Published on 9 Feb 2011 Sections ,

‘Project Merlin’ bank lending deal to be announced

The deal between the Government and the UK’s biggest banks on lending and bonuses, dubbed ‘Project Merlin’, could be announced today, sources close to the deal tell Channel 4 News.

Project Merlin bank and Government deal could be announced today (Reuters)

Channel 4 News understands that the deal is agreed in principle and could be announced as early as today. Chancellor George Osborne is scheduled to speak in the House of Commons.

However, the complexity of the deal with the UK’s largest banks – part taxpayer-owned Royal Bank of Scotland and Lloyds Banking Group as well as Barclays and HSBC – has already seen the deal delayed several times and the announcement could still be put off. Santander could also be involved in elements of the final deal.

Clearly the whole idea of this it to try and draw a line under banking bashing, but few believe it will. Business Correspondent Siobhan Kennedy

The deal is expected to outline how much banks have to lend this year – expected to be around £190bn, including £76bn to small and medium businesses – as well as covering the controversial issue of bankers’ bonuses ahead of the banks’ results season.

The deal will also involve more detail and funding pledges for the “Big Society Bank”.

Will this draw a line under bank bashing? 
Sources have told Channel 4 News that the centrepiece of the deal is an agreement for the banks to lend about £190bn in gross funds to businesses. Gross is important because, historically, by the time businesses have paid back their other business loans, net lending is actually negative, writes Channel 4 News Business Correspondent Siobhan Kennedy.

There will also be a central statement that all the banks will agree to a lower their bonuses and the chief executives will all agree to have their bonuses linked to lending targets. Right now, only the CEOs at RBS and Lloyds have their bonuses linked to lending targets, so this will add the CEOs of Barclays, HSBC and Santander. The banks will also agree to more disclosure of bonuses and will adopt the Hong Kong model where not just CEO and executive salaries are disclosed, but the other top eight highest paid.

Clearly the whole idea of this is to try and draw a line under banker bashing but few believe it will, as the banks are set to reveal their profits and bonuses in the next few weeks. Bob Diamond at Barclays is set to get over £9m.

The potential announcement follows yesterday’s surprise news from the Chancellor that he was making the bank profits tax immediate, and permanent.

Channel 4 News Economics Editor Faisal Islam remains sceptical about the deal.

In his blog, why Project Merlin could be re-named Project Canute, he wrote: “I am deeply sceptical about Project Merlin, and I would like to be proved wrong. I’ll stick my neck out and say it is a charade designed for easy 24 hour news headlines. At the moment unless something remarkable is conjured up in the next few days, it lies somewhere along the spectrum between charade and sham.

“And if sounds critical of the current Government, it is merely a continuation of what went before under Labour. An attempt to sound in tune with the public’s desire for banker-bashing, when the reality is almost no real change and a light bankers’ slap today.”

Channel 4 News FactCheck: Have the banks got a tax cut, or not?

A CBI spokesperson told Channel 4 News that the lending situation in the UK for business continued to be difficult, ahead of the Merlin announcement.

“The current lending situation is both a supply and demand issue,” a spokesperson said.

“On the one hand banks have tightened their lending criteria and some are trying to reduce their balance sheets. In some cases the cost of borrowing has also increased, affecting small and medium sized companies particularly. On the other hand, businesses’ borrowing requirements have changed, reducing the levels of debt they want to operate under.”

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