Lloyds' ill-judged decision to merge with HBOS has triggered a catastrophic fall from grace for a bank that used to be deemed one of the safest in the world. Lloyds Banking Group, now 43 per cent-owned by the government, is nowhere to be seen in the Top 50 rankings of 'the World's Safest Banks', compiled by American magazine Global Finance.

In 2008, before it embarked on the deal, Lloyds was deemed to be the sixth-safest worldwide. The drop suggests that under chief executive Eric Daniels the lender's international standing has fallen, as it grapples with the toxic legacy of HBOS's dabbling in commercial loans and subprime mortgages.

Global Finance says: 'Customers all around the world are viewing long-term credit worthiness as the key feature of the banks with which they do business.'

Almost all of Britain's banks have now dropped off the Top 50 list, with the exception of HSBC, which comes in at number 18. The only other UK financial institution which makes it on the rankings is building society Nationwide at number 46.

The Mail, Tuesday 1st September 2009, Online

A climate change activist in a flower costume parades in front of the City of London headquarters of Royal Bank of Scotland. Climate change activists disrupted the City of London headquarters of Royal Bank of Scotland by blockading the entrance and supergluing themselves together on the bank’s trading floor.

The protest against the state-owned bank’s financing of oil and gas projects is part of a day of direct action in London. In a separate incident, naked protesters invaded the lobby of Edelman, a public relations group that works for energy company Eon, which is building a new coal-fired power plant at Kingsnorth in Kent.

The Metropolitan Police said about 100 protesters had moved on from outside RBS on Bishopsgate, though seven people were still glued together inside. Climate Camp, the group organising a week of protests in London, said more protesters had blocked the building’s entrance using bicycle locks.

Scotland Yard said another 80-100 demonstrators had gathered outside Canada House on Trafalgar Square, where they were protesting against the mining of tar sands to extract oil.

The Financial Times, Tuesday 1st September 2009, Online

The City watchdog has fired a warning shot across London’s share markets, calling on trading firms to be alert to a practice known as “spoofing” that the regulator fears could be a form of market abuse.

The warning, from the Financial Services Authority, comes as regulators on both sides of the Atlantic are on heightened alert to market abuse in the wake of the financial crisis and as trading technology allows increasingly creative ways to deal in securities. In the US controversy is raging over the role of “flash trades”, a practice whereby exchanges allow traders’ computers an extended glimpse of share order flows a fraction of a second before the broader market.

The FSA said it has been notified by the London Stock Exchange of cases where traders were placing orders on the exchange to give an artificial impression of an intention to buy or sell shares. The practice, known as “spoofing”, involves a trader that has gained the right to place orders directly on the LSE by using an arrangement called “direct market access” (DMA).

Normally, only exchange members are allowed to trade on the order book of an exchange. But DMA allows a non-member to trade on the order book by “piggybacking” on a bank or broker that is already a member. The arrangement has grown in popularity as exchanges seek to expand sources of business amid fierce competition between trading venues.

The Financial Times, Tuesday 1st September 2009, Online

'It is becoming clear that the Bank's attempts to boost lending are only having a limited impact as banks continue to hoard money,' said Vince Cable According to Bank of England data published on Tuesday, loans to "private non-financial corporations" fell 1.7pc in July – the single biggest monthly fall since records began in 1997. Lending was down 2.9pc year on year.

Economists drew attention to the spike in bad debts to explain the ongoing credit famine, which has persisted despite the Bank's decision to pump an unprecedented £175bn into the economy to stimulate lending. Vicky Redwood, UK economist at Capital Economics, noted Bank figures that showed a £365m, or 40pc, increase in write-offs on conventional corporate debt and £250m rise in write-offs on unsecured lending in the second quarter.

"While the biggest losses on 'toxic' assets may be behind us, recession-related losses on conventional loans are only just starting to come through," she said. "These losses are likely to erode much of the capital that banks have raised. Accordingly, it is understandable that banks are being cautious about lending more, even though their funding costs have fallen."

