Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

UK Financial Investments: who needs it?

With RBS and Lloyds showing little sign of being able to pay back the taxpayer’s investment in them any time soon, it’s hard to see a reason to retain UKFI

Northern Rock has been sold. Sir John Vickers’s commission has reported and the government has accepted its ring-fencing plans. And we’re doomed to own our Lloyds and Royal Bank of Scotland shares for years to come. So what’s the point of UK Financial Investments (UKFI), the body set up by Alistair Darling in 2010 to “manage” the government’s holdings in banks? Surely management these day means hanging around until the two big banks’ share prices more than double.

Wednesday’s management shuffle is certainly an admission by UKFI that there’s less to do. The organisation is losing its chairman, Sir David Cooksey, while Keith Morgan, who was holding the Northern Rock baby, has already said he is departing soon. No fresh faces are entering the building. Instead, Robin Budenberg, the chief executive, will become executive chairman (temporarily) and his right-hand man, Jim O’Neil, will become chief executive. Why not go the whole hog and disband UKFI? It has only a dozen or so full-time employees. Couldn’t a rump work happily within the Treasury?

There’s no convincing answer for why not. It’s easy to agree that the Treasury should be able to call upon the services of officials with their eyes and ears permanently focused on what’s going on RBS and Lloyds – we’ve invested £60bn in the shares, don’t forget. But it’s far from clear that these people need to work separately from the Treasury. After all, chancellor George Osborne seems happy to ignore his supposed arm’s-length relationship with the banks – for example, when telling RBS to get smaller in investment banking.

Nor is it clear why UKFI needs to be led by former investment bankers such as Budenberg and O’Neil. Their specialist field is choosing the right moment to sell the right number of shares, a skill not currently required. One of UKFI’s other main tasks seems to be to act as a buffer and mediator in the annual punch-up over bonuses. Do we need investment bankers for that? The government, when it says wants to clamp down on “crony capitalism,” advocates greater diversity on pay committees. If it followed that logic, it would appoint non-bankers to talk bonuses with the boards of Lloyds and RBS.

Still, at least UKFI’s ex-investment bankers are of the cheap-ish variety. The organisation had a £2.7m budget last year and, in the private sector, Budenberg could command a bigger salary than the £148,000 he received in 2010/11. If his presence, and that of O’Neil, ensures the Treasury spends less on investment banking advice, that may be one good reason for UKFI to survive. But it’s hard to think of others. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds