The Brown stuff is still hitting the fan

15 September 2009

In recent days I’ve been talking to Northern Rock about the possibility of penning a profile on Gary Hoffman, largely because I’m puzzled why anyone would have wanted to take on the role of managing director of a business like that in the first place.

I don’t mean that disparagingly. I think he must have tremendous self-belief given that the bank is so entangled in the political fortunes of the Labour government.

And on to top that it’s trapped between the expectations of the tax payer to deliver on the billions of pounds squandered on its rescue and the views of the European Commission and the independent UK mortgage lenders who believe that the existence of state-guaranteed mortgage lender distorts the market.

Linked to this is, of course, is the question of where the Rock is in its strategy to reinvent itself as an independent and viable entity in the UK mortgage market?

I figured this was important to address but apparently that’s not a view shared by the Northern Rock, not because it didn’t want to speak to me on this matter but because, according to its PR man, issues were still ongoing with the European Commission relating to the restructuring of the business and until they were resolved, it could hardly be expected to say anything.

One of the problems, it was explained to me, was the issue of splitting the Rock into a good bank and bad bank with the good bank writing new mortgages on prudent lines and the bad bank holding on its balance sheet all the dodgy stuff which would eventually be wound up as the back book shrank over time.

The problem apparently focused on what was meant by dodgy – according to the Rock it was only experiencing a 10% default on this back-book which meant that 90% of the loans were still performing so that’s hardly bad bank material, is it

I suppose Hoffman must be a glass 75% full man to have taken on the job in the first place but the conversation with the Rock served to remind me of how unresolved the situation is bearing in mind the bank collapsed in September 2007 and was nationalised in February 2008.

On that basis I suppose we should be patient about the long shadow of Europe hanging over the rescue of Royal Bank of Scotland and HBOS and in particular, of course, the future of the Brown-enabled takeover of HBOS to spawn the Lloyds Banking Group.

As the EC’s competition commissioner Neelie Kroes observed at the British Bankers’ Association conference in London in June, there are “problems” with Lloyds’ share of the retail banking market and RBS’s share in corporate banking and the small business sector.

Both of them may well divest of some of their assets before their government-backed enterprises receive the blessing of Ms Kroes.

That may well explain why we there is speculation about RBS resurrecting the Williams & Glyn brand that disappeared off the high street back in the 1980s and why Lloyds Bank Group has done a u-turn on closing down Cheltenham & Gloucester – both could be sold off to keep the EC happy.

The interesting thing here is how far and how much will have to be hived off to keep the EC at bay? If Halifax becomes part of the bargaining, we can truly say that the Brown stuff is still hitting the fan.