“Labour are clearly not ready to steward the economy with such facile ideas about banking!”

In fairness, Ed Miliband has yet to get to his feet to pontificate on his reform plans for the banking sector, were Labour to win the next election. Anyway it appears that BBC’s Robert Peston and others has been very well briefed on the subject. From what we hear his proposals for breaking up the banks is just political twaddle from a party leader looking for cheap votes and why not! I would probably do the same.

In all seriousness I am dispirited that after nearly four years in opposition that Labour has no comprehension of how the banking system works and how it is the main artery to recovery and how important the financial sector is to UK PLC’s balance sheet. Many will also be forlorn at how openly contemptuous of the free enterprise system Labour and its advisors are. For his guidance like it or not, markets are always right and if there were a real possibility of RBS and Lloyds being broken up, with HSBC and Barclays being forced to unload branches with a view to creating greater competition, markets would react adversely! Hopefully this is just pie in the sky ‘tom-foolery.’ Were Labour to assume office or form a coalition with the Lib-Dems, I would be confident that Mark Carney, Paul Fisher, Andy Haldane and above all others Andrew Bailey would strongly advise against this ill-thought out plan.

If banks are broken up, it does not necessarily mean there will be greater competition! After 2008 many foreign banks – great lenders to the UK economy left these shores – never to return. That tells us that they still need time to restore their balance sheets to full health. It is neither the time nor place to be ‘gung-ho-fixed-bayonet-and-over-the-top’ in terms of creating a false climate to create competition.

Has Mr Miliband not heard that TSB and Williams & Glyns are likely to have IPOS in the next few months? Does he not know that he will almost certainly scupper any sales plans for Lloyds and RBS in the future? Is he not aware that people do not like to be told where they should bank or not? Is he not aware of the expense involved in decimating the current banks into smaller – billions! The introduction of such an initiative would dismay the outside world’s confidence in the City of London as the centre of world finance, thus damaging the Treasury’s coffers in perpetuity!

Finally if Barclays or HSBC were forced to cut their portfolio of branches against their better judgement, Barclays would just appropriate more capital towards New York and Stuart Gulliver would take HSBC back to HK as its head office and do less business in the UK. What a dreadful thought!

Some of the banks’ behaviour has been reprehensible – PPI and the like – truly awful and indefensible. Andrew Bailey has improved the regulation. Yes we need to deal with awful clearing, disproportionately high cost of loans to industry and commerce, extend mortgages for 30 years from 25 years. So much can be done without breaking up the banks. If Labour of the government want competition encourage cash rich consumer operators like Tesco Vodafone and he like to enter the fray!

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
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