Banks continued to deflect criticism by insisting that lending has fallen because businesses are repaying debt in an attempt to clean up their balance sheets. However, Howard Archer, chief UK and European economist at Global Insight, said the sharp fall in the July figures "suggests that banks are still reticent in their lending to companies."

The Telegraph, Wednesday 2nd September 2009, Online

Everyone knows that grievous mismanagement of many banks and others in the financial sector has wrought great damage to the global economy; and it is obvious that things have got to change. But it is ironic that lectures pour out from regulators, governments and central bankers on how incompetent bankers were, when mistakes by those same authorities were every bit as much to blame.

The US government sponsored the housing boom and regulators failed to stop the bubble. Interest rates were too low for too long, leading to grossly excessive borrowing everywhere. Practitioners took it on from there and the subprime fiasco resulted.

It is surprising when Lord Turner, the chairman of the Financial Services Authority, pronounces that the UK financial sector has grown “beyond a socially reasonable size” and that some innovation is a “socially useless activity”. It is unlikely that the German government would ever say such a thing about its auto industry or the French about its wine growers. Both are major foreign currency earners, with some harmful side-effects. A regulator should normally foster the health of the sector, irrespective of its size.

His tentative suggestion of a transaction tax, which he argued would bear down on profits and limit socially unacceptable bonuses, is another curious line of reasoning.

The Financial Times, Wednesday 2nd September 2009, Online

Stephen Hester has a reputation for straight talking. On Friday the chief executive of Royal Bank of Scotland gave a far more sombre assessment of the recovery than his rivals, saying that he expected bad debts at the bank to remain “high for a while”.

Hester said there were “green shoots” but they were short in duration. “You need to be cautious about over-embellishing them too quickly . . . even if the green shoots turn out to be correct . . . the pattern of all recessions is when the economy technically turns up is not when the misery ends,” he said. His cautious words struck a sharp contrast to the optimism shown by rivals such as Eric Daniels, chief executive of Lloyds, who lifted stock market sentiment this week by saying bad debt impairments had peaked.

Barclays and HSBC also suggested that the rate of loans falling into arrears was slowing. The question is whether RBS, which is 70 per cent owned by the taxpayer, is being too gloomy in its outlook or its rivals too upbeat. Certainly, RBS’s bad debt performance is not improving. Its loan impairments rose from £1.48bn to £7.5bn last year. Bad debts continued rising in the second quarter, particularly in the group’s UK retail and corporate banking units as the recession hit overstretched consumers and businesses.

Mr Hester also made it clear that there was every sign that RBS’s performance would be “poor” due to continued impairments in 2009. “Loan losses will remain high and will only come down gradually over time,” he said. Mr Hester might be taking a longer-term view. On the RBS restructuring, he said: “This is a marathon, not a sprint.”

The Financial Times, Friday 7th August 2009, Online

A powerful group of MPs have accused the main City watchdog of failing to protect homeowners from aggressive mortgage lenders during the current economic crisis. In a stinging attack on the Financial Services Authority, MPs on the treasury select committee said the regulator appeared to take a "leisurely" approach to its job while many homeowners were being left at the mercy of lenders who charged excessive fees and moved quickly to repossess when borrowers fell into arrears.

The chairman of the committee, John McFall, said sub-prime lenders were the worst culprits and only speedy intervention by the regulator could bring relief to badly affected families on low incomes.

He said: "We suspect that the small number of cases being brought against lenders making excessive arrears charges are merely the tip of the iceberg. This is why it is so important that lenders are compelled to open up their books and justify their charges, while the FSA must be prepared to take decisive action where it finds evidence of wrongdoing."

He said the committee was "extremely concerned" by evidence that many sub–prime lenders and finance companies offering second mortgages were repossessing homes at an alarming rate under the noses of the FSA and the Office of Fair Trading, which regulates credit licences. "The FSA and the OFT must get a grip on this problem and crack down on lenders who are breaking the rules and mistreating customers in arrears," he said.

