Margareta Pagano: Even at an Aldi discount, Lloyds is still a gamble

It's hard to believe our banks were the envy of Europe

Michel Pébereau, the head of BNP Paribas, the French banking giant, told me an age ago how he would love to buy Lloyds Bank but couldn't afford to because of the huge premium he would have to pay for what was then one of the most profitable banks in the world.

Another top French banker, René Carron, the boss of Crédit Agricole, also admitted to me after he had been on a shopping spree buying up many of Europe's banks, that his favourite target would be a British bank because of the fat profit margins.

And when Alfredo Saenz, head of Spain's Santander, popped over to the UK five years ago to tie the knot with Abbey National, he expressed a similar desire, although he was luckier in his courtship. At the time, Saenz explained his passion for UK retail banks with refreshing honesty: "We think it is one of the most attractive markets in Europe, with rational markets producing rational competition. UK banks make three times more profit than French banks and seven times as much as German banks."

What Saenz really meant with his delightful "rational competition" was that British banking was a magnificent money-making machine, a cartel dominated by five big players, and a few tiddlers. It still is. Ironically, it's taken the near collapse of the banking system and the heroic actions of European Competition Commissioner Neelie Kroes to start busting the cartel that the Europeans so envied.

The break-up she has ordered at Lloyds, RBS and Northern Rock is the price to be paid for billions in state aid, but it will only tinker with the retail banking market. With interest rates low, the banks will soon be making big profits again. The Government knows this, which may explain the desperate way Gordon Brown and Alistair Darling were spinning the news that three new banks were being created to promote competition, rather than admit that they had been forced to carve up existing banks.

If the Government believes its own spin that retail banking needs a shake-up, it follows that a proper competition inquiry should be launched, as George Osborne, the shadow Chancellor, has called for. There isn't a shred of evidence that bigger banks are more efficient. So the challenge for regulators now is to encourage even more competition by helping new banks to start up – new home lending groups, even using the Post Office more effectively. But, most of all, finding new ways to get capital flowing into small and medium-sized companies, maybe even new forms of micro-finance.

Successive governments oversaw policies which allowed the banks to become reckless, seeing RBS gobble up NatWest as well as ABN Amro, which destroyed it, and Bank of Scotland take over Halifax to become HBOS, leading to Lloyds' own near-collapse. Buying Lloyds shares today, even with the Aldi-style discount which it will need to get the latest rights issue away, is still a gamble as there won't be any dividend for two years, and, as we report, an FSA inquiry into the HBOS cash-call is under way, while the full horrors of its loan book have yet to unfold. Lloyds claims it is back on the road to recovery, but it's still one for the brave, more a rescue operation than an investment. Even Pébereau would not be tempted at this price.

SUGAR WATCH: CLANGER ONE – AND IT WON'T BE THE LAST...

The only surprise about Lord Sugar's clanger was that it didn't come sooner. As some of us warned from the moment the Apprentice star was made the Government's enterprise czar, his appointment could only be trouble. But even I didn't imagine that he would be quite so crass as to annoy the entire small business community by branding our budding entrepreneurs a bunch of moaners living in Disneyland.

His outburst in Manchester was classic Sugar; insensitive and rude – and claiming that 85 per cent of small businesses that applied for bank loans did not deserve any loan at all was one of those big generalisations that always ends in disaster. As rival digital Dragons' Den star Julie Meyer quipped: "Sugar is confusing his role as a potential lender of last resort with that of the Government or a bank, and I do believe this is evidence that he may have forgotten the lessons of his early years as an entrepreneur."

But, while Sugar's admonition was completely off-beam, I have to admit he's right to warn that many small businesses which blame the banks for not lending to them are perhaps being economical with the truth. The reality is that banks have hardly ever been the main source of capital for start-ups, as they want assets as security. Sugar's mistake was to brand all small businesses with the same brush, and that's where his crudity always gets him into trouble. Instead of handing out insults, Sugar should concentrate on helping the Government and the banks get the capital flowing to business again.

COOL HAND BUFFETT PUTS £27BN BET ON US ECONOMY IN TRAIN

Billionaire Warren Buffett likes to compare his collection of companies to a masterpiece which he has now been painting for nearly 50 years. The extraordinary 79-year-old Sage of Omaha has just added a brilliant orange stroke to that painting – paying £27bn to buy the monster trains of the Burlington Northern Santa Fe Corporation, one of America's biggest railroads. Even for Buffett, this is the most enormous gamble, making railways the third-largest of his investments after insurance and utility companies. On buying BNSF, Buffett explained he was making an all-in wager on the economic future of the US: "I love these bets." With few rivals in the sector, tougher environmental rules and higher oil prices, Buffett is banking on rail regaining its glory, but some investors are questioning whether he's gone a step too far. But, as with his bets on ice cream, Coca-Cola and razor blades, this could be a stroke of genius, and perhaps his greatest yet.

Start your day with The Independent, sign up for daily news emails
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence