HBOS
The next item of business is a statement by the First Minister on the implications for Scotland of the Lloyds TSB takeover of HBOS. The First Minister will take questions at the end of his statement, therefore I ask that there be no interventions or interruptions.
Last week, the Parliament united in support of the staff who may be affected by the takeover of HBOS by Lloyds TSB and in its intention to secure the best possible outcome from these events for Scotland. Party leaders across the chamber, with one voice, spoke out against the damaging and destructive practices in the financial markets that laid HBOS low. These circumstances demand that the Parliament responds effectively to support Scottish jobs, the wider economy and society at large.
Later this afternoon, there will be a full debate in the chamber, which I welcome,so I will restrict my statement to the essential elements. These are, first, the current position of the proposed merger of HBOS and Lloyds TSB; secondly, the Scottish Government's objectives and what we have already done to secure them, with the full and welcome support of the Parliament and the wider Scottish community; and thirdly, the next steps that the Government is taking to promote Scotland's interests.
The Bank of Scotland is Scotland's oldest banking institution and one of its strongest and most successful. It was founded in 1695 by an act of the old Scots Parliament. Today, through HBOS, it is a large, innovative, successful and profitable bank. One week ago, the Financial Services Authority assured the markets:
"We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way."
Two hours after that categorical assurance was given, Lloyds TSB and HBOS announced that they were in merger talks.
I believe that there were no substantive negotiations between HBOS and Lloyds until last week. That means—importantly for us—that the companies are more or less starting from a blank sheet of paper. It also means that there is much to play for in the future organisation of a merged company.
Both Lloyds TSB and HBOS are excellent institutions. They have brands that are household names, and they have strong individual businesses. HBOS is a lynchpin of the Scottish economy. It has more than 300 retail branches across the country, and it is one of Scotland's major commercial lenders, lending to small firms and to the very largest in the land. The group headquarters of the bank is based in Edinburgh, as are many of its wider group operations, particularly on the corporate and investment side. A variety of banking functions employ substantial numbers across Scotland: altogether, HBOS directly employs 17,000 staff in Scotland. Lloyds TSB employs more than 7,000 staff in Scotland and has a Scottish network of 185 branches.
The Lloyds TSB and HBOS businesses undoubtedly overlap, and the acquisition document makes clear the expectation of substantial scope for what are described as "cost synergies". Therefore, it is not surprising that the proposed merger has caused considerable concern for staff at both companies. I know that both management teams are well aware of those concerns. They have made clear their intention to move quickly on the details of the merger and, as soon as possible, to provide information to their staff. Indeed, I understand that meetings have taken place today with the trade unions. I know that all members will welcome that and encourage management to respond promptly and sensitively to the interests of staff.
We should not forget that, particularly because of how they came into being, both organisations have literally millions of small shareholders. In the case of HBOS, there are 157,000 shareholders in Scotland alone, many of whom will feel bruised by recent events.
The Government responded immediately to address the current situation. We are in close contact with the senior management of Lloyds TSB. I have had cordial and constructive discussions with Sir Victor Blank, Eric Daniels and Archie Kane from Lloyds TSB, as well as with Andy Hornby and a number of other executives from HBOS. I have also spoken to a wide range of interests, including the trade unions Unite and Accord. Moreover, we have sought to build a broad and strong consensus on the necessary steps to defend Scotland's economic interests. Our discussions in the Parliament are important to cementing that consensus.
The Government is also working to build an alliance among Scotland's key social partners. On Monday, the Scottish Council for Development and Industry and I jointly hosted a meeting that was attended by around 100 representatives of business, the trade unions, our universities and colleges, and the third sector. I was pleased to be joined at that meeting by the party leaders in Scotland and their spokespeople on business and the economy. I am grateful to Dr Lesley Sawyers of the SCDI for chairing the meeting.
