Hearing the chief executives of Britain’s “too big to fail” banks talk up their annual results in the past few days, it was difficult not to feel a mixture of pity, respect and fear.
In particular, the heads of the partly state-owned Lloyds Bank and Royal Bank of Scotland (RBS) face demands that are logically impossible to meet and to see them trying to be everything to everyone almost produces compassion. They still put on a pretty good show, but then you realize what they cannot tell us, how their bank’s failure would be the financial equivalent of a nuclear meltdown, and you shudder.
Announcements of annual results — Lloyds and RBS last week, HSBC on Monday — come with conference calls for financial journalists in the morning and, sometimes, press conferences for lunch. The two banks dependent on the government made their top people available for informal chats in the margins of a press conference, while HSBC, which is not, made do with a conference call at which almost half the time was taken up by the heads reading out a prepared text.
The Lloyds and RBS press conferences were strikingly similar. On one side of the table were men (Lloyds had one woman, who said nothing) in suits projecting an image of control. Yes, they were presiding over banks with tens of thousands of employees engaged in very different and often wildly complex activities across the globe. Yes, they had been caught out by scandal after scandal somewhere in their vast empires, and yes, in the past their books had given a wildly inaccurate picture of the risks they were running.
However, all of this was now in the past and firmly under control, they implied, as they fired off endless numbers, percentages and ratios, and said things like: “We remain very confident of our capital position,” or “Our strategy remains centered on taking into account the interests of all of our stakeholders,” or some other cardboard public relations phrase intended to deflect a question.
Their vocabulary had been sanitized to a startling degree, with payment protection insurance and other schemes that cheated tens of thousands of trusting Britons out of their money becoming “legacy issues” requiring “customer redress.” (HSBC referred to its huge fines in the US for massive money-laundering as “regulatory and law enforcement matters.”)
On the other side of the table were the financial journalists, most of them distinctly less well-dressed. What to ask when you have only just been given a telephone book of numbers and tables?
Excluding three appendices, the RBS annual results came to 289 pages. HSBC produced 550 pages and Lloyds 165 pages. Finding the hidden risks therein was not a puzzle in which you look for an answer to a question. These annual reports, and the huge organizations they purport to cover, constitute a mystery, where the question itself is unknown.
“What was that ￡250 million [US$377 million] for?” asked one journalist. How was the chief executive’s pay structured? What did Lloyds think of the EU cap on bonuses?
The chief executives would address most reporters by their first names, then give a meaningless answer. About a third of the questions focused on the terms and timetable of Lloyds’ and RBS’ return into private hands — would taxpayers get their money back?
This was where it quickly became clear that Lloyds and RBS are asked to do the impossible. The holes in their books are caused mostly by toxic loans, but they are told to increase lending, that is to lend to parties they would otherwise prefer not to lend to. At the same time, they must increase their capital buffers, so hold on to the same capital they are told to lend.