A celebration, but no party; a relief, but no escape; a past left behind, but a ghost to haunt the future: welcome to the world that is Scotland’s independent banking sector – what remains of it.
RBS remains mired in write-offs, provisions and litigation. But we can mark at last the turning of a page for Lloyds Banking Group. It has now fully and formally returned to the private sector with the last of the government’s holding of shares – 43 per cent at the peak - sold off.
Better still, there’s a profit – nominally at any rate. Eight years after the taxpayer pumped in £20 billion to save it, the rescue has ended with a profit of some £800 million once dividends are included.
So: a final closing of this troubled book, with everything squared off? Not quite.
For there’s a key player missing, one represented only by a ghost. Scotland has lost a once thriving and widely respected institution: the Bank of Scotland.
It’s still there, of course, but as a subsidiary of Lloyds Bank, and, before that rescue take-over, a shadow institution within the merged Halifax-Bank of Scotland combine.
We can still see the icons and the branch facias and the branded credit and debit cards. But it’s a spectral presence compared to the independent and respected stand-alone Bank of Scotland as was, with its separate quotation on the Stock Exchange, and tens of thousands of shareholders.
Now we have much to be thankful for in the way that this worst crisis for the UK banking sector finally played out. As a constituent part of the Lloyds Banking Group, customers and depositors were spared a total financial wipe-out. It has taken a state subvention and nine years of cutbacks, write-offs, branch closures, staff shedding - some 57,000 jobs lost in total - and not least the settling of £17 billion of Payment Protection Insurance (PPI) to return to healthy profit - £4.3 billion in its latest financial year - and a resumption of dividend payments.
“Back to normal” it all seems. But if it is really back to normal, then the retention by Lloyds of Halifax Bank of Scotland, acquired in the most abnormal of circumstances, comes into question.
How Lloyds came to acquire HBOS is still a matter of huge controversy. This shotgun wedding was not only a product of a historically unique set of circumstances. It was also made possible by a frantic suspension of competition policy rules as Gordon Brown, then prime minister, was desperate to avoid HBOS and all its liabilities and bad debts becoming a charge on the government.
Brown personally brokered the deal, though an official was reported to have said at the time, “it is not the role of a Prime Minister to tell a City institution what to do”. Hmmm. He was able to rely on support from long time Labour supporter and Lloyds chairman at the time Sir Victor Blank. The merger eventually cost him and chief executive Eric Daniels their jobs. Ironically, both are due to give evidence in an upcoming court case brought by Lloyds shareholders who claim they lost out as a result of the doomed merger.
All spilt milk now, it would seem. The Lloyds-HBOS deal was concluded in January 2009 with 75 per cent of HBOS shell-shocked shareholders voting in favour, half of deeply unsatisfied Lloyds TSB investors approving the deal on the stern recommendation of the board - and, of course, UK government dispensation with regard to competition law.
It is hard to imagine a more fraught and disputations set of circumstances.
But now that those crisis circumstances no longer apply, and much store is now placed on tighter banking regulation, the rationale for continuing with this suspension of competition policy is worthy of question.
After all, as Lloyds chief executive António Horta Osório told shareholders at the annual meeting last week, with the state’s £20 billion now repaid, the bank is one of the “strongest banks” in the world.
So it is legitimate to ask, now that we are in as near to normal circumstances as we can get, whether Lloyds should now continue to retain HBOS and more specifically Bank of Scotland.
Many in Scotland would love to see the return of an independent, stand-alone Bank of Scotland – and as it was before that fateful merger with the Halifax. How ironic that what were in previous decades two conservatively run institutions came to founder on an aggressive, break-from-the-past management with reckless corporate lending in the commercial property sector while its residential mortgage business struggled to maintain an unsustainable pace of lending.
A Financial Services Authority investigation found that the HBOS board had “failed to instill a culture within the firm that balanced risk and return appropriately and it lacked sufficient experience and knowledge of banking”; there was a “flawed and unbalanced strategy and a business model with inherent vulnerabilities arising from an excessive focus on market share, asset growth and short-term profitability”; the executive management “pursued rapid and uncontrolled growth of the group’s balance sheet… this led to an over-exposure to highly cyclical commercial real estate at the peak of the economic cycle” and that “the underlying weaknesses of HBOS’s balance sheet made the group extremely vulnerable to market shocks and ultimately failure as the crisis of the financial system intensified”.
That deeply flawed management has now gone. Peter Cummings, former head of corporate banking at HBOS who bankrolled corporate lending and the corporate stars - Sir Phillip Green, Sir David Murray, Sir Tom Hunter - and took equity stakes in major companies on behalf of the bank, was handed a £500,000 fine by the Financial Services Authority and banned from future senior financial roles. Andy Hornby, the former chief executive of HBOS and Lord Stevenson, its former chairman, have also long gone.
But even if BoS under new management could be unscrambled from those two mergers, is there a public appetite for the return of an independent, standalone Scottish bank?
Scottish pride might answer with a resounding ‘yes’. But public attitudes to banks have changed much since the crisis. No-one wishes a repeat of the circumstances that led to the downfall of our two biggest financial institutions. We are more questioning of the reliability and staying power of small banks; customers may well prefer the safety of size after the traumas of the past ten years; and there would be the risk of another predatory take-over.
In a previous era, bank loyalty rested heavily, not only on an efficient and competitive service offer, but also on personal relationships. But what is the pull of that loyalty now in the era of centralised corporate lending, the near-disappearance of the branch manager with discretion, and the relentless onward march of internet and iPhone banking and credit cards activated by a tap?
Logic and sentiment here might suggest a return to status quo ante. But the world has moved on. And looking back, the past is truly another country.