2 The Treasury's capacity to manage
the programme of measures
12. The banking crisis had placed significant demands
upon the Treasury's capacity. Between February 2008, when Northern
Rock was nationalised, and May 2009 the number of staff employed
on financial stability issues increased significantly (Figure
3).[20] Nevertheless,
the Treasury had been stretched by the range of issues it had
to cope with, on top of the Department's wide range of other responsibilities.
Staff had worked very hard in difficult circumstances. Most of
the additional staff employed had helped to set up the Asset Protection
Scheme. The Treasury considered it could begin to reduce staff
numbers in some areas, for example, the establishment of the Asset
Protection Agency would mean that fewer resources would be retained
within the core Treasury. Nevertheless, it would continue to juggle
a range of roles and acknowledged that staffing levels would need
to be monitored closely.[21]
Figure 3: the number of staff working in the Treasury's
Financial Stability Unit
Source: C&AG's Report, Figure 6
13. The Treasury made extensive use of external advisers,
including financial and legal advisers. The Treasury expects to
spend £107 million on advisers, although all but £7
million is likely to be charged back to the banks. Two investment
banks, Credit Suisse and Deutsche Bank, were appointed, initially
on retainers of £200,000 a month for a year. These appointments
also included the potential payment of success fees of up to £5.8
million, but the contracts did not define success, instead leaving
payments to the sole discretion of the Treasury.[22]
14. The Treasury considered the sum spent on external
advice to be small compared to the sums of taxpayers' money at
stake and that the fees paid represented good value for money.
The level of fees involved had been lower than the amounts spent
by the private sector, for example on capital raising schemes,
such as HSBC's 2009 rights issue. It suggested that compared to
the figure of £30 million needed to resolve Northern Rock,
the remaining £70 million had helped finalise a number of
transactions and put in place the suite of support schemes. Some
of this work had been particularly complex. The due diligence
for the Asset Protection Scheme, for instance, had involved the
detailed checking of one million assets.[23]
15. The Treasury believed the payment of retainers
to the investment banks was justified in the circumstances but
was considering ways of strengthening the procurement of such
advice in the future. The investment banks had been appointed
at short notice following competition. Given the uncertainties,
the precise nature and extent of the work was not known at the
start. The Treasury had yet to decide whether to pay the success
fees. Where there was less uncertainty, different fee arrangements
had been agreed. In the case of Bradford & Bingley, Morgan
Stanley provided specific advice on its sale and a fixed fee was
agreed for the transaction, rather than a retainer and success
fee arrangement. In the case of accountancy advice, it had used
an existing government-wide procurement framework and had paid
the agreed rates. The Treasury was considering how a framework
similar to that used for the accountancy firms could be used to
procure investment banking advice in future.[24]
16. The banking crisis has left the Treasury juggling
a variety of new roles: as major investor, or owner, of a number
of banks; guarantor of borrowings by banks in the wholesale markets;
and insurer of the assets owned by RBS. It has established a range
of bodies to help it manage some of these responsibilities. It
created UK Financial Investments, a company wholly-owned by the
Government, to protect and create value for the taxpayer as shareholder,
with due regard to financial stability and promotion of competition.
In addition, a new Asset Protection Agency will manage its interest
in the insured assets of RBS.[25]
17. The Treasury will need to have a clear view of
where responsibilities should lie in this new framework and how
risk will be managed. It believed that the establishment of UK
Financial Investments and the Asset Protection Agency will attract
the right skills to those roles and build a critical mass of expertise
within those agencies. Its aim is to manage risk where it is most
appropriate. It had published information on how it intended to
run its relationship with the new bodies and would report regularly
to Parliament on performance.[26]
20 C&AG's Report, para 17 Back
21
Q 6 Back
22
C&AG's Report, para 18 Back
23
Q 13 Back
24
Qq 14, 16 and 109 Back
25
C&AG's Report, paras 20 and 21(e) Back
26
Q 39 Back
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