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Wednesday, 29 July 2009

A £60 billion supertanker with no-one at the helm

According to the FT “Top City of London bankers were stunned” yesterday by the news that John Kingman, chief executive of UK Financial Investments, was stepping down to join the private sector and that Sir David Cooksey would replace Glen Moreno. Apart from the breathtaking incompetence of engaging a chief executive who walks away from the post less than a year later because he fancies a second spell in the private sector, the government was made to look foolish in another way, but more of that later.

Kingman joined the Treasury as a graduate trainee, but left Whitehall four yeas later to go to work at the other pink paper, which explains the oleaginous remarks from his former colleagues. Holding down that job for a only few years, he worked briefly at BP, finding he couldn’t hack a real job (he “found it hard to find a meaningful role and penetrate the corporate culture” according to the FT) he went back to work for the one-eyed son of the manse as a PR merchant at the Treasury. When it turned out that the Treasury had nobody better to deal with Northern Rock when it went bust, following a failure of oversight by the FSA, Kingman was put in charge, and his remit was extended to cover RBS and Lloyds when they went to the government for help.

According to his pals at the FT, when he was appointed:

“Mr Kingman is the ultimate civil servant. Second Treasury permanent secretary at the age of just 38, he has rejected overtures from investment banks anxious to tap his mathematical mind and contacts book. Friends say he has little interest in wealth and thinks the challenge of working in government is more 'fun'.”

Apparently not any more, because Kingman seems to think that he is better suited to the private sector after all. Kingman doesn’t actually have a job to go to in the private sector, which is always a sign that either he could not hack his current job or couldn’t get on with his boss. In Kingman’s case it could be that he couldn’t get on with Cooksey or that he could tell the new Chairman didn’t think he was up to the job, but it is equally possible that while Kingman could kick the heads of the banks when they were bailed out, he knew he didn’t have a clue about how to create value. The idea that Kingman, with precisely zero expertise in managing companies and corporate finance, could turn around and float several companies for a combined £100 billion is laughable.

When he was appointed Kingman was criticised for knowing nothing about banking, although his pink friends say he was quick to learn. Well blow me, the City used to be full of bright young things who know nothing about banking. They were called trainees, but they didn’t get to run £60 billion equity portfolios holding a controlling stake in some of the country’s largest banks. Kingman’s appointment represented a failure by the government to learn from the fact that both Crosby at HBOS and Goodwin at RBS were not experienced bankers and were also appointed to the top jobs while they were still on a learning curve.

So does it look as though the government has learned their lesson? David Cooksey is an engineer, having started at a paper company and later made his name out of Formica, run a successful venture capital firm specialising in technology, but with good establishment connections as a member of the Audit Commission and a director of the Bank of England (not real banking). He might look good from a corporate governance point of view, but how much of do you need in a holding company with shares in a handful of companies? A banking expert, even one as old as the 69 year old Sir David would have been a nice idea.

The prospect of Kingman’s successor is more troubling. The chief executive of UKFI is effectively the shadow chief executive of the banks that it controls. Treasury insiders are reported to expect Mr Kingman to be replaced in the autumn by a senior banker or hedge fund manager. Hedge fund manager? Are these guys serious. Banking is the most heavily regulated industry outside nuclear power. Hedge funds exist because investment managers want to operate unconstrained by regulations. Banks problems started because they began to behave like hedge funds and thought they could take the same sort of risks as the hedge funds. Only they weren’t as smart as the best hedge funds, and we are now picking up the bill.

And now the government that has ruined the City by turning it into casino wants the banks to be managed by a senior croupier? Should we write off the £60 billion now, or should we be more worried about the hundreds of billions worth of assets in those banks that are guaranteed by the Treasury.

1 comment:

Demetrius said...

A long while ago, maybe, but I used to be the class dinner monitor and had to add up the figures right, when it was old money. Does this qualify me to run a bank, or am I over qualified these days?