Jeremy Warner: Good bank, bad bank
Friday 08 May 2009
Outlook What could have possessed Lloyds Banking Group to rush out its interim management statement on the same day as first-quarter numbers from Barclays? The contrast between the two could scarcely have been more humbling.
A buoyant performance from investment banking enabled Barclays to shrug aside a big leap in impairment charges and announce a 15 per cent rise in pre-tax profits. It took a big gamble in eschewing the Government's shilling but, fingers crossed, the determined way in which it has pursued an independent course seems to have paid off. The commercial freedom it now enjoys is paying dividends.
The statement from Lloyds, by contrast, only served to underline the misjudgement of the merger with Halifax Bank of Scotland. By merging with HBOS, Lloyds has doubled up its exposure to recession-hit Britain. The big news yesterday was the warning of a 50 per cent rise in corporate impairment charges this year. That will take corporate write-downs to £14bn, with housing and consumer credit impairment to come on top.
The way things are going, the £25bn of first loss on the £250bn of assets Lloyds is insuring with the Government's asset protection scheme will soon be all used up. The taxpayer is liable for any losses thereafter.
Sir Victor Blank, the chairman, insists the merger will eventually be proved a great deal, but for the time being the value destruction is catastrophic, and if Tory threats to break up the big banks are serious, he may find himself deprived of many of the monopolistic benefits of the deal too.
If it were up to private investors, Sir Victor and his chief executive, Eric Daniels, would already have been jettisoned. They are still there courtesy only of Gordon Brown, who now finds himself the controlling shareholder. The Prime Minister owes them a debt of honour, for believing he could make political capital from the deal, he lifted normal competition laws to allow the merger to take place. He was thus one of the transaction's chief architects. But even Mr Brown cannot protect them for much longer, for he too will soon be gone.
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