Patrick Hosking
Jon Moulton, the private equity chief, warned a City lunch this
week that he feared serious civil unrest. There was, he said, a 25
per cent chance of one of the 15 member countries of the eurozone
pulling out of the currency club. That, he said, would be a
catastrophic shock leading to a “far greater financial crisis” than
the current one.
The mind boggles at a financial crisis far worse than the
current one. Is such a thing possible? Even with this one, it may
already be too late to prevent social unrest, especially in
Britain, which is tipped to be one of the worst-hit countries
economically.
The spectacle of bankers
continuing to award themselves bonuses while taking taxpayer
support is feeding an extraordinary public rage and a fierce sense
of injustice. With 40,000 people losing their jobs each month, it
is a recipe for trouble, come the traditional rioting months of the
summer.
It won’t be bankers being
lynched, of course, but small shopkeepers in inner-city areas
having their windows smashed and their stock looted. The only
surprise is there haven’t already been antibanker demonstrations in
Threadneedle Street – secretly cheered on by 99 per cent of Middle
England.
The seething sense of
unfairness is almost palpable. The view that a small elite not only
caused the crisis, but continues to profit at the expense of
everyone else, is near universal. Gordon Brown’s promise of no
rewards for failure in state-supported banks is looking ever more
threadbare. We now know that Peter Cummings, the highest-paid
person on the HBOS board, headed a division responsible for £7
billion of losses last year, yet he was still given a reported
£660,000 payoff when he left in early January clutching his £6
million pension pot.
The suggestion by Lord
Myners, the City minister, that some bankers simply have no sense
of the broader society around them is getting harder to refute. To
be preparing to pay out billions of pounds in discretionary bonuses
over the next few weeks suggests an ignorance of the public mood
and a single-mindedness bordering on
sociopathic.
All this may be a bit of a side show for Sir Victor Blank and
Eric Daniels, chairman and chief executive, respectively, as they
try to stop the water slopping over the gunwales of the combined
Lloyds/HBOS. Yesterday’s bombshell was grave for the bank,
dispiriting for taxpayers and damaging to the chief executive. The
timing is acutely awkward, coming just 48 hours after he appeared
before the Commons Treasury Select Committee. MPs might have
pressed him rather harder if they had known what was just around
the corner.
The £10 billion loss at HBOS is humiliating enough, but the
admission that the losses are £1.6 billion worse than when
shareholders were asked to approve the deal in November is worse.
Lloyds got HBOS to sweeten the terms twice. With hindsight it still
wasn’t enough. Mr Daniels admitted to Parliament this week that he
was not able to conduct as much due diligence as in a normal deal.
His shareholders and UK taxpayers are now paying a heavy price for
that failure.
The 32 per cent slump in the Lloyds share price yesterday speaks
volumes about the market’s fears. Although Lloyds insists its
balance sheet is still strong, the need for additional capital will
be back on the agenda. If HBOS’s corporate loans could have soured
by £1.6 billion in the space of just a month, its surplus capital
cushion could quickly be wiped out. That could lead to full
nationalisation eventually.
Lloyds says that one of the reasons for the losses was the more
conservative methodology it uses for gauging potential loan losses.
That comes close to suggesting the old HBOS board was somewhat less
than conservative itself. If the reputation of the old guard at
HBOS, including Gordon Brown’s former favourite Sir James Crosby,
is capable of sinking any lower in the public estimation, it will
now be doing so.