³ÉÈË¿ìÊÖ

Stand by for an announcement on the new owners of the good bits of Dunfermline Building Society. Two larger building societies are understood to be in talks, and two banks as well.

The government dearly hopes to get a deal before start of business tomorrow, but just in case, there is a strong emphasis from everyone on savings being safe in the Fife mutual.

It ought to be a good deal for whoever gets it, buying at this stage of the recession, while handing the government much of the risk. It may be a less good deal for the 250 or so staff who work at HQ. It won't be an HQ any more.

It's looking like quite some risk the taxpayer is taking on. The numbers we've now got from the government amount to £800m of risky assets. That's not all going to be loss, or anything like it.

But with £650m of that in commercial property and £150m in the British equivalent of sub-prime loans, it helps explain why a bank that last year turned a profit of £2m, and has today confirmed it will announce a loss for last year of £26m, is not well placed to trade out of the hole it's in.

At last Dunfermline has something to say in public, and chairman Jim Faulds is not sparing in his pent-up fury at "faceless mandarins" and Chancellor Alistair Darling. Nor is he sparing in his protestations that the Dunfermline could trade its way out of its problems, in return for a modest loan of up to £30m, and that KPMG has said the recovery plan from last October was sustainable. He's "angry and frustrated at the waste of a first class institution".

While mainly dealing with the Financial Services Authority, the only minister Faulds got to meet through this process seems to have been Lord Myners. (In light of the Treasury minister's role in the Goodwin pension, that's beginning to look like a kiss of career death.)

Signalling that he thinks there is nothing left in trying to keep Labour ministers on board, Faulds has heaped praise on Alex Salmond and the SNP administration, saying they grasped the thistle, the first minister has been "absolutely magnificent, and the people of Dunfermline, Fife and Scotland will remember that". Not the kind of thing that will keep him on Gordon Brown's Christmas card list.

Speaking on the Politics Show Scotland earlier today, the former advertising agency boss even suggested there was an element of huff at Westminster that the Nationalist administration had got involved, with an offer of support to back up its social housing loan book.

This is despite protestations of amicable dealings between Darling and Salmond, at least until yesterday. They're looking less amicable today.

But as he sprayed the TV studio with revenge, perhaps the most ominous comments from Faulds were that the government's treatment of Dunfermline may be because it knows "the building society sector has more worries to come".

And what became of Graeme Dalziel, the former Dunfermline chief executive who took the decisions to head into risky lending and investment territory? He's not quite in the same vilification league as Sir Fred Goodwin, but it must be rather uncomfortable for him to have this publicity.

He was last spotted heading for a speaking slot at a conference at Dunfermline's Carnegie College on Friday, entitled "Facing the Future".

His biog: "Graeme Dalziel is recognised as one of the most successful and influential businessmen in the country today... He retired from Dunfermline at the end of 2008 having agreed that, after 10 years, the time was right to "pass the baton" to his successor. Graeme is now developing a portfolio of business interests as a business advisor, public speaker and non executive director".

Let's see how that portfolio career develops now.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Scotland's largest building society is being put on the market by the government, having effectively collapsed.

The Dunfermline Building Society, which ranks as Britain's 12th largest, has been in rescue talks with regulators for weeks, but it has now been decided it will be offered to a bank or another building society to take over the profitable parts of it.

The arrangement is similar to the break-up of the Bradford and Bingley. The savings business in that case was sold to Santander, the Spanish bank giant, while the government took on the troubled mortgages and other loans.

In the case of the Dunfermline, it is not clear how much of the troubled loan book the government will be taking on. That is understood to be subject to negotiations with potential buyers, with the price linked to the extent of risky assets taken over or held back.

The sale is to be managed by the Bank of England, signalling that this is being forced by the tri-partite regulators - the central bank, the Financial Services Authority and the UK Government's Treasury.

A bail-out of the bank was being negotiated, involving between £60m and £100m of government capital injection, and allowing the Dunfermline Building Society to continue as a going concern. But that is now off the table. Regulators believe that would only have put off the point at which a sale would have been forced.

There have also been attempts over recent months to find another building society to take over the Dunfermline, as happened to several smaller English mutuals last year, but these discussions foundered.

It is understood the key problem has been the extent of the Dunfermline's exposure to risky assets. It took unusual risks, for a building society, in the commercial property sector.

It lost at least £9m investing in its own IT business. And it bought mortgage securities from two American finance houses, GMAC and a subsidiary of Lehman Brothers, both of which are now in trouble.

According to a well-placed source, the extent of the Dunfermline's problems are far greater than so far reported - with a £26m loss expected to be made public during next week, but much bigger problems behind that.

It is understood the government's priority is now to protect savers at the Dunfermline, while also safeguarding jobs. The society employs nearly 500 people, half in its Fife headquarters and half in the network of 34 branches.

There is also a stress on protecting the building society's role in lending for social housing in Scotland. The Scottish Government, which has devolved responsibility for social housing, has been in discussion with the Treasury. Chancellor Alistair Darling met First Minister Alex Salmond at Westminster earlier this week, and the two men spoke by phone today (Saturday).

