How to lose £11,000 without even noticing

I’ve just lost a little over £11,000. Or, to be strictly accurate, I’ve just discovered that I’ve lost a little over £11,000. The loss actually accumulated over the past year or so but I’ve been too busy with other things to realise that what used to be the British building society sector has being going to hell in a handcart. To be honest, I probably wouldn’t even have noticed now if it wasn’t for the fact that HBOS’s attempt to dig itself out of a financial hole by issuing a load of new shares hadn’t drawn my attention to it.

Yes, I knew that something nasty had happened at Northern Rock and that something called the sub-prime market in America was in the process of bringing Gordon Brown and quite likely the whole western economy crashing down with it. And of course I knew that share prices can go down as well as up, and that when they do the really rich get out quick, the fat cats collect their bonuses before they quit and it’s small investors that carry the can.

So I know I should have paid more attention. A lot more.

The thing is I don’t own my own house; I rent a flat from a housing association. I don’t have a pension; I have this quaint notion that I’ll just keep on working until I drop. And I don’t have what you might call investments.

What I do have is a small number of shares that I acquired as a stroke of good fortune a couple of decades ago when demutualising building societies was all the short-term, Thatcherite rage. It went along with selling off council houses and nationalised industries on the cheap – ‘selling the family silver’ as Harold Macmillan rather haughtily but acutely called it. It enabled a generation to be briefly spendthrift on the back of what their parents and grandparents had worked hard to accumulate; and it bought the Tories 18 years in power before Tony Blair came along, like a well-educated Yosser out of Boys from the Blackstuff, and said ‘I can do that’.

I was lucky enough to have a small redundancy payout in the Halifax building society at the time (it was the 1980s; we were all being made redundant then). I transferred it to the Leeds when the Halifax demutualised. The Leeds promptly followed suit, and then went on to merge with the Halifax.

At every stage, the people who stood to make the really big money out of building society demutualisations bribed the ordinary borrowers and savers into giving up their membership rights with a bundle of shares. I did quite well out of the process, even though I cast my vote against demutualisation every time. Over the years, I allowed the new privately-owned Halifax to reinvest my share dividends in extra shares. When it was taken over by the Bank of Scotland and became HBOS (you can tell how much attention I’ve been paying because I had to look up what the BOS bit stands for), they gave us some more money for allowing it to happen. I let them invest that in extra shares too.

Over the years, it built up into a tidy sum: 1,541 shares in all. It was never a fortune but I must admit I quite liked the idea of having a few shares set aside for a rainy day. A bit of a bonus on top of the £90.70 single person’s pension when I reach retirement, I thought; that’ll pay for the odd taxi home after a night on the tiles.

Occasionally I’d take a glance at the share prices. They tumbled a bit from their early high, if I remember rightly, down from around £14 apiece at their height to a steady £10-11 for as long as I can remember. Never seemed to do anything very exciting. I got bored; the Premiership title race was less predictable than this. I took my eye off the ball.

Then, about a year ago, they must have started falling. I didn’t notice. Safe as houses, I thought – that’s the expression, isn’t it? Whoever heard of a bank (which is what the demutualised societies became, after all) losing money? Yes, I saw Northern Rock’s walls falling down and I’ve lived in enough squats in my time to know that even the best-built houses aren’t always safe. And I know it sounds stupid for a socialist to say this, but I sort of trusted that the people running the show – and making lots of money in the process – knew what they were doing. Obviously they didn’t.

There’s a handy calculator on the HBOS website to tell exactly how little they knew. Type in the number of shares you own and then select a date in the past and it will work out how much their value has gone down. Mine had lost £11,187.04 in the past year the last time I looked (they’re now worth £4,345.62), or as near as dammit three-quarters of their value.

No nationalised industry, local council or public service has ever demonstrated financial and managerial incompetence on such a scale. Just imagine if a government agency had blown three-quarters of its assets in as little as 12 months. What would have happened to those who were deemed to have been responsible?

