Banking regulator goes over to the opposition

From the Evening Standard:

The man in charge of the taxpayers' shareholdings in high street banks today warned that any break-up (1) of Royal Bank of Scotland or Lloyds would damage their value. (2) "There would likely be a diminution in value," Sir David Cooksey, chairman of UK Financial Investments which looks after the taxpayers' £67 billion stake in the banks, told MPs on the Treasury Select Committee...

Budenberg also said bonuses for chief executives and key staff were vital in keeping top talent and to maintain value at Lloyds and RBS. (3) He told the committee: "I understand that it is very difficult to justify the sort of bonuses paid at these banks. (4) But if we want to sell these shares, we have to make sure the banks are able to retain top talent. We believe it is essential to maintain high quality management at these banks. They will effectively determine the outcome of value at the banks."

... The taxpayer is currently sitting on a paper loss of around £9 billion for its RBS and Lloyds shares. (5)

1) It is never clear what 'they' (whoever 'they' are) mean by 'break up':

a) Some mumble along about splitting up 'investment banking' (which is hugely profitable for the insiders, they are all con-artists and spivs, separate issue) from 'retail banking' (which is where all the losses were made, i.e. reckless lending on over-priced land and buildings). What really did for them was the inter-bank lending, whereby banks bought each other's mortgage backed crap, but that can be fixed quite simply making it illegal for banks to invest in or lend to other banks. Which is dead easy to implement and actually quite effective. No break up required!

b) Or do they simply mean splitting banks into smaller banks, i.e. Lloyds back into Lloyds, TSB, Halifax and The Leeds? If there are lots of competing smaller banks, it is in theory better for the general public, but the question is how many competing banks you need to maximise the benefit for the consumer - is it four, six, ten, twenty? Who knows? And the more competing banks you have, the more duplication there is of admin costs, which benefits nobody.

2) Hang about here. I'm a taxpayer and a bank customer. They could quite easily maximise the value they get for me qua taxpayer (to the extent that the government doesn't just piss the proceeds up the wall anyway) by e.g. merging Lloyds and RBS and withdrawing banking licences from Barclays, HSBC, Santander and Standard Chartered. But then my losses qua consumer would far outweigh the benefit I get qua taxpayer, wouldn't they (not to mention the losses suffered by investors in those other banks)?

3) The geniuses who got us into this mess? The simple fact is that running a bank isn't that difficult and does not require superstar salaries. The Nationwide has been managed rather less badly than most banks, and their entire board of directors took a total of £8 million in salaries and bonuses for 2010 (see 2010 accounts, page 66) and their 18,350 other employees were paid £584 million between them, i.e. an average of £32,000 each. which is a decent wage, but chicken feed compared to other banks, such as...

RBS, where the "aggregate remuneration of directors and other members of key management" was £48 million (2009 accounts, page 346) and its 183,700 employees (page 108) were paid £9,635,000,000 (page 281), an average of £52,450 each.

4) No it's not 'difficult'. Taking off a wet suit in a telephone booth is 'difficult'. The word he is looking for is 'impossible'.

5) The £67 billion is a sunk cost, the £9 billion paper loss is a sunk cost. The previous government almost certainly overpaid - they could have let the banks sort themselves out at zero cost to the taxpayer with debt-for-equity swaps - but what's done is done. They've lost £1,000 of my money already, and I see no reason to throw good money after bad. If they now make a paper loss of £9 billion (or £67 billion) but structure these banks in such a way as to minimise the costs to consumers (who are synonymous with 'taxpayers') by more than £9 billion (or £67 billion), then go for it, say I.