Examination of Witnesses (Question Numbers
240-259)
MR NICHOLAS
MACPHERSON AND
MS LOUISE
TULETT
22 OCTOBER 2008
Q240 Mr Brady: Are you able to give
us any idea of the breakdown of those assets between different
categories?
Mr Macpherson: No.
Q241 Mr Brady: For the same reason?
Mr Macpherson: For the same reason.
Q242 Mr Brady: In terms of the valuation
of those assets, how do you go about valuing assets in the current
climate?
Mr Macpherson: Sometimes with
difficulty. To be eligible for the special liquidity scheme they
do have to be triple A quality. This is not junk. It is reasonably
high quality. My friends at the Bank of England, Mr Tucker in
particular, have quite well-developed mechanisms for dealing with
them applying haircuts, as they are known in the trade. If there
is any doubt about the quality of the asset, there is quite a
big haircut. We are very clear that the collateral is good. A
recent example relating to the Lehmans collapse was where there
was, through normal liquidity operations, a transaction with Lehmans
and the bank managed to sell the collateral in very short order
at no loss to the taxpayer. This is classic central banking territory.
Mr Tucker, Mr Bailey and others I think are doing a very good
job on it. I am confident and the Bank is confident that we will
get our money back.
Q243 Mr Brady: We have seen a certain
amount of triple A rated junk over the last year.
Mr Macpherson: You are very right
to raise that point. This is something which is extraordinarily
important to us and, as accounting officer, I will be the first
person to be hauled before you if we screw up. I am determined
that we do not.
Q244 Mr Brady: I understand that
the procedure is that, should the value of the assets fall, then
there is a requirement and expectation that more assets should
be put in or the Treasury bills will be returned. Has that happened
at all?
Mr Macpherson: I could not tell
you. I simply do not know but the Bank of England are monitoring
it extremely closely.
Q245 Mr Brady: Moving on to the question
of the management of the nationalised and part nationalised banks,
the government is going to be appointing board members for Lloyds,
HBOS and RBS. When will those appointments be made?
Mr Macpherson: The first point
is that the deals have not gone through yet. They will take a
bit of time. You have to remember also that effectively we are
underwriting the equivalent of a rights issue. It is conceivable
that if, say, the Royal Bank of Scotland share price remained
way in excess of 65.5p, which I think is the striking price, then
we may well end up owning a lot less because it will be in the
interests of shareholders to take up the rights themselves. Until
those transactions go through, it would be inappropriate to start
putting people on the board but, as and when they do, we will
take decisions. The critical thing here is to get high quality
people on it. This is not jobs for redundant Treasury officials.
Some Treasury officials would be very good at it but you need
people with good commercial expertise.
Q246 Mr Brady: If the percentage
of overshoot fell, you are suggesting that the number of board
appointments would be fewer?
Mr Macpherson: The numbers were
set out at the time. In the case of RBS, I think the number was
three but it would be very odd if the private sector took up all
the rights. It would be kind of odd for us to insist on having
three government appointees. With all these deals, they are firm
agreements but inevitably you will come back to them in the light
of events.
Q247 Mr Brady: How soon after the
deal is done would you expect the appointments to be made?
Mr Macpherson: I would expect
these things to resolve themselves through the final part of this
year. This is urgent and we need to resolve it.
Q248 Mr Brady: Can you tell us a
little bit more about how you see the role of these Treasury appointed
directors? What will their remit be?
Mr Macpherson: What we want is
high quality people who are appointed by the government but are
in a sense acting like any other member of the board, except that
ultimately they are representing a very large shareholder, namely
the taxpayer. I think that is how it will play itself out. These
people are not delegates who we will send along with instructions
from HM Treasury, not least because we do want these organisations
to be run at arms' length. I think it would be very dangerous
frankly if the Treasury got seriously into the banking business.
We can do many things but running banks I would not say is not
necessarily our core competence. Equally, they have to have a
bit of a remit from the government as a shareholder.
