hedged my bets sufficiently there!

PS thanks for the very kind plug the other day!

John Gray said...

Tom

another fan!

http://nevertrustahippy.blogspot.com/2008/10/credit-where-its-due.html

Paulie said...

I'm sorry Tom but...

"...the Govt will be under a lot pf pressure to stick to the original plan from the Tories, the City etc."

Surely, for at least a brief period, the tories and the city are, morally, our bitches now? Isn't it kinda traditional that when you're proved to be stupid you shut up for a day or two?

Tom P said...

Yeah they ought to, but I don't underestimate the ability of the City to start re-asserting itself pretty quickly. It all depends on what actually happens next.

If things get worse then their authority will disappear. At the moment I think they are only on the naughty step.

But having said all that, this is only the case if Gordo etc allow things to develop in this way. They could continue to try and lead the situation rather thna react to it.