Identifier
Created
Classification
Origin
09LONDON1160
2009-05-15 10:15:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy London
Cable title:
UK FINANCIAL INVESTMENTS COMPANY OFF TO A
how-toVZCZCXRO5269 PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR DE RUEHLO #1160/01 1351015 ZNR UUUUU ZZH P 151015Z MAY 09 FM AMEMBASSY LONDON TO RUEHC/SECSTATE WASHDC PRIORITY 2325 INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RUEHBL/AMCONSUL BELFAST PRIORITY 1322 RUEHED/AMCONSUL EDINBURGH PRIORITY 1131
UNCLAS SECTION 01 OF 02 LONDON 001160
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: UK FINANCIAL INVESTMENTS COMPANY OFF TO A
TENTATIVE START
LONDON 00001160 001.2 OF 002
UNCLAS SECTION 01 OF 02 LONDON 001160
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: UK FINANCIAL INVESTMENTS COMPANY OFF TO A
TENTATIVE START
LONDON 00001160 001.2 OF 002
1. (SBU) Summary: UK Financial Investments Limited
(UKFI) oversees HMG's share in nationalized banks. It
aims to dispose of the government investments in the
banks while representing the interests of taxpayers as
shareholders. UKFI is owned by the Treasury but is not
technically a part of its bureaucracy; it operates at
"arm's length" from the government. When HM Treasury set
up UKFI in the fall of 2008, its business plan was
unclear. Only now is UKFI beginning to find its way and
critics claim its functions remain "shadowy." End
summary.
Background
--------------
2. (U) HM Treasury (HMT) set up UK Financial Investments
Limited (UKFI) in November 2008 to manage the
government's share in nationalized and partially
nationalized banks. UKFI's investment strategy is
focused towards actively disposing of the shares it
acquired through nationalization or partial
nationalization of distressed banks since the financial
crisis hit the UK in late 2007. The company's objective,
as determined by Chancellor of the Exchequer Alistair
Darling, is to "protect and create value for the taxpayer
as shareholder with due regard to the maintenance of
financial stability and to act in a way that promotes
competition." To carry out this mission, the company
operates "at arm's length" from the government. HMT is
the sole shareholder of the company and it is governed by
a board that is accountable to Darling. HMT funds the
company, and although its final budget has yet to be
approved, it is estimated to cost GBP 1 to 5 million (USD
1.5 to 7.5 million) a year to run. UKFI is a small
organization, expected to staff a maximum of 16 people
drawn from the public and private sector. UKFI operates
out of two rooms in the Treasury building.
3. (U) UKFI was established as a way for HMG to manage
part of the recession. It did not have a fully formed
business plan when it began and authorities have spent
several months figuring out exactly what it will do and
how. The company just released its framework document
(http://www.ukfi.gov.uk/publications/) and is consulting
with the boards of the partially nationalized banks - the
Royal Bank of Scotland (RBS) and Lloyds Banking Group -
on their decisions. UKFI also plans to manage the
government's investments in the fully nationalized banks
Northern Rock and Bradford and Bingley. Although UKFI
consults with the boards of the banks, final decision
making authority remains with the banks. According to
its framework document, the company will: monitor bank
performance, intervene when necessary, vote its shares,
evaluate the banks and report the results to HMT. How
the company will accomplish each task remains to be
seen. UKFI is not supposed to interfere with the dayQto-
day operations of the banks. A large part of UKFI's
energy will be focused on developing strategies to sell
the government's shares.
Who's Who
--------------
4. (U) Glen Moreno is the acting chairman of UKFI.
Several MPs criticized Moreno's appointment because he
was a trustee of a Liechtenstein-based fund at the center
of a dispute over tax evasion. In response to the
criticism, Prime Minister Gordon Brown stated Moreno's
appointment was temporary and he would not continue to
chair UKFI after a permanent replacement was found.
Moreno insists he never hid his business in
Liechtenstein, and that when he was approached to become
acting chairman, it was framed as a temporary
arrangement. John Kingman, UKFI's chief executive, was
previously Second Permanent Secretary of the Treasury.
