Goodbye Airmiles, and you can keep your Lloyds TSB Credit card as well

John Daniels (Lloyds)

John Daniels (Lloyds)

Those nice people at Lloyds TSB explained how I could keep my 9000 airmiles by signing up for their Credit Card. After a little thought I decided to bin the offer of their credit card, and write off those airmiles

Another great marketing wheeze brought you by the nation’s favourite industry. Yes, the near extinct banking sector breathes afresh and its members are coming up with even more creative ideas to attract customers to their credit card schemes.

Last week [June 2009] a fancy set of marketing forms plopped through my letterbox. They announced that I could save my airmiles by some rather complicated arrangement which involved me in signing up for a Lloyds TSB credit card.

I rather liked the prospect of using those airmiles, collected over quite a few years of yomping to various parts of the globe. Later I had some peripheral contact with the Airmiles organization through its links to the world’s favourite airline. At that time it seemed an enthusiastic and entrepreneurial set-up open to creative ideas.

But I don’t want a credit card. Even if I did, I would have objected to what amounts to a grudge buy. It must have sounded a winning idea on the corporate deep-diving marketing away-day.

Meanwhile, in an other part of the forest …

Meanwhile, in aother part of the forest, news breaks of the remuneration package agreed for Stephen Hester, the leader appointed to RBS to sort out the mess there. It’s all a bit complicated. Their loan is generally described as coming from money handed over to the Government by taxpayers like me. I still haven’t worked out the various ramifications of the deal cut with the bank to motivate its new chief executive Stephen Hester.

The package is made up of £1.2m in pay, up to £2m in non-cash bonuses and up to £6.4m in long-term incentives. The long-term incentives will only be payable if share price targets are hit over the next three years

The admirable Robert Peston best sums up the matter of Hester’s remuneration package

Now let’s stray into the land of the bloomin’ obvious, to look at why Mr Hester’s package will be controversial.

First and most obviously, Royal Bank is cutting thousands and thousands of jobs, perhaps up to 30,000 in the coming two years or so.

Second, Royal Bank is 70% owned by taxpayers. And at a time when the public sector is expected to be squeezed hard, it may look odd to be paying so much to the boss of a publicly controlled bank.

Third, all the banks are under pressure to increase their lending to businesses and households. For example the governor of the Bank of England agonised in public last week about how economic recovery might be put in jeopardy by the inadequacy of credit made available by banks.

Why is that relevant? Well, for the chief executive of a bank, the safest way to increase profits and the share price at this stage of the economic cycle – apart from slashing costs and cutting jobs – is borrow from retail depositors at close to 0% and then lend to the government by buying relatively risk free long-term gilts paying 4%.

The Treasury is aware of this risk. Which is why it has forced Royal Bank to agree quantitative targets for the amount of credit it will make available to businesses and households. But there is a piquant question whether Mr Hester’s remuneration incentives will deter the bank from providing more than this minimum.

All that said, one paradoxical reason for paying that kind of money to Mr Hester is also – funnily enough – that taxpayers own the majority of the shares.

He is widely regarded as that rarest of animals, an untarnished world class banker. And we surely can’t complain if a competent individual is running a state institution Also, if Mr Hester were to make the full £9.6m, Royal Bank’s share price would need to have risen to more than 70p over a sustained period – which would yield a profit for taxpayers on our 70% stake of £8bn.

Which looks a reasonable deal for the state – unless you think, as many do, that because bankers were to a large extent to blame for the economic mess we’re in, it’s too early for any of them to be earning this kind of money

Mea Culpa

In an early version of this rant, I foolishly mixed up the Lloyds TSB air miles for credit card story with the RBS Bumper payday for Stephen Hester story. The first effort read more smoothly than the second version, but suffered from the slight problem of being utterly confused.

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