Legacy of a botched deal

ONE suspects many people have read more than enough about the damage to us all and democracy caused by the collapse of Lehman and the financial crisis.

But it would be remiss to allow one of the most value-destructive events in British banking to go unremarked.

Yesterday was the tenth anniversary of the decision by the Government, headed by Gordon Brown, to allow the takeover of Halifax Bank of Scotland (HBOS) by Britain’s most healthy bank Lloyds.

Lloyds, then headed by chairman Sir Victor Blank and chief executive Eric Daniels, saw it as a fantastic opportunity to become the biggest player in Britain’s mortgage, current account and savings market.

The merged bank would be allowed to have 28pc of the mortgage loan market and 50pc of savings.

The deal was sold to Lloyds investors, enjoying one of the best and safest dividends in the FTSE100, as the opportunity of a lifetime.

What Lloyds directors singularly failed to do was to look under the HBOS bonnet where they would have found £10bn or more of loans which had gone horribly wrong.

In my own conversation with a senior executive of the day I was assured that not only was Lloyds acquiring a great bargain but would inherit a great young chief executive in Andy Hornby who would add retail pizzazz.

Moreover, when this paper suggested that tens of thousands of jobs might be lost, it was faced with a torrent of abuse from Lloyds.

In truth Hornby was found to be out of his depth as chief executive of HBOS.

And the job losses we reported turned out to be more than 50,000.

Other big losers were Lloyds’ shareholders. To keep the bank afloat Lloyds was required to accept government capital, the shares plummeted and never recovered. The dividend vanished and took nearly a decade to be restored.

When Antonio Horta Osorio was recruited from Santander UK he found a bank heavily dependent on short-term funds and needed to re-finance its balance sheet to render it safe. He also inherited payment protection insurance (PPI) liabilities which led to astonishing pay-outs to consumers of £18.8bn. Also hidden beneath the HBOS bonnet was a multi-million fraud at the bank’s Reading branch.

The most worrying legacy is Lloyds’s domination of both the mortgage and savings market through market shares which stifle competition and allow it to be a price setter.

In spite of two rises in the Bank of England base rate to 0.75pc, a loyal customer was recently invited in and advised to move a cash sum from current account to savings. On offer was a return of a shameful 0.2pc. That is what happens when politicians override competition rules. Bad call INTRIGUING to learn that Vodafone’s new chief executive Nick Read is prepared to sell 110,000 masts and towers across the UK and the Continent as part of an effort to reduce its debt mountain of £27bn.

It makes the legacy of his predecessor Vittorio Colao look less than impressive.

The crowning glory of Colao’s tenure was the sale of Vodafone’s minority stake in Verizon Wireless to partner Verizon for a cool £84bn in one of the biggest disposals in UK corporate history.

Instead of using the bulk of the cash to invest in Vodafone’s future, the company agreed to return some £51bn to investors in the shape of dividends and share buybacks.

The decision to return such a large amount of cash was made under pressure from big battalion investors but demonstrates the dangers of short-term thinking among managements and shareholders.

Credit may have been cheap at the time and so borrowing for investment might have seemed the right thing to do.

But interest rates were not going to remain low forever.

Vodafone may have been brilliant in finally delivering for investors – after years of goodwill laden acquisitions – but along the way neglected customer service.

Read has an unenviable task. Digital delight TIMES are a changing in retail.

House of Fraser, Debenhams et al may be horror shows, but former Primark executive John Lyttle is in line for a bumper pay cheque of up to £50m if he succeeds in raising the market value of online fashion brand Boohoo from the current £2bn to above £5bn or so over the next five years.

Wow!