Mervyn King’s grenade blows up a new debate on RBS

Martin Flanagan
Martin Flanagan
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THE future of Royal Bank of Scotland is turning into a right old ding-dong. Less than a week ago, the bank’s chairman and chief executive, Sir Philip Hampton and Stephen Hester respectively, ruffled Whitehall feathers when they claimed the bank’s restructuring was advanced enough to possibly start the privatisation of the group next year.

But the outgoing governor of the Bank of England, Sir Mervyn King, weighed in yesterday with a contra-view: that the government – the majority 82 per cent shareholder in RBS – should force through a much deeper restructuring of the bank in the next year.

King, breaking sharply with central banker delphic-speak, told MPs that RBS should be split into “good” and “bad” banks to drive up the former’s lending to the UK economy, even if an accompanying accelerated privatisation meant taxpayer losses.

The governor’s outburst is unlikely to go down well with either RBS’s management, whose five-year restructuring he dismisses rather cavalierly as just a major deleveraging exercise; or Chancellor George Osborne, who recently told the same Parliamentary Commission on Banking Standards that there were “very considerable obstacles” to splitting the bank into two. Osborne is more cautious, preferring RBS’s more conventional current strategy of shrinking its balance sheet and focusing on its UK activities.

You don’t have to concur with the entire grenade King has lobbed into the RBS privatisation debate to see there is arguable logic being aired in the BoE departure lounge about the government owning four-fifths of the bank and not having more direct control.

King is really asking for more naked government control of RBS, given the taxpayer stake and the bank’s importance to the economy, rather than the fig leaf of backstairs influence through UK Financial Investments, Whitehall’s arm’s length semi-quango looking after the taxpayers’ banking holdings.

However, it must be said the timing of King’s intervention, four years into a five-year RBS turnaround, looks… a tad dilatory?

Car sales are motoring ahead despite austerity

Manufacturing faces headwinds and construction is in the mire, but the latest strong new car sales at Lookers, one of the biggest dealership chains, shows some parts of the UK economy have air in the tyres.

The company has posted a 9 per cent rise in yearly profits, following on from rival Pendragon’s 18 per cent profits jump recently, and both cited the healthy state of the UK new and used cars market.

Lookers, operating as Lomond and Taggarts in Scotland, said volumes on both new and used cars climbed a healthy 12 per cent last year. The state of the sector is often a barometer of consumer confidence. And the dial at the likes of Lookers and Pendragon suggests that while many consumers, particularly the lower-paid, have suffered from the chronic downturn, those in better-paid jobs who have weathered the storm are doing well enough to indulge large discretionary spending.

Belt-tightening lower down the consumer chain continues, however, with Lookers revealing that revenues at its parts division were flat as Britons cut back on non-essential spending on car repairs.

UK car sales remain 15 per cent below their market peak in 2007. But the latest snapshot from the forecourt shows that, austerity notwithstanding, all is not doom and gloom out there.