Lord Myners is sitting on a sofa in his office in the Treasury, drinking
coffee from a mug with the slogan Keep Calm and Carry On, the wartime
message from the Ministry of Information.
Dressed in his trademark open-necked white shirt and black suit, he is
relaxed. He wasn’t always so calm.
This time last year he was enjoying what he describes as a perfect portfolio:
chairman of Guardian Media Group, Land Securities, the Tate and the Low Pay
Commission.
Then, on the afternoon of Sunday, October 5 last year, he had a call from
Gordon Brown. The banking system was in crisis and the Treasury needed
someone who knew the City intimately to help out.
Myners, 61, joined Brown’s “goats” (Government Of All the Talents). He was
offered a new ministerial car but used Digby Jones's, who had just left
office. Unfortunately, he says with a smile, the rear suspension collapsed a
month later. Myners was ennobled, made financial-services secretary and
thrust in at the deep end. “It was pretty well straight into action,” he
says.
That action was the rescue of the banks. Was he surprised by the extent of the
bailout? “When I stepped across the threshold I became privy to briefing
materials in the Treasury. The quality of the young officials who worked
with me was extraordinarily high, so much better than most of the investment
bankers,” he says.
“Royal Bank [of Scotland] and HBOS had a significant shortfall that had not
been recognised by their boards. I can remember one bank chairman — I’m not
saying who it was — shaking his head and saying, ‘This can’t be true’.”
Stories abound of bank chairmen and chief executives refusing to accept the
diagnosis of the authorities because they did not want to operate with large
state stakes. How true was that?
“The issue of ‘what does this mean?’ was very much in the minds of those who
were considering whether they should take public capital,” says Myners.
“Would we be an arm of the state and would we be free to set our own
remuneration policies? But the focus was on capitalisation and liquidity.
“What we were offering was very substantial, although with hindsight one can
argue that although it met all the definitions of shock and awe it was
inadequate because of how precarious the situation had become, particularly
at RBS.”
He has compared rescuing the banks to fighting off Sir Philip Green when he
was chairman of Marks & Spencer, but concedes this was much bigger. “I
had lived quite a quiet life,” he jokes.
There was no template to draw on for the rescue. Did it feel like a huge leap
in the dark? Myners insists not.
“I don’t think it was a leap into the dark,” he says. “It was like having a
number of patients in a hospital ward and we were pretty clear about those
whose conditions were most chronic. It was a pretty carefully calculated
series of initiatives.”
The rescues will, he believes, turn out to be a good deal for the taxpayer.
The Treasury has made provision for unrealised losses on the bailout of 3.5%
of gross domestic product, roughly £50 billion, but he predicts taxpayers
will end up with a profit.
“I’m confident it will be clear that those investments were made on
commercially sensible terms, that we will sell our shares at a profit and
that we will earn appropriate fees for the risks we have taken on in respect
of credit guarantees,” he says.
“We haven’t completed the asset protection scheme [APS], but I have a high
degree of confidence that the taxpayer will both enjoy the economic benefits
of the actions we took and in a rather more simple and evident way the total
proceeds received from our involvement with the banks will exceed the
investments made.”
The weekend of October 11-12 last year, when all the banks gathered at the
Treasury, will be remembered as the time when Britain stepped back from the
abyss.
It will also be recalled as the occasion when Myners allowed RBS’s Sir Fred
Goodwin to get away with his pension of £700,000 a year (which Goodwin later
agreed to reduce). Myners insists he was misled by RBS.
“I had asked HBOS and RBS to bring their senior independent directors,” he
says. “I did not make that request of any of the others. I knew we needed to
make management and leadership changes.
“Certain members of RBS had started discussions before that weekend and they
had agreed that they would exercise discretion in a way that was favourable
to Sir Fred. That was not disclosed to me.”
He also clearly thinks, though will not say so explicitly, that the focus on
Goodwin’s pension was disproportionate when there were much bigger matters
at stake.
“The Treasury select committee had me in for a couple of hours and could have
asked lots of questions about the extent of the government’s liabilities,
how we reached agreement on terms, the pricing of the APS and so on. They
chose to spend an hour and 20 minutes on Fred Goodwin. That’s their choice.”
The bank bailout worked as well or better in Britain than elsewhere. “British
banks are now quite strongly capitalised in comparison with those in a
number of jurisdictions,” says Myners.
Lloyds is considering reducing participation in the APS, raising capital from
shareholders instead. “It’s not entirely up to them,” he says. “It’s up to
the FSA [Financial Services Authority] and the Treasury forming a view on
the strength of Lloyds’ capitalisation. They would have to reach an
agreement with us to compensate for the cover they have had to date. We’re
not in the business of giving free insurance ... There’s a lot to be done.
Lloyds can’t say unilaterally, ‘We don’t need the APS’.”
Are bank customers, particularly business customers, feeling the benefit of
the rescues?
“I’ve been particularly encouraged that larger companies have been able to tap
in to equity markets and, no doubt partly as a consequence of [quantitative
easing], the corporate bond market has seen very active issuance. We
continue to be focused on the flow of credit to medium-sized businesses,
though there is a question of whether it is inadequate availability of
credit or lower demand.”
Myners gets to his desk at 7am and surfs political and financial blogs on his
three PCs. He relishes debate. “What I’m trying to do is emphasise that
there were failures of governance within companies ... but also say why
weren’t shareholders more evident in their contribution? I find it quite
frustrating that the institutional shareholders don’t have an appetite for
reflecting on what they might do better.”
Having spent three decades as a successful fund manager, what does Myners
think of Lord Turner’s suggestion that much of what goes on in the City is
socially useless?
“Much of what goes on in financial services is hugely beneficial,” he insists.
“Whether the growth of derivatives has gone further than necessary is more
debatable.
“I certainly think there is a case for saying that a lot of M&A
[mergers and acquisitions] activity probably adds little real value.”
Myners would be expected to return to business if Labour loses the election.
This, he says, is not something he is contemplating. The Tories will be
found out by voters and, for a non-politician, he has a good line in
political sledging.
“The flakiness of the Tories’ thinking on the economy will become increasingly
evident,” he says. “George Osborne evidences little more than a thin veneer
of economic understanding. He is a child of privilege who has never really
experienced the real world.”
Darling, on the other hand, earns Myners’ praise. “Alistair is a first-class
chancellor,” he says. “If you look at some of the calls he’s made at
critical points, this chancellor has made some very tough decisions. He is
extraordinarily calm.”
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