2009 was a bit of a horrible year, with one lovely little discovery around halfway through.
It went something like: work, work, buy U2 tickets, work, work, meet girl, work, see U2 shows, work, work, work, work, Uganda, see girl lots, work, work, work, girl, work, work, work, girl, collapse.
Last Monday morning, we all woke up to the news that the UK Government had put its rescue plan for our large banks into action. Subject to an unlikely, although possible, take up of the equity issues in HBOS, Lloyds TSB and RBS by existing shareholders, we will all own part of them – up to 43.5% in the enlarged Lloyds Halifax Bank of TSB Scotland, and 60% in RBS.
At the same time, the authorities are enhancing their already considerable liquity support, by extending the Special Liquidity Scheme and offering up to £200bn in guarantees for bank issues of debt.
Combined, these two strands of the plan were aimed at providing confidence in our (for they now belong to all of us, at least in part) banks and allow the flow of credit around the banking system to recommence. Crucially, the Government is looking for that restarted flow of credit to also lead to increased availability of debt for home-owners and small businesses, in an attempt to avoid a severe recession. We are going to have a recession, it’s just a question of how bad it will be.
So, has anything changed? Well, I am going to sit on a fence and say yes and no. First and foremost, a large element of fear has been removed, that previously surrounded our banking system. It is clear that the Government has no intention of allowing a large UK bank to go down – Northern Rock and Bradford & Bingley shareholders may wince at this point – and will continue to everything they can to prevent this while there is still worth in UK plc. If we ever reach the point at which the country is bankrupt, I’d be more concerned about sharpening up my agricultural skills than mooning over the vanished value of investments.
This fear has also, crucially, been removed within the banks. Executives and staff alike now have a far clearer idea of what is required in the next couple of years, the uncertainty of the last few months has been removed, though we are resigned to our “total reward” packages being diminished for a while to come. We are not all going to be as hyper-motivated as the last few years – that is simply a human reaction – but the mere fact of still having a job is a powerful stimuli.
However, as yet, the flow of credit around the banking system – the wholesale markets you will have heard about – has not returned to anything like normality. It is only when this starts to happen, and banks begin to move from utter reliance on the public resources, that credit availability to the areas identified by the Government will be properly restored. This is still, obviously, an issue due to the stubbornness of three-month LIBOR rates to budge much.
LIBOR is the rate at which the banks lend to each other, providing a fundamental indicator of their willingness to do so. Since central banks around the globe made a co-ordinated cut on 8th October, three-month LIBOR, the variation which is the cornerstone of the wholesale markets, has moved down a little bit, but resolutely remains considerably above 6%. Given that Bank of England Repo Rate (or Base Rate, as it’s otherwise known) is 4.5%, this shows that the banks are charging an incredibly premium for lending to each other.
Why is this an issue when the Government has effectively guaranteed liquidity to our banks? The answer is that the wholesale markets are not wholly between our banks. In fact, the main UK banks are combined net borrowers on the markets, meaning that the cash must be coming from somewhere else. That mystery source is actually two-fold: non-bank UK financial institutions and overseas investors and financial institutions. The former is not a source that could recover in the short-term as a lot of these UK institutions will most likely be keeping their cash close to home until the recessionary ramifications are clear.
The overseas sources of cash, therefore, would seem to be key to restarting our wholesale markets. This has not happened yet because the full international efforts to resolve the gridlock have not worked their way through the system. While I am reticent to give Gordon Brown too much credit, given that it is arguable that a lot of the particular problems our banking system has encountered are of his doing, it is important to remember that the action taken by the UK government was in effect pioneering. Put it this way, the particular way our plan has been structured is being broadly followed by other governments.
Therefore, while we think we have “solved” our problems, we must bear in mind that our financial system does not sit in isolation to the rest of the globe and, while other rescue plans are being put in place, we cannot expect normality to immediately return. The breakdown that occurred last year, which ultimately lead to the credit crunch, spread rapidly via the massively inter-linked global financial markets. The co-ordinated international solution cannot quickly reverse the damage, particularly as the spillover to the “real” economy has now reached the point of no return.
Recovery is beginning, but ultimately, we can write off the rest of 2008 and most of 2009 before that actually turns into some good news stories. In the meantime, we need to continue the conversation about how banking will look for the years to come.
