Britain’s Dick Bove | FT Alphaville

Britain’s Dick Bove

Ian Gordon is fast becoming the UK’s answer to Dick ‘I ♥ banks’ Bove.

Last week, the Evolution Securities analyst and bank apologist rodeto the rescue of RBS, dismissing reports that the state-controlled lender might need another injection of capital.

We regard the suggestion in today’s Financial Times that RBS needs to raise additional capital as quite comical, if not a little disappointing. Many European banks do need material recapitalisation. RBS, for all its many faults, does not. For some, the argument doesn’t go much beyond the assertion that if the European banks are to be recapitalised, RBS should be included to demonstrate a co-ordinated approach. Such logic may appeal to our political masters, but is rather pathetic

On Tuesday morning, Gordon has the great and the good of the Independent Committee on Banking (which includes the FT’s Martin Wolf)  in his sights.

The appearance of the ICB panel before the House of Commons Treasury Committee yesterday afternoon made for depressing listening. There is still no recognition, let alone acceptance, by the ICB panel of the destabilising impact that its key recommendation (the creation of more narrowly defined “ring-fenced” entities) would inevitably have on the UK financial system should the Cameron government be stupid enough to implement it. Indeed, in our view, the ICB recommendations have already cast a dark shadow over already paralysed senior debt markets, so the ICB may yet play a role in extending and/or deepening the current crisis as well as being the primary architect of the next.

Tell ’em what you think, Ian.

We get the impression that members of the ICB frankly aren’t too worried about who suffers the base cost of their recommendations – which they themselves estimate at £4-7bn per annum – in perpetuity. The ICB cheerfully expects shareholder returns to suffer further material damage over and above the impact of existing measures, and the Treasury Committee appeared somewhat sceptical at the ICB claim that the incremental cost to bank customers, if expressed as an addition to the cost of borrowing might, on average, be approximately 0.1%. We heard little evidence to substantiate this view.

Now, if the British Bankers Association was looking to replace Angela Knight (we’re not saying they are, but the possibility was mooted by the Daily Telegraph in May) they could do worse than look up Mr Gordon.

Here’s an example of his lobbying.

Under questioning, at least one member of the ICB reconfirmed his view that there was no logic in retaining the UK bank levy upon implementation of the ICB recommendations as the so-called “implicit guarantee” will have been removed. Vickers, by contrast, described himself as “agnostic on the question”. We see the both the levy, and the ICB proposals for “7-10% additional loss-absorbant capital” as particularly inappropriate and unfair on “defensive” HSBC – no surprise that it has been the worst performing UK bank since the ICB report was published on 12 September.

And for those interested in the other side of the argument, last month’s column from Martin Wolf is required reading. It’s brutal in its simplicity.

Ringfencing, it is stated, would not have prevented the failures of Northern Rock or Lehman. So what? These proposals have to be set in the context of ongoing changes in the rules on capital, loss-absorbing debt, liquidity, deposit insurance, resolution and settlement. Taken together, these would have both precluded such business models and facilitated orderly resolution.

Related links
The cost of an RBS bailout – FT Alphaville
Bailing out RBS – FT Alphaville