Written evidence submitted by UK Financial
Investments Ltd
I am writing to provide some details of UKFI's
first year of work with our investee companies, and an update
on our work to implement the recommendations from the Committee's
Banking Crisis report, in advance of our hearing with the Committee
this Wednesday.
Over the last year UKFI has discharged its remit
as an "active and engaged shareholder" in RBS and L1oyds:
— The boards of both banks have been substantially
overhauled. At RBS there is a new chairman and CEO; most of the
previous non-execs have left; the board is much smaller; and Stephen
Hester has brought in a new finance director, head of retail,
head of risk, and head of the investment bank. At Lloyds there
is a new chairman and two new non-execs (Tony Watson and Tim Ryan),
both with strong track records in governance, have been appointed.
— UKFI has been heavily involved as shareholder
with both RBS and L1oyds, who have developed and articulated their
strategies to build long-term value, and reformed their risk management.
— We have worked with Lloyds on the
operational and cultural integration of HBOS, and place great
importance on the roll-out of L1oyds' risk management standards
across the whole Lloyds Banking Group.
— At RBS we have been involved in the
new strategy announced earlier this year, which covers the scaling
back of investment and wholesale banking activities and balance
sheet use, and a programme for disposing of non-core businesses.
— UKFI has driven through the most fundamental
reforms of remuneration at any large bank in the world, with all
bonuses (other than for the most junior staff) paid over three
years, subject to clawback and with no discretionary bonuses paid
in cash.
— UKFI has engaged intensively with other
shareholders, holding more than 80 investor meetings—debating
current investment issues; promoting active engagement; and developing
the future shareholder base. Rebuilding the confidence of existing
and potential shareholders will be essential if the banks are
to attain a full market valuation for their shares—and there
has been a marked resurgence of investor confidence in the two
banks; since the trough, taxpayers' notional losses have been
reduced from £26 billion (in January) to well under £10
billion.
— UKFI has worked closely with the Treasury
on optimising the banks' capital structures (through exchanging
preference for ordinary shares) and on the Asset Protection Scheme
negotiations with both banks.
In addition, UKFI took on responsibility for
managing the Government's investments in Bradford & Bingley
in July, and will take on responsibility for Northern Rock when
the bank is restructured shortly.
UKFI has acted on a number of specific recommendations
of the Committee. We have:
— published in July a clear strategy for
the market investments (Lloyds and RBS), setting out our plans
for returning the banks as strengthened institutions to full private
ownership over time;
— published our investment mandate, the
final element in establishing UKFI's formal remit;
— worked with both banks on the revision
of their remuneration practices fundamentally changing the culture
and practice in both banks whilst protecting lower paid staff—and
working to ensure that they are at the forefront of new domestic
and international standards;
— provided more easily accessible information
about UKFI on our website (www.ukfi.gov.uk), including on: our
market investments, our investment strategy, and our wholly owned
investments; and
— in line with the Committee's recommendation,
made arrangements to move out of the Treasury building.
John Kingman
Chief Executive
3 November 2009
|
