Friday 21 November 2008

When politicians fail

Sometimes politicians just fail to do what is right. There are times when it's not their fault, that their best efforts didn't quite match the needs of the situation. Other times it is their fault, through poor judgement, spotting the problem too late, acting with undue haste, or not acting fast enough.

It's possible to forgive much of that if it's an unusual occurrence, we can all appreciate human frailty and can forgive both the error of the politician on one side and the rush to judgement of the politician on the other. Where a mistake has been honestly made and efforts are made to put it right, forgiveness is easy.

There are situations in which politicians should not be forgiven, though. When a politician in a position of power makes a mistake, a mistake which is clear, and fails to take steps to put right that error their actions should not be excused, especially when they have a chance to rectify the situation before the full effects make a full impact.

Today Gordon Brown and Alistair Darling are in the dock, accused of hasty action over HBoS, encouraging a takeover which breached the letter, the word, the sentence and the paragraph of competition rules as well as the spirit of the rules. They further stand accused of failure to take action to remedy the situation when it became crystal clear that the takeover - bad for HBoS, bad for customers, bad for competitors, bad for jobs, and bad for the economy - was unnecessary and that the bank was in no worse a position than any other bank in the UK and in a better position than some.

Darling and Brown are, I say, guilty of breaking the first rule of good governance - always strive to do your best.

George Mathewson and Peter Burt released a statement today on the campaign website. I've reprinted it below.

Sir Peter Burt and Sir George Mathewson noted the Chancellor’s 18th November statement to Parliament on the recapitalization and funding terms on which the Government now is prepared to offer any bank, which sought assistance or sought to change the terms agreed in October. The Government’s statement has raised several hurdles very high and has made it crystal clear that they do not want and are not prepared to facilitate HBOS remaining independent. Accordingly Sir Peter and Sir George reluctantly decided to discontinue their campaign.

Notwithstanding this announcement Sir Peter and Sir George feel that the recapitalization scheme announced by the Government on 8th October was an excellent response to a deepening crisis.

Sir Peter and Sir George’s contention was that the Board of HBOS failed to explore the alternatives available to HBOS adequately at the time of the recapitalization scheme’s creation. The HBOS Board apparently failed to either argue for a better exchange ratio for HBOS shareholders from Lloyds or, at least to hold Lloyds to the
original terms of the deal. Prior to the Chancellor’s announcement we believed we could assist in this process.

The HBOS Board’s apparent apathy was further masked by the lack of transparency in the HBOS shareholder circular regarding the cost of keeping HBOS independent. Why hadn’t the Board of HBOS firmly established, as Lloyds have done, both the actual amount of the capital required by the FSA and the terms on which the Government were prepared to offer that capital? We still do not know. We can only surmise that either they did not ask or that it was the HBOS Board that failed to meet the hurdles for the funding set by Government at that time. At that point senior management changes at HBOS should have been made voluntarily.

What is particularly unfortunate is that there was an encouraging and increasing level of support, not least in financial terms. Although there was no prospect of raising all of the £11.5bn, which will be required to strengthen the new Lloyds Bank, from private sources we had offers of additional capital that would have raised more than the extra £500m needed to keep HBOS independent. Ironically the HBOS’ spokesman’s criticism that our proposal offered no additional money overlooked that fact that Lloyds themselves are providing no money at all and indeed will be in receipt of assistance at a level which is a relatively higher percentage of their capital base than
the £11.5bn is of HBOS’ capital.

However the rules have now been firmly established and Sir Peter and Sir George regret that an opportunity to keep HBOS independent, albeit with the Government as the (temporary) major shareholder, has been lost along with thousands of jobs, unnecessarily as the UK economy struggles with recession. The anticompetitive
nature of this takeover will be borne by the community at large.

Nevertheless we think that Lloyds seized a great opportunity and our congratulations go to Sir Victor Blank and his colleagues for having done so. It may well be ‘the deal of the Century!’ We sincerely wish them and all the staff at Lloyds Bank the best of luck.

Finally Sir Peter and Sir George would like to thank all those who wrote, emailed or
called with messages of support and encouragement and with offers of financial help.

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