What certainly wouldn’t happened is what occurred in the case of HBOS and its top executives and directors – and happens almost as a matter of course right across the private sector when big companies make a mess of things. The fat cats didn’t get a kicking for their failures; they helped themselves to some more cream.

In March this year, when HBOS shares were still about two-thirds higher than they are today, the bank acknowledged that its top executives weren’t meeting long-term targets for ‘total shareholder return’. This meant that the poor impoverished souls who make up the HBOS board didn’t receive their long-term incentive payouts in 2007, while their short-term cash bonuses were reduced to 46 per cent of their salaries, down from more than 60 per cent a year ago.

Clearly the directors didn’t think this was fair. So what if their stewardship had resulted in the bank hopelessly overexposing itself with a reckless rush into risky lending practices? So what if they had seen three-quarters of the company’s value wiped out in the time it takes to go from one annual report to the next?

What did the directors do, then? Resign? Forgo their bonuses altogether as an act of contrition towards those whose investments they had looked after so badly?

Do me a favour! They halved the targets they had to meet to qualify for their full bonuses.

Andy Hornby, the chief executive whose tenure has coincided almost precisely with the collapse in the HBOS share price, got a pay increase from £1.6m to £1.9m, a new short-term bonus to make up for not qualifying for the old long-term one – oh, and a few hundred grand extra for his pension. Peter Cummings, who runs the wholesale bank, was given £2.6 million, including a £1.6 million bonus. And Benny Higgins, the former retail chief executive whose performance was so poor that even HBOS decided to get rid of him, received £2.3 million, including £819,000 in lieu of notice. Nice work if you can get it.

HBOS isn’t alone in rewarding failure: it’s the private-sector norm. When the disgraced Northern Rock boss Adam Applegarth quit last December, the details of his severance payment weren’t published. But he was entitled to at least a year’s pay (£760,000), an annual bonus of around £660,000 and pension and other payments. IN other words, Applegarth walked away with a cheque for more than most of the victims of his incompetence would earn in a lifetime.

Does anyone believe that this is right? If survival-of-the-fittest capitalism, red in tooth and economic claw, is to mean anything at all, surely it means that those who stand to gain so very much must also stand to lose it all when they get it so very wrong?

But of course that’s not how capitalism works. The rich look after their own, and the people who pay the price are the ones who can least afford to do so.

For my part, I feel simultaneously disappointed by my loss, annoyed at the lack of attention that I (a socialist and a journalist, for Mammon’s sake!) paid to the details of one of the key economic developments of the day, and aggrieved that yet again a small number of people have been getting rich by not giving a damn about how they do so.

I almost feel philosophical about it all. This was money I hadn’t earned and it should never have been taken from the mutual building societies, which were functioning perfectly adequately without the intervention of the speculators and the profiteers, in the first place.

But then I start to get angry about it again – and about those who are responsible. There is someone I know through my sister, a bit older than me, who also got made redundant a while back. He invested it all in shares of his former employer, BT – shares whose value collapsed just as preecipitously a few years ago as those of HBOS. From having enough to give him a decent lifestyle in his retirement, he went to having barely enough to keep him going until he made 65.

It’s a story that can be told many millions of times over and in almost as many different ways. But it boils down to the same one in the end. People who have been thrifty, who have tried to put something aside for their old age, are done over by those who never lose out, no matter how of other people’s money they lose.

Spare a thought, then, if you will, for one of the men who has done most to bring about the biggest banking crisis since the 1930s. It was revealed earlier this year that Angelo Mozilo, the failed former CEO of Countrywide, one of the companies at the centre of the subprime lending collapse in the US, and a man who sacked 12,000 employees and cost many more thousands of people their homes, received a payout of $88 million for his efforts. That was on top of two gilt-edged, guaranteed pensions, enhanced stock options that he would be allowed to cash in straight away, continuing free access to the company jet and all his country club bills being paid for the next three years.

I'm sure he needs every penny.