DON’T be surprised to see sandbags being piled up around Royal Bank of Scotland headquarters at Gogarburn. The fall-out from the rate-rigging scandal will be serious and chief executive Stephen Hester will be running for cover.
However, unlike his counterpart Bob Diamond at Barclays, it looks like he will survive when the fine for manipulating the London interbank lending rate – Libor – is announced this week or next. Instead, it is likely to be investment banking chief John Hourican and fellow executive Peter Nielsen who will feel the heat. It would be no surprise if one or both steps down ahead of the announcement.
RBS is expected to face a fine of between £400 million and £500m, compared with the £290m imposed on Barclays. The bigger issue is over who should pay.
As things stand it will mainly fall on the taxpayer, although Hester has promised to pay some – but not all – of the fine from the bonus pool.
That brings us back to a familiar argument. Should those hard-working staff who helped achieve huge profits for the investment bank – and therefore did the taxpayer a favour – share the punishment of the handful of colleagues who fiddled with interest rates?
Hester is not fully off the hook and will be sweating on the announcements from the US and UK regulators. He and his chairman Sir Philip Hampton still have to explain why they did not spot what was going on, since the Libor rigging is rumoured to have continued on their watch.
Housing market recovery firm
THE long-awaited recovery in the housing market looks to be taking hold, though we should not expect the return of a boom any time soon. Figures from Barratt, Bovis, Persimmon and Taylor Woodrow show sales of homes rising and both profits and margins moving upwards. They have been helped by government funding support for lenders, which has been passed on in the form of cheaper mortgages.
New affordability figures from Halifax show the average mortgage payment as a proportion of income has fallen substantially since 2007. Together with falling house prices it makes consumers more confident about moving home.
But the rise in sales is from a low base. The 275,000 sales last September compares with half a million five years earlier. Housebuilders have profited from building on land bought cheaply in the crash and from switching to larger family homes for those who were cushioned from the recession.
The bottom end of the market remains difficult, partly because of lender demands for high deposits.
It may be a good thing that the Bank of England’s new Financial Policy Committee wants to avoid another bubble, but it will freeze a lot of first-time buyers out of the market.
Bank shares pay dividends
THE last column of 2012 highlighted the good value represented by bank shares over the year. Investors who bought into Lloyds in January were sitting on an 89 per cent profit while RBS showed a 60 per cent return.
The MSCI World Banks Index is now showing the sector up by a fifth, though clearly some are doing far better. However, tougher regulation, the demand for higher reserves, continuing debt overhangs and maybe even another scandal or two should convince investors to remain cautious.
Twitter: @TerryMurden1
