Daily Archives: November 24, 2009

Confidence trick

Today’s news about the government supplying an additional £60 billion to the Scottish banks last autumn is shocking, but not surprising.  The explanation is that it was done on the quiet so as not to damage confidence.  Or in other words, it was a con trick.  We hear they repaid the money a few months later: it’s not yet specified, but I guess they drew on the funds that are now taxpayer shareholdings.

Now I’m no lawyer, but I understand that obtaining money by deception is fraud, and is a serious crime.  That’s why public companies are required to publish accounts and to have them audited: so that people dealing with them can assess the financial risks in doing so.  That includes shareholders.  Was anyone who bought RBS or HBOS shares while the loans existed defrauded?  Seems like they should have a case.

But the time that was happening was also the time when safe-and-solid Lloyds bank, with an excellent dividend but without the spectacular gamblers’ returns of the Scottish banks, was taking over the zombie HBOS – the biggest basketcase of all.  Lloyds went from being the healthy bank that hadn’t needed a rights issue to being itself a basketcase needing a government bailout.  Contrast Barclays: they were in worse shape than Lloyds pre-crash, but came out on top by buying Lehman’s assets from the receiver, as Lloyds should’ve done with HBOS.

We know Lloyds shareholders were seriously shafted by some combination of Lloyds own board and government pressure.  But Lloyds shareholders also had a vote.  Not a very useful vote, given that the big institutional shareholders were also HBOS shareholders who stood to see those holdings wiped out.  But nevertheless a vote, and that was taken in the absence of financial information that was clearly as relevant as it was huge.

The inescapable conclusion seems to be, Lloyds shareholders were defrauded.  Massively!

I was a Lloyds shareholder myself when all this started, and indeed, these shenanigans turned me from a long term buy-and-keep shareholder to a trader, as I took advantage of the wildly-fluctuating market.  Since I’ve made a net profit trading Lloyds shares during and since the crash, I’d be hard-pressed to demonstrate a loss, so I don’t see mileage in my joining a class action, or anything else that might be about to happen.  But I can still be pissed off by this dishonesty.