The Guardian, Friday 7th August 2009, Online

The Conservatives have pledged to hand the Bank and its Governor Mervyn King power to control the balance sheets of all Britain’s major banks and finance houses, as well as regulation of the broader financial system. With its existing power to control interest rates, the proposed reforms will mean the Bank will rival the US Federal Reserve as one of the western world’s most powerful central banks, with a reach that extends from controlling the speed of the economy to the behaviour of its banks.

Few other central banks have almost untrammelled independence to set both interest rates and to oversee banks. Indeed, under the Conservative plans, the Bank would be significantly more powerful than before Labour came to power in 1997. Richard Lambert, CBI Director-General, said: “This is a very radical blueprint. The Conservative proposals would give the Bank of England the most wide-ranging powers of any central bank in the major economies.

The proposals were contained in the Conservatives’ “White Paper” produced as an alternative to the Treasury’s own mooted reforms for the system of financial regulation. The plans contrast sharply with the Government’s announcement to strengthen the tripartite in particular the FSA.

At the launch of the report, David Cameron said: “The decisions that led to this crisis represent a policy failure of historic proportions. We now need deep, wide-ranging reform that matches both the magnitude of the crisis and the scale of the hardship inflicted on the British people.”

The Peoples Economics, Sunday 9th August 2009, Online

Politicians must decide whether to impose restrictions on bankers’ bonuses and stop “passing the buck” to regulators, the head of the Financial Services Authority said on Sunday. Hector Sants said it was not his job to judge whether individual bankers were paid too much, as he urged MPs to face up to their responsibilities in the controversy over City excess.

His comments come amid enduring public anger over the City bonus culture. A PoliticsHome survey of 1,200 voters found that 80 per cent hold “negative” views of the return of big bonuses and think ministers have been “too weak” with the banks. The FSA, Mr Sants said, only monitored the risks of financial institutions’ total pay bill and the manner in which bonuses were calculated.

“The question of the size of individual payments is not one for financial regulators,” he told the BBC’s Andrew Marr Show. “That is one for politicians and society as a whole. If politicians wish to take a view on that, then they should say so, but they should not be asking the regulator to carry out a pay policy.”

Gordon Brown, prime minister, has claimed “old excess” in the City would never return after introducing curbs on bonuses that encouraged “short-term risk taking” and giving the FSA powers to increase capital requirements of banks with risky pay policies.

Next week, the FSA will unveil a requirement on all banks to produce a “clearly articulated pay policy”, which the City regulator will “sign off”.

The Financial Times, Sunday 9th August 2009, Online

Senior Conservatives on Sunday denied planning to raise value added tax to 20 per cent as one of their first acts in government, while leaving open the option of higher taxes to address the “shocking state” of public finances.

The Tory Treasury team is exploring options to control spending and raise revenue, but final decisions will depend on the economy and the market appetite for government debt. Any Tory move to raise VAT would follow in the footsteps of Lord Howe’s 1981 Budget, which raised taxes in the face of a recession. During the 1979 election campaign, Lord Howe declared he had “absolutely no intention of doubling VAT”, in spite of the Tories having secretly agreed plans to raise it from 8 to 15 per cent.

Stephen Timms, financial secretary, on Sunday called on the Tories to give some “straight answers”. He said: “If David Cameron is seriously considering this he needs to explain why he thinks it’s right that ordinary families should pay more tax while he’s pledging £200,000 tax cuts for the 3,000 richest estates.”

The Financial Times, Sunday 9th August 2009, Online

The Financial Services Authority (FSA) has admitted it cannot control bonuses paid by City banks as it prepares to publish a new code on pay and bonuses this week. Hector Sants, head of the financial watchdog, said it was not the FSA's job to restrict bonuses.