It remains unclear whether the Scottish Government will have a role in taking on the social housing loan book, until the Bank of England's competition for sale of the building society is complete.

There has been no comment from the management of the Dunfermline building society. Its chief executive, Jim Willens, took over the top job in December.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Why did it take so long for Dunfermline Building Society to get to this stage?

It is days from having to declare its annual figures, but - it is reported - unable to persuade auditors to sign them off with the mutual as a going concern?

The story is that the preferred option, of other building societies merging with the Fife-based society, took quite a while to come to nothing.

This is a conservative-minded sector, they had seen the banks rush into unwise takeovers, and chief executives will have taken note in particular of the Lloyds TSB management ruing their lack of time for the necessary due diligence on HBOS.

The bigger building societies are already suffering from merger indigestion, having swallowed up some of the English minnows.

But the word is that the package being cooked up by the Financial Services Authority - an announcement described as "imminent" by one who ought to know - could see a consortium of other building societies come to the aid of the troubled Dunfermline, with part of the bail-out funding, alongside at least the UK government and possibly the Scottish one too.

The sector has to show willing to help itself if it is get through the economic crisis.

For all the talk of mutuals being a return to responsible saving and lending, they are not in a position to feel all that smug.

And while the Dunfermline is accused of having taken too many risks on commercial property, the problems may be more sectoral than the building societies are rushing to admit.

The irony is that it is the very conservatism and dullness of the basic building society model that is its problem, despite that now being seen as the virtuous way to manage money.

They take in savings, and they lend them out for housing.

Not only does this leave them particularly exposed to a downturn in the housing market: it has also meant that building societies have had to struggle to compete with the cut-throat competition of the banks (including cutting their own throats, as it has turned out),
when the banks have a bigger and more aggressive role to play in building customer relationships for other financial products.

As one of those who knows the sector well put it: "The main business that building societies do is what the banks have been doing as loss leaders".

In other words, there has been hardly any margin in lending for housing, even before the market hit the rocks.

With interest rates driven down towards zero, and with many building societies tracking them down, that leaves even less margin.

And now, the banks are being financed and pushed by the Government to get the property market going again.

On that basis, it may not just be the Dunfermline Building Society that is facing a troubled balance sheet.

This wouldn't matter if the FSA's requirements of that balance sheet were relaxed.

As with banks, the regulator is in get-tough mode with tier 1 capital ratios - the amount of money institutions are required to hold in relation to the amount of their lending liabilities.

For building societies, that has gone up from 5% to 8%, just when they are least well-placed to build up that capital through profit generation.

It's another of our many current paradoxes: the FSA is expected to shore up the financial system with more robust regulation, but the very act of doing so undermines those it is trying to support.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

It's not just Sir Fred Goodwin whose pension pot is hugely controversial.

His successor at the Royal Bank of Scotland, appointed with the support of the majority shareholder, Her Majesty's Government, is also under fire for a £5m shareholding.

Next week, the government gets to flex its considerable muscle on pay and pensions.

While its (supposedly) arm's-length shareholding agency, UK Financial Investments, is not saying how it will vote at the Royal Bank's annual general meeting in Edinburgh, a statement does hint at a 'no' vote on the remuneration committee report.

That would at least register a protest at the Goodwin pension.

The problem it faces in taking that nuclear option on pay is that it could impact on more than 170,000 RBS staff.

"UKFI has made abundantly clear its profound opposition to the decision of the former board to enhance Sir Fred Goodwin's pension and has agreed with RBS that every legal avenue for redress must be explored," said a UKFI spokeswoman this morning.

"The vote on remuneration runs much wider across a bank with 170,000 employees and UKFI will make its voting decision in due course".

It could be politically difficult for UKFI to vote in favour of the Royal Bank's remuneration committee report, particularly as independent advisers to other shareholders are recommending a 'no' vote.

Of the two most influential analysts advising institutional investors, the Association of British Insurers has put an alert warning on the remuneration committee report (it doesn't recommend votes to those it advises), while the Pensions Investment Research Consultants (PIRC) is recommending its clients to vote against.

It is unlikely this could stop Sir Fred's pension deal, but it would force a re-think of the package agreed with Stephen Hester, the new chief executive.

His pay packet was agreed under the government's shareholding watch.

To compensate Mr Hester for shares he held in the company he previously led, British Land, he was handed nearly £5m worth of RBS shares.

He doesn't even have to achieve any performance targets to have access to that investment.

PIRC has "serious concerns" about the nature of this non-incentivised deal, saying there should instead be "challenging and transparent performance conditions".

It is also unhappy about the shareholding incentive awaiting new RBS chairman Sir Philip Hampton, that could bring him twice his annual salary, meaning £1.5m.

That is deemed to tie his incentives too closely to those of senior management.

For Sir Philip's predecessor, Sir Tom McKillop, more bad news looms.

The Treasury select committee is, this afternoon, to decide on whether it wants to summon him again to explain the deal he did with Sir Fred Goodwin on enhancing the former chief executive's pension package at the same time the company was heading for collapse.

And he is also under pressure at BP where, as a non-executive director of the energy giant, he is on both the remuneration committee and even the ethics committee.

