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

I thank the Minister for introducing the order in what I think is his first outing in the Moses Room. As he can see, there can be quite a lot of detailed questions, even on what might appear to be a relatively straightforward order. I start by saying that we on these Benches believe that the Government did the right thing in the end—I stress those words—with regard to both Bradford & Bingley and the Icelandic banks. In contrast to the noble Baroness, Lady Noakes, I propose to spend more time talking about the Icelandic orders and the situation in Iceland, but of course I will start with Bradford & Bingley and Northern Rock. I listened with interest to the Minister’s carefully chosen words about the compensation process for Bradford & Bingley, but I am bound to say that on Northern Rock, it does not seem that there can be any outcome other than a zero from the process. Indeed, as the noble Baroness said, I would be concerned if the costs escalate beyond the fixed fee since it is bound to be public money that is spent on the process. From what the Government are saying, Bradford & Bingley appears to be a little more complicated. At this point, I should declare my interests both as a pension fund manager for the past 32 years, and, specifically to this case, as an investment manager and a director of a subsidiary of Close Brothers plc. It has a banking licence and we operate to some extent in the same areas as parts of KSF. As an investment manager and having listened to the noble Lord, I find it hard to believe that there can be value in the shares of Bradford & Bingley in the way described. My general view is that a bank which runs out of cash and credit, which I am afraid basically was the situation at Bradford & Bingley at the moment when it had to be rescued, has no value. Sad though it is—we saw this situation to some extent with Northern Rock—whether the shareholders are large or small, equity shares are equity shares. If the taxpayer is being asked to put his hand in his pocket to recompense shareholders, that is money which is not available elsewhere for vital purposes. I do not prejudge this, but while the outcome for Northern Rock is clear, it is difficult to see how there will be compensation payable as regards Bradford & Bingley. However, I accept that it is a grey area and that it is important that the valuation is done properly and professionally. Again, I do not agree with the implication of the noble Baroness that Northern Rock is now a going concern. The fact that the shell or hub of the company has been recapitalised at great expense to the taxpayer is relevant to the calculation of whether it was a going concern at the time, but no doubt the noble Lord will give his views on that. I turn now to the Icelandic orders. By 7 or 8 October, there was no alternative because it was a very grave situation. However, the shocking figures before us show that there is a liability from Heritable Bank plc of £500 million to the FSCS, which basically is all of us as customers of British banks and financial institutions. It is not a separate pot; this is essentially British savers’ money. Some £45 million is owed to the Treasury, while Kaupthing owes £2.5 billion to the FSCS and £550 million to the Treasury. These are shocking sums, and the question that arises and which I want to put to the Minister—he has only recently taken over so I do not expect a full response today, but I will hand him the documents so that he can prepare one—is: why was the situation of the shaky Icelandic banks allowed to drag on for so long? Specifically, what did the Treasury, the Financial Services Authority and the Bank of England know in the spring and what did they know in the summer? I tabled Parliamentary Questions which were answered on 14 and 15 July about the extent to which the British financial authorities were taking steps independently of the Icelandic authorities to satisfy themselves about the stability and solvency of Icelandic banks—particularly Icesave—which, as noble Lords will recall, were at the time advertising vigorously in this country for deposits. Money went on pouring into them right up to the moment that those banks hit the wall on 7 and 8 October. The Answers from the Treasury on 14 and 15 July can only be described as extremely evasive and incomplete.My honourable friend Vince Cable wrote to the Chancellor on 27 October to ask why those Questions were not properly answered and why, in particular, the Treasury failed to answer the Question about the outstanding compensation scheme. Did not the Treasury know? If not, why did it not find out in July and ask for a full statement about the sequence of events which involved the Treasury and the FSA seeking reassurances from Icelandic and other sources, briefing themselves on the protection scheme and taking any necessary action to strengthen protection? The noble Baroness said there has been some delay in Bradford & Bingley shareholders hearing from the Treasury; it took six weeks, until 9 December, for the Chancellor to reply to Vince Cable on this very urgent matter involving billions of pounds of council tax payers’ and other people’s money being at risk. The answer ignored the main point of the question and started the sequence of events in August when, by that stage, it was too late to do much. What happened in the spring? Did the Treasury, the FSA and the Bank of England really have no idea what was going on—that the IMF was seriously concerned, as we now know—and was it really only in August that the Treasury started to get worried? If so, it was negligent and ignorant of the red lights flashing all over Iceland and its banks in the market; if not, why did it not give me a proper answer to my Questions on 14 and 15 July? I will hand the letter and the totally unsatisfactory answer from the Chancellor to the Minister and I hope that he will ensure that we receive a proper answer. The compensation arrangement negotiated by the Treasury on those days—the £1 million, £5 million and so on—was probably the right thing to do under the circumstances; in a financial panic such as that, people have to do the best they can. I do not criticise that but I ask how on earth, and why, this situation was allowed to drag on for so long. I ask the Minister for proper answers when he has had a chance to check with the Treasury what happened and why.