Victor Blank Steps Down, But What Will His Legacy Be?

For a departing chairman, like Victor Blank who left Lloyds at the weekend, there can be no more depressing sign than your former company’s share price jumping with the news that you’ve gone. It’s the banking world equivalent of kids stopping talking in the playground as you walk up, and carrying on when you leave. But that’s what’s happened – Lloyds shares went up 5% as soon as trading opened, and carried on rising throughout the day. Someone go give Blank a big hug and a Sex and the City boxset or something.

Of course, it’s not just jubilation at Blank leaving that prompted the faith in Lloyds. They also announced plans to raise £4bn that will pay off the preference shares bought by the government back in the excrement-fan days of last October – an investment opportunity that has sent the share price up. It’s also a sign that the government is beginning to retreat from its investments in banks – they’d originally pledged to take on all the shares from this issue, effectively swapping around preference shares for common shares, but now they’re only taking up 43% of them, and letting other investors in on the action. Lloyds is doing all this because it wants to stop paying the government the interest on preference shares, as it’s costing them £480m a year. 

Blank resigned because everyone was realising that no heads had rolled for the HBOS merger that saw Lloyds saddled with defaulting loans and toxic assets – they announced in February that HBOS lost £10.8bn last year. Rather than get slaughtered at the annual shareholder meeting, Blank stepped down, avoiding an ugly end to his career at Lloyds and also sparing Gordon Brown, relatively speaking, from any blushes – Brown had allowed the Lloyds/HBOS merger to go ahead without impediment from competition law after Blank schmoozed him at a Whitehall cocktail party.

As the FT notes today, UKFI, the Treasury body managing government stakes in banks, has not sided with Brown but instead has been listening to hesitance from investors over the quality of Lloyds’s leadership. But rather than publicly side with those investors, tantamount to “an open insult” to Brown, they diplomatically nudged Blank towards the edge and suggested that jumping might be an awfully fun thing to do.

Yesterday the FT’s Lex column suggested that Eric Daniels, Lloyds’s chief exec, “should not delay in preparing his own exit”, the suggestion being that a shareholder revolt against him would be inevitable as he and Blank are “inextricably linked” over the HBOS deal. But today there are suggestions from sources that Daniels could be safe: “Eric has some serious supporters out there”; “Eric is the right guy to make a success of this”; “Eric’s Sino-Germanic heritage suggests mystic power combined with ruthless efficacy, while looking like an exceptionally wise ape – this will surely be enough to survive”. That last one was me, but it’s true! Anyway, even Blank probably won’t leave for a good few months – posting a new chairman won’t be a quick task, and certainly won’t want to be seen to be rushed.

But just as we’ve seen with Goldman Sachs et al recently, a less competitive banking sector has thus far meant massive profits for the ones who have survived. As Pesto suggests on his blog, the sheer amount of assets that Lloyds now has as a result of the HBOS deal will eventually help it turn some massive profits once people stop defaulting and they’re not tied to the government any more. Some are calling the merger “the worst deal in British corporate history”, but thanks to that deeply irregular Brown-sanctioned waiving of competition rules, Blank gave Lloyds a once-in-a-lifetime opportunity to amass a huge chunk of assets, which could go on to make them (and therefore the taxpayer) a lot of money.

And while the cocktail party decision smacks of Labour being in thrall to the private sector, as well as being quite simply rash, the government is getting a healthy return on its investment. Whether a contracted banking sector starts to mean a less competitive atmosphere, it’s too early to say, but right now the government’s exit strategy is looking strong.

Posted by Ben Beaumont-Thomas in Hot Money | May 19, 2009 11:52AM |