Incredibly, he's standing for re-election at the AGM next month.

According to the BP board's recommendation: "Sir Tom brings capabilities and expertise within the areas of international business".

He certainly brings experience, though not necessarily the kind you would want.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

There are two key risks from adopting the ostrich position.

The obvious one is that your head is in the sand, and you're ignoring what's going on around you.

The associated one is that your nether regions are exposed to others to kick around at will.

So it is with the reputation of the .

Its 300,000-plus members - the savers and mortgage-holders - may well wonder what on earth is going on, following prominent newspaper speculation over recent days.

All they will find on the website from chief executive Jim Willens is the observation that "the articles are speculative". You'll note that's not a denial of anything.

In case you are one of those tempted to draw your savings out pronto, reassurance comes from the UK Government, that it has not let down bank and building society savers or borrowers yet.

The first £50,000 of an individual's savings are secure, and there's a broad hint that you might get more than that refunded if an institution goes belly up.

So fear not. And in any case, the nature of the problems do not seem to be the kind that could lead to imminent collapse.

But what is going on at the Dunfermline - Scotland's biggest building society, reckoned to be Britain's 12th biggest, with around 500 staff, 34 branches and a £3.3bn balance sheet?

There are few established facts, beyond an abrupt change at the top in December.

But it's reasonably clear that it's in trouble, that it faces a multi-million loss that has to be reported by next week, and that the Financial Services Authority, the regulator, has been in discussions with it for some months about its capital ratios - that is, the reduction in its capital assets through the decline in property values.

Without adequate capital, it is not allowed to retain its current lending liabilities.

It is far from easy to raise that capital in the money markets if you're known to be in trouble with the regulator.

A building society has no shareholders to tap with a rights issue. And the route taken with other small, vulnerable English-based building societies in recent months, a forced merger with big players in the sector, has not brought forward any takers for Dunfermline.

Being a mutual, the Government can't simply take a share ownership.

It can, however, issue a sort of preference share, which would be paid back through having a prior call on future profits.

Reports say that option could be used to inject as much as £60m of bailout.

One of the novelties here is that the Scottish Government is also a player.

It hasn't confirmed its role, but it's clear that it "stands ready" to help protect jobs and the Dunfermline's role in the funding of social housing, which is a devolved responsibility.

Yet another reason for a constitutional row between governments, as some have speculated? Not yet.

The words "constructive engagement" are being used by both governments.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

A torrid time for lawyers has had rumour rife that at least one of the big Scottish partnerships is in financial trouble.

There has been widespread scaling back, lay-offs, graduates not recruited, para-legals let go, particularly in conveyancing and in mergers and acquisitions.

It would be highly irresponsible to report rumour, of course - until, that is, one of the subjects of the rumour confirms what is being said.

David Dunsire at Tods Murray has done just that, in a letter to a newspaper, observing that in tough times, legal firms find it hard to deal openly with such issues.

It seems his has not been the only firm fielding calls from journalists to check out the rumours.

The executive partner's report of said swirling rumour makes for alarming reading:

"We have been the target of a lot of negative speculation and malicious scaremongering.

"We have heard that we are on our bank's 'at-risk' register, that partners have refused to inject more cash into the firm, and that we are, indeed, about to go into administration."

But, he goes on to stress, strenously: "All of this is untrue. The firm is financially stable".

Given that times are tough: "It is hugely disappointing that we have to spend seemingly endless amounts of time deflecting rumours that can only serve to undermine the profession as a whole and a strong and responsible Scottish employer in particular".

Thank goodness he's put these concerns to rest.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Swiss banks may be at least as troubled as the Scottish variety, but there are still strong signs of the Helvetic instinct for money management.

It is reported by Reuters today that, in the canton of Zug, people are over-paying on their taxes, because the interest rate they get on doing so, at 2%, is better than the rates they can get by putting money into bank deposit accounts.

It has left the cantonal budget nearly £30m ahead of its projected budget, and the finance director in the strange position of trying to block over-eager tax-payers.

Closer to home, there's research just out that shows banks are increasing their demands for minimum deposits on accounts.

MoneyExpert.com has surveyed the conditions on financial products, and found the past 12 months have seen a 29% increase in the average amount people are expected to have on opening an account, now at £1381. The minimum deposits for term savings deposits such as bonds, has risen by 24%, to £2,567.

This is for the privilege of earning record low interest. The same website says instant access accounts have sunk from more than 3.5% to 0.97%, and the average for term products is down from 5.4% to 2.7%.

It seems that the higher deposits may be a means of discouraging people from spreading their savings around several banks. But if you look at the state of banking over the past 12 months, you can understand why people might find that option
attractive.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Chancellor Alistair Darling said last November that he planned a scheme to rescue people from mortgage default leading swiftly to repossession.

He said it would allow people facing job losses to stay in their homes for as long as two years, using government support to pay the interest on mortgages.

Some interpreted this as an opportunity to take a payments holiday.

That would have been a bad move.

The scheme, we now learn, will only apply to those with five consecutive months of keeping up payments.

Horribly complicated

If you've already started your payment holiday in the expectation that Mr Darling will ride to the rescue, then you've disqualified yourself.

