Philip
Davies: I, too, will try not to detain the Committee for
too long. I will focus on Bradford & Bingley for reasons that are
understandable, given that it is based in my constituency and that many
of my constituents are shareholders, many are employees and many are
both. I have a number of questions for the Minister, to whom I am
grateful for meeting me earlier to discuss the issues that have arisen
from the nationalisation of Bradford &
Bingley. I
am grateful to the Minister for stating from the start that the case of
Bradford & Bingley is different from that of Northern Rock. Whereas
Northern Rock had been drawing down money from the Bank of England for
quite a while before being nationalised, Bradford & Bingley was not
in that position. Will he confirm that Bradford & Bingley had
£1.5 billion of equity when it was taken into national
ownership, and that the sale of the retail savings book is an asset for
the shareholders—and not for anybody else—and should be
added on? What should come off the valuation is the outstanding losses
that may be incurred on the mortgage book.
However, even
at the worst estimate of those losses, the combined equity plus the
sale of the retail banking business would leave shareholders with about
50p a share. Given that the position of Bradford & Bingley was
completely different from that of Northern Rock, it is a shame that
Northern Rock is still a trading company with a potential future,
whereas the Government have effectively ensured that Bradford &
Bingley will no longer exist, ending more than 150 years of heritage in
my local area. As I understand it, Bradford & Bingley is on a
solvent
wind-down. In
response to my intervention about the valuation of other banks, the
Minister made the point that the Government are going through a
well-trodden process. I totally accept that, but I re-invite him to
accept that the circumstances and time scales were different for
Bradford & Bingley than for any similar institution in that the
whole banking system was underwritten about 10 days after the
Government nationalised Bradford & Bingley. Surely that should be
reflected in the shareholder
valuation. What
really caused a problem for Bradford & Bingley—I would be
grateful if the Minister confirmed that this is what he has been told
by the company—is that it was taken down by a leak from the FSA,
the Bank of England or the Treasury saying that Bradford & Bingley
was looking for a knight in shining armour to take over. That was
passed to The Sunday Telegraph the weekend before, at which
point Bradford & Bingley was in a perfectly reasonable and healthy
position. That leak led to its rating being downgraded by
Moody’s and all the other credit rating agencies the next day,
when they had not planned even to look at Bradford &
Bingley’s credit rating for many months to come. That reduction
in credit rating prevented any more money from being had on the
overnight money markets, which led to deposits being withdrawn and
Bradford & Bingley’s demise. Again, that puts it in a very
different
position. How
long will it take to make the valuation? I concur with my hon. Friend
the Member for Fareham that the order states that the valuation will be
based on the value immediately before the point of transfer, which will
indicate a very clear valuation of the share price before the bank was
nationalised—20p a share, I think. Is that the kind of price
that the Minister is considering? If so, surely the valuation of
Bradley & Bingley will not take long, because the valuers will have
only to base it on the share price in the papers the day before the
bank was nationalised. I would be very grateful if he could confirm how
long it will take, or the time limit that he will impose on the valuer
to produce a valuation.
Given that
the valuation seems to be very definite, will the Minister consider
making an interim payment to shareholders before the full valuation is
known? An interim payment that he is confident will at least be reached
would have two benefits: first, it would give some money back to the
shareholders, while not costing the Government any money, because they
will be giving it to them anyway; secondly, the Government believe in
providing a fiscal stimulus to the economy. There would be no better
way of boosting the economy in my area than putting more money into
shareholders’ pockets, some of which they could then go out and
spend. I urge the Minister to practise what the Prime Minister has been
preaching about a financial stimulus and to make an interim payment to
shareholders.
I have two
final questions, both of which need answering if we are to know whether
a fair valuation will be reached. First, were there any other bidders
for the Bradford & Bingley retail deposits when they were sold to
Santander? If so, were some of those other bids higher than that made
by Santander? My understanding is that at least one, and perhaps two,
other bids were on the table, one of which might have been higher than
that made by Santander, but that for political or other understandable
reasons the Government accepted a slightly lower bid from Santander.
