[Team] British Government invests in Virgin/Manor

[Flavio Galtieri]

The point is not whether there will be a return on investment for Lloyds or not, or whether Virgin will be a success. We all hope it is I'm sure.

The point is this is a thoroughly inappropriate investment for a bank which owes it's very existence to the British Taxpayer.

Particularly at a time when the same bank is repossessing houses from newly unemployed mortgagees, calling in overdrafts from small businesses whilst culling their own staff entirely due to a recession in which it's investment arm had a part in causing.

This deserves to be a PR disaster for Lloyds and I hope Mandelson sees how the banks he saved still don't "get it". Heads should roll.

[Joe Taylor]

Could be an interesting battle next year, the new team sponsored by the British Government and a British airline against the new team sponsored by the Malaysian Government and a Malaysian airline. When are Campos going to announce sponsorship from Iberia Airlines?

[cmk]

Originally Posted by grantp

So, should we start to 'worry' about the future of the Branson Empire?

If not, why are Lloyds stumping up when Branson could cover the costs out of his petty cash? Did he promise the directors the ride of a lifetime in his near space toy?

No. Branson does not want to put up the money. He's got what he wants in the name VirginGP, and he'll sell on the sponsor space to recoup much of his investment. It's kind of like the Benetton strategy later in the team's life.

[BootsOntheSide]

I can understand why many would be angry and concerned about this. Motorsport is a very risky area to invest money - the old adage that the only way to make a small fortune from it is to start with a large fortune seems to still hold true. Add the issues of waste and environmental damage which are connected to the sport and I can't imagine the publicity being positive. It'll be hard to explain to the public why Richard Branson needs Government money too.

[ukaskew]

Originally Posted by davyboy

They're the private equity arm of Lloyds Banking Group Plc which was bailed out by the government. Have a look at the article below.

Reuters article

I'm not up on companies and finance, but did we bail out LDC, did they get any money from us at all? It's not clear from that article, but I get the feeling they themselves didn't need any public money.

[davyboy]

Lloyds TSB Development Capital Limited is a subsidiary of Lloyds TSB Bank Plc, which in turn is a subsidiary of Lloyds Banking Group Plc. It was the ultimate parent that was underwritten by the government. If the taxpayer has an interest in the ultimate parent, by default it will have an interest in all its subsidiaries.

[Flavio Galtieri]

I smell a rat here somewhere.

What's the relationship between Lloyds and Branson? Is there one? I wonder if there isn't some smoke and mirrors going on here.

Let's face it, walking into a bank today and asking for £10mil for a 10% stake in a new Formula One team is going to get you shown the door pretty quickly I would have thought. Especially one that's just been rescued by the Taxpayer.

I think we are being told something less than the truth don't you?

[kartracer41]

Unless the actions are the same as what caused the bank to need to be bailed out, the governments need to let the banks do their job as they will. That is how they make money, and it's clear the governments don't have much of a grasp on being successful at that.

If a bank would have previously bought a stake or invested in a team, and the viability still looks like it's there in this economy, I don't see how it should matter who bailed out who. Also, is the bailout going to be paid back? If so, then they really shouldn't have much say, as long as the bank keeps submitting the proper reports and the numbers are heading in the right direction.

[davyboy]

Originally Posted by kartracer41

Unless the actions are the same as what caused the bank to need to be bailed out, the governments need to let the banks do their job as they will. That is how they make money, and it's clear the governments don't have much of a grasp on being successful at that.

If a bank would have previously bought a stake or invested in a team, and the viability still looks like it's there in this economy, I don't see how it should matter who bailed out who. Also, is the bailout going to be paid back? If so, then they really shouldn't have much say, as long as the bank keeps submitting the proper reports and the numbers are heading in the right direction.

The point is that this bank failed because it made unwise investments. It acted irresponsibly because [we subsequently discoverd that] it could operate without moral hazzard. It can continue to act irresponsibly and make unwise investments because it continues to operate without moral hazzard. On the basis of the large number of recent failures, one would have to say that investing in a Formula One team is a very high risk venture... but only if for an organization who have moral hazzard to deal with. Without moral hazzard, there is no such thing as a high risk venture.