We also learn that the ³ÉÈË¿ìÊÖowners Mortgage Support Scheme has become horribly complicated, with a rulebook running past 200 pages.

The Council of Mortgage Lenders said last year that the devil would be in the detail, and according to director general Michael Coogan, that has proved to be something of an understatement.

Mr Coogan was in Edinburgh on Friday, at the CML's Scottish gathering, underlining how underwhelmed he is by the mortgage support scheme the lenders didn't ask for and still don't much like.

Vital relationship

The idea that borrowers could defer interest payments for up to two years, and then face a bill for all the backed-up payments plus the risk of a house worth even less, may not prove all that attractive, he suggested.

And of the alternative government schemes, boosting income support for homeowners who lose all their income is "nowhere near ambitious enough", while a scheme to keep 6,000 defaulters in their homes while they become tenants is also "unambitious" in its scale.

But there's a big challenge coming, with the CML forecasting 75,000 UK repossessions this year and 500,000 people (that's nearly one in 20 mortgage-holders) at least three months in arrears by the end of this year.

From Mr Coogan, you get some sense of what the banks and building societies might be saying about the government's attempts to get the housing market started again, if only the government weren't exercising such power over the lenders as a major shareholder and regulator.

He says government is well-intentioned and they have shared objectives, but his comments do suggest things are far from happy in this vital relationship.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

There's not much consolation for the 252 people at Dundee's NCR plant whose jobs in the manufacture of cash machines have just become yet more casualties of the downturn.

These are going to be hard to replace.

This is part of the boom and bust of economic hopes that businesses build up, local people come to rely on them, they then decline and go.

It fits into a narrative of industrial and manufacturing decline: Linwood no more, Ravenscraig no more, etc.

But the NCR story says more than that, and despite the pain of job losses now, there is a more positive story to tell.

The Ohio-based company is a grand-daddy of inward investors in the modern era, having arrived in Dundee in 1946.

It came to Scotland to exploit the skills of the post-war workforce.

It adapted to technological change as shop tills moved from the mechanical to the electronic, pioneering the manufacture of the cash machine, just as Scottish banks were pioneers in deploying them.

American bosses could see there was more to Scots than a relatively cheap (at that time) source of labour.

They could see the potential for harnessing brain-power, and built up a large research and development presence on Tayside.

And for all that people are hurt by the loss of 252 manufacturing jobs, it can be overlooked that 450 R&D jobs at NCR are remaining in Dundee.

Would that other inward investors had put down roots in the same way, and been encouraged more effectively to do so by the Scottish Development Agency and its successor, Scottish Enterprise.

Apart from IBM in Greenock, there are few other such companies that moved from production to high-end innovation and service delivery in the same way.

Far more often, they moved in cheap production and then moved it on, as central Europe and Asia opened up.

The jobs were important to help the transitions of the Scottish economy, but in the end, they often left only empty plants and dashed hopes.

Research and development jobs may not ship tangible products to the world, but these higher-value jobs are the best prospect for the Scottish economy.

They use Scotland's most valuable resource - innovative brain-power - and they are much less likely to get shipped elsewhere due to cheaper labour costs elsewhere.

That said, developing nations - notably China and India - are producing huge numbers of highly-trained technicians, with ambitions to win business at every level.

There is no reason to be complacent about the research advantage, particularly as there isn't nearly enough R&D by Scotland's private sector.

But nor should we overlook the significance of what there is.

Indeed, one of the biggest spenders on R&D in recent years has been this blog's dear friend, the Royal Bank of Scotland.

In recent years, it has ranked up there with Shell and BP in the top 15 R&D spenders in Britain, investing more than £300m annually on software development to improve its financial and business services.

With RBS looking for £2.5bn of cost cuts, it wouldn't be surprising if that budget is among them.

Meanwhile, attention in Dundee will turn to the public sector's efforts to help NCR manufacturing workers find new jobs or training places.

The challenge there is not only that the recession makes it exceptionally difficult to find alternative employment: it is also that the public sector is not as clear as it was in providing a response.

Scottish Enterprise no longer takes a role in responding to such closures and unemployment problems.

It may try to help attract another inward investor, or persuade an existing one to expand.

But much of the work falls to Skills Development Scotland, which now has Scotland's 1,000-plus career advisers on its payroll.

In addition, the 2007 Concordat between the SNP Government and councils means that local economic development falls to the 32 local authorities.

The new role came with hardly any new budget, and was handed over when the economy was still booming.

While Dundee City Council may be of a scale to handle the challenge ahead - let's hope so - it is far from clear that all the others can.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

The global headlines are gob-smackingly bad.

The IMF's French boss calls this "The Great Recession".

Let's assume Dominique Strauss-Kahn means it's big, because it doesn't feel that great to be in the middle of it.

In Edinburgh this afternoon, the estimate of a £219bn gap in pension funds is being met with a more upbeat message to the National Association of Pension Funds, with an analysis of the way economic cycles have a happy habit of following downswing with growth, and that stock markets are a good predictor of that upswing.

In Glasgow this evening, an academic gathering for the general public, calling itself the Festival of Social Science, is to hear more of a downbeat take on the state we're in.

