Lloyds Banking Group’s executive director of wholesale banking, Truett Tate, has defended alleged “rewards for failure” for a team of 20 Bank of Scotland dealmakers, closely associated with the reckless lending practices of the subsequently state-rescued bank.
In July this year, Lloyds, which bought HBOS in September 2008, announced the sale of Bank of Scotland Integrated Finance, its debt-laden private-equity portfolio, to Coller Capital, based in Cavendish Square, London, for an enterprise value [market capitalisation plus debt, minority interest and preferred shares] of £480 million. The deal has now completed.
The bank said the team responsible for assembling the troubled portfolio – whose equity value had plummeted from a reported peak of £1.4 billion – was transferring to a new Coller vehicle, Cavendish Square Partners, under TUPE rules, leaving their pay and pension arrangements intact. In a BBC documentary to be broadcast tomorrow, Tate insisted it is “a good deal for taxpayers”.
Describing how the deal was done, Tate said: “Taxpayers should say to me, Truett, who can give us the best return? So I went to an outside company, Coller, one of the most respected private equity firms in the world and said: ‘Your choice. Pick who you think will get the most value and he said that team will give the taxpayers of this country the most value for that investment and you know what [they picked his team]?’ I said I agreed with him because I want to get the most value for the taxpayers in this country.”
But critics of the Coller deal have disputed Tate’s claims, suggesting Lloyds Banking Group and the UK taxpayer are losing out from the deal, given the bank has shouldered writedowns and impairments on the loans extended by HBOS to fund the team’s buying spree. They said if the loans had been called in, the portfolio’s equity value would be zero. By contrast, critics suggest the team responsible for the HBOS unit’s financial disaster, led by former integrated finance managing directors Graeme Shankland and Mark Powell, stand to profit handsomely from their own former recklessness.
Bank of Scotland integrated finance acquired or part-acquired a string of trophy assets – including Conran Restaurants, David Lloyd Leisure, Keepmoat, TM Lewin, Martin McColl, Production Services Network and Vue Cinemas – at the peak of the credit bubble. Private equity sources claim it paid over the odds for some of these assets.
One former BoS executive told the Sunday Herald he was “outraged” that Shankland and his team should have had a hand in marking down the valuations on the integrated finance portfolio last year, after HBOS was sold to Lloyds, while securing themselves a comfortable berth with Coller.
He said: “Why do the guys who made such a hash doing the deals in the first place and of managing these assets – which is self-evident for the massive provisions you can see in the accounts – be allowed to benefit from their own multiple failures?
“They’ve cost the taxpayer a fortune, people have lost their jobs, they’ve taken down a bank, but because they’ve set a low hurdle rate, which is a fraction of where it was to start with, they will still be able to personally make millions of pounds. And the ultimate loser is the taxpayer.”
The FSA declined to comment on whether regulatory approval had been given to the Coller deal. Nor would it say whether it had satisfied itself that Shankland and his team had not influenced the valuations of the businesses that Coller is buying. A Lloyds source pointed out that the portfolio was sold for more than book value and said Shankland’s team will not qualify for pay-outs until Lloyds and Coller have been paid back their investment plus a significant additional return.
The interview with Tate is to be broadcast on BBC1 tomorrow at 7.30pm in Trust Me, I’m a Banker, which sets out to discover changes in bankers’ behaviour two years on from the bailouts.
This article was published in the Sunday Herald business section on October 10th, 2010. For more info on the BBC documentary “Trust Me I’m a Banker” click here