PLATFORM:I remember the last time that the British government nationalised a bank. It was Johnson Matthey Bankers back in 1984 and it was because the bank had got into difficulties following some high-risk loans, which led to losses of more than €300 million. (Those were the days when losing millions not billions scared people.)
The bank was a subsidiary of Johnson Matthey, which had a long and distinguished history in the precious metals industry. The Bank of England ultimately purchased its banking division for £1 protecting it from bankruptcy, although the package was opposed by the then Labour MP, Tony Blair.
Johnson Matthey subsequently clawed its way back into profitability and - after an unsuccessful flirtation with the semiconductor industry some years ago that knocked investors' confidence - is now a chemicals and precious metals company exploiting the energy potential of fuel cell technology. Johnson Matthey gave a return of 28.7 per cent to shareholders last year, which looks good in anyone's portfolio.
Maggie Thatcher, the great privatiser, was in power at the time of the nationalisation and so, despite their differing ideologies on the subject, it's one to one as far as Labour and the Conservatives are concerned when it comes to taking banks into public ownership.
But that was nearly a quarter of a century ago. Theoretically at least, the financial markets have moved on since then, so nationalising Northern Rock (even if the period of ownership is as temporary as Gordon Brown and Alistair Darling want) has left many people apoplectic with rage. Small shareholders who know that the value of their holdings in a nationalised bank will more than likely be decimated, believe, according to their spokesman Robin Ashby, that the bank is being "stolen away from them".
The bigger boys - including the Rock's main shareholder, the SRM hedge fund - are aghast at the trashing of the UK's reputation as a world-beating financial centre as well as the trashing of the value of its investment. It's hard to consider yourself at the cutting edge when Alistair Darling is paying your salary.
There is no doubt that nationalised industries are, in the main, less efficient, less profitable and less innovative than their private counterparts. That's why most are eventually sold off. But financial markets and their capitalist whizz-kids have hardly covered themselves in glory over the past 12 months.
Well, it's not just the last 12 months, of course; it's over the last 10 years when a global economic boom was fuelled by bad lending practices and a relentless drive for growth.
Nationalised industries tend not to be relentless (unless it's in finding ways not to do something). The private sector takes the opposite view, relentlessly finding ways to complete a deal, even if it's only in the interest of a favoured few. There is clearly a balance to be found, but whether the financial services industry is the place to find it is doubtful.
One area in which the new, nationalised Northern Rock is keeping pace with the private sector it has so recently left behind is in the salary being paid to the new executive chairman, Ron Sandler. Sandler will be receiving £90,000 (€119,000) a month for his expertise (he does have some experience in basket-case financial institutions, having steered Lloyds of London back from bankruptcy in the 1990s).
According to big Ron, it is likely that the bank will remain nationalised for a number of years, during which time it "will not write as many mortgages as it has done", a strategy that will cut down on the bad loans but also on the jobs and the offices.
Paymaster Darling's view is that the bank will need to remain in public ownership until the markets recover.
Hey ho. The chancellor is pinning the UK taxpayers' money on the recovery of markets which, by embracing toxic loans, triggered the problem in the first place. The same markets in which Jerome Kerviel racked up €5 billion in losses to all but wipe out SocGen and in which the rest of the banking system posts ever increasing writedowns.
For Darling to offload the bank again, he has to have faith in people who pursue profit at all costs and for whom risk control has proven to be an anathema.
It's hard to know right now whether being a banker or being a politician is the worst job in the world. However, when it comes down to it, the bankers have the big bucks and the politicians have the board member sinecures after retirement. Meanwhile, those who had no input into an ill-thought out dash for growth are made redundant and shareholders realise that the cliché about never investing more than you can afford to lose evolved from bitter experience.
www.sheilaoflanagan.net
