Tag Archives: RBS

Is everything going to be nationalised?

The present crisis in Europe over the ash cloud from Iceland is fast moving beyond a joke. Of course, it’s no joke for the thousands of people struggling to get home and stranded all over Europe, but what will happen to the airlines?

BBC Business editor Robert Peston has estimated that BA alone is losing something like £20m a day. And as each day passes, the EU warning is extended to the following day. I’m supposed to be visiting Austria this weekend and it seriously looks like it won’t happen. Of course, I’m not choked about it because I am at least at home and able to just stay home rather than being stranded thousands of miles from home. But how long will this go on?

And what is the implication for the national air carriers if they need governments to bail them out? First the banks, then the airlines? The question will be asked that if the airlines are so essential to national economies then how come they are not already government owned – like the old days?

Who would have thought that in 2010 we would see nationalised banks on the high street and private airlines all over Europe begging to be saved by national governments. Next thing, the private power companies will ask for government help setting up new power stations, err…

Robbing Peter to pay Paul

I know that the British government doesn’t have much control over private enterprise, and it’s not desirable for them to have strict control over what companies can get up to. Can you imagine the situation if companies had to ask permission of the government before borrowing, lending, or buying interests in other companies – we would be similar to China.

But, the recent situation with Cadbury seems quite bizarre.

If Cadbury shareholders believe they have now got a good price for their shares then there is nothing to stop them selling to Kraft. That is just business and the emotional response to the loss of another British company is actually not fair – though it’s worth remembering that the majority of shareholders are just funds (pension funds) and so they have no emotion anyway. If British people want to prevent foreign investors buying into Britain, then that restriction would apply in the opposite direction too… Britain would find itself unable to invest in foreign businesses as a reciprocal measure.

But, Kraft had to borrow money to finance the deal. And the British bank Royal Bank of Scotland (RBS) financed Kraft. And Royal Bank of Scotland is 84%-owned by the British government, and therefore by the British people. So the British public are effectively financing a deal to buy their favourite chocolate manufacturer.

The government is claiming that RBS can’t be controlled like a government department, that it needs to operate as a regular bank so it can return to profit and that’s mostly correct. But surely someone must have seen this public relations disaster looming on the horizon? Billy Bragg has initiated a campaign where he is refusing to pay income tax, until the government starts controlling the publicly-owned banks – particularly the hefty bonuses bankers are already starting to pay themselves again so soon after the economic collapse.

Bragg won’t change much with this campaign. Even he acknowledges that the government will get their tax from him in the end, but he is demonstrating that the British public are not stupid. They care about how the banks behave and when they own a share of those banks they have a right for their views to be respected.

Tesco Bank. Your time has come…

The government is now throwing more money at the UK banking system.

As a nation, we really had no choice, but to bail out the banks. Hank Paulson allowed Lehman Brothers to collapse in the US thinking that the market would correct itself if a weak bank is allowed to fail. Instead, he tipped the whole banking system into further decline.

The government is seeking more competition in UK retail banking. They want to offload the public sector ownership of the banks they saved back to new market entrants. And it’s essential this happens. Listen to the press and the public on the radio phone-ins.

Nobody trusts the existing banks anymore. They are viewed as corrupt and with leaders like Fred Goodwin sailing into the sunset with millions in pension money, who can blame them?

We can go one of two ways.

State-owned banking is one choice. The government has already made it clear that they don’t like this option and they want to offload their present assets to the private sector – and this would happen even faster if (when) the Tory government is elected next spring.

So, our only really option is the new market entrants coming in and cleaning up the banks – like James Stewart in ‘It’s a Wonderful Life’… walk this way Bank of Tesco.