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What did the bank break up do for mortgage lending? Not much. On the day of the
announcement, neither Lloyds or RBS made any commitment to lend more.
Who can blame them? The money these banks are raising is not for normal trading
purposes. It's being used to shore up their balance sheets, through a combination
of additional capital and insurance against potential future losses on toxic assets.
The government is pushing these banks to build-up capital - which implies a contraction
of lending. Rather misleadingly, the government is simultaneously demanding they
lend more. Ministers have failed to come to terms with the uncomfortable reality
that its interest as a shareholder in these banks is in conflict with its interest
as a steward of the economy.
These banks have been given two irreconcilable instructions: to improve their capital
strength while simultaneously lending more. At least, with these fundraisings, the
first of these orders has finally been obeyed. Once the cheques of shareholders
and the taxpayer have been banked, both RBS and Lloyds can finally move on.
Unfortunately, however, this does not mean that either is now in a position to begin
lending more. Their current trading prospects will not allow it. The chances of
RBS returning to profit have been damaged by the order to sell some of its most
profitable assets. And now the investment-banking arm of RBS isn't allowed to pay
meaningful bonuses, it will inevitably become less profitable as its rivals hoover
up its talent. That will leave RBS with less scope to lend – not more.
From that point of view, this has been a non-event for lending. The government has
missed the point.
Brokers' best hopes now lie with the new sell-off banks. They should be more willing
to lend mortgages than their loss making state-owned ex-parents. |