Confessions first. I am one of those high-flying corporate bankers who’ve done reasonably well out of the boom times. There have been deals I’ve done, and deals I haven’t done, all in the property sector. Since I took up my current role 2.5 years ago, giving me the opportunity to influence the structure and content of transactions, I have been involved in a number of complex and high-value deals. Not one of them I regret, in fact, there’s one I continue to be extremely proud of and it will bring huge economic benefit in a particular place for a number of years to come.
I’ve worked hard and, so far as I am concerned, I’ve earned my rewards. What I did for my employer was not some of the scary, highly-leveraged stuff you might have read about recently. I’ve gone about my business in a manner that adheres closely to the Biblical morality I ascribe to – though nobody is perfect.
As I said, I don’t have any regrets about the business I’ve been involved with, despite everything else said about this sector. At this time, however, life is difficult. The credit crunch and wider economic circumstances mean that people like me are going to spend a lot of time taking care of leveraged situations. This will not be news to anyone. It’s going to be stressful and I don’t expect to see the light at the end of the tunnel (taking care to ensure it’s not an oncoming train) for a good while yet.
Today’s news should means that the critical stresses in the financial system will ease in the short- to medium-term. It is unlikely to mean that we will avoid a recession in the UK and certainly will not stop the global economy going backwards for a while. At this moment in time, however, it should get things going again and the bank’s involved have undertaken to return mortgages and small-business lending to 2007 levels – whatever that is – which should, and I repeat should, halt the steep decline in the housing market.
That’s basic economics – there is still massive latent demand for housing in the UK and, given the number of housebuilding sites that have ground to a halt in the last 6 months, a likely substantial shortage of product coming forward in the next 2 years – simple supply and demand theory. Personally, I don’t foresee a sharp recovery given that the credit crunch is now having substantial impact in the real economy – the time lag is running at about 6 months.
The upshot of the current situation is that the bank that will be created out of my employers, and the employers of one of my best mates, will be approximately 40% owned by the UK Government. By translation, owned by you and I, as taxpayers, due to our effective ownership of the machinery of government. This has stopped the rot now, but rather than discuss how we got here and why this is the best course of action, I am much more interested in considering what this means for the UK financial system, and banking in particular. I should add, for the avoidance of doubt, that I will not (cannot) enter into any debate that criticises the actions of my employer or its peers
What is clear to me is that we entering an incredible new era, one that has metamorphed from the last one in an amazingly short period of time. The banks have been recapitalised in order to protect the health of the wider UK economy and, by extension, to ensure that taxes continue to flow into HM Treasury. This will, in turn, continue to provide public infrastructure and the necessary altruistic services – health, education etc. Banking will function for the good of the many, rather than purely for the benefit of shareholders.
One of the terms of the deal is that, while the preference shares owned by the state – £5bn in RBS, £4bn in the combined Lloyds/HBOS group – are outsanding, no cash dividends can be paid to ordinary shareholders. In effect, any remaining shareholders will have to take a minimum 5-year view, which is when the prefs are due to be repaid. This type of constraint will see the banks work to a public agenda for this period, and possibly longer given that the government will own substantial ordinary equity as well.
However, in order for this to work, for the banking system to restore the flow of credit and public income-stream, needs the individuals working in the sector to be allowed to employ their residual entrepreneurial flair. They will need to know that, in that medium-term horizon, there will be rewards for them. Executive bonuses are being encouraged, mandated if anyone oversteps the line, to be paid in shares. This will provide motivation to the people that the country needs to retain, rather than follow the money train east.
To this end, I believe we could entering into a new form of capitalism. Given that the death of Thatcherite economics has been called, this is a strain of capitalism that is strongly influenced to “do good”. I am calling this sociacapitalism, though that this is a bit clunky and I’m open to other suggestions.
This is a conversation I want to start and I’m not sure where it’s going to go. Banking is fundamentally changing and I want to be in on it. My own thoughts and aspirations for the new era are necessarily going to be informed by my faith, but I am intrigued as to how other people see the new settlement working out. Start talking….I’ll be back again soon.
This does not represent the views, published or unpublished, of …….ach, you know the rest.