The advance notice from Professor Catherine Schenk, an expert in the history of financial markets, says the prospects of progress at next month's G20 summit in London are "pretty slim".

She reckons the current use of government interventions in the financial system could actually lead to instability.

Professor Ken Gibb, who specialises in the housing market, is arguing that governments need to re-think the drive towards owner-occupation for people who are ill-equipped to deal with economic and housing market volatility.

He suggests more support for the rental market and a tax on housing capital gains to reduce speculation in the boom times.

Meanwhile, Scottish businesses are struggling to get through the tough times, and today provides some very different tales. It's not all bad - but where it's bad, it's really bad.

Weir Group is doing nicely, having bought big in Texas, with profits comfortably up.

The Glasgow engineering company has a war chest with which it could move into further acquisition mode when the time is right.

Cairn Energy, the Edinburgh-based oil exploration company, has today gone for a rights issue aimed at putting £120m of extra capital into riding out the recession, possibly proving useful to expanding its pipeline network in India and more work in Greenland.

But then there's , also headquartered in Edinburgh.

Its share price, already bumping along at derisory levels, has fallen by a further quarter on the latest results, out this morning.

The group includes The Scotsman, Scotland on Sunday, the Yorkshire Post, and hundreds of local titles from Portsmouth to Stornoway via its Falkirk roots.

The entirety is now valued below £50m.

And no wonder. Advertising revenue for the start of this year is down 36%. In property and jobs, it is down by more than half on last year.

Taking £417m in write-downs on the falling value of intangible assets, such as the brand value of its titles, it registered a loss last year of £429m.

And even after that, it still faced a net debt at the end of last year of £476m, which it hopes to refinance by summer.

The company has sharply cut costs (mainly the salary bill) and will continue to do so, centralising where it can.

Inviting offers for its Irish titles, new chief executive John Fry is interested in further sell-off of assets, hoping the UK Government will relax the rules on media ownership to boost the number of potential buyers.

That leaves uncertainty about The Scotsman and many other titles.

Not everyone shares Mr Fry's confidence that the upswing will apply to newspapers.

They include those suffering the ferocious scything announced today at Guardian Media Group's local titles in England.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Here's the challenge.

Go into a branch of Royal Bank of Scotland, taking with you today's announcement that it is making in Scotland, particularly available to first time buyers, and ask for your share of this lending bounty.

It is part of a £9bn package for the whole of the UK, so you can try the same at NatWest.

The government is eager to stress that this pot of money is a knock-on effect of its new capital injection, as part of the Asset Protection Scheme.

But this is a bank required to price risk more accurately than it has done before.

There is nowhere in the new lending announcement that commits this or any other bank to pricing its loans anywhere close to the 0.5% Bank of England base rate, or to limiting its arrangement fees.

So if you're a first-time buyer, asking for the maximum loan of 90% of value with only a 10% deposit, don't be surprised if the bank charges you handsomely for the risk involved.

Your new home, after all, stands a reasonable chance of falling in value by more than 10% in the next year.

So you and your bank manager can assume negative equity by then, meaning your asset will be worth less than your loan.

And if demand exceeds the £1.7bn? Well, there's more where that came from.

Indeed, it's hard to see how bankers can account for where this "new" lending starts and ends.

Bankers, politicians and house-builders hope this will help defrost the housing market, bringing forward the point at which falling prices find a floor.

But those of a more sceptical frame of mind might think it looks a bit like a useful device to send a more political message that the public are getting something in return for their vast investment.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Three hundred pages of annual report from the Royal Bank of Scotland has been published.

It is said that some of the finest analyst minds in fund management refused to invest in RBS in recent years because its figures were so hard to understand, and it now seems that some of the senior management were having the same problem.

From what I've read so far, it seems at least that is being put to rights.

Directors are being required to go through training in their duties and the bank's complex arrangements.

And they are being handsomely rewarded for it.

New chief executive Stephen Hester, we learn, is on £1.2m a year - not bad for a civil servant.

Chairman Sir Philip Hampton is on £750,000.

Kitchen sink

Sir Philip's role as temporary chairman of the remuneration committee is breaking the code by which the bank is supposed to operate, and it seems the consultants who advise on this highly controversial pay and pensions policy is also advising other parts of the bank.

The risk of a conflict of interest there is addressed, and dismissed.

The cost of hiring new chiefs is one of the problems with getting heads to roll, as the government insisted with their now notorious predecessors in October - just try hiring someone who knows what she/he is doing, reassures the market, and is willing to have a whole lot of public opprobrium dumped on them, and you won't find they come cheaply.

Anyway, the really telling bit of the annual report, once you've got past the £24bn loss, is the list of risks the company faces, which stops just short of the kitchen sink.

This includes inflation as well as deflation, there is the risk that the limits on bonuses will lose them key staff, and then there's 'reputational risk' from all this negative publicity driving customers away.

Very British

No wonder Standard & Poors, the ratings agency, has today said things look "very difficult" for RBS.

It has agreed not to lower RBS's credit ratings, but only because the government won't let it fail.