Further to that meeting, the Scottish Trades Union Congress expressly asked me to ensure that the national economic forum debates the matter at its next meeting on 8 October. I am pleased to confirm today that it will do exactly that. Yesterday, I chaired an emergency meeting of the Financial Services Advisory Board to take expert views and agree on how best to defend Scotland's position as a major financial centre.
Those were necessary and constructive discussions. The Government remains committed to dialogue and is grateful to colleagues from other parties for their substantial contribution—indeed, for their suggestion that such meetings should take place. That broad and strong coalition is critical to defending Scotland's vital interests in the days and weeks ahead.
The Government has four clear objectives. First, we seek to protect jobs in Scotland. That means the whole of Scotland—not just the Mound or the capital, but the whole of the country—therefore I welcome the assurance from Lloyds TSB, as set out in its acquisition document, that
"the management focus is to keep jobs in Scotland".
We are in discussions with it and the key trade unions to advance that issue as an absolute priority.
Secondly, the Government is fighting to protect—and, where possible, enhance—the core decision-making functions of the new bank that could be based in Scotland. I welcome the early indication that the new group will retain a Scottish headquarters on the Mound. More widely, we must ensure that the new group's Scottish head office operations are as large and influential as possible. HBOS already has large operations in Scotland that are responsible for core group functions, particularly in corporate and business banking. They are sophisticated and highly successful operations and are an irreplaceable asset to any new banking group, so we will continue to press the case for a strong Scottish influence and brand within the new group. I am pleased to note that Eric Daniels, the chief executive of Lloyds TSB, has described the Bank of Scotland brand as "iconic internationally".
Our third objective is to mitigate and manage any adverse impact on the Scottish economy and wider Scottish society. I spoke earlier about HBOS's central role in financing Scottish business. The bank's commercial operations are hardwired into the Scottish economy and, as became clear to the party leaders and others who attended the summit on Monday, those operations extend throughout the third sector to arts, sporting and cultural organisations and beyond. We will put the case powerfully to the bank's management to maintain that deep and highly productive relationship with Scotland and we will argue for the greatest continuity possible in its commercial operations.
Moreover, the Government acknowledges the important role that Lloyds TSB and HBOS play in promoting and supporting Scottish society. Lloyds TSB has an admirable and long-standing commitment to corporate social responsibility and provides significant funding to Scotland's third sector; HBOS is a prominent supporter and funder of sports and the arts in Scotland. We will strongly encourage the new group to continue to honour that important contribution to Scottish society and culture.
Our fourth objective is to protect Scotland's leading position in financial services. This country has an international reputation for excellence in financial services, which is founded on world-class skills, a tradition of innovation and expertise, and a highly competitive cost-quality base. Today, the sector generates an estimated 8 per cent of Scottish wealth and 9 per cent of total employment in Scotland. We have recognised strengths across the sector in banking, insurance, asset management and pensions. There is no question but that the developments within HBOS present significant challenges for many aspects of the industry, but the strengths of Scotland's financial sector are deeply rooted, and this Government and this Parliament—all of us—should be firmly behind it.
On a number of occasions, we have encountered perceived threats to financial institutions or sectors of our financial base that have been turned to our advantage by a common and shared belief in our ability and competitiveness. For example, only a few years ago, it was thought that Scotland's life assurance sector was in mortal danger. However, today we see a story of growth and success. Consider the case of Aegon Asset Management, which continues the tradition of Scottish Equitable, or consider Scottish Widows, whose head office operates in Scotland from this city and which has prospered as part of the Lloyds TSB Group. In both cases, the end result was new growth and the retention of key decision-making functions and high-quality jobs in Scotland.
We continue to attract financial services investment in significant quantities from furth of Scotland. Witness the recent decisions of Morgan Stanley, Barclays Wealth, BNP Paribas and HSBC to locate new operations in our country. Those global companies have been attracted to Scotland by the combination of outstanding quality and a strong cost advantage compared with other financial centres. Those decisions show just why Scotland offers a magnificent business location for key decision-making functions.
