Imagine, for a moment, that you were a shareholder of Lloyds. You wake up this morning to hear that the government has just nationalized the bank. What emotions would you feel? Despair? Regret? Resignation? Or would it be anger?
The world has seen some shocking financial scandals in the last two years, but the destruction of Lloyds has to be one of the worst. This bank was reasonably managed. Certainly, it had its share of dodgy loans, but it was no Northern Rock or RBS. Lloyds could have weathered the financial storm. Profits would have fallen; it might have needed to downsize; but it did not require a government bailout.
But instead of surviving the crisis, Lloyds ended up a victim. To understand why, we need look no further than Downing Street. Last summer, Brown and Darling had a problem - HBOS. After NRK, New Labour would not have survived a second bank run. So, Brown personally brokered this merger, in order to save his sorry skin. This transaction was based on a cynical, self centered political calculation that ignored the interests of Lloyds shareholders.
However, Brown wasn't the only one to blame. Lloyds management didn't undertake any serious due diligence. If it had bothered to look at the HBOS loan book, they would have uncovered a cankerous pile of septic debt, waiting to infect the Lloyds balance sheet. Following Brown's political imperatives, the management dived into this merger, the infection spread, and Lloyds went into toxic shock.
Throughout this sorry mess, the interests of shareholders have been totally ignored. Their private property - Lloyds Bank - has been misused to protect the political interests of New Labour. Billions of pounds of private wealth were destroyed by this merger. Moreover, two banks were nationalized, when only one was in trouble.
The implications of this catastrophic scandal will spread beyond the unfortunate shareholders of Lloyds. Can any UK shareholder feel safe? Can anyone feel confident that private property can be protected from self seeking politicians? Can shareholders call to account those managers and directors entrusted to look after their interests?
Lloyds shareholders have just learnt that here in the UK the answer to those three questions is no.