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Sir Mervyn King has taken his seat at the table opposite Stephen Hester. He has put on his best poker face and has suggested that it’s time for RBS to fold this hand.
King watched the RBS boss lose £5 billion at the table in 2012 and more than £34 billion since sitting at the table in 2008. Sir Mervyn is applying a bit of Einstein’s wisdom about insanity by saying, in effect, that RBS is doing the same thing over and over, but getting the same results. It’s time to stop the bleeding and walk away.
He said, “It’s four and a half years on and there is no immediate sign of RBS going back to the private sector. So I think that means we have not been sufficiently decisive in either recapitalizing the banks or restructuring them. This has dragged on unnecessarily long. I don’t want to blame anyone for this but I think the lesson of history is we should face up to it.”
He is right. Critics, however, are rising to their clarion call that this is what should have been done four (or five, depending on the critic) years ago. You can bet your bottom dollar that these are folks who spend more time looking out their rear-view mirrors than they do looking down the road ahead. Or, as any pilot will tell you, the runway behind you is useless.
As Sir Mervyn pointed out, “The whole idea of a bank being 82% owned by the taxpayer, run at arm’s length from the government, is nonsense.” Indeed, any of us who own 82% of anything would not likely be operating it at arm’s length, especially if the venture continually lost millions upon million of pounds.
I agree that the infusion of taxpayer money was needed precisely when it was done, but the concept was about investment and recovery. It was not a donation so that RBS could keep its track record of losing money intact.
King is not suggesting closing the RBS’ doors. He is suggesting a restructuring (which should have been done four years ago) of the bank into separate entities with one part operating as a “good” bank and the other as a “bad,” meaning that one is well positioned and without excuse to make money whilst the other shouldered the burden of the losses.
“We should simply accept the reality today that it is probably worth less than we thought and we should find a way to get an RBS that can be useful to the UK economy, but it means accepting our losses,” said King. Unfortunately, that is something that most folks do not have the courage to do. I say it is unfortunate because, failing to do so, results in even more pain. The irony is that although very few want to say, “I lost,” no one wants to say “I lost it all.”
Though he was addressing the RBS situation specifically, King made the broad observation that bankers seem to have developed a sense of entitlement to taxpayer money. He said “If you take banking at its widest sense, then the economic impact has to have been positive. If you restrict it to a narrower range of trading activities, it is much more debatable.”
As far as RBS is concerned, it’s time to fold ’em and move on to a new deck.
