Examination of Witnesses (Questions 1-19)
SIR DAVID
COOKSEY, MR
JOHN KINGMAN,
MR KEITH
MORGAN AND
MR JOHN
CROMPTON
4 NOVEMBER 2009
Q1 Chairman: Welcome to this hearing
on UKFI. Can you introduce your colleagues, Sir David?
Sir David Cooksey: Do you want
me to say a few words to start with?
Q2 Chairman: No. Just introduce your
colleagues.
Sir David Cooksey: On my right
is John Kingman, who you will know well, chief executive of UKFI.
He has previously spent 15 years with the Treasury. On his right
is Keith Morgan, who is head of wholly owned investments, who
started life as a management consultant but has had a long period
at Abbey followed by Santander in retail banking until he joined
UKFI two months ago. On my left is John Crompton, who started
his working life in the Treasury and spent a number of years with
Morgan Stanley, went back to the Treasury again and back to investment
banking and joined UKFI at the beginning of the year.
Q3 Chairman: I understand you will
play no role in enforcing or monitoring the lending agreements
between the Treasury, RBS and Lloyds, but you are involved on
a day to day basis with these firms. Are they complaining to you
that the terms are too onerous?
Mr Kingman: No, they are not and
we as shareholder are very clear that we expect the banks to meet
the terms of any commitments they have signed with the Treasury.
What our banks are saying to us is that there are attractive lending
opportunities out there, both in residential lending and in SME
lending, but as you say the task of ensuring that the commitments
is one that the Treasury is undertaking.
Q4 Chairman: Have you had any role
in negotiating the lending agreements given the impact of the
firms' potential balance sheets and future profitability?
Mr Kingman: We had limited involvement
partly because it was originally envisaged that UKFI might undertake
the monitoring role. It is now well established and understood
though that the lending agreements are conditional on there being
attractive opportunities on commercial terms. In other words,
the banks are not required to undertake high risk or uncommercial
lending. We are clear that we expect the lending agreements to
be met.
Q5 Chairman: I asked the Chancellor
yesterday in his statement on banking reform—perhaps you
have seen it—and I was seeking that the lending agreements
should be even more transparent so that we can monitor and track
the lending in the country. The response we get from businesses
is variable in terms of that information. The Chancellor did say
that it is important to get to the bottom of all these lending
problems. How can we make it more transparent so that people can
get a handle on this?
Mr Kingman: Firstly, the lending
agreements themselves are published. They are available on the
Treasury website. The key to this will be the annual assessment
that the government will be publishing of the banks' performance
in meeting the agreements. The first one of those will be next
year.
Q6 Chairman: Yesterday, Stephen Hester
in a media conference call stated that RBS were "in dispute"
with the government over a clause in the APS agreement over the
potential to take control of assets. How firm are the agreements?
Mr Kingman: We are not involved
in that direct issue. The APS agreement is an agreement between
RBS and the government. The role that we have played—and
it has been quite extensive in the run up to the announcement
yesterday—was in giving the government quite a lot of advice,
both in the context of Lloyds and in the context of RBS, on what
would be the impact of various scenarios in the government's investment
on the value of the shares the government held. We are not in
the direct line of fire on the clause by clause negotiations on
the individual APS terms.
Q7 Chairman: What did he mean by
being in dispute?
Mr Kingman: We have no involvement
in the discussion that RBS is having with the government on that
point, I am afraid. It is not a responsibility UKFI has.
Q8 Chairman: Since you have over
80% of the bank you must know what the right hand is doing here.
Mr Kingman: We are not interposing
ourselves in a negotiation between RBS and the government.
Q9 Chairman: Is it a case of hear
no evil; see no evil, Sir David?
Sir David Cooksey: Not at all.
We have been advising the government all the way through on this.
There is a separation of duties here.
Q10 Chairman: On a simple level,
if I own 84% of something and the chief executive of what I own
says I am in dispute, I would want to know what was happening.
Sir David Cooksey: This is very
recent. We will certainly inquire and come back to you if that
is helpful.