The annual report's wording on that government backing is very carefully chosen: "Whilst the group has received no guarantees, the directors have a reasonable expectation, based on experience to date, of continued and sufficient access to the funding facilities referred to above (the government capital injection) and, accordingly, that the group and the company will continue in operational existence for the foreseeable future."

So it's a non-guaranteed guarantee from the Government, more like a nod and a wink - a very British way of doing business.

* And more on the bail-out and crisis, from Monday morning's meeting of the Treasury select committee at Edinburgh City Chambers.

As well as suggesting more use of the 'perp walk' (the American term for a humiliated, handcuffed, alleged perpetrator of financial crime), John McFall, chairman of the Treasury select committee, has backed calls this weekend from Larry Summers, President Obama's economic adviser, for yet another big stimulus package, co-ordinated internationally.

The Dunbartonshire Labour MP suggests tax cuts for the lower paid in next year's Westminster Budget and help aimed at graduates trying to get into a stalled labour market.

• Bookmark with:
• del.icio.us |
• Digg |
• Newsvine |
• |
• Reddit
• - What's this?

It takes a very narrow view of the world to take any pleasure from the finding that Scottish businesses are shedding jobs at a slower rate than any other part of the UK.

More important to note is that they are being shed everywhere, though slightly slower than the first few weeks of the year.

The best explanation of that part of February's Royal Bank of Scotland's Purchasing Managers Index, out this morning, is that past recessions have shaken out the less efficient businesses in Scotland already.

In this recession, parts of English industry, notably in the car-making sector, seem to be catching up, though less because of inefficiency than due to a huge fall in demand.

The West Midlands is by far the worst part of the UK for private sector job shedding, followed by Yorkshire and Northern Ireland.

The other peculiarity about Scotland's position in the RBS PMI rankings is that it is the only part where managers have registered an upturn in input prices.

That comes from the decline of sterling pushing import prices up.

But such is the nature of the recession that businesses are not passing on those increased input costs.

Output prices are still declining, and of course, that means squeezed margins.

The overall picture is grim in every sector and on every count, though it's important to stress this is a snapshot view from across the economy while some companies have very different stories to tell.

The big picture is jobs, output and the level of backlogged work all registering rapid falls last month.

As backlogged work is completed, new orders and new customers are not feeding through, and bosses are also shedding staff to control their costs.

It has been noted before now that the expected crunch in finance sector employment has not hit home yet, and that continues to be the case.

Within the service sector, it continues to be the least bad performer.

It is the travel, tourism and retail sector that is taking the biggest hit in falling orders and staff levels, and that's despite the help you might expect from weakened sterling, which ought to attract more foreigners to these shores and keep more Brits at home for their holidays.

Anecdotally, it is business travel that is feeling the most pain, as it's an easy budget heading for corporate bean-counters to cut back.

Budget tourism is holding up reasonably well in some places, with some guest houses reporting unusually healthy bookings.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

The desperate attempts to avoid majority government ownership of Lloyds Banking Group have had a coach and that rampant horse on its logo driven through them. As a result, a once majestic black stallion now looks hobbled.

The Asset Protection Scheme puts £260bn of toxic assets under government insurance, in addition to the £375bn of risky investments from the Royal Bank of Scotland, agreed ten days ago.

Whereas LBG has been 43% owned by the government, following the recapitalisation last October, it is now looking at 65% ownership as a result of the deal. Including the government's ownership of 'B' shares, that effectively rises to 77%.

That's a humiliation for Eric Daniels, Lloyds' chief executive, an American running a near-nationalised British bank, having blown his reputation for conservatism. Last year's deal to buy Halifax Bank of Scotland has turned hideously sour, at least for shareholders in what was the relatively safe, dull Lloyds TSB.

He has fought hard to save a fig-leaf of retaining the hope for his shareholders that there may be a dividend pay-out from next year. The block on that has been removed, by the conversion of the £4bn preference share the government held since the last bail-out. That removes a £480m annual bill in payouts (at a 12% rate) that was to have been the first call on the bank until the preference shares were bought off.

The RBS similarly shed £5bn in preference shares, but the effective resulting impact of the deal, including the Asset Protection Scheme, was to take government ownership from 68% up over 90%.

In a statement this morning, Daniels stressed the more robust gearing of the bank's balance sheet, but the best he could say to shareholders is that this looks like an "appropriate deal" for them.

Of the assets being insured, HBOS account for 83% and Lloyds TSB for only 17%, reinforcing the message we already got from the annual figures last week that it is the Edinburgh-based part of the merger that has brought the problems.

And while the £260bn now insured is made up of £74bn in dodgy mortgage loans, it is dominated by the £151bn in corporate and commercial loans, including real estate. That takes us back to the £6.8bn loss incurred for last year by the Bank of Scotland corporate division.

It's with this background that Standard and Poors, the credit rating agency, yesterday lowered the rating on Lloyds Banking Group and its various subsidiaries including HBOS and Scottish Widows. That means a reckoning that the financial position is less secure, but it is clear from the S&P assessment that it is only that high because the Government is standing behind Lloyds. It means, of course, that raising funds is becoming more expensive for Lloyds, just as it is for many of its customers.

