Boiling
up…. a massive Labour debt at the CoOp, fraud at RBS, Libor fiddles at
the Bank of England…and how a sorry trail of incompetent political
interference led to a haircut for innocent CoOp investors.
The Slog: There are few British bloggers with the nous and attention span of Anna Raccoon when
it comes to the history of ramifications. So she was pretty fast out of
the blocks yesterday when it came to spotting the reasons behind the
Co-Op bank’s woes at the moment. She beat the Mail on Sunday by several
hours in getting the story out. So while I was putting out smoke signals
about why Hester got the chop from RBS, and speculating on Paul
Tucker’s sudden resignation at the Bank of England, Ms Raccoon was
pointing out why the Co-Ops demise is political dynamite.
As Anna explained, a rather large political Party called Labour (new
improved not-New Labour) has a whopping £3.6m debt with the Co-Op. If
somebody somewhere decides to foreclose on that, the political fallout
will be that of an unstable isotope: accusations will explode in all
directions.
But probably of much bigger international significance is
that we are about to experience Britain’s first bailin.
Holders of
certain bond types (and we’re not talking wealthy folks here – far from
it) will get a haircut calculated by the MoS to be around 30%. I
understand it may be much higher than that. Prepare for an official
announcement as the week unfolds.
Be under no illusion, the Co-Operative Bank is in deep doo-doo. A
great deal of the problem stems from the Britannia building society and
Co-operative’s £70bn “super-mutual” merger in January 2009…a marriage
which, one might say, has never been fully consummated. IT problems
dogged the whole thing from Day One: but at heart, the Britannia loaded
on to the Co-op all sorts of bad debts and other nasties it didn’t
deserve….and then at a crucial moment, the Co-Op had its arm twisted to
take on those Lloyds Branches the EU insisted must go. This took the
management’s eye off the ball at entirely the wrong time.
The Co-Op deal was never a merger in reality: when Britannia came to
the table, it was already a busted flush. Over a quarter of its lending
business was extremely toxic, and probably more than that would’ve been
defined as ‘sub-prime’. Notably, there were no bribes to Members to get
them to approve the deal. And in the 2008 collapses, Britannia had found
itself badly exposed to two failures. There was much drivel about
“Britannia doesn’t need to do this deal, this is a merger of equals”,
but in reality it was a hastily arranged fire sale. The question is, who
twisted Co-Op’s arm to do it?
That nice Scottish country solicitor Alistair Darling already had
some serious fiscal and political problems on his plate at the time. It
wasn’t just that Gordooom was losing his marbles like a kid with holes
in every pocket: he’d already been told by the regulator that
Dunfermline BS was a disaster area – a total write-off….thanks to Lehman
et al knowingly flogging them junk. There goes yet another fraud that
was never investigated. Not only was it in Brown’s constituency, with
Britannia also a basket case, Clerical Ali was fearful of mass panic,
and desperate to avoid pro-Labour mutuals from dropping like flies. Daft
hook-ups like Lloyds and HBOS were not yet the obvious f**k-ups they
later became.
Darling’s personal reputation was also at stake: he had nailed his
colours firmly to the Mutual mast. By March 2009, he’d had to give the
Nationwide close to £1.6bn of taxpayers’ dosh to persuade them to absorb
the Dunfermline crock; and although both Britannia and Dunfermline had
been conned by banking’s mainstream sociopaths, the Chancellor knew that
this would get lost in the detail as the Conservative Opposition went
for his throat. He had to act. Let’s be more precise: Gordon Brown ordered
him to act. And not for nothing did Tony Blair, when prime minister,
remark that dealing with Brown was like “facing the dentist’s drill
without an anaesthetic”. Because the Britannia wasn’t technically
insolvent, the ‘merger’ could be engineered with the pols largely
off-stage.
But then there was a change of Government, much of this was
forgotten…..and along came the EU. As a consequence of its £17.4 billion
bailout by the taxpayer, Brussels ordered Lloyds to sell off 632
branches by the end of 2013. I’m told that Vince Cable in particular is
more than slightly perturbed by the evidence linking him to the Co-Op
and its proposed takeover of the Lloyds branches. There is gossip of
commercially unwise arm-twisting here too.
And finally, as I posted yesterday
the doors are revolving wildly at RBS, Lloyds. It seems to me that
certain key politicians are keen to distance themselves from what is
rapidly turning into an almighty mess involving Paul Tucker and Stephen
Hester.
So to sum up then, complicity in SME fraud, forcing through the
Lloyds/HBOS disaster, arm-twisting the Nationwide, a hospital pass for
the CoOp, more distraction for the CoOp on Lloyds/HBOS, and rigging the
Libor rate. What wonders politicians do perform.
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