Another blow to Scottish financial sector

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The only Scottish representative on the Lloyds Banking Group board is to depart following the arrival of new chief executive, António Horta-Osório.  Lloyds’ Scottish operation, which includes Bank of Scotland and Scottish Widows, is set to lose Archie Kane who will now retire.

South of the border the development is being perceived by analysts as the new chief executive emphatically stamping his authority on the 41% taxpayer-owned Lloyds Group.  In Scotland however it will be viewed by those who campaigned against the takeover of HBOS by Lloyds as vindicating their fears that, despite assurances to the contrary, Scotland’s financial sector would be severely undermined as a consequence of the takeover.

Alternative Buyers

When the takeover was mooted in 2008 the Scottish financier Jim Spowart, who founded Intelligent Finance and Standard Life Bank, attempted to find another buyer for HBOS which would allow it to operate independently.  When he finally gave up his attempt at saving HBOS from the Lloyds bid he blamed “political posturing” by the then Labour party Government for forcing the “shotgun marriage” through saying UK ministers and a series of leaks were responsible for ending his campaign.

He warned then that “tens of thousands of families” would pay the price for the Government’s determination to push ahead with the takeover, including its waiving of competition rules.  His concerns were over job losses as Lloyds TSB sought to make £1.5 billion in cuts by closing branches and merging the two banks’ backroom operations.

Gordon Brown’s government backed the deal using a special national interest clause on the grounds that a collapse of HBOS would have had a disastrous impact on the UK.

Explaining his decision to end his search for a new owner, he said: “At one point the Secretary of State (Jim Murphy) actually discouraged me from actually speaking to other politicians regarding this. This speaks volumes.

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“I’m very surprised about a Labour Government who are not encouraging other alternatives which would safeguard these jobs … Tens of thousands of extra families will now see their lives blighted by unemployment and its resultant misery … Why? Because politicians put their own egos and political agendas before the welfare of the people they purport to represent.”

Mr Spowart was acting as a go-between but needed Government support for a foreign counter-bid, and claimed there was interest from abroad in taking over HBOS.  It emerged that Bank of China may have been considering tabling a bid but it was claimed Mr Murphy ‘scared off’ the alternative bidder by leaking details of the approach to the press.

The financier was angry at the Scottish Secretary, adding: “These things in the commercial arena should be kept confidential.  I don’t think it’s an even playing field.”

Mr Kane’s appointment to oversee the combined Lloyds-HBOS Scottish activities two years ago was viewed as an attempt to reassure those concerned about the impact on Scotland of losing a major Scottish financial institution.

Based in the symbolic Bank of Scotland headquarters on the Mound Mr Kane is credited with creating a Scottish executive committee for the bank, including senior staff from both Scotland and South of the border, which convened monthly.

It is believed that the vacancy caused by his departure as chairman of the committee will be filled, and that person will report directly to the new chief executive.  Worryingly, there is silence on whether the chairman will be given a seat on the Lloyds board or even if any other director will spefically oversee Scotland.

Bail out strategy

Other senior bankers tried to prevent the takeover.  Sir George Mathewson and Sir Peter Burt were also unsuccessful in stopping the merger going forward.  Their move to keep HBOS independent was premised on the case that the bail out money promised by government to both banks’ shareholders if they merged would be sufficient to allow the banks to operate seperately.  The Lloyds deal after all was given special clearance by Gordon Brown on the basis that HBOS collapsing would pose a risk to the UK economy.  HBOS could avoid collapse and remain independent and so save finance sector jobs went the argument.

Their attempt ended after Chancellor Alistair Darling’s statement that attempts by any of the banks to renegotiate the £37bn bail-out of the banking sector could prove costly for shareholders.  He said that access to the government deal was not “automatic” and that any bank seeking a new package risked getting a far lower share price than when the offer was first made.

Before the takeover campaigners argued that Edinburgh and Scotland would lose out in terms of jobs and prestige.  The announcement that the last Scottish representative on the Lloyds board is now gone will lead them to argue that they were right all along and that reassurances given at the time were mere lip service.

Margo MacDonald MSP and a vocal opponent of the takeover at the time said: “There are not many times politicians do not like to be proved correct and this is one of them.  It could be foreseen that this would happen.

“There is a new group [in charge] and they have got no time to consider the niceties of the representative nature of management.”

With increasing calls by industry leaders such as Ben Thomson of Inverleith Capital LLP for the UK’s large banking groups to be broken up in order to limit the systemic risk that ‘too large to fail’ banks apparently represent, Labour’s decision to force through this merger against competition rules will now be viewed not only as an unnecessary hollowing out of Scotland’s financial sector but also as strategically flawed on a UK-wide level.