Let’s lift lid on Merrill’s Lloyds treasure chest

Simon English
10 Nov 2009

What has Merrill Lynch got on Lloyds chief executive Eric Daniels? It must be something hideous — how else to understand why the investment bank is still one of Lloyds' lead advisers despite the horrors of the last year.

Asked whether taking over HBOS — a bank that has now shown itself to be a disastrous basket case — was a good idea, the team at Merrill Lynch heartily approved. Matthew Greenburgh, head of Merrill's M&A team in Europe, thought the HBOS deal was a fabulous opportunity, a once-in-a-lifetime chance to grab a level of market share that would only be allowed in the midst of a banking crisis.

The European Union has since decided, perhaps predictably, that this share must be trimmed back through sales of certain businesses. Whether Merrill anticipated this is not clear. The advice offered was entirely impartial of course — the fees Merrill Lynch and Greenburgh would receive for pushing ahead with a deal rather than advising against were just a happy coincidence.

Talking of coincidences, Merrill and Greenburgh were also the lead advisers on Sir Fred Goodwin's bid to buy the doomed ABN Amro for Royal Bank of Scotland. One difference is that RBS has since replaced Merrill — it is no longer the bank's broker. Perhaps this was punishment for the ABN disaster, but even if it wasn't, the move was good for appearances. Sir Fred had to go, and so did Merrill.

Back at Lloyds, almost everyone is under considerable scrutiny. Chairman Sir Victor Blank has quit, paying the price for having cooked up the HBOS deal with Gordon Brown in the first place. Daniels himself is facing pressure and calls from some City figures for him to go. UKFI, the body set up to handle the public stakes in banks that had to be bailed out, promised a new broom and a big shake-up in the way Lloyds would operate.

Yet who is handling Lloyds' next mammoth fund-raising exercise — a task worth tens of millions in fees? A consortium of the usual bankers, including Greenburgh and Merrill Lynch.

You'll be aware that Merrill messed up so badly that it had to be rescued by Bank of America (its management of itself was no better than the advice it gave others). But plenty of individuals at the company don't seem to have suffered in the least from the financial crisis.

Nick Ainger, a Labour MP on the House of Commons Treasury Committee, put it like this: “They gave advice that brought one of the largest banks in the world to its knees and they walked away scot free. That can't be right.”

Asked why the same old bankers are still on the payroll, Lloyds says it is because “they provide good advice, they are the top-drawer investment banks”. It might also argue that HBOS and ABN are not the same, that the HBOS deal will come good eventually (it was done at the bottom of the market rather than the top).

Still, for so long as the public is holding a big stake in Lloyds, far more disclosure should be required about who gets paid what. Greenburgh and co work for us now. They should be obliged to reveal what we are paying them and to justify the amount.

Just divine working at Goldman

IN some ways it must be difficult being an employee of Goldman Sachs. Every day you are confronting the gaps between the obvious truth about what the firm is (an amoral money machine run entirely in the interests of the staff), the widespread low public opinion of its activities and your own view of yourself as a nice person.

For some the strain is such that they seek divine inspiration to cope.

Only that can explain chief executive Lloyd Blankfein's claim at the weekend that Goldman is “doing God's work”.

Of course, that's what investment bankers are here for — to help Jesus.

Perhaps the Messiah has actually returned as promised and is working among us, healing souls by doing deals for Goldman Sachs.

Matthew, Mark, Luke and John? A kick-ass team of arbitrage experts at Morgan Stanley. Peter? He's on the derivatives trading desk at Nomura (bonus £2 million).

Blankfein might have had his tongue in his cheek, but one who definitely doesn't is Brian Griffiths, a former adviser to Margaret Thatcher who now takes a pay cheque from Goldman as a vice chairman and international adviser.

Last month he went to church — St Paul's no less — to say the following in defence of bankers: “The injunction of Jesus to love others as ourselves is an endorsement of self interest.”

This is a helpful clarification. My religious knowledge is vague at best, but I might have paid more attention if I had realised that the central message of Christianity is “do whatever the hell you like”.

Religious folk might be inclined to take offence at Griffiths (and Blankfein), but I plead for forgiveness.

It really can't be easy living inside heads which are so confused.

Branson's banker with a past

Virgin is itching to get into the banking sector and by common consent that's good news, what with its commitment to customer service and its nice red uniforms.

In which case, was the recent appointment of Peter Norris to lead the board of the Virgin Group the smartest move?

Sir Richard Branson says Norris is “a highly skilled banker and an experienced entrepreneur”.

He was also head of Barings' investment arm in 1995 when Nick Leeson's rogue trading led to losses of £827 million and the collapse of the bank.

Norris was accused of hindering investigations into Leeson's accounting and banned from holding a directorship for four years. Hmmm...