HBOS accused of misleading the public over £4bn rescue

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Courtesy of Tom Harper @ The Independent:

A highly questionable deal between a major British bank, the previous Labour government and UK financial regulators resulted in the publication of misleading information that led the public to invest hundreds of millions of pounds in the failing bank.

An investigation by The Independent on Sunday has found the Treasury and the Bank of England were funnelling billions of pounds worth of loans to HBOS (Bank of Scotland) when it raised £4bn – without informing potential investors that it was surviving on life support from the state.

In a desperate attempt to keep its head above water at the height of the financial crash, the bank issued a £4bn rights issue, where new shares were issued to investors, in April 2008. This outlined its financial position in a prospectus signed off by UK financial regulators.

However, HBOS failed to mention anywhere in the 194-page document – which is supposed to detail all possible risks to potential funders – that its balance sheet was so dire it was being propped by billions of pounds in state loans.

Legal experts and MPs expressed astonishment yesterday at the omission, which may have seriously misled the markets and appears to have been approved by Gordon Brown’s government, raising disturbing questions about possible collusion between UK financial regulators and a major British bank. Months after the rights issue, HBOS went bust, forcing taxpayers to cover a £25bn black hole in its finances.

Gordon Brown and Alistair Darling An investigation by The IoS can also reveal that the current Bank of England review of regulators’ historic supervision of HBOS – mysteriously delayed for years – is refusing to investigate the implications of the HBOS rights issue, despite it being central to its terms of reference. Continue reading

Barclays to create bad bank

Courtesy of The FT:

Barclays will next week announce the creation of a bad bank in a bid to transform its struggling investment banking operations, which were dealt a further blow on Tuesday with the departure of the highly regarded head of its US business.

The move to exit parts of its shrinking fixed income business and its lossmaking European branch network will be announced as part of next week’s strategic update to investors, according to people familiar with the plan. The internal bad bank will be run by Eric Bommensath, the co-head of its investment bank.

The news comes as fears intensify that the departure of Skip McGee as head of Barclays Americas will trigger an exodus of bankers acquired when the UK bank took over Lehman Brothers’ US operations during the financial crisis.

Analysts and rival bankers said his departure was a blow for Antony Jenkins, chief executive, who defended last year’s higher bonus pool in spite of falling profits as necessary to avoid a “death spiral” of bankers quitting to seek a bigger pay cheque.

The bank said Mr McGee’s departure was a result of the vast regulatory burden it faces in the US. The Texas-born dealmaker was part of the Lehman team that negotiated the sale of its US operations to Barclays in 2008 and he has been seen as pivotal in holding together the business.

Mr McGee, 54, is being replaced as head of Barclays Americas on Thursday by Joe Gold, its global head of client capital management, who the UK bank hired out of the ashes of the failed Enron energy trading empire 12 years ago.

Barclays has been under pressure from investors to cut costs and rein in pay levels while coming up with a more coherent strategy for its investment bank, which is failing to generate returns above its cost of capital. Continue reading

Tax avoidance: a capital idea!

Courtesy of Private Eye:

“OFFSHORE investors avoiding millions in tax spent £7 billion on London’s lavish properties in last year sending market prices soaring.” So screamed a Daily Mail headline a year ago. What the newspaper didn’t report was that a chunk of the “offshore” purchases of prime London property were accounted for by its very own proprietor, Lord Rothermere.

Home for Rothermere, his wife Claudia and their five children is Ferne House, a neo-Palladian mansion in 224 acres of grounds in Wiltshire. But the family also has a London house on Addison Road, Holland Park, a ten-minute walk up Kensington High Street from the Mail’s Derry Street headquarters. This is no pokey pied-a-terre either. Property website Zoopla, part of Rothermere’s Daily Mail and General Trust plc group, values it at £21.75m.

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