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Shankland’s pig in a poke

September 6th, 2009

When Graeme Shankland was promoted to managing director of specialist assets in the enlarged Lloyds Banking Group on January 6th,  2009, there were a fair few raised eyebrows among financial observers and Bank of Scotland-watchers.

After all, it was Shankland who had helped to steer HBOS to its doom by assembling the bank’s £1.4 billion ‘integrated finance’ portfolio at the peak of the market. And that was just the supposed “equity” portion.

Shankland did this by overpaying for equity stakes in about 60 firms to which the bank was already, or about to become, a lender, creating a “pig-on-pork” model that brought risk of serious conflict. Shankland and his team of deluded dealmakers were also unwise enough choose cyclical sectors such as leisure, restaurants and hotels at or near the peak of the credit bubble.

One might have thought that Lloyds would have chosen to bring in a fresh pair of eyes to oversee the dismantling of this poisonous legacy. But no. They appointed Shankland to do it!!

One senior private equity source, who knows Shankland, told me this is the equivalent of:

“the Allies asking Joseph Goebbells to oversee the reconstruction of Germany after the second world war!! It was simply staggering!”

According to an article by Kate Walsh in today’s Sunday Times, Shankland is chancing his luck yet again by seeking to buy back some of the businesses for which he and his team overpaid with other people’s money during their calamitous days at HBOS. According to the report he has tabled a £600m offer for a portfilio that was worth £1.4bn at its peak.

The newspaper said Shankland floated this “audacious plan” to divisional heads within Lloyds Banking Group a couple of weeks ago, but that he has apparently yet to secure any finance. The paper added: “The revelation is expected to outrage the bank’s shareholders, who had to absorb the division’s huge losses last year.”

You can say that again.

I think Lloyds Banking Group’s investors are going to have to be extremely vigilant in coming months if they are to prevent current and former BoS Corporate executives from walking off with considerable amounts of booty after last year’s train wreck.

When Lloyds acquired the failed HBOS last year, the Edinburgh bank’s integrated finance unit had equity stakes in more than 60 businesses, including cinema chain Vue Entertainment, yacht-builders Sunseeker, coffee chain Caffe Nero, sports clubs David Lloyds Leisure and Conran Restaurants.

  • To read a post that elaborates on the risks of the “pig-on-pork” model, in which banks buy chunky equity stakes in companies to which they lend money, click here.
  • To read a post about other abuses inside BoS Corporate click here

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