Will the £14bn in guaranteed new lending for each of the next two years feed through to hard-pressed customers? Only if the bank is willing to expose itself to more risk.

This returns to the fundamental inconsistency of requiring banks to be more responsible while requiring them to take more risks. And with Lloyds now majority owned by the government, it reinforces the other inconsistency, that the government wants banks to behave commercially while exerting political pressure on them over their lending, dividend and pay structures.

It is intensely frustrating for bankers to have to accept these terms from ministers and civil servants. But it should be intensely alarming for the taxpayer that, as of this morning, we're in for another £16bn or so of investment, while carrying an insurance risk on more than £200bn of dodgy assets.

• Bookmark with:
• del.icio.us |
• Digg |
• Newsvine |
• |
• Reddit
• - What's this?

Andrea Orcel gets a lot of bang for a lot of bucks, but it's not always the right kind of bang.

According to reports out of New York this morning, this Merrill Lynch top investment banker was a big shot adviser to the Royal Bank of Scotland when it led a consortium that bought ABN Amro.

Those of us watching the RBS disaster are now familiar with the disastrous miscalculation and failure of due diligence behind that deal, and the price we're now all paying.

Of course this big bang didn't go off in Mr Orcel's face.

It was Sir Fred Goodwin who paid for the mistake with his job and his reputation - widely perceived as being a very low price given the implications for the rest of us.

But it is reported by the Wall Street Journal and Huffington Post today that Andrea Orcel, a London-based Italian, walked away from that deal with a US $12m fee, simply for his advice.

It must have been quality stuff.

That was part of a $36m pay and bonus package for 2007.

He may be feeling the heat now, though.

New York's attorney general, Andrew Cuomo, is reported as using legal means to get at secret information on the billions in bonuses paid to Merrill Lynch executives at the end of last year, during the same period the company was facing a $15bn loss and needing rescued by Bank of America and the US taxpayer.

It seems Mr Orcel, the top Merrill earner, pocketed $34m last year, despite the mergers and acquisitions market starting to tank.

And he's still doing nicely as Bank of America's head of international investments.

He makes Sir Fred's £703,000 pension look like a bargain.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Please don't cut interest rates, the banks and building societies are pleading, in the final hours before the Bank of England's monthly announcement - just one of the more surreal aspects of monetary policy.

Banks are usually delighted to have an opportunity to use interest rate cuts to boost business. Now, they are desperate for the Bank of England monetary policy committee to give them some room to keep savers saving, and to keep at least some hope of making profits this year.

The traditional branch-based instant access savings account is now earning an average 0.29%. You can do better with a fixed rate bond, currently averaging 2.3% across the industry.

Without savings, they have to go to wholesale markets for the money they lend, and we now know how fickle and expensive that can be.

And without profits, those notoriously troubled bank balance sheets are depleted. On both counts, lower interest rates make it more difficult for banks and building societies to lend.

And some of the more responsible among them, notably the building societies, are understandably irked that they are having to use some of their profits to pay for higher costs of the industry's savings protection scheme.

One of the results of this process is that it makes it difficult for banks to sustain free banking to those in credit.

Not only are they cutting back on their interest-bearing current accounts. Pressure is building for a start to charging for current accounts, as is common in some other countries.

Unable to earn anything significant from the money held in current accounts, that means pressure building for an annual fee, or fees for individual transactions.

Add to that the big cut in bank earnings - £2bn annually, it is reckoned - if the Office of Fair Trading secures the right, for which it is fighting legally, to cap the charges banks can put on unauthorised overdrafts.

Effectively, customers could soon be paying the banks for providing the most basic service, which is where banking first grew out of gold and silver traders - giving us somewhere safer than the mattress to store our moolah.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Would you buy a used car from this recession? Apparently, quite a lot of us would.

A new survey of public opinion shows the number of people thinking this is a good time to buy a major purchase, such as a house or car, has risen steeply with the start of the year, while the 'bad time to buy' figure has fallen.

There's less change in confidence about buying household goods such as major kitchen appliances.

But it's clear that the bargains available from troubled retailers are feeding into public consciousness, and for those confident about their future income, i.e. their jobs, this looks like a good time to spend.

The UK-wide survey, for Nationwide building society, reflects a very low opinion about the state of the economy now, but shows some signs that people have expectations of things getting better within the next six months.

The headline consumer confidence index, after falling steeply for the past year, saw an uptick in February. It was at 76 last February, reaching 41 in January and up to 43 last month.

Expectations of the jobs market remain poor, according to the Nationwide results.

And in another new survey, there is further evidence that the so-called 'lagging indicators' of the employment markets are far from showing green shoots.

KPMG is behind this monthly survey of 400 recruitment and employment consultancies, which has found vacancies contracting at the fastest pace in the survey's history, and likewise, record reductions in the wages and salaries on offer, for both permanent and temporary posts.

If you're looking for a career change, the only growth sector is in nursing, medical and care.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

What will high street banks look like when the dust has settled on the current calamity?

Will the Royal Bank of Scotland eventually be sold off to a stronger rival? Will Lloyds Banking Group use and abuse its newly dominant market position, as the Office of Fair Trading fears it could?