Q11 Chairman: It does not need a
question from the Treasury Committee to say that you are going
to inquire. Surely we are not at that level yet, are we?
Mr Kingman: There is an important
point here which is that there are an awful lot of bodies involved
in various aspects of the financial crisis and getting out of
the financial crisis. We think we have to be clear about what
we are there for and what we are not there for. The APS negotiations
have been a huge thing over nine months or so and vital to the
survival of the banks. We have played a role in giving advice
as effectively the Treasury's investment manager on the structure
of those contracts and so on but we do not have sight of the individual,
contractual negotiations over the clauses of what is a very extensive
agreement. That is something the Treasury is in discussion with
RBS about and we do not have a role in that. It would not be proper
for us to have one.
Q12 Chairman: The case you put articulately
but the logic of it defies me.
Mr Kingman: How many cooks do
you want?
Q13 Chairman: You are the cook with
84%, for God's sake, the head chef.
Mr Kingman: We are not the head
chef. This is really important. The APS is an insurance policy
created by the government which is vital to the survival of RBS.
The government has also asked us to manage the government's investment
in RBS. Those are two different things.
Q14 Chairman: In the Chancellor's
statement yesterday on the European issue, he said the new banks
are being created but if no bank is allowed to go over 15% of
the market then big players such as Barclays cannot bid. Some
would argue that by excluding the big players the government will
not get much of an auction going. How would you respond to that
criticism?
Mr Kingman: I do not think that
is likely. Firstly, the banks have I think sensibly been given
a four year period to make these disposals. That is a very important
thing because it means we are not faced with the danger of having
to make fire sales which could have left enormous losses for the
taxpayer. We would expect to see healthy interest internationally
for the kinds of assets that are going to be disposed of. We do
not expect to be in a position where the banks will be selling
these assets for less than their true value. I think the key to
that is the timescale.
Q15 Chairman: We get numerous complaints
from individuals about the large disparity between the rates that
banks charge for credit and the Bank rate. How many new players
in the banking sector do you believe it will take for customers
to see the benefit of competition?
Mr Kingman: The announcements
made yesterday are going to have a very significant impact because
they are going to bring a number of players into the scene. The
dynamic of the market is different from what it was before the
crisis inevitably. There are fewer players. What I think the government
is seeking to achieve is to have more players in the market and
that is going to be the key to customers knowing they are getting
fair terms.
Q16 Chairman: Do you feel confident
that all the firms in which you hold shares, whether fully owned
or not, have made all the provisions they need for their problems?
In other words, do you envisage there will be larger write downs
in future, given the IMF strictures on this?
Mr Kingman: This is a crucial
issue to working through the crisis. We as shareholder have certainly
pressed and encouraged our banks to be proactive in facing up
to the losses that are on their books. We think it is hugely important
from their point of view and from our point of view as shareholder
that they do that; but the reality is that the losses they are
exposed to are going to depend fundamentally on the future path
of the economy. Therefore, I do not think anyone could say with
any certainty that we are out of the woods yet. I would expect
the process of working through the losses at all four banks to
take some time yet.
Q17 Chairman: Would you agree with
David Miles, MPC member, when he came before the Committee and
described the banks in general as on life support?
Mr Kingman: I have not seen his
exact remarks.
Q18 Chairman: He made them here so
you can take them as read from me.
Mr Kingman: It is absolutely the
case that both our investing banks and other British banks are
currently still dependent on a variety of forms of public support.
Without that support, they would be in a very bad condition. I
have not seen his exact remarks but I think it is a fair characterisation,
yes.
Q19 Sir Peter Viggers: The Prime
Minister has said, "We expect that when we have completed
the restructuring of the banks the taxpayer will benefit financially
from that, not lose money." Do you share that assumption?
Mr Kingman: I do. We have not
made any forecast of possible proceeds from sales of our investments.
I think that would be literally impossible to do but as a matter
of judgment, if you are asking my personal opinion, I would certainly
expect us to see a positive return on our portfolio over time.
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