Surely, the higher bid should represent the valuation that shareholders
receive. Finally,
will the Minister publish the 10-year—I think—business
plan being prepared for him by Richard Pym, the chief executive of
Bradford & Bingley, to assess its likely performance over
forthcoming years? Will he make public its 10-year profit forecasts so
that we can see whether any valuation is fair and reasonable? He might
say that that information is commercially sensitive, but given that
Bradford & Bingley is in effect no longer trading, offering new
mortgages or operating in the marketplace, surely it is not. He could
publish it freely without any impact on its business in order to give
us a fair understanding of whether shareholders in Bradford &
Bingley are getting a fair
deal. 5.3
pm
Sir
Alan Beith: I would like to raise three quick points with
the Minister following his helpful explanation at the beginning of this
debate. The first relates to the difference between the situations of
the Bradford & Bingley and Northern Rock compensation arrangements,
to which hon. Members have alluded. As a constituent of mine asked me,
why could private shareholders in Northern Rock not simply sit on their
shares until it is re-privatised, whenever that might be, and take
their chances
then? My
second question relates to the Treasury’s potential conflict of
interest, which has also been referred to in this debate. In ensuring
that compensation is nil in these cases, the Treasury is acting in the
UK taxpayers’ interests. However, it has at the same time had to
do another job, because the Ministry of Justice has given it the job of
representing the Isle of Man and Channel Islands Governments in their
negotiations with Iceland and in relation to the International Monetary
Fund loan, and those interests are different. Securing a nil burden on
the UK taxpayer is surely the primary Treasury responsibility. Securing
the availability of more money that could be distributed to the Crown
dependencies and therefore used to pay depositors in those dependencies
is a different interest. I am intrigued to know how the Minister has
managed to ride both those horses at once in the negotiations, or
whether he recognises that there is a
difficulty. Thirdly,
one of the things involved in these cases is the transfer of a savings
book to ING and a savings book to Santander in the Bradford &
Bingley case. When the Government or the regulators or both assist,
promote and approve a transfer to a particular bank, no doubt seeking
to act in the interests of depositors, there nevertheless remains on
the part of those depositors a sense that they are now with that bank
as a result of the Government having given their approval. When that
situation arises, questions are asked by people who were, for example,
with the Derbyshire building society or the Cheshire building society,
who say, “Well, it was with official approval and entirely
without any wish on our part that we found ourselves transferred to
various offshore accounts.” What is the Government’s view
of situations in which they have somehow secured such a transfer,
without any action on the part of the depositors, to another bank in
the event that that bank gets into
trouble? 5.6
pm
Ian
Pearson: Let me first deal with the questions asked about
the Icelandic banks and then move on to discuss Bradford & Bingley.
The right hon. Member for Berwick-upon-Tweed asked how we could ride
both horses, representing the Crown dependencies and UK
taxpayers’ interests. We are well used to doing that. It is
normal practice that we negotiate on behalf of the Crown dependencies.
The key point in this instance has been to ensure that all creditors
are treated fairly. We have been arguing strongly, both with the
Icelandic authorities, as I have mentioned, and in other international
forums such as the IMF, to ensure that that is the
case. The
right hon. Gentleman and the hon. Member for Fareham asked how we could
be sure that the price of the transfer was fair. As will be
appreciated, it is not normal Government practice to comment on the
process that was gone through in terms of how many offers the
Government received, as that type of information is commercially
sensitive, but for Heritable and Kaupthing Singer & Friedlander,
there was certainly the potential for a negative profit margin for ING
Direct and for other bidders as well. Obviously, amounts of £1
million and £5 million respectively for Heritable’s
deposit book and that of Kaupthing Singer & Friedlander are very
much nominal
considerations. It
should also be appreciated that Heritable and KSF are required to pay
back the total of all costs and liabilities owed to the public sector
in transferring the liabilities. The amount owed by Heritable
to the Financial Services Compensation Scheme is approximately
£500 million and to the Treasury is approximately
£45 million. The amount owed by KSF to the
FSCS is approximately £2.5 billion and to the Treasury
is approximately £550 million. We have discussed
those amounts in other Committees, but it is fair to point out that
they are considerable sums that at the moment are being underwritten by
the taxpayer and the FSCS
respectively. The
FSCS and the Treasury paid to ING cash equal to the amount of the
deposits, less the sums of £1 million and £5
million respectively. The Treasury’s claims in the two
banks’ administrations, as I have just mentioned, will be
reduced by the same sums, so that the banks will receive the benefit of
those. I
shall now move on to some of the questions raised about Bradford &
Bingley. I should like to comment first on the threshold conditions and
the reason why the action was taken. Paragraph 4 of schedule 6 to the
Financial Services and Markets Act 2000 provides that an authorised
deposit taker must, in the opinion of the FSA, have adequate resources
in relation to its regulated activities. On 27 September, the FSA
decided that Bradford & Bingley no longer had adequate resources in
relation
to its activities as a deposit taker and was unable or unlikely to
satisfy claims against it. Accordingly, had the position not been
rectified by immediate action, the FSA would have been obliged to
cancel, pursuant to section 45 of the 2000 Act, Bradford &
Bingley’s permission to carry on regulated activities and
withdraw its authorisation pursuant to section 33 of that Act. Bradford
& Bingley would, therefore, have been unable to accept deposits
when it opened for business on Monday 29 September.
