Project Merlin’s wizard-in-chief John Varley: We want to send a clear signal we want to lend
Whatever one thinks about the bank deal, and I hold my hand up as a sceptic, you should hear out the banker that put it together. And then if you are a small business, please test these words, and report back to me.
I had a lengthy chat with John Varley, former Barclays Chief executive, and originator of Project Merlin. I detected a bit of frustration at some of the sniping at Merlin. I don’t doubt that he is genuine in his desire for Britain’s banks to deliver on their side of the social contract.
He told me that: “It is possible that good demand for lending has been suppressed because of the appearance of warfare between government and bankers” which is why he has invested three months in these Merlin negotiations.
“The inception of all this in October was to promote a step change in the quality of the relationship between the government and the banks. Relations weren’t strong at the beginning. We were looking at a joint agenda and contribution, and mutuality of point of view and interest”.
He acknowledged that the £190bn number was about capacity and willingness, but he said a number of initiatives showed they were “trying as hard as they can” to bring forth the demand for credit that would make that number a reality. He pointed to an “army of business mentors”, a £2.5bn equity growth fund to plug a hole in growth funding for businesses with revenues between £10m and £100m, a new credit appeals process, 12 monthly reviews.
“It will increase the probability. It will have an impact,” he said, “Don’t miss the scale of the ambition.”
“We are sending a strong signal that we want to do lending to businesses with good business plans”.
I asked him why he didn’t go for a net lending target, as mentioned in the Coalition Agreement.
“The point about net lending is that it is not in the gift of the bank. We can’t control who repays their debts. But we want our net lending balances to rise, and we have the willingness and a capacity. £190bn is a big number”.
On bonuses: “My test of corporate citizenship is ‘Do we understand the public mood on pay?’ And it is clear to us that there had to be something on pay, and we are going further than most developed countries”.
On yesterday’s £800m tax raid: “If you’re asking me: am I glad the banking industry will be making larger payments? Then I’m not happy about that. But do I understand why the Chancellor intended to phase it in and now he sees the industry is strong enough? Yes”.
Mr Varley acknowledged that the peace deal announced today did not impact upon the Banking Commission review.
“The government’s made it very clear that it is not prejudging the banking commission. I’ve always been clear that we will work with the ICB. There’s no prejudgement of these issues.”
But he added: “Our ability to contribute to the UK economy is conditioned on peaceable relationship with the Government. And I do expect this [Merlin] announcement to represent a step change in this,” he said.
SME’s of Britain – please go to your bank manager armed with this blog.