The big banks are all still around.
My take on today’s events is quite simple. Rumour goes around the markets that three banks (RBS, Barclays, the soon-to-be-divine Lloyds TSB – the latter presumably also acting on behalf of my employer) have a meeting with the Chancellor to sort of gee him up a bit with getting his rescue plan for the financial sector out in the open in order to calm market turmoil. Said rumour, which is probably true (because Robert said so), causes more market turmoil.
“Why?” I hear you call. This is because professional investors are concerned that, if the rescue plan involves UK plc buying stakes in the banks in exchange for some capital and access to virtually unlimited liquidity, the value of their own stakes will be substantially diluted. In addition, you and I – in our guise as the taxpayer – will get a preferential return. In other words, first dibs on the profits.
This ignores the fact, for the moment, that it’s also the small (compared to the professional) investor who is losing out. Like many current and former bank employers – just the normal guys who slave over a laptop from early in the morning until late at night – have seen the value of their own eggs-in-one-basket investments go south. And that includes me, of course.
FWIW, my view is that the government will in turn seek to privatise the public’s stakes in the banks in due course, but this is a fair way down the road. In the interim, a suitable return will need to be provided for the risk the taxpayer is taking. If David Cameron’s Thatcher-lite version of the Tories get into power in 2010, then I think this is likely to happen during the course of the next parliament, assuming that the markets return to some semblance of normality.
Also for the avoidance of doubt, I should probably that my views do not represent the views of my employer nor any other employee of said employer. It’s just little me, spraffing on a bit about, you know, money and stuff.
Unless you’ve just returned from a lengthy expedition to a land where mobile phones get no signal, the internet is still a twinkle-eyed futuristic dream and the only TV you get is a fuzzy version of ITV (or the Scottish Highlands as it’s otherwise known), then you may have gathered that the last few days have been unprecedented in history. The world’s financial system has creaked in a way not seen since the Great Depression, something accentuated by the overarching globalisation we all have an antagonistic/apathetic love/hate relationship with.
And my employer has been right in the middle of it. All in all, not a very pleasant few days.
I am not going to comment about the hows, whys, whats and who’s of the takeover. Some of my views will no doubt come with the tagline “these do not represent the opinion of xxxx plc”. However, on Tuesday evening I had resolved to be positive on Wednesday morning, to try and show a bit of leadership to my team, attempt to get the morale off the floor. This all disappeared fairly quickly as our share price seemed to take its final dive into oblivion.
What happened next has been very well reported and I do not know any more than has been plastered all over the news channels and websites. Really, I don’t. In fact, Robert Peston of the BBC probably knows far more than I ever will – or so it appears from his very accurate and timely reporting. There is now a sense of substantial relief in my office, along with a developing uncertainty as to what it will all mean. Who knows, I certainly don’t.
All I want to say, though, is thank you. In this difficult and scary time, I’ve had so many messages from so many different friends, offering support and encouragement to me and, by implication, to my colleagues. It’s been really great and I’ve been overwhelmed. If I forget to say it to you individually, here it is – thank you.
Has gone by. How did that happen. Oh yes, here’s why…..
It’s now the bank holiday weekend and I am DETERMINED to give my brain a rest, it’s been absolutely buzzing with some work stuff. Even now, I’ve woken up early on a Saturday morning and am thinking about a particular situation. To be fair, and to give God a bit of glory, I’m not feeling as totally wired and stressed about it as I was last weekend. A friend prayed with me at church on Sunday, following some serious prayer at cell group the previous Thursday. Amazingly, He cares, who’d have thought it.
…that I must confess to giving up on doing my 10km charity run thing in May. I was so pumped up about doing this, was going to use it as the trigger to (a) lose weight and (b) get fit.
Then there was the ankle injury thing and I’m really busy at work, so trips to the gym are minimal at the moment. With just over 2 months to go, I have come to the horrible realisation that its simply not going to happen. I’ll concentrate now on trying to get myself a little bit fit for the touch rugby season, which should kick off in a couple of months, and losing a bit of BMI in order not to be mistaken for a beached whale on the golden sands of Australia in November.
So, sorry if you were planning to sponsor me. Maybe next year.
