Mervyn King, the Governor of the Bank of England, just cannot seem to get on to the front foot in defending his position over the Northern Rock debacle. You might have thought that the detailed account of the crisis he gave to the BBC would do the trick.
In fact the interview was widely spun, including by the BBC itself, as the Governor dumping on the Chancellor, Alistair Darling, and blaming him for the possibly key decision not to support a rescue takeover bid for Northern Rock by Lloyds TSB.
This was, of course, not the Governor's intention and indeed would have been a quite bizarre thing to have done for any Governor interested in serving a second term. The Governor is a crown appointment on the advice of the Government.
Perhaps a blessing, but Mr King hasn't yet learned the black arts of the politician, which don't necessarily involve lying or being economical with the actualité, but certainly make it a strict rule never to say anything which is open to misinterpretation by the press. As ever, the true story of the Lloyds TSB decision is a more nuanced affair which doesn't take kindly to the black-and-white view of the world painted by newspaper headlines.
Yes it was in the end the Chancellor's decision, but it was also one taken on the advice of the Governor and commanded his 100 per cent support. Lloyds TSB had asked the authorities for a £30bn, two-year facility at bank rate as a condition of proceeding with a takeover bid. The Governor's view was that it was no part of the central bank's role to help finance a takeover in this way.
Only the Government could do that and, in circumstances where it did, it would have to make the same facility available to everyone else. It required only a couple of minutes thought by the Chancellor to say no. The Treasury for its part insists there was never any fully fledged proposition to take a decision on, only a vague inquiry, so none was taken.
As it happens, there is not even anything particularly new in Mr King's account of events. Only last week, I referred to it in this column and it has also been reported elsewhere. Yet the constant recycling of news and blame has become one of the characteristics of the Northern Rock story.
The Governor's view on the affair has long been that, if anything was to blame it was the system, rather than the particular judgements and decisions made. In particular, it was the absence of adequate deposit insurance arrangements, which meant that Northern Rock couldn't be allowed to fail without catastrophic consequences for depositors and possible contagion to other banks.
This flaw in the system had apparently been extensively discussed from well before the summer credit crisis by the Bank of England, the Treasury and the Financial Services Authority, but no public concern had been expressed for fear of the consequences of drawing attention to the weaknesses in the present insurance arrangements.
In fact, the new Bill outlined in the Queen's Speech yesterday is based on these discussions. The Government can only repent at leisure on its failure to introduce the measures at an earlier stage. It is unfortunately in the nature of governments and regulators that they are only wholly persuaded of the need to act after the horse has bolted.
The Governor has been directly blamed by some for the failure of the Lloyds TSB takeover. He wanted to put the record straight.
Yet deliberately or not, the effect of the story is to turn up the heat further on a Chancellor whose position has already been weakened by a badly received pre-Budget report. The mini-Budget may have been largely the work of Mr Darling's master, Gordon Brown, but it won't stop Mr Darling being made to take the rap for any perceived failings in economic management. If the credit crunch now spirals out of control, Mr Darling is first in the firing line. Placing him at the centre of decision-making over the Northern Rock debacle doesn't help his position.
In the round, however, it seems to me Mr King is broadly correct in his assertion that the dye was cast long before he and Mr Darling became involved in the affair.
After a similar but far less dramatic wobble in credit markets in 2005, Northern Rock promised to reduce its exposure to wholesale funding to around the 50 per cent mark. In fact it further extended it and appears to have done nothing to insure against the possibility that this funding might dry up.
Nor did the Financial Services Authority try to address the matter, preferring instead to rely on now plainly flawed capital adequacy rules and vague assurances about the quality of the company's management and governance. This "light touch" approach to regulation, a hallmark of the London system and in many quarters held synonymous with London's success as a financial centre, has been found wanting.
Where critics are perhaps on firmer ground is in holding the Governor to account for failure to intervene with general financial assistance to credit markets at an earlier stage, as the European Central Bank and the Fed did. You can argue this one around the houses for as long as you like, but we are never going to know the answer as to whether it would have done any good. DeAnne Julius, a former member of the Bank of England's Monetary Policy Committee and now head of Chatham House, was on the radio again yesterday to insist that this was the Bank's main failure.
What was not pointed out is that she is far from being an impartial observer of these matters. Until this summer, she was a long-serving director of Lloyds TSB. All the big banks have a vested interest in urging Mr King to bail them out with free liquidity. There are, after all, profits and bonuses to protect.
Rose looks to overseas growth
We are all getting a bit fed up congratulating Stuart Rose on the turnaround he has achieved at Marks & Spencer. Yesterday's half-year figures confirm it to be fully in the bag, and if top-line growth is becoming a little sluggish, it is still a lot better than virtually everyone else in retailing other than the big supermarket groups.
Life must be particularly grim for the others, for with the possible exception of ABF's Primark, which also reported figures yesterday, what growth M&S is achieving seems to be largely at their expense. Conscious of the criticism that there's no point in pursuing market share if there are no rewards in it for shareholders, there's a big boost in the dividend and another £1bn in share buybacks. So with the turnaround box now ticked off, what next? The structural problem Marks & Spencer faces as a retailer is that, though it is large by UK standards, in the league table of global retailers it is actually quite small. It is also now almost entirely UK-based, having abandoned its international endeavour before Mr Rose arrived. How does Mr Rose get from being the £10bn business making £1bn a year that M & S now is to one with £20bn in annual sales and £2bn of profit?
As far as the UK is concerned, M&S seems to be doing most of the right things. M&S is investing heavily in its stores – too heavily for some in the City's liking – and aims to expand its space by between 15 and 20 per cent over the next three years.
An extra £500m annually is expected to come from online retailing within a three-to-five-year time frame, while the expansion of the merchandise range into electronics should further help to keep growth well above that of the economy as a whole. It should also be possible for the foods business to improve on its current market share of just 4.3 per cent.
Yet the big prize is going to come from overseas ambitions. M&S's previous overseas forays were not all as much of a disaster as assumed. The acquisitions were mainly insane, but the European stores were a perfectly decent business and their closure an act of corporate vandalism explained only by the fact that the mothership in the UK was in such trouble. China and India are a long way away, but that's where the market is going to be 10 to 20 years from now.Reuse content