So we will work tirelessly to maintain Scotland's reputation in financial services by ensuring the best possible deal for Scotland from the proposed merger, by deepening our commitment to attract new business to Scotland and by promoting the excellence of our sector worldwide. Those are the objectives of the Scottish Government in relation to the proposed HBOS merger. I know that the whole chamber will want to remain united in support of what should be joint goals.
Obviously, an enormous amount is at stake. In recent months, I have spoken of Scotland's economic resilience in the face of the gathering global economic slowdown. That economic resilience has been evident from the robust performance of our labour market. The latest data from the International Labour Organization series show that Scotland's unemployment rate is at close to a series low of 4.2 per cent, which is well below the United Kingdom level and one of the lowest in western Europe, and that employment rates remain close to a record high. That Scottish economic resilience also comes through in strong trade figures, in economic growth—which has matched the UK level in the past three reported quarters—and in the £1 billion of new private sector investment in the renewable energy sector that has been made in the past two months alone.
The concern is that that resilience and performance may now be on the line, which only strengthens our resolve to get the best possible result for Scotland. That is why, in the course of my meetings with the key players, I agreed to prepare a full business case for the Lloyds TSB team. That document will present clearly, simply and persuasively the Scottish offer: world-class skills, deep and broad financial expertise, and a substantial quality-to-cost advantage. I will be proud to present that business case directly to the Lloyds TSB-HBOS merger team. We have also offered Lloyds TSB the opportunity—which in principle it has accepted—to speak directly, as the proposals develop, to the key social partners in the Scottish economy through the SCDI and the Financial Services Advisory Board.
I said last week that this Government would strain every sinew to secure a good outcome for jobs and key decision-making functions for Scotland. We are keeping that promise and using every possible opportunity to advance the Scottish interest. We have reached a broad consensus in this chamber on what is right for Scotland, which is reflected, as Monday's meeting showed, throughout Scottish society. That is vital at this moment. Our work now, collectively, is to demonstrate why Scotland should be central to the plans and, indeed, the future success of the proposed new banking group.
As I said earlier, the First Minister will now take questions on issues raised in his statement. We have around 15 minutes for questions of technical clarification, after which we will move on to the full debate.
The First Minister said that the main objective is to protect jobs in Scotland. Has he had any discussions with either Lloyds TSB or HBOS about offshoring Scottish and UK jobs?
The position is that HBOS tends to use domestic sources for many of its back-office operations. Lloyds TSB has, I understand, offshored a number of back-office operations. I suspect that the outcome will depend on the model that is adopted by the new merged organisation.
Clearly, there is concern about the overlap in back-office operations and in the retail branch network in Scotland. It should be said that the evidence from previous mergers in the financial sector is that such matters take a good while—several years—to work their way through the plans, because of the need to synchronise computer and back-office systems. Nonetheless, the concern that people have is entirely legitimate, which makes it all the more important that we fight and work for every job and every decision-making function.
I thank the First Minister for advance sight of the statement. On behalf of the Tories, I welcome the four eminently sensible objectives that he set out for the Government.
The First Minister mentioned that he chaired an emergency meeting of the Financial Services Advisory Board yesterday. Can he tell us what conclusions it reached?
One reason for taking up the Scottish Council for Development and Industry's offer of assistance in holding a public meeting—public not in the sense that cameras were present, but in the sense that it was well advertised and well spoken about and everyone could put their point of view—was to show in public the broad front that exists across Scottish society.
