Lombard: Banking woes

MPs must ask if homes plan passes the Higgins test

A report by lawmakers should spread the opprobrium for the woes of Halifax Bank of Scotland, rescued from collapse by Lloyds in 2008. Peter Cummings, former head of corporate lending, has so far borne the brunt, receiving a £500,000 fine and a life ban from banking. Former chairman Lord Stevenson and ex-chief executives Andrew Hornby and Sir James Crosby should now receive some public criticism.

However, Benny Higgins should come up smelling of roses, if he is mentioned at all. HBOS’s former head of retail banking is that rare beast, a banker who will tack against the prevailing corporate breeze as well as sailing in front of it. MPs and peers have something to learn from him.

As chronicled in Hubris, Ray Perman’s engaging account of HBOS’s downfall, Mr Higgins was appointed when Mr Hornby was keen to expand retail banking in 2006. Instead, he refused to cut prices to stop customers defecting to other banks, or to participate in the controversial equity release business.

HBOS’s portion of new home loans halved to 8 per cent. This was no bad thing given that the market was peaking in prices, loans-to-value and tolerance of weak credits. But the share price tanked. Mr Higgins was ousted with a fat payoff, turning up later as chief executive of Tesco Bank. HBOS came a hefty cropper on corporate loans, but not on mortgages.

Piquantly, the government is preparing to build its own subprime mortgage book even as the parliamentary commission on banking standards readies its broadside against HBOS. To bolster its flagging popularity, the coalition plans to extend guarantees with an upper liability estimated at £12bn to cash-strapped homebuyers, supporting house prices that in the south-east already look toppy.

In considering the plan, coalition MPs and peers should recall the moral of Mr Higgins’ tale: what is politically expedient is not always financially prudent.

Road kill

A U-turn is hard to execute elegantly when you are driving a 20-tonne truck. Mini-conglomerate Stobart Group, famed for its jolly red and green lorries, is jettisoning a boss who was only installed at the end of January. A boardroom coup appears to have prompted a counter-coup.

In January, longstanding chief executive Andrew Tinkler was effectively demoted by the promotion of his deputy, Avril Palmer-Baunack, to executive chairman. The move, following a profit warning, was backed by Neil Woodford, the influential fund manager whose employer, Invesco, holds a 36 per cent stake.

Now Ms Palmer-Baunack is to stand down. So will senior independent director Alan Kelsey, who bore a particular duty to safeguard the interests of minority shareholders.

Stobart is also ditching a plan to sell off some of its disparate divisions. These include a biomass energy unit and a property business created through related-party transactions with Mr Tinkler and chief operating officer William Stobart. Together the pair own 12.6 per cent of Stobart, according to Bloomberg.

The flimsy reason advanced by the company for its change of direction is that results for the year to February 28 will be “modestly ahead” of market expectations. The group has also signed a three-year distribution contract with Tesco, though financial details are scant.

Wise drivers give erratically-driven trucks a wide berth. Investors should do the same with Stobart shares, which have fallen steeply since last April.

Vod bulls

A huge deal created Vodafone in its current form – the £112bn merger with Mannesmann. Could the mobile phone business be broken up by an even bigger deal? A rumour that two US telecoms companies, Verizon Communications and AT&T, were working on a $245bn bid raised the shares 3 per cent on Tuesday.

Verizon Communications denied the report late on Tuesday. But a consortium bid could break the deadlock over US mobile phone joint venture Verizon Wireless. Verizon Communications wants to buy the 45 per cent it does not own from Vodafone. Previous talks have always broken down over price. The gap is harder to bridge because a deal would crystallise a $20bn tax liability.

A full takeover would obviate this, with Verizon Communications offloading Vodafone’s non-US businesses to AT&T. Unfortunately the gearing of the US duo precludes a deal financed purely with debt. So they would have to persuade their shareholders to stump up heftily, or convince Vodafone investors to take cash and shares.

Investors in the Newbury-based company might bridle at equity exposure to another mega-deal. As the Mannesmann transaction illustrated, these tend to be overpriced and pedestrian in outcome.


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