19 July 2010
The coalition government of David Cameron and Nick Clegg is reverting to type where appointments to UK Financial Investments, the vehicle established by the previous government to hold the public’s stakes in bust lenders including RBS and Lloyds Banking Group.
Most of the people who work for this hybrid investor are “chinless wonder” former investment bankers. Despite Treasury spin about UKFI being “Fidelity with nukes” their approach to managing and husbanding the public’s stakes in the UK’s nationalised banks is akin to that of a Victorian absentee landlord. As long as the banks turn in a profit and can be re-privatised quickly, they don’t really care how this is achieved.
This became crystal clear on March 9th, 2010 when UKFI’s chief executive, Robin Budenberg admitted to the House of Commons Environmental Audit Committee that his organization doesn’t given a damn if the banks it owns make their money in unsustainable ways, for example by funding environmentally destructive energy sources such as tar sands. (A full video of that session, can be viewed here)
Jaws dropped among the members of the Environmental Audit Committee that day, including that of its chairman Tim Yeo, when Budenberg admitted that UKFI is among the most passive of investors, whilst conceding that all it really cares about is the short-term performance of the RBS and Lloyds share price!
Watching Budenberg and his colleague Sam Woods at the committee hearing was a depressing experience. The pair seem to be throwbacks to the Friedman-esque 1980s, before awareness of corporate and social responsibility even existed — and short-term financial performance was all that mattered. In other words, the people who run UKFI and the UK government are desperately clinging to the wreckage of the myopic value system that got us into this mess in the first place.
The performance of the two in-denial dinosaurs in front of the committee made it clear that the British government has learnt nothing from the banking and financial crisis, and underlined the scale of the opportunity missed by Gordon Brown when he nationalised the UK’s failed and failing banks without requiring any behavioural or structural changes in 2007 and 2008. As Yeo made clear, speaking to Bloomberg afterwards: “The evidence we received made it clear the Treasury was washing its hands of any responsibility to encourage the state-owned banks to operate any kind of environmental policy.”
It also worth noting that, even though UKFI has been informed of an alleged £1bn fraud inside HBOS’s corporate lending department on at least two occasions, the body prefers to bury its head in the sand where such matters are concerned (even though rooting it out would, surely, be in its own long term financial interests).
After the sorry spectacle at the EAC committee, you can imagine my disgust at today’s announcement that, even under the new Cameron-Clegg coalition government which is, in some respects, more enlightened than that of Gordon Brown, UKFI has not changed its spots.
UKFI today announced it has appointed Jim O’Neil — one of the posse of Merrill Lynch investment bankers who advised RBS (alongside continental European banks Banco Santander and Fortis) to make their catastrophic €71bn acquisition of ABN Amro in 2007.
For his role in advising RBS and its consortium partners on the ABN Amro deal alongside investment bankers Matthew Greenburgh and Andrea Orcel, O’Neil trousered a bonus of some £1m. Yes £1m. The fact that the deal destroyed at least three of the four banks concerned (RBS, Fortis and ABN Amro), cost the Belgian, British and Dutch taxpayers billions and helped tip the global economy into recession didn’t seem to matter to the likes of Greenburgh and O’Neil. All that mattered was their bonuses!
At UKFI American-born O’Neil is replacing John Crompton, who has jumped ship to HSBC, as the quango’s head of market investments. His main role will be to maximize the value of the government’s shareholdings in the state-owned banks, including overseeing any future IPOs, which will necessitate the appointment of a raft of well-paid investment banks.
For this O’Neil is being paid the princely sum of £180,000 per year, plus bonus, significantly more than the salary of the prime minister David Cameron (who earns £142,500, although he also receives an MP’s salary), even though it is unlikely there will be any flotations in the foreseeable future.
One sincerely hopes that O’Neil’s understanding of value creation has changed somewhat since he helped destroy scores of billions of value for RBS shareholders three years ago!