Several FiSAB members were anxious that the FiSAB meeting should remain private, not least because Lloyds TSB and HBOS are represented on FiSAB and their position might be compromised by what was said. FiSAB made a number of recommendations that I will accept. One of its recommendations that I can share with members—this is certainly not market sensitive or confidential—emphasised the importance of making a presentation to Lloyds TSB, which was subsequently agreed to, in order to emphasise the positive case for locating jobs, back-office functions and key decision-making centres in Scotland. A strong recommendation from across the financial sector was that we should use in any presentation the significant evidence of strength and that it should rest on clear examples. Of course, we are greatly assisted by the fact that a key example of that strength is Scottish Widows, whose chief operating officer, Archie Kane, is group executive director of Lloyds TSB. That is a significant advantage in making a clear case for how a key decision-making head-office function can be highly successful in the city of Edinburgh.
I thank the First Minister both for the advance copy of his statement and for his invitation to join the SCDI's meeting with the Scottish Government on Monday, along with so many other people who are concerned about the future of financial services in Scotland.
This morning, the chairman of the First Minister's Council of Economic Advisers, Sir George Mathewson, gave warning about the proposed merger. He is concerned that less competition in the banking sector is not good news for Scottish business customers. Does the First Minister support that analysis? What will his presentation to Lloyds TSB say on that point?
Tavish Scott raised the question of competition at Monday's meeting, and obviously it is a concern. The combined group would have more than a 40 per cent share of the Scottish business and retail market. Competition, choice and value for business and customers are significant priorities. Competition rules and regulations have been set aside in the current emergency financial circumstances, but they must be of abiding concern.
Of huge concern to Scottish business is the competitive advantage that we have had over the past few years through having the key decision-making function of the corporate investment division of HBOS in the economy. I gave the chamber some of the recent statistics on the Scottish economy, and they show clear resilience, even in a time of significant pressure and global downturn. The great companies of Scotland, such as Clyde Blowers, Stagecoach and Murray International Metals, are part of the reason for that resilience. At certain stages of their development, the Bank of Scotland or HBOS played a significant role in the funding or financial mechanisms behind those huge companies. Across Scotland, the industrial sector is concerned about retaining the competitive advantage that we have had, and about making sure that speedy decision making and proactive and innovative financing are not lost to the Scottish economy as they have been lost to economies elsewhere.
Does the First Minister have any influence on encouraging transparency about local job numbers in respect of both organisations? That information is proving to be somewhat difficult to extract. By jobs, I mean not just high street jobs but back-office jobs.
I do not think that it is commercially sensitive information, so I can provide a fairly detailed breakdown of back-office jobs in various parts of the Scottish economy. If it will assist members, I will be happy to put that information into the Scottish Parliament information centre, so that all members can see it.
Many members will know about the major centres of back-office functions—areas such as Dunfermline and Rosyth, where there are approximately 1,200 HBOS jobs. There are other significant concentrations, of course. In this city alone, HBOS has 17 separate locations.
We can supply a detailed breakdown if that would assist members.
Prior to 15 September, did the First Minister at any time publicly call for action to save HBOS or for a clampdown on what he later described as "spivs and speculators"? I cannot find any evidence of such calls. Is it not easy to be wise after the event?
The trumpet sounds a discordant note.
I am not sure how technical that question was, but I will give it to the First Minister.
I can tell the chamber with great authority that when Parliament met last Thursday, it did not seem likely that the UK Government would follow the direct advice that I offered about taking action on naked short selling in the financial sector.
Subsequent to the support that that advice received—and I do not claim that the Parliament or I were responsible—action was taken by the UK Government and in 11 other countries across the world. Perhaps it was an example of the common voice of the chamber having an influence on events. I do not include George Foulkes in my description of the common voice of the chamber.
I said that questions should be of a technical nature only. I do not believe that the last one was.
There has been widespread speculation that Gordon Brown knew about the HBOS situation before it became public knowledge—[Interruption.] Let me finish, please. There has also been speculation that he encouraged the merger. Does the First Minister agree that, if that is correct, it was a breach of the financial rules? Will those actions have any effect on the merger?
I am not sure that that is a particularly technical question, either.
I had a discussion with the Prime Minister in the early hours of last Thursday morning, but we did not discuss that aspect. I have no knowledge of that aspect, so I am not in a position to answer Sandra White's question.