Therefore, the FSA made a decision based on its opinion of adequate
resources. I stress that key point in response to Committee
members’
questions. Mr.
Hoban: The Economic Secretary will know, from our
discussion of the relevant section of the 2000 Act in the Banking Bill
Committee, that it covers a wide range of issues. Which aspects of the
adequate resources rule did Bradford & Bingley
breach?
Ian
Pearson: The judgment was made by the Financial Services
Authority. I do not want to get into the detail, which I am not sure is
in the public domain. It was clear, in the FSA’s view, that
Bradford & Bingley had failed that test, which is why the threshold
conditions were triggered and why action took place over the weekend,
as I outlined in my initial contribution, with a lot of people working
and trying to come up with a
solution. Let
me now respond to the concern raised by my right hon. Friend the Member
for Greenwich and Woolwich, in relation to a particular concern of one
of his constituents, about whether we are employing the same
assumptions in respect of the valuer of Bradford & Bingley, as we
imposed on the valuer in the case of Northern Rock. Just to recap, so
that Committee members are aware, in respect of Northern Rock the
valuer had to assume, first, that public support was withdrawn and no
further public support was provided, secondly, that Northern Rock was
not a going concern and, thirdly, that it was in administration. In the
case of Bradford & Bingley, only the first assumption applies.
However, it is worth noting that Northern Rock shareholders’
principal complaint is in relation to the first assumption,
which is mandatory under the Banking (Special Provisions) Act
2008. That also applies to Bradford & Bingley.
Clearly,
Bradford & Bingley’s position was not the same as Northern
Rock’s. When it was taken into public ownership, Northern Rock
had, as I have said previously, been in receipt of substantial
institution-specific financial assistance for more than five months, in
the form of loans from the Bank of England, and the Treasury had
provided guarantee arrangements. By contrast, no Treasury guarantee
arrangements had been provided for Bradford & Bingley and no
facilities had been provided to it by the Bank of England that
were also not open to all qualifying institutions. As a result, the
decision was taken and we thought it not right to impose further
assumptions beyond the mandatory assumptions in the 2008 Act.
Therefore, it will be for the valuer to assess the implications of
those assumptions. In all other respects, the Bradford & Bingley
compensation order mirrors the Northern Rock compensation
order. On
the other point that my right hon. Friend mentioned, about how
creditors will be treated, it is up to the independent valuers to make
decisions based on the findings and their remit. However, I do not
think that his constituent should feel that his case is likely to be
treated as having any less worth than the cases of
constituents who have shares in Bradford & Bingley. I understand
that his constituent has shares in both
organisations. Mr.
Raynsford: I am grateful to my hon. Friend for that
explanation. The specific concern that my constituent raised was the
assumption that the position of bondholders in Bradford & Bingley
was below that of others in the pecking order, in comparison with the
position at Northern Rock. I do not expect an instant answer from my
hon. Friend on that, but I would be grateful, if I forwarded a copy of
my constituent’s letter to him, if he looked into the matter and
let me know if there is any substance in that concern, and if so, what
is the reason for
it.
Ian
Pearson: I will happily receive my right hon.
Friend’s letter and make sure that it receives adequate
attention, and that he gets a prompt
reply.
Philip
Davies: I am pleased that the Minister has agreed to do
that for the right hon. Member for Greenwich and Woolwich. Many of my
constituents have raised exactly the same issue with me, and I would be
grateful if the Minister also responded in kind to
me.
Ian
Pearson: Without breaking any confidentiality with regard
to my right hon. Friend’s constituent, I shall make sure that
the Committee also receives a
response. Hon.
Members have asked several detailed questions, which I shall try to
answer. The hon. Member for Fareham asked who will pay for the
compensation. I am afraid that it is the taxpayer who pays for
compensation, as I am sure he knows. He also expressed the view that
Bradford & Bingley is likely to do better than Northern
Rock—I think that those were the words he used. That is a matter
for the valuers of the two companies, and I would not be expected to
comment on that. Just to be clear, however, article 3 of the
order does not require the market price of the shares to be
the basis of the valuation. The valuer has to look at the value of the
company immediately before the transfer, excluding the benefit
of any Government assistance. That is not the previous ruling market
price.
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