Scrutineer: Public gets pound of flesh

Published on Monday 13 October 2008 21:53

RBS 65.70p - 6p Clinton Cards 28p -6.5p

THERE is obviously a price to be paid for the government becoming the effective underwriters to the survival of some of our banking giants. Yesterday, part of that price became apparent as it was announced that Sir Fred Goodwin (pretty soon) and Sir Tom McKillop (next spring's AGM) are stepping down at Royal Bank of Scotland, while Andy Hornby and Dennis Stevenson will do the same at HBOS after it is taken over by Lloyds TSB.

Momentous times and momentous events, then, at two of Scotland's banking icons, with a complete changing of the top guard.

Completing Whitehall's night of the long knives, Johnny Cameron, head of RBS's once free-wheeling wholesale banking markets business, is stepping down from the board. That must make it very unlikely he will stay long under Stephen Hester's new regime at RBS.

For thrusting executive bosses in particular, the trade-off for the "nationalisation" bailout of the Royal and Lloyds/HBOS must feel brutal.

But the public would not settle for anything less. People, understandably, want blood on both sides of the Atlantic for risky and greedy lending (risky regarding the loans and greedy for the related bonuses) that have brought us to this extraordinary state of affairs.

Theoretically, the taxpayer could be left with 60 per cent of RBS and more than 40 per cent of a merged Lloyds/HBOS. For that sort of exposure, the government obviously wanted to cover all the bases to make such a dramatic intervention palatable to a public justifiably disillusioned with British banking's much-vaunted "prudence".

If the recent cataclysm is the result of prudence, how bad would it get if the banks ever decided to get reckless?

So, there is plenty of noise, and no doubt quite a lot of substance, about this once-in-a-lifetime state intervention being the effective death-knell of the banking bonus culture.

With government-approved directors on the boards of RBS and a merged Lloyds/HBOS, it is likely that meetings of their remuneration committees will be far less a "to attract, motivate and retain top talent" rubber-stamp than they were in the halcyon decade before the industry hit the buffers.

There are also clear public-pleasing strings attached to the bailouts, such as no cash bonuses being paid to directors at the relevant banks and mechanisms to ensure small businesses and homeowners will not suffer by the restructurings.

The banks are busy saying they were planning to do this anyway in our frozen mortgage market and a business sector just going into a recession, but it is reassuring to have it there in black and white at the behest of the government.

Meanwhile, if Barclays succeeds in raising a further 6.5 billion privately, without recourse to government cash, then only it and HSBC will be left as independents among the Big Five that have dominated British banking.

That is a sobering thought. The big questions now are how hands-off the government will be in allowing its "protgs" to conduct their banking, and how long the state will retain its 37bn worth of stake?

But those are for another day. For now, the British banking sector remains uncertain – but a lot less dicey than it appeared before yesterday.

SOMEONE turned off the tap," observes Clinton Cards' head of finance, Barry Hartog, referring to trading (or rather the lack of it) since the start of July, writes Scott Reid.

After swinging to a full-year loss and slashing its dividend payout, the greetings card retailer said sales over the past nine weeks were down 5.2 per cent and 2.5 per cent at its Clinton and Birthdays brands, respectively.

Reaction from the City was predictable, with shares tumbling 19 per cent. Profits in the new financial year are unlikely to top the low double digits.

To address its cost base, Clinton plans to cut jobs and close stores, while sticking with its twin-brand strategy.

That could see the UK store portfolio fall below 1,000 from the current 1,051. During the past year, Clinton has drawn the shutters down on 21 branches.

"Some jobs will go and we'll reduce our capex and will have to get sharper at store level," is how Hartog puts it.

The group's performance during the countdown to Christmas will be crucial. However, the fear is that the stock has further to fall and, subsequently, investors should give Clinton a wide berth.

Time for a "Happy Credit Crunch" product line, perhaps?