Blackfriar: Lloyds legacy of ‘Quiet American’ could soon unravel

The man dubbed the “Quiet American” has always claimed its rescue of Halifax Bank of Scotland will prove a success, and only time will tell if that is the case.

His insistence last week that allowing Halifax to collapse would have costs many “tens of thousands” more job losses and untold turmoil for the banking sector is a fair assessment. If things weren’t bad enough with the queues of desperate borrowers outside Northern Rock in 2008, imagine if the mortgage lender had gone belly up. It’s enough to send a shudder down your spine.

But for all Mr Daniels’ lofty ambitions in bringing together these two lending giants, they could unravel in September when the Independent Commission on Banking returns its verdict on the sector. ICB member Clare Spottiswoode warned late last year it might suggest “reversing” the merger to improve competition in Britain’s banking sector.

That would be a final nail in the coffin of Mr Daniels’ legacy, whose attempt to bow out on £2.2bn of annual profits was undermined by surging bad debts in Ireland.

Most of these debts were acquired with HBOS – huge packages of commercial property loans which went bad along with the Irish economy.

Mr Daniels awkwardly sidestepped the inevitable questions on unwinding Lloyds and HBOS last week – “that’s not our gift”. But his insistence that “this is a highly competitive market” had a hollow ring to it.

The shrinking of competition through the collapse of lenders Northern Rock and Bradford & Bingley, the continuing absence of affordable mortgage products to attract first time buyers onto the property ladder, and the ballooning net interest margins part-nationalised Lloyds and RBS are making on mortgages points to a market in which borrowers are at a distinct disadvantage.

Ekeing savings from HBOS and Lloyds via job cuts and rationalisation may please the City, but if the conclusion of these two giants joining forces is a raw deal for homebuyers and savers, Mr Daniels’ measure of success becomes even less stable.

In another departure, the sur-prise news Iain Cornish is leaving Yorkshire Building Society leaves a gaping gap to fill at the lender.

Mr Cornish, who has integrated both Chelsea and Barnsley building societies during his tenure at the mutual, plus returned it to healthy profits, leaves with his head held high. Blackfriar wonders where he’ll end up. With talk of Northern Rock being remutualised, this could be an attractive option for Mr Cornish.

n You would think that a 49 per cent increase in annual profits to a new record and the anticipation of further strong growth in 2011 would boost a company’s share price, but not for doorstep lender International Personal Finance.

The group’s shares closed down 2.4 per cent last night, a fall of 8p to 322p. So why does the Leeds-based company consistently perform well, yet the market has a downer on it?

A lot comes from apprehension about the group’s exposure to a volatile world economy.

With civil unrest and the toppling of controversial long-term rulers in North Africa and the Middle East, there is an argument that investors should steer clear of IPF. It operates abroad and could be affected.

But IPF has absolutely no exposure to North Africa and the Middle East. Its key markets of Poland, the Czech Republic, Slovakia, Hungary and Mexico are booming, with economic growth of between three and five per cent a year, a much better performance than the UK.

The only problematic economy that the group has exposure to is Romania, but analysts at Numis said they believe the worst of the economic crisis in Romania is now past.

Despite the problems in Romania, the group’s operations in that country have just delivered a maiden profit of £1.7m, a £4.1m improvement from the loss of £2.4m reported in 2009.

IPF’s chief executive John Harnett is sanguine about the group’s share price, saying that in the long run the price will be driven by the profit performance. IPF has a tried and tested management team and it has no intention of easing its tight credit requirements.

Mr Harnett said: “We’re not letting loose in terms of credit controls. We expect to grow the business with lower levels of credit risk. We expect lower levels of impairment.”

The company is planning to grow its customer base from 2.2 million to 2.4 million in 2011, an rise of 10 per cent and it hopes to lend around £850m in loans in 2011, up 15 per cent on last year.

In markets that are showing economic growth of three to five per cent this seems like a sensible, even modest growth plan.

The market needs to look beyond the word “International” and see that the markets the group operates in make the UK look like the sick man of Europe.