[Flavio Galtieri]

Originally Posted by kartracer41

Unless the actions are the same as what caused the bank to need to be bailed out, the governments need to let the banks do their job as they will. That is how they make money, and it's clear the governments don't have much of a grasp on being successful at that.

Ha Ha. That's quite funny isn't it?

The whole essence of this debate is surely that the Banks have made rather a mess out of making money recently which is why every single taxpayer in this country now has a lifetime of higher taxes to look forward to.

In an environment where you can't borrow a penny without putting up three or four times the collateral you would have needed 2 years ago this Virgin deal sticks out like a sore thumb. There is either something else going on we don't know about or the Lloyds Board have had a collective breakdown.

When the Government won't invest in Silverstone to secure the GP, which at least has an established business plan and a possible 300,000 votes, it seems strange that a bank it has a major share in would buy a stake in something quite so esoteric as a brand new Formula One team.

[kartracer41]

Originally Posted by davyboy

The point is that this bank failed because it made unwise investments. It acted irresponsibly because [we subsequently discoverd that] it could operate without moral hazzard. It can continue to act irresponsibly and make unwise investments because it continues to operate without moral hazzard. On the basis of the large number of recent failures, one would have to say that investing in a Formula One team is a very high risk venture... but only if for an organization who have moral hazzard to deal with. Without moral hazzard, there is no such thing as a high risk venture.

And what were those unwise investments? In the US, much of it was lending for homes. The problem with that, is the US government had pushed to open up the requirements for such purchases, forcing the banks to lend to less qualified individuals. I don't blame the banks for what happened to them. When **** hit the fan at the bottom, it took down everybody all of the way to the top.

Any high risk investment has just that, high risk. It's how people have made large sums of money. The collapse of the banks was a result of their normal practices, while they were hit by surprise with a huge recession.

[foreversideways]

There is more to this than meets the eye and a bit of arm twisting, i would suggest. What business relationship does Branson have with Lloyds ? i wonder if Lloyds really had any choice in the matter.

[Flavio Galtieri]

Originally Posted by kartracer41

The collapse of the banks was a result of their normal practices, while they were hit by surprise with a huge recession.

Well that's all right then.

I'll just toddle off down to Lloyds in the morning and see if they'll lend me a couple of hundred big ones for that beach house in Dubai I always fancied....

[Teretonga]

Originally Posted by foreversideways

There is more to this than meets the eye and a bit of arm twisting, i would suggest. What business relationship does Branson have with Lloyds ? i wonder if Lloyds really had any choice in the matter.

So lloyds are insurers and Branson owns/runs a successful international airline with aircraft costing hundreds of millions of dollars and probably insured for as much..... so if you havea dozen aircraft each worth several hundred million dollars (or you lease them from a capital investment company and they will have them insured) then what is a paltry ten million pounds.....

And that doesn't include any investment or insurance in Vrgin galtic which is a major investment, dozens of times more expensive than F1....

This amount is small change in the light of what Virgin may be involved with Lloyds for in other fields. Its just an example of a bit of friendly back scratching.
Branson's previous business models have been successful and the F1 team may be successful in a commercial sense too, and very profitable, whether it wins or not....

[davyboy]

Originally Posted by kartracer41

And what were those unwise investments? In the US, much of it was lending for homes. The problem with that, is the US government had pushed to open up the requirements for such purchases, forcing the banks to lend to less qualified individuals. I don't blame the banks for what happened to them. When **** hit the fan at the bottom, it took down everybody all of the way to the top.

Any high risk investment has just that, high risk. It's how people have made large sums of money. The collapse of the banks was a result of their normal practices, while they were hit by surprise with a huge recession.

There's a lot more to it than that. Some banks failed to follow proper due dilligence processes in respect to their lending criteria and lent enormous sums to non creditworthy customers. They also invested in CDOs, again instruments that they failed to do proper due dilligence on. When payments on the bad mortgages were not forthcoming, mortgages lest us not forget that these banks were responsible for lending, they suffered severe liquidity issues and had to go to the treasury for help. A normal business does not have that option and had a normal business suffered similar liquidity issues, it would fail.

Normal businesses need to exercise due caution with respect to their investments because they're exposed to moral hazzard. If enough of their ventures fail, they go under. State sponsored banks don't have that problem to worry about, so they can be quite imprudent about what they do with their capital... and as we can see from this situation... that's exactly what's happening.