I was in Wales last weekend, for a mixture of business and pleasure.
Flying down on Friday morning, I spent the day in the company of my boss and some clients as we did the commercial side of things. Wearing my banking hat, I thought it was a really encouraging time. Obviously, I can’t mention any details about the customers, but we were very impressed with their plans and contingencies to deal with the current, difficult, economic climate.
They were due to host us (me, my boss, my boss’ wife) at the Millennium Stadium for Wales v Scotland in the Six Nations, so an overnight stay was required. At Celtic Manor, venue of the 2010 Ryder Cup and more than easily qualifying for the tag of ‘quite nice’. In the evening, the client’s company chairman and his wife came to the hotel for dinner.
Now, my boss had mentioned previously that this chairman bloke and his wife “had found the church late in life” – they are in their late 50s/early 60s. The evening that followed has been the single most encouraging event I have experienced in work, where business and faith collided.
My boss, who I’ve learnt so much from and has been really fantastic to me, is not, as far as I can tell, a man of God. However, I am aware that his wife is a church-goer and his youngest son (aged 18) is also a Christian. For an entire evening, he was exposed to the conversation of 4 people (me, his wife, the chairman and the chairman’s wife) that was almost exclusively about church, faith, God and living out His Word in the place we find ourselves.
You have to understand that this NEVER happens in my line of work. Excluding the chats I had with my old boss, who has an amazing lady who came to faith recently through the Catholic church, I can count on the fingers of one hand the number of times I have had an indepth conversation about faith in a work/business context. To spend an entire evening doing so, in the presence of a non-Christian, was an incredibly encouraging and humbling experience.
I heard a lot of amazing things about these people who have used their (relative) wealth in later life to do good in the Lord’s name. They are sponsoring projects in Rwanda and Fuji which have so many similarities to what my church is doing in East Africa. To cap it all, as I was stood in an executive box in the stadium, awaiting Scotland’s horrible capitulation to the Welsh, we had another chat in which the chairman bloke expressed the thought that God had let him do what he did in business for so many years, but when the time was right, He called him to put those experiences and resources to work for the purpose of the Kingdom of God.
This made me think once again about why I am a banker. I believe so very strongly that this is something that the Lord brought me into. How I got a job in the bank to start with, every step I have taken on the promotion ladder, I have always felt His hand. There are two specific occasions when I have very nearly turned my back on my career – coming back from a Uganda trip in 2003, I was ready to chuck it in there and then to work for MAF (that’s another story) and, 2005, when I thought God was calling me to go to bible college in Canada – but, fundamentally, I stayed. Various things stopped me and know I am very happy in what I am doing. I really like my job, I like the people I work with and I am being very thoroughly blessed with success.
But I’ve always wondered what I am being trained for. Yes, I am supposed to be here, but what is the final destiny. Part of me believes that that it is part of a process to get me full of skills and experience that He can use long-term in Africa, and keeps my hand in with that – by resourcing me for trips – in the meantime.
Whatever happens, that evening in Wales reminded me that He uses the things we do, the times we have. The joy, the pain, the skills we learn and the knowledge we gain. We cannot understand His purposes when we are going through the things we need to learn from.
There is a right time, a right place and a right thing for us.
So, it’s now 2008. An appropriate moment, I’m sure you’ll agree, to reflect on 2007.
From the first few hours boogying at Ardeonaig to the last minutes at, erm, Ardeonaig again, it flew past. Did someone speed up time when I wasn’t watching?
A year of great success (and not a little stress) at work but also when I realised I am now on the downhill slope towards oldfartdom. For example, I no longer have any idea what is in the “popular” music charts. OK, maybe I’ve heard that Umbrella song, but that’s about it. I know what I like and I like what I know, or some such other boring cliche.
In no particular order, highlights of the year included:
However, there were some things I really wished hadn’t happened:
Given that last of these is still rampant, I don’t have time to think about what 2008 may hold. That will follow.
I hate being ill. Feeling so useless and yuck. Some people like the attention and sympathy. Too big a price to pay if you ask me.
It might be man flu. Or just a cold. Maybe a mysterious virus or a wierd tropical disease.
Whatever, I feel terrible right now. In no condition to go to work at all. Nope.
