By Hermes Solomon
IN OCTOBER 2008, the Royal Bank of Scotland (RBS) and Lloyds TSB/HBOS received a total of £37bn of taxpayers’ money from the UK government of Gordon Brown and his Chancellor of the Exchequer, Alistair Darling.
In return for the investment, the government would have a say in how the banks were run, including controls over the bonuses paid to management.
BBC business editor, Robert Peston said at the time that “the banks faced absolute humiliation and the bail-out would count as perhaps the most extraordinary day in British banking history.”
As a condition of the deal, the government insisted that senior directors should get no cash bonuses in 2008, with future bonuses to be paid in the form of shares – a move aimed at encouraging management to take a more long-term approach. Board members were replaced overnight.
What the government didn’t say was that many branches would be closed down or sold off in blocks to other banks and most middle to upper management be sacked and replaced by ‘young post grads’ at half the cost, their jobs being to sell services like trust funds/bonds/ISA’s and house/car/holiday insurance, etc. rather than advise customers on how best to save, reduce credit card debt and lower borrower mortgage repayments.
A 32-year-old manageress of a small RBS branch in the Midlands was ‘promoted’ to managing four branches instead of the one with no increase in salary, the three other 40-something managers losing their jobs. Counter service was given over to post O and A-level adolescents, which reduced wage costs drastically. Accusations of exploitation and child labour were disguised as ‘a need to rationalise and consolidate’ – a fine, and soon to become, a universal phrase!
But the banks have survived, Lloyds separating from TSB and Lloyds Offshore, while RBS split its commercial and real estate business.
Four years later, the Bank of Cyprus was bailed-in/out by depositors and the government, with help from the troika, took over the Co-op, all concerned still arguing the toss over board members, interest rates, banking restrictions and splitting commercial and real estate at the BoC, the reorganised Co-op, and probably at the Hellenic Bank as well.
Interestingly, Hellenic’s share climbed 18 per cent the day before dealing was halted at the stock market, a friend having just purchased his rights issue of 55,000 shares at 5 cents a share when the stock stood at 6 cents. What will Hellenic’s shares be worth when re-quoted after three new ‘foreign’ investors took over 85 per cent of the bank’s stock? A couple of cents?
If UK banks faced absolute humiliation and a bail-out that would count as perhaps the most extraordinary day in British banking history, then Cypriot banks by comparison face doom.
Cyprus is grossly over-banked, serving an ever impoverished clientele. Extending non-performing loans (NPLs) will only delay developer foreclosures as the recession bites ever deeper into earnings and savings. Unless running costs are reduced drastically, there is little hope of a recovery in our banks, which means an eventual huge number of jobs losses and closures, and more importantly, forced foreclosures on NPLs, whatever politicians say.
Lowering of interest rates by paltry amounts does little to assist those a year or more behind with interest and capital repayments, many having renegotiated loans at up to 14 per cent APR. And credit/debit card debt sits waiting to pounce.
It is a lie to pretend that depositors are removing their savings and taking them elsewhere. Where can they take them exactly? The truth is that many depositors are removing their savings to survive, especially the recently unemployed, while the less young now think it wiser to spend their money rather than save.
So over extended were individuals and our banks in 2011 that it only needed a butterfly to flap its wings over the Amazon for a hurricane to decimate the Cyprus financial services sector. This sector had been balancing on a tightrope for years until the troika removed the tightrope last March with many seemingly secure borrowers thrown to the ground from a great height.
The new CEO of the BoC (former investment banking chief at RBS) John Hourican will undoubtedly insist on major cuts in the number of branches and staff. Middle management will be axed and replaced by competent counter clerks, who will themselves be replaced by ‘school-leavers’ at incomes conforming to these ‘hard times’.
The UK model is heading here fast. Former ‘insiders’ familiar with the ‘battleground’, will be required to reword/rework troika demands to employees in such a way that the banker’s union ETYK will be unable to take the government to court in long, drawn out litigation.
A similar modus operandi will eventually be forced upon our grossly over-staffed and inefficient civil service. And why shouldn’t it when 45 per cent of our educated under 25s are unemployed?
As we all know only too well, solving the Cyprob always was and always will be a question of wording – fine universal phrasing! Justified accusations by all political parties of the UN Security Council’s betrayal of resolutions will not stop the south being led by the hand towards some sort of confederation indistinguishable from permanent partition.
We no longer have time on our side to mess around. The troika and UN want, and we must provide! Above all, troika demands will eventually run roughshod over our banks, the civil service and SGOs, as will the Security Council over the Cyprob, whether we like it or not.
Tell me, how was our football federation (KOP) coerced by FIFA into signing a joint venture with the TRNC’s football federation (TCFA)? Evidently, KOP was made an offer it couldn’t refuse even though the TCFA are now unhappy about ‘the wording’. Happy or not, both signed. And if that isn’t a sign of times to come in all future negotiations, I don’t know what is!