Before UKFI was established, Kingman was part of the
Treasury negotiations with RBS, Lloyds TSB and HBOS on
their recapitalization, and on the resolution process for
Northern Rock.
Accomplishments
--------------
6. (SBU) Much of UKFI's day-to-day operation remains
vague. The company told Parliament's Treasury Select
Committee it discussed the size of HBOS' executives'
pensions with Lloyds Banking Group. The bank and UKFI
LONDON 00001160 002.2 OF 002
agreed the executives should be paid bonuses no more than
legally necessary based on their contracts. UKFI also
helped broker parts of HMG's Asset Protection Scheme
which allows banks to insure toxic assets with the
government.
7. (SBU) UKFI did not exist when Fred Goodwin, former
chief executive of RBS, left the bank, having been blamed
for many of its financial problems. Therefore, it could
not influence the compromise agreement signed between
Goodwin, RBS, and the government regarding Goodwin's
controversial pension worth GBP 16 million (USD 24
million). UKFI learned several months later that in the
compromise agreement, Goodwin's pension package was
established at twice the legal requirement based on his
employment contract. The government, press, and public
were outraged, viewing the size of Goodwin's pension as a
reward for failure. UKFI consulted with lawyers to see
if it could decrease Goodwin's pension. However, it is
unlikely it will be able to do so because the compromise
agreement was signed by Paul Myners, an MP representing
the government, and several members of the RBS board.
UKFI is now looking into suing the former members of the
board who signed the agreement, none of whom are still on
the RBS board.
Outsiders Wonder: Who Are They?
--------------
8. (SBU) The press has become increasingly interested in
UKFI over the past few months. Robert Peston, an
influential BBC financial reporter, said UKFI will be as
important in the next year or two as the Treasury and
Bank of England. However, despite recently releasing
information about itself, not much is known about the
company and the press has little hard facts on which to
report. Both the press and MPs have referred to UKFI as
"shadowy." UKFI has not made a good impression with the
Treasury Select Committee, a panel of MPs that examines
the Treasury, Bank of England, banks, and other financial
institutions. When Moreno and Kingman answered
questions in front of the committee, they appeared to be
ill-prepared and indifferent. The MPs seemed surprised
and angry when they learned Moreno and Kingman did not
have the answers to basic questions the committee
submitted to UKFI before the hearing. One MP accused
them of not taking the hearing seriously.
LEBARON
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: UK FINANCIAL INVESTMENTS COMPANY OFF TO A
TENTATIVE START
LONDON 00001160 001.2 OF 002
1. (SBU) Summary: UK Financial Investments Limited
(UKFI) oversees HMG's share in nationalized banks. It
aims to dispose of the government investments in the
banks while representing the interests of taxpayers as
shareholders. UKFI is owned by the Treasury but is not
technically a part of its bureaucracy; it operates at
"arm's length" from the government. When HM Treasury set
up UKFI in the fall of 2008, its business plan was
unclear. Only now is UKFI beginning to find its way and
critics claim its functions remain "shadowy." End
summary.
Background
--------------
2. (U) HM Treasury (HMT) set up UK Financial Investments
Limited (UKFI) in November 2008 to manage the
government's share in nationalized and partially
nationalized banks. UKFI's investment strategy is
focused towards actively disposing of the shares it
acquired through nationalization or partial
nationalization of distressed banks since the financial
crisis hit the UK in late 2007. The company's objective,
as determined by Chancellor of the Exchequer Alistair
Darling, is to "protect and create value for the taxpayer
as shareholder with due regard to the maintenance of
financial stability and to act in a way that promotes
competition." To carry out this mission, the company
operates "at arm's length" from the government. HMT is
the sole shareholder of the company and it is governed by
a board that is accountable to Darling. HMT funds the
company, and although its final budget has yet to be
approved, it is estimated to cost GBP 1 to 5 million (USD
1.5 to 7.5 million) a year to run. UKFI is a small
organization, expected to staff a maximum of 16 people
drawn from the public and private sector. UKFI operates
out of two rooms in the Treasury building.
