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Last updated: February 16, 2009 12:14 am
Alistair Darling will be keeping a close watch on Monday on the share price of Lloyds Banking Group, as the chancellor seeks to avoid marking this week’s first anniversary of nationalising Northern Rock by taking another bank into public ownership.
The government on Sunday sought to quash speculation that the £10bn loss for 2008 by Lloyds’ subsidiary HBOS, which sent the banking group’s shares down 35 per cent on Friday, could tip the bank over the brink.
David Cameron, the Conservative leader, warned that temporary wholesale public ownership of Lloyds “may have to be [done]. I hope that isn’t the case, I hope that this organisation can sustain itself and sort through its problems . . . [But] we have to recognise that this might happen.”
Vince Cable, the Liberal Democrat Treasury spokesman, echoed this concern, saying nationalisation of the bank was “not inevitable but we’re drifting in that direction . . . what’s worrying about it is that we’re getting into nationalisation accidentally”.
But Treasury and Downing Street insiders were adamant there had been no change to the government’s position of seeing the wholesale temporary nationalisation of Lloyds as very much a last resort. Officials said there were no imminent moves to increase the taxpayers’ 43 per cent stake in the group.
Lord Turner, chairman of the Financial Services Authority, emphasised that the HBOS loss announcement had not caused “huge surprises” to the regulator. The figures were “not order of magnitude different” from the FSA’s expectations when it ran stress tests at the time of the Lloyds and HBOS merger last autumn, he told the BBC.
Lord Turner said his review of banking regulation next month would propose a “major change” in the way the sector was controlled and supervised.
Recommendations in the review on March 18 will include a “very strong reinforcement” of the FSA’s supervisory process, Lord Turner said. He admitted that “with hindsight” the regulator had become “too focused on processes and procedures and things like that” rather than systemic risks, such as the sustainability of some banks’ business models.
The political argument over the failures in bank regulation and the merits of the rescue packages intensified on Sunday, with the Tory leadership for the first time questioning the merits of the Lloyds-HBOS merger.
The opposition party backed moves by the government last autumn to facilitate the merger by waiving statutory controls on competition.
But Mr Cameron said the merger was “now looking like a bad decision.” The Conservative leader defended his change in approach, telling the BBC: “Remember the situation we were in then . . . the merger of HBOS and Lloyds was presented to us as a way of stopping a major bank collapsing.”
Stephen Timms, the financial secretary, retaliated by accusing the Tories of “complete opportunism”.
●Hector Sants, the FSA’s chief executive, will not be taking a bonus for 2008, Lord Turner, the regulator’s chairman, said on Sunday.
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