If we think we've got problems with Fred the Shred!!

In the United States there is the ticklish $165m problem of retention bonuses for AIG, we have the smaller problem of the pension pot of Fred the Shred, who built and then destroyed Royal Bank of Scotland (RBS) with the help of a few others on the way. I am not that interested in the size of the pension pot but in the fact that business mogul and now new Labour minister Lord Myners ending up holding the pension pot baby.
I have read many an article extolling the gifts of Lord Myners and I remember seeing him in the City of London holding two enormous briefcases followed by a PA holding more stuff. That is how important he was. Now, Lord Myners has been left holding the baby and that is something British civil servants are there to prevent. However, in these rarified circles, everyone has amazing pensions, Fred the Shred, Lord Myners and especially the civil servants.
Lord Myners has found out the hard way about politics. He has to take the can for a relatively minor detail in the scheme of things while his political bosses can escape more major indiscretions. Lord Myners will have found he has a raft of political enemies and quite a few are probably located in the Treasury.

Zombie banks!! Don't you just love them.

There seems to be more alarm over the Zombie banks in the United Kingdom than about the paying of RBS pensions to Fred the Shred and Lord Myners etc. It was thought that one of the main factors of the deflation or lost decade in Japan was the failure to clean up the balance sheets of the prinicipal banks. These were stuffed full of bad debts and stopped the Japanese institutions lending to businesses.
The situations are not strictly comparable in the sense that the Japanese property bubble was so big.
However, in the UK there is a marked reluctance of the main banks to confess to the full range of lending horrors. Negotiations between the UK Treasury and Lloyds Banking Group have stalled. The CEO of the British bank, Eric Daniels, is apparently trying to keep the state's shareholding at below 50 pct. He does not want to suffer the fate of Royal Bank of Scotland (RBS), which will be 95 pct owned by the UK Treasury.

Has "Fred the Shred" bankrupted Britain?

On a day when thousands of Britons are downgrading their foreign holidays for 2009
(less time away, non-Euro location, or not at all), we must be wondering if Sir Fred Goodwin, former chief executive of Royal Bank of Scotland, has bankrupted Britain. The nationalisation of RBS looks inevitable but quite a few observers consider that the UK will have trouble handling the bank's foreign liabilities.
What will bankruptcy be like? Hopefully, the Brown government will reach a deal before then with the IMF or with the European Union or with both. The IMF tried and tested formula (which probably does not work very well) is to have public sector cuts. In the 1930s teachers suffered pay cuts and obviously I don't think the Labour government would like to attack one of its natural constituencies but it might be
considered.
Ireland is trying to negotiate a pay deal with the unions over the public sector. Its economy is being hit by factors such as the euro interest rate and by the euro exchange rate (depreciation in sterling), which is affecting its exports. If it was not for possible deflation, both Ireland and UK could get away with a pay restraint deal involving below-inflation rises. It looks like the pay freezes and zero bonuses of the private sector will be transferred to the public sector.
Back to Fred the Shred, a former darling of New Labour. I bet Gordon Brown wished he had never met him. RBS has admitted that it overpaid by £15bn to £20bn for Dutch bank ABN Amro but Fred the Shred just ignored the criticism of the deal at the time. He just had to get one over Barclays. It is not hindsight. Quite a few people said the deal was pants but the RBS board and shareholders, the FSA, the Bank of England, the government did not feel it was up to them to do anything about it.
What will bankruptcy feel like? I suppose there could be a Latin American rush to the banks and building societies by people to convert their savings into dollars. There might be emergency exchange controls to prevent people taking foreign exchange out. And Gordon Brown will still be there talking about fairness, enterprise etc while the Queen is approving the establishment of a National coalition government.
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Probably all of a pipe dream. Although Gordon Brown is being found out by events I want him to succeed in the bank rescue. However, he has got to give himself a chance. Last weekend rather than trying to lead the UK government in this deadly serious financial/economic crisis he was in Egypt discussing Gaza. This might be good for the ego but looks like he is shirking domestic problems.

Fred the Shred walks the plank!!

People will wonder how did a massive, proud organisation like the Royal Bank of Scotland succumb to nationalisation. Buying Dutch bank ABN Amro was in retrospect a very bad idea but it was obvious that Fred the Shred wanted to put one over Barclays,
which set the ball rolling. This year's £12bn rights issue was again in retrospect not enough capital but Fred the Shred should have perhaps gone then. However, he should certainly have been replaced in the negotiations with the UK authorities.

It is thought that the UK government taking control at Royal Bank of Scotland (RBS) and at Halifax Bank of Scotland (HBOS) will put a dent in the SNP's ambitions for Scottish independence. Perhaps, the party will make a bit of a comeback asking for representatives on the respective boards.
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Apparently, Gordon Brown and Alistair Darling will say there will be no state interference but if the state holdings are in place for a long time, then there will be government control.

At least UK bank shares have recovered a bit today.

Today has seen a new era for the main UK banks with a £50bn government package, which would see their partial nationalisation. We have lost Fred the Shred at Royal Bank of Scotland (RBS). It looks like this particular bank has been singled out by the authorities.
Looking at this issue again, it is not clear that Fred the Shred has gone gone although there are reports naming his replacement. RBS has been making no comment on the fate of the illustrious bank executive. I looked at the corporate website and there was also no mention of the collapsing share price.
There is some discussion that the British government wants dividends suspended by the banks, which would obviously affect their share prices. In any event dividends on the government's preference shares would obviously crowd out the ordinary stock. It would be interesting to see how long the government rescue package would have to go on for.
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