3. (U) UKFI was established as a way for HMG to manage
part of the recession. It did not have a fully formed
business plan when it began and authorities have spent
several months figuring out exactly what it will do and
how. The company just released its framework document
(http://www.ukfi.gov.uk/publications/) and is consulting
with the boards of the partially nationalized banks - the
Royal Bank of Scotland (RBS) and Lloyds Banking Group -
on their decisions. UKFI also plans to manage the
government's investments in the fully nationalized banks
Northern Rock and Bradford and Bingley. Although UKFI
consults with the boards of the banks, final decision
making authority remains with the banks. According to
its framework document, the company will: monitor bank
performance, intervene when necessary, vote its shares,
evaluate the banks and report the results to HMT. How
the company will accomplish each task remains to be
seen. UKFI is not supposed to interfere with the dayQto-
day operations of the banks. A large part of UKFI's
energy will be focused on developing strategies to sell
the government's shares.
Who's Who
--------------
4. (U) Glen Moreno is the acting chairman of UKFI.
Several MPs criticized Moreno's appointment because he
was a trustee of a Liechtenstein-based fund at the center
of a dispute over tax evasion. In response to the
criticism, Prime Minister Gordon Brown stated Moreno's
appointment was temporary and he would not continue to
chair UKFI after a permanent replacement was found.
Moreno insists he never hid his business in
Liechtenstein, and that when he was approached to become
acting chairman, it was framed as a temporary
arrangement. John Kingman, UKFI's chief executive, was
previously Second Permanent Secretary of the Treasury.
Before UKFI was established, Kingman was part of the
Treasury negotiations with RBS, Lloyds TSB and HBOS on
their recapitalization, and on the resolution process for
Northern Rock.
Accomplishments
--------------
6. (SBU) Much of UKFI's day-to-day operation remains
vague. The company told Parliament's Treasury Select
Committee it discussed the size of HBOS' executives'
pensions with Lloyds Banking Group. The bank and UKFI
LONDON 00001160 002.2 OF 002
agreed the executives should be paid bonuses no more than
legally necessary based on their contracts. UKFI also
helped broker parts of HMG's Asset Protection Scheme
which allows banks to insure toxic assets with the
government.
7. (SBU) UKFI did not exist when Fred Goodwin, former
chief executive of RBS, left the bank, having been blamed
for many of its financial problems. Therefore, it could
not influence the compromise agreement signed between
Goodwin, RBS, and the government regarding Goodwin's
controversial pension worth GBP 16 million (USD 24
million). UKFI learned several months later that in the
compromise agreement, Goodwin's pension package was
established at twice the legal requirement based on his
employment contract. The government, press, and public
were outraged, viewing the size of Goodwin's pension as a
reward for failure. UKFI consulted with lawyers to see
if it could decrease Goodwin's pension. However, it is
unlikely it will be able to do so because the compromise
agreement was signed by Paul Myners, an MP representing
the government, and several members of the RBS board.
UKFI is now looking into suing the former members of the
board who signed the agreement, none of whom are still on
the RBS board.
Outsiders Wonder: Who Are They?
--------------
8. (SBU) The press has become increasingly interested in
UKFI over the past few months. Robert Peston, an
influential BBC financial reporter, said UKFI will be as
important in the next year or two as the Treasury and
Bank of England. However, despite recently releasing
information about itself, not much is known about the
company and the press has little hard facts on which to
report. Both the press and MPs have referred to UKFI as
"shadowy." UKFI has not made a good impression with the
Treasury Select Committee, a panel of MPs that examines
the Treasury, Bank of England, banks, and other financial
institutions. When Moreno and Kingman answered
questions in front of the committee, they appeared to be
ill-prepared and indifferent. The MPs seemed surprised
and angry when they learned Moreno and Kingman did not
have the answers to basic questions the committee
submitted to UKFI before the hearing. One MP accused
them of not taking the hearing seriously.
LEBARON