Kaupthing Singer & Friedlander Limited (Determination of Compensation) Order 2008

I thank the Minister for introducing these three orders. My remarks will mostly concern the Bradford & Bingley order, but I will start with a few remarks on the Heritable and KSF orders. As the Minister has explained, those two orders set the compensation at zero; it would be difficult to put together a case for a value of more than zero when transferring liabilities—unless there was significant other value. Now, there may well be a moot point about whether the total of £6 million that the Treasury managed to negotiate as part of that transfer was sufficient recognition of the intangible value attached to the deposit books. Nevertheless, it is clear that no plausible valuation would produce a positive value for those two companies. I note that Section 7 of the Banking (Special Provisions) Act 2008 says: "““The Treasury must by order make provision … for determining the amount””," of any consideration. It does not say that the Treasury may determine the consideration, but clearly indicates that some kind of process should be put in place to determine the consideration payable—one which would, presumably, take account of all matters like the appeals processes that the Act contains. So is the position of the Government that they can use the valuation provisions of the 2008 Act to impose the Treasury’s view of value of compensation without any rights of redress other than the wholly inadequate judicial review process? I am not necessarily saying that we disagree with the result in this case, but it is an interpretation of the 2008 Act that is not without controversy. It does not seem to be something contemplated when the then Bill passed into law, so I would value the Minister’s comments on that. The Act has a shelf life of only another couple of months, but we ought to be clear about the matter in the context of the rather different provisions of the Banking Bill, on which we will start work tomorrow. I have a few questions for the Minister about the Bradford & Bingley order. The first concerns the basis of valuation that the valuer must use. The Minister pointed out that the formulation in the order is the same as that for the Northern Rock order, with one important exception; namely, it does not have the equivalent of Article 6 of the Northern Rock order, which refers to both the ““going concern”” assumption and the assumption of being in administration. The Minister will be aware that Article 6 of the Northern Rock order is itself controversial and is being challenged by the Northern Rock Shareholder Action Group. The Minister sought to explain the difference by saying that Bradford & Bingley was not the same as Northern Rock and that, because Northern Rock had some institution-specific assistance, that meant it was appropriate for the Government to make the assumptions in Article 6. It is not necessarily for today’s Committee to determine that; it will be determined by the court in due course. However, it is rather anomalous that Bradford & Bingley, having had its deposit book and branch network transferred to ING, is now in some kind of asset realisation process. Its website confirms that it is not offering new mortgages, so it appears not to be trading as a going concern. On the other hand, Northern Rock has had a rather expensive new board installed and is very much open for business and carrying on trading, albeit on a somewhat modified basis from its pre-nationalisation state. Therefore, we have the paradox that Bradford & Bingley, which clearly is not now a going concern, can be treated as one for valuation purposes but Northern Rock, which clearly is a going concern, is deemed by the Treasury not to be. I find that confusing; no doubt others will as well. Perhaps the Minister might like to explain the Government’s reasoning on the two. I am not sure that simply institution-specific assistance is enough to justify the differences. The nationalisation of Bradford & Bingley was justified in part because it did not meet the FSA’s threshold for a deposit-taker. Of course, the Government have given no detailed information to back up that position, which means that both Parliament and the financial services world, which needs to understand these things, are in the dark. The issue will become even more relevant in the context of the Banking Bill, where the threshold conditions are referred to as well. I hope that the Minister can say a little more today about the way in which Bradford & Bingley did not meet the threshold conditions, because that is important for people in the financial services world to understand. Not meeting the threshold condition could imply that Bradford & Bingley was not a going concern as a deposit-taker, but it indicates nothing about whether it could continue as a going concern on another basis. Do the Government consider that Bradford & Bingley was a going concern at the time of nationalisation? That would influence the amount of valuation. I am glad to see my noble friend Lord Eccles in his place today. He prayed against the Bradford & Bingley nationalisation order last month. Unfortunately, I was not able to be present at that debate, but I have read the report of the proceedings of the House. He raised a number of concerns, including the paucity of information about the cost of nationalisation and the lack of a business plan. This order and its accompanying Explanatory Note are no more illuminating than the information available for the original order, so what estimates are the Government making of the run-off of the Bradford & Bingley loan book? Has a business plan been prepared? As my noble friend Lord Eccles pointed out, a plan for the rundown of the business, which clearly appears to be happening, is not complicated. Alternatively, are the Government set to use the Bradford & Bingley vehicle for future mortgage-backed lending? Again, the lack of information there causes considerable concern. Can the Minister confirm that, once the valuation has been completed by the valuer, and subject to any appeal processes, any amounts due will be paid to shareholders without delay? There has been a suggestion that shareholders may have to wait until all the assets are realised and the creditors, such as the FSCS, have been paid off. Is it possible for the valuer to come up with a valuation on the basis that the shareholders will have to wait until all the cash flows have come through? The Minister will be aware that, as is typical for a demutualised company, the shareholder basis is characterised by a large number of smallholdings. However, those smallholdings can represent a significant amount of the financial assets for the people concerned and they need to know when they might be paid. The Bradford & Bingley Shareholder Action Group wrote to the Chancellor about this on 10 November but I understand that it has not yet had a reply. Will the Minister say whether the Chancellor intends to reply and, if so, on what terms? The action group pointed out in its letter that the Government had not communicated with the shareholders at all. It seems that out of common decency the Government should at least do that. They should tell the shareholders what is planned and over what timetable they can expect to receive something. I emphasise that in this instance we are talking very largely about small shareholders; we are not talking about those who are capable of reading about issues in the Financial Times and following matters at a higher level. It is about time that the Government set out clearly what they expect their nationalisation of Bradford & Bingley to cost. Has the net amount payable in connection with the transfer of the retail deposits and branch network to ING been finalised? Will the Minister say what that is? That would then leave the mortgage book, which is presumably now generating cash as no new mortgages are being entered into. Can the Minister say what the gross amount of the mortgage book was at the time of the nationalisation and what provisions have been made against those gross amounts? What is the total of any other liabilities, about which I assume there is no uncertainty, and is what is then left positive or negative? In other words, what is the ballpark number of the net amount left for shareholders or due to be picked up by the Government? Will the Minister also state the position of Bradford & Bingley’s securitisation vehicle, which I believe is called Aire Valley? There have been market rumours that Aire Valley will go the same way as Northern Rock’s Granite—that is, one or more triggers will be used to put the vehicle into rundown, which, in turn, will delay cash flows into Bradford & Bingley and raise the issue of the long-term value of the seller’s share, which will be the last to be paid out after all bondholders—