Bernard Ginns: All hail Edinburgh’s ‘major strengths’ in financial world

That’s what a spokeswoman for the Department for Business Innovation and Skills told me yesterday when I asked her to explain the Government’s decision to choose Scotland over Yorkshire for the world’s first dedicated Green Investment Bank.

I thought it might be useful to look at Edinburgh’s recent track record in financial services.

Helpfully, the Financial Services Authority has published reports into two well-known Edinburgh-based financial institutions.

The most recent – published last week – concerns HBOS plc.

According to the FSA, its business lending arm was guilty of “very serious misconduct” before and during the financial crisis.

The bank’s enthusiasm for increasingly high-risk loans and culture of “optimism at the expense of prudence” between January 2006 and March 2008 left it deeply exposed to the downturn, said the City watchdog.

The FSA made it clear that the bank would have been hit with a “very substantial” penalty if the taxpayer was not such a significant shareholder.

The UK taxpayer was left holding more than 40 per cent of Lloyds Banking Group after its Government-brokered takeover of HBOS in early 2009.

But the costs don’t stop there.

Merging HBOS and Lloyds has resulted in almost 32,000 job losses, and Lloyds warns at least 11,000 more will follow.

The FSA singled out Bank of Scotland in its damning report, while Halifax, the retail banking arm, escaped censure.

By late 2007 the credit crunch had already forced a Government bailout of Northern Rock and the collapse of two Bear Stearns hedge funds.

But despite this, BOS did not pull back from high-risk commercial lending, but thought it a good idea to chase market share instead.

At the start of 2006, commercial property loans totalled £44.4bn. By the end of 2008 this had risen to £68.1bn.

The second FSA report, published in December, concerns Royal Bank of Scotland, which is also based in Edinburgh.

RBS rose to become one of the world’s biggest banks following a string of takeovers and aggressive expansion.

It was only saved from bankruptcy in 2008 by a £45bn Government bailout and the taxpayer still holds an 83 per cent stake in the bank.

The FSA report into its failure highlighted deficiencies in the management, governance and culture at RBS.

And it said that the deal which broke the bank – the £50bn takeover of Dutch bank ABN Amro – was carried out with inadequate due diligence.

At current prices, the taxpayer is sitting on massive losses on its shareholdings in Lloyds and Royal Bank of Scotland.

So, HBOS and RBS – two Edinburgh-based financial institutions whose failures cost the taxpayer untold billions of pounds and helped wreck the UK economy.

Not a track record to be proud of. But it clearly did not do the city any harm in its bid to host the Green Investment Bank.

A spokeswoman for BIS told me: “London and Edinburgh were the two strongest candidates.

“Edinburgh has major strengths as a financial centre.

“The analysis highlighted its strengths in recruitment of financial services and green economy specialists and its ability to completely meet the requirements for recruitment of other professionals.

“It also demonstrated strength in engaging the transaction ecosystem.

“Meanwhile London is the undoubted centre of project finance.”

Cynics have suggested that the Government handed the bank to Scotland to appease voters ahead of a referendum on Scottish independence.

Of course, Edinburgh has some residual expertise in financial services, but so does Leeds.

The city has a track record of innovation in the sector, which could have been brought to bear on the Green Investment Bank.

It is hard to see the Government decision as anything other than another missed opportunity to help close the English North-South divide.

It is easy to criticise the Government for the decisions it makes.

For every party in favour of a popular cause, there are always those who are set against.

That said, it would have helped Yorkshire’s case if the region had managed to put on a united front in its bid for the Green Investment Bank.

Competing bids from Leeds, Sheffield and Hull show our cities at odds with each other.

For a region with perhaps the strongest sense of identity in the country, that is a terrible shame. Still, it makes us easier to govern. Divide and rule, and all that.

@bernardginns