The Week
The Week, 27/02/09
A rose among thorns
Funny how the FTSE 100 went up on the day that Royal Bank of Scotland announced the biggest annual loss in UK history, giving us the one good day among several bad ones for investors.
We did know in advance that the RBS figures would be ghastly so pretty well all the impact was taken out of the actual figures. However, the equally well flagged Lloyds Banking Group figures have helped to push the index lower again this morning.
It becomes increasingly difficult to understand why Lloyds TSB chief executive Eric Daniels was so keen to cosy up to the Government and take over the HBOS toxic debt at the expense of his own shareholders or, if they did not count for much, his own reputation.
The revelations of whistleblower Paul Moore, who apparently warned the whole audit committee at HBOS four years ago, as well as its chief executive Andy Hornby, that it was taking on excessive risk have come out since the Lloyds-HBOS merger. What a pity that he did not speak up sooner.
However, Lloyds shareholders who voted for this obviously dubious deal have only themselves to blame. All that now remains is for Daniels to be given an extremely large bonus for pushing through the deal – fear not, it will happen in due course – and for the taxpayer to pick up the pieces.
Talking of undeserved payouts, we should not be in the least surprised that Sir Fred the Shred Goodwin is clinging to his obscene pension arrangements. Wouldn’t you if you could get away with it, and what is to stop him? His reputation is shot anyway so harsh words will not hurt him. The damage was done when these unjustified arrangements were nodded through in the first place.
The recriminations will rumble on for at least the first half of this year, which brings us back to the state of the stock market. I stick to my belief that the most likely scenario is for the FTSE 100 to bounce along erratically for several more months but staying within the 3,800-4,400 point range that has held almost intact for several months now.
The chances are for a modest upturn in the second half, though I stress the word modest. Upside gains are strictly limited in the current economic climate. However, the downside risk is considerable. If markets fall, then they are likely to fall heavily.
The truth won’t out
Confirmation comes week by week that the economic crisis has been caused because politicians do not live in the same world as the rest of us so they have little or no idea of what life is like for ordinary people.
Home Secretary Jacqui Smith, the minister responsible for law and order, has defended her outrageous behaviour in declaring a room in her sister’s home in London as her main residence so she can claim allowances for her real residence, a house in her Redditch constituency.
Now I would have accepted Smith’s position, not to mention her honesty, if she had said that, yes, she had maximised the amount of money she could claim but she was simply abiding by the rules and that any fault lies with the rules themselves.
Oh, no. Smith actually claimed: ‘I have tried to do what I think is the right thing for the taxpayer.’
It beggars belief that even a politician would make such a ludicrous statement, but when you live a privileged life where you make up your own rules then presumably you have no idea how ordinary people will see your comments and actions.
Smith says she has no regrets about how she had used the Commons system to claim the money. You bet she hasn’t.
But then she is not alone in thinking that what most people would regard as a scam is perfectly legitimate behaviour. Michael Ancram, former deputy chairman of the Conservatives, has claimed £50,000 in expenses for maintenance work on his country home.
No wonder politicians are unable to tackle the bonus culture in the banking system when they have their own bonus culture. The answer is to pay people the proper rate for doing the job in the first place and expect them to do the job they are paid for – like most of us have to do.
Just as a footnote, banks, like politicians, have no idea how the rest of us live. HSBC has scrapped interest payments on current accounts on the grounds that this was what its account holders wanted. What the account holders actually said was that the interest payments on these accounts were tiny. They didn’t say they wanted them scrapped.
If only HSBC had set MPs an example in honesty by saying that the payments were so small that it was not worth the cost of paying them.
Rodney Hobson
Author, Shares Made Simple and Small Companies, Big Profits