the way things were meant to be
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South Sea Bubble Survivor Says Dismantle RBS Along With Lloyds
By Simon Clark and Tom Cahill
March 13 (Bloomberg) -- Henry Hoare made a 1.6 million- pound ($2.2 million) profit from the South Sea Bubble, a speculative bust that bankrupted thousands of English families in the 1720s.
His great-, great-, great-, great-, great-, great-grand- nephew boosted the deposits of his family’s bank by 20 percent in the past year to come through one of the worst financial crises since then, which is why people might want to listen to him.
“Keep it simple, stupid,” Alexander Hoare said in an interview in his drawing room on the first floor of C. Hoare & Co.’s 180-year-old office on London’s Fleet Street. “Get the depositors in, lend to people who can afford to borrow.”
That’s a lesson Royal Bank of Scotland Group Plc should have learned, said Hoare, 46, whose family-owned firm started in 1672 and now has about 10,000 customers. Prime Minister Gordon Brown should now dismantle the bank, which required 20 billion pounds of taxpayers’ money to avoid collapse, Hoare said.
“Break it up into all the component parts from which it was made and have them compete freely,” said Hoare, referring to his Fleet Street neighbors National Westminster Bank Plc and Coutts & Co. which are both owned by RBS. “The regional, smaller banks were much admired by their clients, they made money for their shareholders, they didn’t trouble the government.”
Lloyds Banking Group Plc, taken over by the government after its acquisition of Edinburgh-based HBOS Plc, should also be dismembered, Hoare said. The banks got into “all sorts of exotic alphabet soups they didn’t understand,” Hoare said.
‘Bad for Taxpayers’
“If you look for example at the crashing together of Lloyds, a good bank, with HBOS, it was bad for competition, it was bad for consumers, it was bad for shareholders, it was very bad for taxpayers,” Hoare said. HBOS lost 7.5 billion pounds in 2008, while Lloyds earned 819 million pounds.
RBS and Lloyds won’t be broken up soon because the government would receive “fire-sale prices,” said Neil Dwane, chief investment officer for Europe at Allianz Global Investors’ RCM unit in London.
Hoare said he’s now paying for the mistakes of others. His bank and other lenders are subscribing to a government plan to insure depositors after the failure of Bradford & Bingley Plc and Iceland’s Kaupthing Bank hf and Landsbanki Islands hf. Hoare said the government’s plans put too great a burden on taxpayers and penalize banks that avoided failure.
“There we were minding our own business for 300 years, and one day some Icelandic banks and Bradford & Bingley fail and we get landed with the bill,” Hoare, the bank’s chief executive officer, said. “The direction we’re heading is more and more depositor insurance, more and more regulation, more and more state ownership and these are the very things which did not make London great.”
South Sea Frenzy
Parliament passed the South Sea Act in 1720, which gave the South Sea Co. a monopoly on trade, including slavery, with South America in return for financing part of the national debt run up in the War of the Spanish Succession.
The shares jumped from 128 pounds in January to 1,050 pounds in July before they tumbled to 100 pounds in December, costing clergymen, country gentlemen and even scientist Isaac Newton their savings. Chancellor of the Exchequer John Aislabie was expelled from Parliament after an inquiry found he had accepted bribes, the Postmaster General took poison, and even King George I’s two mistresses were implicated.
Hoare acquired South Sea Co. stock as it rose and sold whenever it dropped. The bank made about 19,000 pounds, about 1.6 million pounds in today’s money, between February and September that year, according to the firm.
‘Chasing Fox Hounds’
In today’s crisis, Hoare has so far benefited, lifting deposits to about 1.8 billion pounds during the last 12 months. That’s mainly because it’s an “exclusive franchise” for the rich, said Simon Maughan, a financial analyst at MF Global Securities Ltd. The bank’s history has no relevance to the wider banking market, Maughan said in an e-mail.
Hoare accepts his bank serves a niche, and it has missed out on historic opportunities to expand. “We managed to miss the industrial revolution,” he said. “The balance sheet didn’t grow. They were all out on their horses chasing fox hounds,” he said of his forebears.
Hoare & Co. is an unlimited liability partnership, which means the family’s personal wealth, including Alexander Hoare’s solar-panel-topped residence and 50-foot yacht, can be seized if the lender collapses. That gives clients confidence, Hoare said.
“Everything apart from the shirt on our back is at risk,” Hoare said. “It keeps you jolly nervous.”
The firm hired Jeremy Marshall, former head of Credit Suisse Group AG’s U.K. private bank, to succeed Alexander Hoare over the next year. Hoare will remain a partner.
Takeover Approaches
That doesn’t mark a change in strategy, said Hoare, as he shows visitors through a library decked with artifacts from three centuries of banking including a safe deposit box for gold, and a letter opposing the Bank of England’s creation in 1694.
“Coutts is withering and the Swiss banks are withering and we want to stay small,” Hoare said. “If the business gets too big for the family to handle, we’ve failed.”
In the last few years, Hoare has received takeover approaches, which the family rejected at informal meetings over breakfast and lunch, Hoare said.
“You think, gosh, we’d all have a lot of money in our pocket and that would be nice for an hour, and then what?” Hoare said. “My job is to keep this bank small and beautiful.”
To contact the reporters on this story: Simon Clark in London at sclark4@bloomberg.netTom Cahill in London at tcahill
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