Yesterday, the tired shareholders of HBOS waved through their directors' plans to put an extra £4 billion on its balance sheet via a rights issue at the knockdown price. They are joining a sizeable and sad club. As I contemplated this, and the absence of bankers' bodies in the wake of the credit crisis, I could only think of the title Fred Scwhed was too wise to use (for it was every bit as applicable then as it is now). And that is, "Where Are the Bankers' Bodies?" What a witless question!
Who can contemplate the disarray which has unfolded in the banking sector this year without considering that in parallel situations in other fields of human endeavour, there would have been a lot more blood shed? The continued employment of the board level bankers who drifted into the current mess was marginally justifiable up to the point at which they unleashed the share issues. "You got us into the mess. Now get us out again", has a logic to it. But "You got us into this mess, now here's £25 billion to get us out again" has none.
Buy high, sell low
The bank to which this applies in spades is HBOS. The shares it is about to issue for coppers were so recently bought by it for pounds. For a delicious helping of schadenfreude, visit HBOS' investor relations home page and click the link in the middle of the page. It is labelled share buyback programme in very large letters, no doubt to befit a very large programme, spelt out here in gory detail. For instance, on this day last year, HBOS spent £19.5m buying its own shares at 977p a share. Yesterday, as its shareholders wearily raised their hands in assent to the issue of shares at 275p, they should have been reflecting that it was the anniversary of the day on which HBOS spent £15m on its shares at £10.04.
At this rate, you get through a lot of money in a short time. In all, last year, HBOS spent £500m on its own shares at an average of £10, with the last trade carried out as recently as December. In 2006, it spent £1bn at £10. In 2005, it spent £1bn at an average of £8.60.
There is no field of human endeavour in which similar events on this scale would not result in the annihilation of those in charge.
Do not be blinded by the HBOS groupspeak. In "Key Questions for Shareholders", HBOS advises that "it is prudent to achieve a step change in the capital strength of the group"; the rights issue will enable HBOS "to pursue its strategy of consolidating leadership in residential mortgages…" and that if shareholders "take up all your rights, your proportional interest in the company will remain the same". The document provides answers to 27 questions, including quite complex ones such as "Can I sell some rights and use the proceeds to take up other rights?"
Lunatics running the asylum?
But nowhere does it answer the question, "If we have just retired £2.5.bn of capital at £10 a share, why the hell are we now reissuing it as £2.75?" Or this one: "Can the people who took this decision seriously expect to stay in charge?"
HBOS was not the only offender. Royal Bank of Scotland bought in a billion pounds worth of its own shares in 2006 (and achieved a similar effect by the terms on which it acquired ABN Amro in 2007). Barclays paid £1.8bn for its own shares last year, at 600p a share, compared with the 282p at which it priced Wednesday's £4.5bn share issue.
I can't claim to have been looking very hard, but apart from the Northern Rock directors whose position was so exposed that even they knew the score, I can only count one banker's body - that of Steve Crawshaw - of Bradford & Bingley, and according to B&B's chairman, he went for medical reasons, not because he was falling on his sword. A few more bodies would be a fine thing.