My technical question is this: short selling on Fannie Mae and Freddie Mac peaked at 40 per cent, whereas short selling on HBOS reached a high of 10.5 per cent in July 2008. In the 24 hours before the takeover, the short-selling rate on HBOS shares fell from 2.96 per cent to 2.75 per cent, so what led the First Minister to the conclusion that the bank was laid low by short selling by spivs and speculators?
If I had any doubt about the matter, I was made secure by listening to the Prime Minister's speech yesterday, in which he railed strongly against speculation in the financial sector. As Andy Kerr will now know, the position in June and July was that £1 billion was raked in by naked short selling and by carrying on the stock of HBOS, in particular. That is a great deal of money. I do not object to people making £1 billion, but I do object to them making it out of what was described last Thursday in the chamber as "other people's misery", and by destroying various aspects of the economy.
I point Andy Kerr to another strong piece of evidence—the fact that, after action was taken on Thursday night and implemented on Friday, a number of organisations lost significant amounts of money. They could have lost that money only if they had extreme short positions across the financial sector. If that had not been the case, those organisations would not be complaining about the many hundreds of millions of pounds that they have lost.
As a Fife-trained economist, the First Minister will be aware of the idea of the invisible hand behind the economy, which was promoted by another Fife economist. Does the First Minister agree that it is time for those invisible hands behind the financial sector to be forced out into the open a bit more? Will he spell out how the Scottish Government might press for clearer regulation of the financial sector to that end?
Briefly, please, First Minister.
When we last spoke in the Parliament, action against naked short selling had been taken by Russia and the United States. It has now been taken by the United Kingdom, Australia, the Netherlands, Taiwan, Italy, Ireland, Germany, Portugal and Switzerland. Among the many aspects of that regulation that I welcome are the instructions to reveal positions daily. That bringing into the light of day what has up until now been a secret activity is a welcome step forward in transparency. It is not the only action that needs to be taken, but the evidence suggests that one would have to be seven kinds of fool not to believe that the previous lack of openness was a major contributory factor to the events of last week.
Tom McCabe will ask the final question. Please be as brief as possible.
The First Minister said that he believes there were no substantive negotiations between HBOS and Lloyds before last week. How does he interpret "substantive"? Does he have any view on when negotiations first began?
Secondly, when the First Minister makes the business case to the boards of the two companies—which is a laudable proposal—will he mention to them that, in future, lending people seven times their salary and allowing them to buy parcels of toxic debt is probably not the way to go?
A range of practices across the financial sector may well change as a result of recent events.
In terms of its capital ratios, its profitability and its retail base, HBOS was an extremely strong organisation. It had a dependence on the wholesale markets. Every bank that I know of, with the sole exception of HSBC, has a dependence on wholesale markets.
On the first part of the member's question, there are two reasons why I believe that no substantive talks took place before last week. First, in anything approaching normal circumstances, the assumption of both organisations would have been that any proposed merger would not advance beyond the competition authorities—there is plenty of evidence for that in previous decisions. Secondly, I am absolutely certain, because of all the contacts and information that I have received, that no clear, detailed decisions have been made on the future bank structure, which suggests that what was agreed last week was the basic outline of the merger proposal, not any of the detail that we would normally expect if such discussions or negotiations had been going on in a substantive way for any length of time.
On a point of order, Presiding Officer. I seek guidance on the questions to the First Minister that have just been asked. Several times, you said that questions to the First Minister should be technical. Surely, if the First Minister makes a political statement to Parliament, as he has done, MSPs should expect to be able to hold him to account by asking him relevant questions. Further, there is no definition of "technical questions" in standing orders. Members need to be able to do their job properly. Will you reflect on the whole process that we have seen today?
Yes, I will. It is a matter for the Presiding Officer's judgment, but I accept that today's questions and the manner in which some of them were put call for reflection. I will reflect on that.