And will a new entrant to the market sweep past them and grab market share?

If it's the latter, watch out for Benny Higgins.

Yesterday, he announced he's recruiting 200 staff to add to the 250 he already employs at the Edinburgh headquarters of Tesco Personal Finance.

That's some way short of the RBS total of nearly 180,000 employees.

His bank recently bought out the RBS share which has helped the supermarket giant build up its personal finance arm over the past 11 years.

Lost faith

It has been operating independently since December, while RBS still provides branded back office support under sub-contract.

And with the big banks shedding staff, Higgins can have the pick of the bunch as Edinburgh financiers look for somewhere new, fresh and going places.

Today, we saw figures for how much savings deposits have rocketed, as people have lost faith in troubled, longer-established banks and shifted their funds.

Not only Tesco has benefited from that - expect more news about that trend soon.

The Tesco Personal Finance chief executive is not one to crow about his strong position; without debt problems or government ownership, and with a customer-focused and trusted brand with a very large presence in every one of Britain's postal districts, along with expanding international reach.

It already has 5.5 million customers, and 28 financial products.

Being cautious

He told me on Monday that trust and building customer loyalty is going to be crucial to the Tesco offering.

But he is reluctant to set targets for how much it could grow.

He has done well out of being cautious, even if it lost him his last job.

He worked with Sir Fred Goodwin at the Royal Bank, and while he wasn't willing to discuss him this week, he has recently been quoted generously praising the former RBS chief executive.

More recently, Higgins was head of retail at HBOS under Andy Hornby and was pushed out two years ago as punishment for the loss of market share in the new mortgage market.

What followed at HBOS was the drive to win back that market share with the reckless lending that last week landed HBOS with billions of pounds of losses.

And while Andy Hornby is now the one out of a job, Benny Higgins has good reason to look pretty pleased with himself, quietly confident about Tesco's market strengths.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Back to Scotland's newspapers.

It is not just that that's where I worked until last September, though perhaps I am a bit biased.

It's also because the papers are so important to Scotland's sense of itself, to its culture and identity.

And it's because this is an industry which is not only facing a very tough recession, but in the internet, it's facing an unprecedented challenge from a new technology, and it will surely emerge out of recession in very different shape.

But right now, I'm returning there because of an article in the Financial Times by the chairman of Johnston Press, one of Britain's biggest newspaper chains, which has The Scotsman, Scotland on Sunday and the Yorkshire Post as flagship titles.

Roger Parry steps down from the Edinburgh-based company this month, and has given a candid assessment of the view from the boardroom, saying radical change is necessary.

Within five years, he forecasts many local daily titles will have been converted into weeklies and the number of journalists will be down by 50%.

He argues governments - local and national - have inadvertently given newspapers false hope, by keeping public sector jobs advertising revenue at high levels, while the property bubble boosted housing ad supplements.

And as someone who ought to know a thing or two about newspaper managers, he says they didn't prepare for the crunch.

"Some managers argue that a failing six-day-a-week paper is still better than one that comes out once or twice. But economics shows they are wrong. A strong weekly paper - in effect a print-out of the best content from a well-resourced 24/7 website - is a better proposition," writes Parry.

Journalists are too busy doing things their audience doesn't want or value, it is argued.

So he foresees "enthusiastic amateurs" to collect the news and photographs, and for journalists to exercise quality control, while focussing their skills more on investigations and analysis.

Advertising sales teams are also outdated, goes the argument. Most of what they've done can now be done online.

So it comes down to two management responses: cut costs and try to do more of the same, more cheaply, or embrace a radically different way of doing business.

Only the latter will succeed, says The Scotsman's uber-boss.

And that leaves the big question about newspapers' social and political role: "Local democracy and identity are important to most of us, and a vibrant and independent local media committed to campaigning and disclosure is vital in protecting local values".

So here's the key question: while Scotland's national and local print media changes, how can that role be continued?

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Gordon Brown has been setting out the way he sees the shape of British banking in future.

Northern Rock would specialise in mortgages, the government is looking at setting up an innovation bank, it may very soon announce there's to be an infrastructure bank, there could be a small business specialist bank and another for industry.

"And we are looking too at whether, through the post office network or National Savings or other means, we can have a publicly-owned savings bank," the prime minister told a party gathering this weekend.

Now, in common with Sir Fred Goodwin, Sir Tom McKillop, Andy Hornby, Lord Stevenson, the prime minister and Chancellor Alistair Darling, I don't have a banking qualification.

So I may be missing something here. But doesn't this very vague plan sound a bit like returning to the very same problems that started the unravelling of British banking?

Because Northern Rock specialised in pushing mortgages out the front door without having an adequate savings base, it was exposed to a freeze in the wholesale money market.

Likewise, that did a lot of damage to Halifax Bank of Scotland.

A successful bank - such as HSBC has been seen (though stand by for problems with its annual figures tomorrow) - has matched savings with lending with a wide geographical spread.

A successful bank brokers money in a balanced way, whereas Brown's weekend speech sounds like entrenching imbalance within the suggested new system.

• Bookmark with:
• |
• |
• |
• |
• - What's this?