Bradford and Bingley’s shareholders would have breathed a collective sigh when the governement rushed through its takeover by Santander last month. The board had decemated the bank’s £50bn mortgage book and acted with irresponsibility with heavy exposure in the now destroyed buy-to-let mortgages.
Shareholders chose on Friday to give the current board the boot. Good riddance to bad practice. But who chose them in the first place? Oh, yeah: the shareholders.
The demutualisation of building societies (answerable by their customers) into commercial banks (answerable to shareholders) during ‘Blair’s Bloody Britain‘ has had a profound affect on the way banks borrow and lend.
Every single building society that essentially bribed its customers into accepting shares as it floated on the stock market has come into profound difficulty. Even Nationwide – the self-proclaimed paragons of virtuous lending – has recently applied for government funding.
Company priorities alter when they are operated by shareholders. They are interested in the company simply for profits – the safe and sustainable growth of their money pales into insignificance against the potential of exorbitant dividends.
A shareholder who wants profits will exert pressure on the board and employees to generate them, no matter what. As long as you get a fat payout twice a year, you’re not bothered if your neighbour’s defaulted on a repayment.
Any deregulation (or democratisation) of management structures may seem like fun when the potential rewards are astronomical. But what when things go wrong? I’d like to say that shareholders vote for a steady, prudent and frugal few years as balance sheets are gawped at and readdressed.
I don’t think they will. After all, where’s the profit in that?
