Government involvement in the UK financial services sector


To be held on Monday, December 7, 2015, from 8.30-10.00am

With support from Kemp Little


Speakers

  • Matthew Rees (National Audit Office)

  • David Lunn (UKFI)

  • David Potter (Gresham House Strategic)


Materials


Invitation

Since the financial crisis, the involvement of the government in the financial services sector has increased enormously. In particular, we-the-people acquired (in part, or in full) four major financial institutions, at a cost of almost £108 billion. By February 2014 (ie before the government began to sell down its stake in LBG), the public sector’s exposure to the financial industry as a whole, measured by public sector net debt, was over £2 trillion – much of which is pretty opaque.

Earlier this year, the National Audit Office decided to conduct a ‘landscape’ study of the extent to which the government has extended its direct and indirect involvement – and the extent to which the taxpayer is, therefore, potentially on the hook. This report was published in September, and it makes interesting reading. The main conclusions:

  • Between 2004 and 2014, the number of “policy-related financial institutions” (ie those that, directly or indirectly, depend on the public purse) increased three-fold to 36 – with several others having been launched since then.

  • These institutions cover everything from statutory compensation schemes to financial guarantees to lending and asset management. Even excluding social housing and SPVs set up for the private finance initiative, they are a huge potential liability for the state.

  • The government has announced plans to divest itself of a number of assets – including its stake in the banks, but also much of the student loan book. But that still leaves an expanding state involvement in the financial sector through Help-to-Buy, the Green Investment Bank, the British Business Bank etc.

What are the government’s longer-term plans? And how can it ensure that it gets value for money as it moves to divest itself of the portfolio it has built up?

The NAO’s report is a fascinating and important document that also provides a glimpse into the future for the UK’s investment banking business – which will be deeply involved in this area going forward. We are, therefore, delighted that two people closely involved in the issues have agreed to walk us through the report:

  • Matthew Rees is the corporate finance director at the NAO, which he joined in 2013 following five years at the Competition Commission. Prior to that, he worked in the City, with JP Morgan Chase, Deutsche, Merrill Lynch and KPMG.

  • David Lunn is a board member of UK Asset Resolution, Bradford & Bingley and NRAM (ex-Northern Rock), where he represents UKFI and manages the government’s shareholdings in UKAR companies. Prior to joining UKAR/UKFI, he headed the Treasury team leading on financial sector resolution policy.

However, they will not get things all their own way. I am equally delighted that the CSFI’s David Potter, a former CEO of Guinness Mahon Holdings, deputy chairman of Investec Bank (UK) Ltd and managing director of Midland Bank Global Banking, will be providing an investment banking perspective. David is currently chairman of Gresham House Strategic and SPARK Ventures, a NED at Fundsmith Emerging Equity Trust, and a longstanding member of the King’s College investment committee.

The NAO report is important, and has not got the attention it deserves. We are very happy to correct that oversight.