He said: "The question of the size of individual payments is not one for the regulator. That is one for politicians and society as a whole. "Our job is to make sure that banks in their compensation policies do not put those institutions at risk, which is what happened in the past." In line with the code to be announced this week, banks will be made to "clearly articulate" their pay and bonus policies.

Last week, Barclays ignored the FSA's current guidelines on bonuses by promising three investment bankers two years' worth of bonuses. The FSA had previously warned that guaranteeing bonuses for more than a year regardless of the bank's performance encouraged people to take risks.

Personnel Today, Monday 10th August 2009, Online

Thanks for the lift guys, we’ll hop off here. It is understandable that Lloyds Banking Group, the state-rescued lender, might dream of raising fresh equity to cut the fee it must pay the UK government for insuring £260bn of bad loans under the asset protection scheme.

After all, the bank must pay a first loss of £25bn on the portfolio and, in effect, an insurance premium of almost £16bn to shift 90 per cent of the loans’ risk on to taxpayers. Emboldened by its own assessment of its bad debts – Eric Daniels, Lloyds chief executive, said last week he believed the worst was behind it – if Lloyds were to raise fresh equity it could get away with shoving fewer assets into the scheme, lowering its costs.

Investors indicated as much on Monday, marking the bank’s shares down 4 per cent. And why would the government, which owns 43 per cent of Lloyds, cough up for a capital raising designed to cut the fees it is due to receive? The very point of the APS was to avoid such a direct recapitalisation.

Analysts estimate that Lloyds would need to raise the equivalent of £15bn-£20bn of capital to avoid the APS entirely. If the bank seriously believes it can dwarf HSBC’s record-setting $17.8bn rights issue – or that the government will stand back and let it – it should think again.

The Financial Times, Monday 10th August 2009, Online

Lloyds Banking Group’s tentative plans to raise an estimated £15bn-£20bn ($25bn-$33bn) in a rights issue to reduce its reliance on the government face a wall of scepticism in Whitehall and among investors. Lloyds last week floated the idea that the terms of its participation in the government’s asset protection scheme (APS) might be open to renegotiation after second-quarter results that were more upbeat than expected.

“No one is pushing a line on this,” one person close to Lloyds said on Monday. “We’re just suggesting that maybe there’s a different deal to be done.” But the bank faces an uphill task in convincing Alistair Darling, the chancellor, to revisit the basic terms of the scheme after months of complex negotiations. Under the APS, launched early this year, the government agreed to underwrite banks’ bad loans in return for a fee.

Mr Darling sees the APS as an international model for cleaning up toxic assets and his team is sceptical that raising sufficient capital to sidestep the scheme would be wise, feasible or sufficient to satisfy regulators.

Financial Times, Tuesday 11th August 2009, Online

The Financial Services Authority's crackdown on mortgage fraud has sparked a police investigation involving a significant number of financial, property and legal businesses in the Newcastle area. Brokerage Newcastle Home Loans was last week banned by the regulator for knowingly arranging at least 20 unregulated mortgage contracts containing false information.

In February the FSA fined NHL pound 170,000 for failing to conduct business with integrity and allowing David Purdie to act as the company's chief executive without the regulator's approval. NHL has not paid the fine. The FSA has banned NHL directors Linda Patterson and Grace Purdie, fining the latter pound 85,000. It has also banned mortgage introducers Michael Foster and Kenneth Robinson who were found to be involved in the fraud.

Margaret Cole, director of enforcement at the FSA, says: "In the past three years we have banned 60 brokers and levied fines totalling more than pound 1m in relation to mortgage fraud.

American Chronicle, Tuesday 11th August 2009, Online

About 5,000 British investors with an estimated £2bn to £3bn in secret Liechtenstein bank accounts will be asked to come clean under a ground-breaking deal signed on Tuesday. HM Revenue & Customs wants to prise open the accounts by offering investors the chance to volunteer details of their deposits in return for limited penalties.