Q249 Mr Brady: Would you say that,
whilst not being delegates, they would effectively have a remit
for ensuring the implementation of the terms of the recapitalisation?
For instance, borrowing should become more available; interest
rate movements should be passed on?
Mr Macpherson: I think those are
the sorts of issues which we would expect them to be raising,
yes.
Q250 Chairman: They are not arms'
length then, are they? They are there to further the government's
objectives.
Mr Macpherson: This is not about
micro-management. It is about setting out some broad parameters
which will inform the approaches of these banks. The banks themselves
have announced that they want to do these things. That is what
they did last Monday. It would be perfectly reasonable I think
for the directors to hold the banks to account on those issues.
What we are not going to get into the business of is giving instructions
week by week in much the same way as we do, say, to our executive
director at the IMF, where he is very much a delegate for the
UK delegation. This is going to be different.
Q251 Mr Brady: But you would formally
give them a remit?
Mr Macpherson: I do not know whether
we would formally give them a remit. I think that is still for
consideration. The next step for us is to set up the arms' length
body, give that a clear remit and take it from there. This is
urgent. We are getting on with it, but the precise way it will
work will have to wait for the shareholders to agree the deals.
It is only once that has happened that it will start to take effect.
Q252 Mr Brady: When will the arms'
length body be established?
Mr Macpherson: I hope quickly.
This is one of our most urgent priorities.
Q253 Mr Brady: That can be done before
the deals are finalised?
Mr Macpherson: I do not know whether
we will need legislation to set up the arms' length body. Whether
or not we do, I hope we will have it in shadow form very quickly.
We need to appoint a chairman and chief executive and be clear
what its remit is. As I speak, there are Treasury officials beavering
away on that.
Q254 John McFall: What views do you
have for us regarding the Lloyds/HBOS merger staying on course?
Mr Macpherson: The agreement to
inject capital last Monday was predicated on that deal, but ultimately
that deal is a matter for the shareholders in question. We made
clear what capital we would make available. If somebody else wanted
to buy HBOS, that would be a matter for them and the shareholders.
Obviously if they wanted to know what capital we would make available
to any transaction, we would have to enter into a dialogue with
them. We were always happy with the Lloyds/HBOS deal for financial
stability reasons. I think we remain happy with it. We have waived
some of the competition requirements accordingly but equally,
if others want to make a better bid for HBOS, they should clearly
go for it and we would want to leave it to the shareholders whilst
recognising that, whatever happens, there is likely to be a need
for some sort of recapitalisation.
Q255 John McFall: You see merit in
the recapitalisation initiative that you have given to produce
a reinforced and strengthened entity?
Mr Macpherson: Very much so. That
is critical whatever happens. The deal with Lloyds and HBOS to
us looks credible and sensible but ultimately we are responsible
for recapitalisation and they are responsible for ownership and
shareholdings. At this stage we do not own any shares in them
but equally, if the deal goes through, we will own anything up
to 40% of the body.
Q256 Jim Cousins: You had a most
interesting exchange with Mr Brady which I think was extremely
helpful to us. You used the term "remit" for the arms'
length arrangements, not the term "business plan". Is
that simply a gloss? Is a remit somehow qualitatively different
from a business plan? Will that remit include issues of employment?
Mr Macpherson: I do not want to
make a distinction between "remit" and "business
plan". I am quite certain we may end up needing both. I would
not read too much into that. Employment is a difficult issue.
You want banks to be run commercially. Imposing employment conditions
can sometimes slow down the commercial operation of an organisation.
I do not rule it out but at this stage I would not necessarily
be ruling it in.
Q257 Jim Cousins: Can Mr Blank give
an assurance about jobs in Scotland?
Mr Macpherson: He has given assurances
around the Scottish dimension of HBOS.
Q258 Jim Cousins: What about the
Halifax dimension?
Mr Macpherson: I do not have in
front of me the assurances he has given.
Q259 Jim Cousins: Perhaps you would
send them to us, would you?
Mr Macpherson: I would be happy
to send them to you, in as far as I have them.[5]
5 Ev 76 Back
| 
