Comment: Ignoring Healey, Osborne keeps on digging

George Kerevan
George Kerevan
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LABOUR’S old warhorse Denis Healey first gave the sage advice that a politician in a deep hole should “stop digging”. A week on from getting rid of Stephen Hester, our current Chancellor is still digging.

With RBS’s shares down after Hester’s departure, George Osborne muddied the commercial waters even further by using his annual Mansion House speech to declare he “will urgently investigate” the case for breaking-up RBS into two separate entities: one for the healthy assets and one for the toxic loans.

Cue a lengthy battle over which assets go with which entity. There is an intellectual case for separating RBS into a “good” bank and a “bad” bank. But, as Osborne has pointed out, the time to do this was five years ago.

Even if you consider it germane now, the last thing a Chancellor should be announcing is an “investigation”. Just do it! Under Hester, RBS has been through a mammoth restructuring, shedding some £900 billion of non-core assets. Splitting the bank now means starting over.

It also means dividing up the bank’s capital reserves. That could have the perverse effect of causing increased capital strain in the good bank, resulting in reduced lending.

Osborne also pontificated: “The government has no strategic interest in RBS owning one of the largest regional banks in the US.” Irrespective of the merits or demerits of selling off Citizens Financial, here is the Chancellor dictating RBS policy at a City dinner.

What prospective CEO would want to be Osborne’s poodle? Given this, RBS may have to find its new boss internally. On the other hand, as he showed with Mark Carney’s appointment at the Bank of England, the Chancellor likes to pick his own minions.

Flying in the face of the financial evidence

It is Paris Air Show week, the world’s biggest aviation market. Ryanair’s Michael O’Leary turned up to announce the purchase of 173 Boeings worth £10bn. O’Leary has made so much money for the company that Ryanair also announced it is returning nearly £1bn to shareholders.

Compare this to the woes of Flybe, which has just reported a pre-tax loss of £40.7 million. It also made a loss (£6.2m) in 2011, suggesting a deep malaise. In response, the company is selling its 25 Gatwick slots (serving half a million passengers) to EasyJet for £20m. Effectively, Flybe is cannibalising itself to stay aloft.

For years it has been neither fish nor fowl: neither low-cost nor a full service airline. It remains to be seen if it can transition to a genuine low-cost outfit. Sticking with older aircraft, for instance, is not actually a saving, as maintenance costs are higher. Hence the reason O’Learyconstantly buys new planes and sells off older ones.