By Max Clarke
Members of the UK200Group of independent accountancy and lawyer firms have commented on remarks from Robin Budenberg, head of UK Financial Investments (UKFI), stating that breaking up the banks would have a detrimental effect on the value of those institutions which the UK government holds shares in.
Founded in November 2008, the UKFI manages the financial institutions purchased by the government, ensuring the £67 Billion investment in the Royal bank of Scotland, Lloyds banking Group, Northern Rock and Bradford & Bingley.
David Ingall, partner, JWPCreers:
“This is one of those issues where you just feel that the bureaucrats will make the worst possible decision. There are massive numbers of private shareholders who will not take kindly to their investments being further devalued by a compulsory break-up of the banks concerned.
“It is clear that the government has to take the view that what is good for it is good for everyone. Increase the value of Lloyds and RBS as much as possible, sell them on and get back the tax payers money.
“Artificially breaking up the banks for some vague notion that competitiveness is improved is the worst of all worlds, serving neither market competition nor the taxpayers’ interests, nor the myriad of smaller and larger private investors. The only winners in that case will be the lawyers who will have a field day taking the government to court and anyone else they can get in the frame.”
Jonathan Russell, partner, ReesRussell:
“There is general concern in some quarters that the big banks are just too big and need to be broken up in order to give a more stable financial base going forward. In particular there seems to be a desire to break the big banks down into component parts so that the potential high risk/high reward areas of bank activity are ring fenced from the mainstream banking activities.
“Many argue that this will mean that banking becomes more costly as a result of higher operating costs and also the ability for banks to ‘subsidise’ the day to day banking activities with profits made elsewhere. Also, there is a move by the FSA to remove the right of banks to sell certain products in the wake of continued miss-selling scandals.
“Overall this further creates a quandary for the public stakes in the banks because detractors argue that this will make the banks less valuable and hence not give the tax payer the return they might look for. Conversely, some Corporate Financiers make good returns by breaking up large companies into smaller units where the value of the components becomes greater than the combined value of the whole.”