Take heart from bosses’ optimism about Britain

The chief executives of our large banks and retailers have ideal seats from
which to watch the UK economy. The bankers see how stretched individuals are
on mortgage payments, how much they are putting on credit cards and into
savings accounts. They have a similar view on the financial strength of
their corporate customers, both big and small. Retailers can see every day
what their customers are doing.

So when three chief executives from these sectors call an end to the recession
— even though it has not officially ended — we should listen.

Sir Stuart Rose at Marks & Spencer said as much last week and even Stephen
Hester, head of Royal Bank of Scotland and the most bearish of all
high-street bankers, shares a similar view. “The world today is a more
predictable place,” he said. “Every country is pulling out of recession. The
UK has already, but it is not yet in the data.” Eric Daniels of Lloyds said
he was “more optimistic” than some on the short-term prospects for the UK.

But these upbeat remarks need to be qualified. If all agree the recovery is
taking place — or is just round the corner — the bigger concern is that
further growth will be muted. The trio are united in believing that Britain
faces a long road to recovery. Daniels said you cannot have an economy with
twin deficits — fiscal (shortage of tax receipts) and trade (balance of
payments) — and that there are huge questions about how our economy should
evolve. Or, as Daniels put it: “What is the point of excellence in the UK?”

Hester remains “cautious about how good the recovery will be”. It is a
sentiment shared by many of our top industrialists, particularly those whose
earnings are dependent on Britain.

You only have to look at last week’s results from RBS and Lloyds to see the
troubles that are still stored up.

RBS admitted it has another £40 billion of provisions it could make in the UK
in the next two to three years. That comes from exposure to assests and
loans to businesses, property and mortgage lending that are no longer worth
their original value. That number — on top of the huge provisions made this
year by RBS — may not be as bad as once feared, but it is still huge.

In addition to this, the two banks are going to run down or sell non-core
assets and loans over the next four to five years of some £400 billion.

Lloyds intends to sell assets worth £200 billion — accounting for 20% of its
total balance sheet assets. And RBS intends to wind down £240 billion of
assets that have been put in the Government Asset Protection Scheme.

The recovery may be under way, but the scars inflicted by the debt-fuelled
boom will take a long time to heal and the ripple effect round the wider
economy will be felt for some years to come. We have to return to a business
relationship in which banks serve industry, not exploit it as an opportunity
for more financial engineering.

The encouraging news is that we are nearly out of the worst but, as we point
out on the opposite page, the government and the Bank of England have made a
huge, long bet on the UK economy. If there is a double dip, that gamble will
make this country’s finances very precarious indeed.

Sparks fly at Barclays

So farewell then Frits Seegers, the Dutchman who shook up Barclays’
international retail operation. Seegers packed his bags last week after
being stripped of his other role running the commercial lending division.
This was moved to Bob Diamond, the bank’s all-powerful head of Barclays
Capital.

Those on the inside had seen it coming. Seegers was a human catherine wheel,
throwing off random sparks every second. Some found it hard to work for him
and a number of big investors had concerns over the rapid expansion of the
retail business into Africa, India and Pakistan, among other areas.

It wasn’t the flag-planting they didn’t like — it was the returns that would
ultimately be delivered. The show was moving too quickly for anyone to have
time to assess the profitability.

The speed with which John Varley, Barclays’ chief executive, moved yet again
underlines how ruthless he can be when it comes to protecting the bank’s
commercial interests.

Just two months ago, most of the top brass at Barclays cited Seegers as one of
its stars. Last week the story changed. The new line is that Seegers’
departure enables the bank to promote the next generation of talent. It is a
tough business, but a £4m pay-off undoubtedly softened the blow. And the
decision to integrate commercial lending into investment banking is the
right one.

ITV’s City X Factor

Critics who struggle to put their finger on the failings of the ITV board
often point to the number of bankers who have sat in the broadcaster’s
boardroom over the years.

In the Charles Allen era there used to be three banking knights: Sir Peter
Burt, Sir Brian Pitman and Sir James Crosby. None of them is the type to sit
down to watch two hours of the X Factor on a Saturday night.

Only Crosby remains today, and he will leave almost as soon as he has
identified ITV’s next chairman. It is striking that several of the
candidates who will be interviewed over the next two weeks are bankers too.

That needn’t be a bad thing. One name in the frame, Merrill Lynch veteran Bob
Wigley, has proved to be a safe pair of hands in marshalling lenders to
support a £3.8 billion debt restructuring at Yell, the classified
directories group, where he is chairman. The company is also preparing to
announce a £500m rights issue with its interim results on Tuesday.

John Nelson, who made his name at Credit Suisse and now chairs the Hammerson
property group, also has strong credentials. Anthony Fry, once of Lehman
Brothers, is a longer shot.

Investment bankers’ names are still mud as they prepare to pick up hefty
bonuses after Christmas. How interesting, then, that so many are in the
long-suffering headhunters’ sights to fill the ITV job. Perhaps it is meant
to be a form of punishment for the profession — but with advertising and
confidence coming back to television, probably not.

A young man’s Game?

A number of big investors in Game, the video retailer, are getting concerned
whether Peter Lewis, the chairman, is the right man to take the group
forward to the next stage of its growth.

Lewis, 68, has been with the company for 14 years, and in that time has seen
the group grow to its present market value of £538m. Some investors are keen
for a younger chairman to take his place, more in tune with the group’s
target audience — and one who can put a spark back into the share price.

SFO misses target A FEW weeks ago we wrote that the Serious Fraud Office had
set an end-of-October deadline to pass papers to the attorney-general on its
long-running fraud investigation into BAE Systems. Has it met the target?
Apparently not. The papers are now with Timothy Langdale QC — who has been
working on the case for years — to decide whether to send them off. BAE will
have to wait a bit longer for its day of reckoning.

john.waples@sunday-times.co.uk

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