If only MT could have been a fly on the wall when Jim O’Neil handed in his resignation earlier this week. ‘Have you any idea how bad this will look!?’ his paymasters (probably) cried. And they were right.
UK Financial Investments (UKFI) is the arm of the Treasury that has been managing the government’s stakes in RBS (82%) and Lloyds (39%) since the two banks were bailed out in 2008. The purpose of the division was to massage both banks bank into some kind of saleable shape.
The government desperately needs to realise its investment in these banks, not least because the UK economy is still in dire straits (despite narrowly avoiding a triple dip). It hasn’t got much form in this area either. Last year, the Treasury made a significant loss on the sale of Northern Rock. The bank was sold to Virgin Money for just £747m, half of the £1.4bn it spent rescuing the basket case.
Former corporate financier O'Neil is set to return to the City, picking up where he left off at investment bank Merrill Lynch. But his hasty departure could now do untold damage to government’s chances of making its money back on RBS and Lloyds. Put bluntly, his move looks like a vote of no confidence.
Of course, no one knows that for sure. Ol’ Jim is keeping his powder very dry on the subject, saying simply: ‘It has been a privilege to work on behalf of taxpayers during such a challenging period for the banking sector.’
Perhaps he has simply had enough of the daily grind, batting off accusations over inflated bankers’ bonuses, while juggling the fall-out from the Libor and PPI scandals. And then there’s the pressure from unions, who complain that the UKFI has not done enough to force the banks to behave responsibly.
MT reckons that money could be a motivator. While his £180,000-a-year UKFI salary is nothing to be sniffed at, a successful investment banker like O’Neil can make many times that in the Square Mile.
Meanwhile, government is slowly running out of options. A planned sale of 600 Lloyds branches to the Co-op fell through this week. And if George Osborne was hoping for some divine intervention to increase the chances of a successful sale, he has been disappointed. None other than the newly-installed Archbishop of Canterbury, Justin Welby, who sits on the Treasury-appointed banking commission, has called for the creation of smaller regional banks to increase competition and bring decision-making closer to local customers. With government making eyes at the big banks to take on its RBS and Lloyds burdens, these recommendations rub yet more salt in the wound.
Meanwhile, the UKFI is on the hunt for a new chief. But it’ll take some have-a-go hero to pick up this particular poisoned chalice.