Liechtenstein, once viewed as one of the most secretive jurisdictions, came under intense pressure following Germany’s success last year in uncovering tax evaders after buying stolen customer data from a former employee of a Liechtenstein bank. The deal offers easy terms to account holders in an attempt to persuade the Liechtenstein authorities to take the drastic step of rooting out evasion.

The Liechtenstein account holders will be asked to settle unpaid tax going back 10 years, and pay interest and a penalty of 10 per cent of the tax. They are being offered better terms from the UK government than investors in other offshore jurisdictions, who in September will be offered an amnesty, or “new disclosure opportunity”, under which they will have to settle unpaid tax going back up to 20 years, along with interest and penalties of 10 per cent, or in some cases 20 per cent.

Investors in other jurisdictions face harsher terms because the government expects to secure imminently a legal notice forcing banks with offshore branches to divulge customer information.

The Financial Times, Tuesday 11th August 2009, Online

The Financial Services Authority has backed away from specific recommendations on how bankers’ bonuses should be structured for fear they could undermine the UK’s international competitiveness, people familiar with the matter say. The City regulator’s final remuneration code, due to be unveiled on Wednesday, still focuses on requiring bank boards and management to link pay more closely to risk.

Hector Sants, FSA chief executive, writes in Wednesday’s Financial Times: “The FSA’s new guidelines are designed to ensure that boards prevent management from introducing compensation policies that, in effect, subordinate the interests of capital providers to those of employees”.

But the final version will step back from the March draft’s specific recommendations that two-thirds of each bonus should be deferred and that individual rewards take into account the overall performance of a firm rather than just that of the individual or division, people familiar with the code say.

FSA critics say it is no coincidence that other international regulators have not followed the prescriptive approach of the draft code. The FSA’s light-touch reputation was widely criticised in the wake of the financial crisis and the regulator has been further undermined, especially in Europe, by a perception that an incoming Conservative government next year would transfer the FSA’s powers in bank regulation to the Bank of England.

The Financial Times, Wednesday 12th August 2009, Online

Lloyds Banking Group has agreed to sell its Insight asset management business to Bank of New York Mellon for £235m. BNY is taking on £80bn in funds managed by Insight for clients outside the Lloyds group, as well as the Insight management team led by Abdallah Nauphal. The £235m price tag consists of £200m in cash and the remainder in equity.

Analysts say the deal may mark the start of a phase of consolidation and disposals among mid-sized asset management groups facing increasing margin pressure.

Before HBOS’s merger with Lloyds TSB, Mr Nauphal was chief executive of Insight and led its expansion into so-called liability-driven investment – funds that seek to match pension scheme assets more closely to promises. That was Insight’s fastest-growing business and, according to Barclays Capital, made Insight the UK’s fastest-growing institutional asset manager last year. Mr Nauphal is known to have wanted to sell Insight as an autonomous unit, keeping the business intact.

The Financial Times, Wednesday 12th August 2009, Online

Bankers still seem to think they can justify lavish rewards by comparing themselves to top footballers and Hollywood stars. Try again. The Financial Services Authority’s alleged watering down of its proposed pay code is more likely to excite parallels with last week’s £40m jewellery heist.

As for implementing a tougher code, the FSA is hamstrung. It could wait to achieve global consensus on stricter rules – and arrive too late to stifle a resurgence of risky remuneration. Or it could move more swiftly than the UK’s competitors to put in place the toughest practicable code. It has rightly taken the latter path.

Still, I would like to see an even more crusading attitude on the part of the FSA. Having talked tough in the first half of this year, Mr Sants and his boss Lord Turner were always going to face the problem of persuading their global counterparts to join a race to the top. To make up for pulling a few punches on pay, they now need to make a couple of pledges. First, they must fight for their code internationally as a minimum standard for world banking. Whether or not banking bounces back over the next 12 months, they need to put in place a ratchet against backsliding to match the all-too-prevalent ratchet that keeps most executive pay at high levels. Second, they need to make use of their ability to impose increased capital requirements on banks with risky pay policies as soon as they spot them. Otherwise the banks themselves may think of it merely as a nuclear option.

