City of London shareholders have threatened a revolt against the board of Lloyds Banking Group (LBG) over Saturday’s announcement of a £260 billion (US$366 billion) bailout by the British government.
LBG chairman Sir Victor Blank and chief executive Eric Daniels, who brokered last year’s controversial merger of Lloyds TSB with the ailing HBOS, are now fighting for their survival after being forced to give the government a majority stake in the bank, a move both had resisted. Any departure would pile fresh pressure on British Prime Minister Gordon Brown over rewards for failed bankers, following the controversy over Sir Fred Goodwin’s huge pension from RBS.
Institutional shareholders will meet the pair this week, demanding answers over the acquisition of HBOS, which generated more than 80 percent of the bad loans on Saturday placed in a government scheme to let banks insure themselves against future losses from toxic assets.
PHOTO: AFP
They are also questioning the terms of the deal under which Lloyds paid a larger-than-expected £15.6 billion fee in return for insuring £260 billion of toxic loans, and agreed to make £28 billion available in new commercial and mortgage lending over two years.
A leading shareholder said Lloyds was “largely in this position because of the decision to buy HBOS,” adding: “One or both [of Blank and Daniels] is going to come under quite a lot of pressure. That was a transaction they negotiated and recommended to shareholders, and it has turned out to be disastrous.”
The departure of two such senior executives would risk further destabilizing the bank. But members of parliament said on Saturday that lessons must be learned from Goodwin’s departure from RBS with a controversial £16 million pension pot, demanding assurances that there would be no such payoffs for failure if heads rolled at Lloyds.
John McFall, chairman of the Treasury select committee, said banks in majority public ownership should “absolutely not” agree such payoffs.
“I think it should presage a much closer involvement with UK Financial Investments [the body running part-nationalized banks]. The model of these banks has got to change fundamentally: it ain’t business as usual,” McFall said.
Government sources said it was “premature” to consider what restrictions might cover any boardroom departures.
But delegates at Saturday’s Scottish Labour conference in Dundee passed an emergency motion demanding the government pursue “every legal means” to ensure Goodwin and other bankers were not rewarded for “massive failure.”
British Chancellor of the Exchequer Alistair Darling on Saturday hailed the Lloyds deal as “another vital step in our efforts to clean up banks’ balance sheets and give them the strength and confidence to increase their lending.”
LBG will add another £6 billion in mortgage lending to the £14 billion recently promised by Northern Rock, plus £22 billion of lending to businesses. McFall said his committee would scrutinize whether the lending actually did flow freely.
However, the £6 billion earmarked for mortgages represents less than half the total loans from British lenders during January alone, when offers were at a historic low.
The taxpayer will end up with a 65 percent share in what the Treasury Minister Stephen Timms on Saturday said would be a “strong and successful” bank.
However, he failed to deny speculation that the taxpayer could lose up to £100 billion on the deal, saying only that “precedents would suggest that the loss would be a great deal less than that.”
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