Three or four years ago, and prompted by some comments from a friend at one of the universities who had some very ungenerous things to say about the man, I sent an e-mail to Fred Goodwin.
He was then the high-flier CEO of the Royal Bank of Scotland. I asked him why it was that RBS didn’t put up any risk equity capital to help fund indigenous start-up or spin-out businesses.
After all, here was a bank that, at the time, was making something in the order of £10billion in annual profits, which sponsored Scottish Rugby and Formula One and had made some very major acquisitions in banking and other sectors.
So I was pretty sure that Goodwin would sanction the stumping up of £5million or so on a rolling basis without really worrying about it and would understand the kudos this would bring the bank.
Eventually, I got a reply – a letter, not an e-mail, simply saying that the provision of funding for start-ups wasn’t part of RBS’s strategy.
I, of course, wrote back – via e-mail, because I’m a modern bloke – and asked him why it wasn’t part of RBS’s strategy. No answer.
Now, of course, Goodwin is history, forced to fall on his sword because he ploughed RBS into the mire and it has become necessary to re-capitalise the bank using a big wad of taxpayers’ cash.
As we also know, HBOS is in a not dissimilar situation and is being frogmarched by the Government into a merger with Lloyds TSB. However, HBOS did put up some funding for start-ups – although from what I understand, it was only a couple of million quid or so.
I mention all this because, quite recently, Scottish Enterprise published a new report on the state of the risk equity market in Scotland.
It makes clear that investment in new companies has fallen dramatically, from £15million in both 2005 and 2006 to £2million in 2007.
This is of great importance because, of course, new companies are the feedstock upon which later-stage investment deals depend. And without new companies, the numbers that ultimately join the stock market will also fall.
£2million is, of course, less than my now unemployed friend, Mr Goodwin, would probably earn in a year, and if the stories are correct, is only four times what he’ll be getting for his annual pension.
To put it bluntly, it’s an utterly pathetic figure of which any bank should be thoroughly ashamed.
Of course, not putting up even modest amounts of risk equity capital was bad enough, but as we are now finding out to our cost, the damage the banks and others have done to our economy goes well beyond hurting the new company birth rate.
As I mentioned in October’s Energy, there is a real danger that the so-called credit crunch will impact on investment in new oil&gas and other energy projects; and if the oil price were to fall further, this would also impact operator investment strategies.
There is firm evidence to suggest this is happening.
So here we have the naissance of the perfect double, or perhaps even triple, whammy.
The oil price has been hammered lately, and may fall a lot further if a full-blown recession sets in among the major consuming countries. That said, it’s possible, but not yet certain, that Opec’s cut on October 24 will reverse that price slide.
Regrettably, therefore, it would now take a brave person to say that the reduction in investment in new oil/gas supply will not begin to bite the supply sector sooner rather than later.
This is dangerous and worrying stuff. Reducing investment in oil/gas projects now will lead to a supply problem when economies begin to improve again, and this, of course, will mean higher energy prices – possibly much higher than this year’s near $150 or so.
Worse, while all this is going on and, to an extent, the pressure is slightly off on the energy demand side, we should be working even harder to develop alternative energy supply technologies – not just to attempt to mitigate the inevitable “energy crunch”, but to build up new industries, to reduce the influence and importance of the financial-services sector and to achieve a much more balanced economy.
This, of course, is not happening because it would require some very brave political action, and it seems to me that the brains of politicians are wired differently to the rest of us.
I read recently our newest energy minister has said proudly that the UK has overtaken Denmark to become the world’s number one when it comes to deploying offshore wind technology.
What a great piece of spin. But what an appalling admission of failure on his part.
Why failure? Because he omits to say that none of the wind turbines are of UK origin. And, incidentally, all the interconnecting and landfall cables come from overseas, as well.
So every megawatt we instal offshore adds about another £2.6million to our balance of payments deficit, but neither the minister nor the media seem prepared to say that. However, we at Energy are.
You know something? I really don’t think that’s very clever for a country that’s already running a record trade deficit
It’s like the recent announcement by ScottishPower that it intends to do, or has done, a deal with Hammerfest Strom to build marine current turbines for deployment off UK shores.
Again, the media didn’t question this. The real story is, “Spanish-owned electricity supply company does deal with Norwegian-owned and funded company to build marine current turbines for deployment in Scotland”.
I have, therefore, a couple of suggestions. If it’s politically acceptable for Government to nationalise the banks then let’s also nationalise the power companies. Four of the six power companies in the UK are foreign owned. No other country that pretends to be a major economy would tolerate this, and neither should we. It happened, of course, in order to satisfy the City of London that our credentials in terms of support for the ultra-free market and the great Anglo-Saxon economic model were as impeccable as they could be.
Well, sorry guys, but you have let us all down big time and the doubtful incentive to play the macho economics game no longer exists.
Nationalising power companies, and even oil/gas companies, is now very tempting because we need the security of knowing that they are working for our benefit, not their own, as the banks have shown they were doing.