The Financial Times, Wednesday 12th August 2009, Online

When the Bank of England’s monetary policy committee shocked the markets last week by announcing a fresh £50bn cash injection into the UK economy, it was tempting to ask: “Do they know something we don’t?” But as it turns out, the main motivation for increasing planned asset purchases to £175bn was a development that was already public knowledge: worse-than-expected growth in the first and second quarters of this year.

This had threatened to push inflation well below the 2 per cent level mandated by the government. As Charlie Bean, deputy governor of the Bank said: “It’s the inflation target, stupid!”

Because the economy contracted much more in the first quarter than the Bank had forecast, the gap between potential and actual output was that much greater and required a bigger infusion of money in order to fill the hole.

In fact, the tone of the Bank’s quarterly inflation report presented by Mervyn King was not very different from the previous quarter – the first time since last autumn that he has not, by implication, had to eat the words he uttered three months earlier. Signs the economic crisis is lessening have become increasingly clear and the Bank can now make its forecasts from a position of comparative stability.

The Financial Times, Wednesday 12th August 2009, Online

Get up to the minute share prices for UK stocks at Citywire's FTSE Share Prices & Performance zone. Or keep track of the shares and funds that your clients use regularly through Citywire's portfolio tool. The Financial Services Authority's (FSA) chief executive, Hector Sants, has hit back at criticisms that the new remuneration code is too soft on bankers, saying that politicians have 'ducked' the issue.

In an attempt to deflect criticisms away from the regulator, Sants said that the code being published was actually 'tougher' than the one published in March, before adding that it was down to MPs to tackle huge payouts to bankers. Speaking on BBC Radio this morning, Sants said the debate over pay 'was for government', adding that politicians were 'passing the buck to the FSA' and 'ducking the issue' about introducing pay caps.

He said the FSA was not set up to take a 'moral view' on the scale of payouts, but rather to ensure that pay practices did not encourage inappropriate risk-taking or pay out more than they could afford as firms.

City Wire, Thursday 13th August 2009, Online

Ireland’s bank recovery plan suffered a setback on Thursday when grassroots members of the Green party, junior partners in the ruling coalition, called on the party to hold a national convention before giving its backing to the plan. Ireland is set to transfer €90bn ($128bn, £78bn) of distressed property loans from its five domestic banks to a new National Asset Management Agency in an effort to cleanse the banking sector and encourage resumption of lending to businesses.

Parliament is to vote on legislation to set up the agency next month but the Fianna Fáil-led coalition has seen its parliamentary majority reduced to one after two backbenchers resigned the whip, making Green support crucial.

Under party rules, five Green party constituency organisations are needed before a national convention can be held. Three have so far called for such a move. The party’s two ministers – John Gormley at environment and Eamon Ryan at energy – both support Nama.

The Financial Times, Thursday 13th August 2009, Online

Senior cabinet ministers are so disappointed with the Financial Services Authority’s new pay rules, released this week, they are considering whether legislation may be needed to crack down on bankers’ bonuses. A number of ministers, including Lord Mandelson, the business secretary, are understood to be unhappy with the City regulator’s remuneration code, which toned down some earlier suggested measures.

Lord Mandelson thinks the guidelines, intended to reduce reckless risk-taking, have failed to reflect public concerns that the City is returning to “business as usual” after receiving billions in state support.

“Excessive risk taking had the results that we saw. Ordinary businesses are paying the price,” he said in an interview. “We have not heard the last word on this subject.” His views are shared by other senior ministers, who suggest legislation may be needed to control short-term incentives for bankers unless the FSA shows it can pursue a tougher line.

The Financial Times, Friday 14th August 2009, Online