Saturday, June 07, 2008

Jobs From Hell - Crock Valuation Patsy

Looking for a patsy

As BOM readers will recall, one of the messy residuals left over from the shambolic nationalisation of Northern Rock is the question of compensation for Crock shareholders (see all previous Crock blogs gathered here).

In a proper busted bank administration system - such as they have in the US - shareholders have to wait in line until everyone else has been paid out. Just like with any other busted company, they rank last, after all the depositors and all the other creditors. And until everyone else has been paid out, they don't get a bean.

But of course, under Brown's half-baked regulatory system, we never got such a clearcut framework. Instead we got a long drawn-out fumbled nationalisation. The bank neither went bust, nor got taken into so-called "special resolution". It simply got nationalised, thereby leaving open the thorny issue of shareholder compensation.

Brown's solution was to appoint an, ahem, "independent" valuer who would fix a "fair price" for taxpayers to compensate shareholders. How on earth that might be done, given that the Crock was only propped up by government loans and guarantees, was left entirely blank.

Well, guess what - nobody wants the job:

"This week, the Government was forced to advertise for an independent valuer, after failing to make an appointment, despite an original assurance that one would be in place by the end of March."

The problem?

"It is understood that many accountancy and banking firms that had considered taking on the valuation job are concerned that the Government has refused to offer an indemnity from any shareholder who decides to sue them directly for compensation."

And who wouldn't be concerned, given this government's record on dither and duplicity.

It will be fascinating to see just what kind of idiot they finally dredge up. Tyler hasn't so far received the call. But he'd be prepared to consider it in exchange for an eight figure fee, a private Caribbean island, and a change of identity.

PS Brown/Darling are still floundering about trying to mend their hopeless bank regulatory system. The latest half-baked idea is to set up another - yes, another - committee to "advise". Darling says: "We should learn from the example of the Monetary Policy Committee... a similar approach in relation to financial stability so that we can bring in outside expertise to advise the Governor ...” But as we've pointed out many times, the MPC's remit is nice and simple - one clear target. Financial stability is a whole other ball game, calling for a raft of nuanced judgements, not just about means but ends. As we've also said many times, bank regulation should be returned to Threadneedle St asap.

PPS This latest nonsense from Darling seems to have been driven by the wrangle over Rachel Lomax's successor as Deputy Governor in charge of monetary policy. The natural candidate is Charlie Bean, the Bank's Chief Economist. But for obvious reasons, HMT would rather have someone with practical experience of banks and their regulation. Hence this advisory committee- because if Governor King holds out for Bean, HMT wants somehow to inject regulatory expertise from elsewhere. Yet why are we in this situation in the first place? Becuase the other Deputy Governor - the one who's supposed to have overall responsibility for financial stability - is none other than BOM's old friend Sir John Gieve (pic), an ex-Treasury mandarin who made such a hash of running the Home Office he had to be shifted into a job where he couldn't do any damage... er... in charge of financial stability at the BoE. A role he has discharged so abysmally, the Chairman of the Treasury Select Committee reckons during the CRock melt-down he'd been "asleep in the back shop while there was a mugging out front", adding "frankly, I do not think you are doing your job." Wait! I've just had a brilliant idea: couldn't Gieve be moved into this valuation job?

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