Session 2009-10
Publications on the internet
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Memorandum submitted by UK Financial Investments Ltd (UKFI 04) 1. Thank you for your invitation to submit evidence in advance of the UKFI hearing with the committee on Tuesday 9 March. I have set out some details below on UKFI’s role and remit in relation to our investee banks which I hope will be of interest to the committee in advance of the hearing. 2. UKFI is a limited company created by the Government as part of its response to the financial crisis, with current staffing of 15. UKFI is responsible for the Government’s investments in: · The Royal Bank of Scotland Group plc (RBS); · Lloyds Banking Group plc (Lloyds); · Northern Rock plc (NR plc); · Northern Rock Asset Management (NRAM); and · Bradford & Bingley. 3. UKFI’s role is to: · manage these shareholdings commercially to create and protect value for the taxpayer as shareholder and, where applicable as provider of financial support, with due regard to financial stability and competition; and · devise and execute a strategy for disposing of the Government’s investments in an orderly and active way over time. 4. These two roles are inextricably linked. Investors’ willingness to buy shares in the banks will depend on their confidence that the banks are being managed to create value for shareholders. A commercial approach to the management of the Government’s stakes in the banks will thus facilitate a return to full private ownership, and protect the taxpayer’s position as investor. 5. As part of this approach, UKFI is working closely with the Government’s investee banks to ensure that they have: · stronger and more robust strategies; · more effective boards; · more disciplined approaches to risk; · sustainable funding and balance sheet structures; and · better remuneration structures that align reward with long-term value creation. 6. UKFI will not intervene in the day-to-day operational management decisions of our investee banks, including with respect to individual lending or remuneration decision as set out in our Framework Document. The banks retain their own independent boards, which manage the banks and determine their strategies, and take day to day operational and commercial decisions without interference from shareholders including UKFI.
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Last June we welcomed the finding of the Treasury Select Committee that "It is right that the Government’s investments in UK banks should be managed at arm’s length and it is important to retain a clear division of responsibility between UKFI’s role as an institutional investor, and any other public policy objectives that the Government may pursue."
Banking Crisis: dealing with the failure of the UK Banks: Responses, Treasury Select Committee, 21 July 2009. (p16) 8. More detail on UKFI’s role and remit can be found in the UKFI Shareholder Relationship Framework Document and UKFI Investment Mandate. 9. UKFI’s sustainability policy sets out UKFI’s approach to sustainability issues. UKFI expects investee companies to act ethically and sensibly on sustainability issues, and expects each company to set out clearly which of the standards it has committed to adhere to and report against and why. UKFI will not engage with investee banks on sustainability issues on a day-to-day, issue-by-issue basis given our remit to manage investments commercially and at arm’s length. 10. If it were proved to be the case that any of our investee companies’ sustainability policies were significantly out of line with existing regulatory standards and guidelines such that they would have a negative effect on the value of the company and its shares, UKFI would engage with the bank’s senior management or board to protect the value of the Government’s holding. 11. All the documents referred to in this paper are attached, and can also be found on the UKFI website: www.ukfi.gov.uk 26 February 2010 |
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| ©Parliamentary copyright | Prepared 13:52 on 15th March 2010 |