News Column

Daily Mail, London, Alex Brummer column

February 4, 2014

By Alex Brummer, Daily Mail, London

Feb. 04 -- Lloyds Banking Group likes to portray itself as an innocent victim of the financial crisis. If it wasn't for those terrible people at HBOS , who it was forced into marriage with in 2008, investors would still be luxuriating in their fat dividend payments. There is an element of truth about this. HBOS was run by a bunch of incompetents who sold mortgages as if they were cans of beans and allowed the bank's commercial arm, the Bank of Scotland , to run riot in property lending. Nevertheless, Lloyds has a rather sugar coated version of events. The astonishing pounds sterling 10bn it has now had to pay out in compensation payments to customers for wrongful selling of payment protection insurance (PPI) reflects larceny on a grand scale. Lloyds and its constituent retail arms, including Halifax , saw PPI as an easy route to making profits out of customers at a time of intense competition in the current account and mortgage markets. Some staff were incentivised to sell additional products and the bank needed the income to show gains on loss-making basic services. Nor was Lloyds averse to selling its small business customers products, such as interest rate swaps, that were totally inappropriate to their needs. Moreover, the bank has never really explained why it tried to sell its 632 Project Verde branches to the Co-op Bank when there was no realistic way that Paul Flowers' outfit could find the wherewithal to effect the takeover. Be that as it may, the public will soon have a chance to either add to existing holdings in Lloyds or buy new shares with the proposed public offering. Five years after the taxpayer injected pounds sterling 17bn into the group some return of funds looks in sight. As part of the return to normality there is expected to be a dividend announcement before the end of the year, with a progressive pay-out in the offing. On the surface at least the bank, headed by Antonio Horta-Osorio , ought to be a money-making machine. Its dominant share on the High Street , in both the current account and mortgage markets, will, in more normal times, be a licence to print money. To get back where it is today Lloyds has had to be ruthless about job cuts. Investors should, however, hold its feet to the fire on making sure that its IT is fully up to scratch (the recent meltdown at TSB was not encouraging), that customer service is a top priority and that branches are not sacrificed too quickly for online banking when there is distrust of current cyber security. If Labour wins the May 2015 election then Lloyds would be the most vulnerable franchise in the case of a competition inquiry. That will be a key risk for investors wanting to be part of the bank's revival. ___ The reworked accounts of British software firm Autonomy Systems are unlikely to make easy reading for the former chief executive Dr Mike Lynch , as we report today. Books prepared by independent auditors Ernst and Young LLP show that revenues in 2010, the year before the pounds sterling 7.1bn takeover by Hewlett Packard , overstated sales by 116pc. The report, filed with Companies House , finds that actual profits were pounds sterling 19.6m against the pounds sterling 105.7m originally reported. The changes, according to the notes to the accounts, are due to 'fundamental errors' in the way that revenues and costs were recognised. According to the report the total losses recognised in the ten months to October 31, 2011 were pounds sterling 156.5m . The notes to the accounts remind us that HP has provided information on the alleged improprieties to the Serious Fraud Office, the US Department of Justice and the Securities & Exchange Commission . Even if the authorities were to decide matters should not go any further, class action lawyers, acting on behalf of investors, could have a field day. ___ Life after central banking can be a tricky business. Alan Greenspan won few plaudits at the Federal Reserve for his running commentary on the decisions taken by his successor Ben Bernanke . Here in Britain Lord King was determined to stay out of the hair of his successor Mark Carney and parked himself at New York University Stern School of Business . He was last sighted in Melbourne at the Australian Open Tennis. Ben Bernanke is staying in Washington DC and surprisingly for a Republican has chosen the Hutchins Center on Fiscal and Monetary Policy at Brookings generally regarded as a Democratic think-tank as his perch to write a book. If he takes us inside secrets of the temple that is the Fed, during the Great Panic, it will be a terrific read. Maybe it will even encourage King to reflect on his own years something he has been reluctant to do. ___ (c)2014 Daily Mail (London, ) Visit the Daily Mail (London, ) at www.dailymail.co.uk/home/index.html Distributed by MCT Information Services


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Source: Daily Mail (London, England)


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