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

I join other noble Lords in thanking the Minister for his explanations this afternoon. I draw attention to my interest as a director of a financial institution that holds significant policyholder funds invested in financial institutions, including Bradford & Bingley. I think we all recognise the difficult circumstances that arose when Bradford & Bingley and the other institutions were dealt with and the imperative that drove government action. I think we also all recognise that it is right that shareholders bear the risk before depositors. None the less, I should like the Minister to confirm that his statement this afternoon and the specifics of the individual cases represent government support for the principle that shareholders should, as far as possible, be treated fairly in such situations, if and when they occur in the future. In deciding what is fair in the particular circumstances of Bradford & Bingley, I draw attention to two characteristics of the situation. First, my understanding is that it was liquidity, and in particular a low ratio of deposits to loans, rather than capital adequacy that drove the decision to take Bradford & Bingley into public ownership. Indeed, I understand that when Bradford & Bingley was taken over, its tier 1 capital ratio was in the region of 10 per cent, which, as I believe the chairman of Bradford & Bingley said when he wrote to the Government at the time, implied that there could be a significant surplus value from the liquidation of the assets. Of course, the capital ratio does not necessarily guarantee that value is left for shareholders—liquidity is also an important responsibility of shareholders—but the fact that the capital ratio was as high as the Government are urging other institutions to achieve is a significant factor in this case. Secondly, we need to recognise, as I hope will the valuer, that, in addition to the interests of the 850,000 small private shareholders in Bradford & Bingley, major institutions had been encouraged to invest further funds in discussion with the Government in the period before the decision to take Bradford & Bingley into public ownership. As the Minister knows better than most, these institutional funds also represent the interests of millions of individual pensioners and savers. Clearly, it is not a good signal to encourage the further participation of institutions in this kind of structured solution to banking problems if that participation, encouraged by the Government, is not recognised if there is not a successful outcome to the problem. Therefore, I welcome the fact that this draft instrument has provision for an independent valuation. It clearly is up to an independent valuer to weigh up the circumstances and take them into account. I also welcome the fact that, unlike Northern Rock, the valuer has not been instructed to value on the basis that Bradford & Bingley was not able to continue as a going concern. However, I should welcome an explicit government assurance that this change in wording is significant and deliberate in recognising the potential value for shareholders in this circumstance. I should also like an assurance that the fact that the valuer has to assume that there was no government support does not imply a premise that there is no value in a company as an ongoing business or that the business had no value in rundown. If the Minister cannot go as far as my noble friend Lady Noakes would like in saying whether the Government regard Bradford & Bingley as having been a going concern, will he say whether the Government will present evidence to the valuer on their belief or not in the bank’s potential as a going concern at the time? Finally, a suggestion was made by the major financial institutions at the time of the takeover to volunteer a non-executive director to be appointed to the board to help oversee an orderly rundown of the book of business if that is what transpires. Would the Minister like to comment on how that proposal has been received?