Lord Levene interview - Calm counsel amid the storm

Scotland can keep its high profile in world finance if it still has the will to succeed, Lloyd's chairman tells Terry Murden

LORD Levene has enough years under his belt to have seen it all and to have bought the proverbial t-shirt, but if the crisis that has engulfed the financial sector tells us anything, it is that nothing can be taken for granted.

Among his many and varied roles, Levene sits on the board of the China Construction Bank and he recalls how he had advised his fellow directors that it was not the job of governments to own banks. It was an argument that seemed lost on his chairman when he flew in from Beijing for talks with Levene last week.

The incident was among a number of anecdotes that peppered an otherwise sober address to members of Scottish Financial Enterprise in the Royal Scots Club in Edinburgh last week when Levene laced his assessment of the extraordinary circumstances of recent weeks with attempts at remaining cheerful.

"You can be both cautious and optimistic," he says, speaking afterwards in one of the cavernous club's numerous meeting rooms. "If you are not optimistic then there's not much to be bothered about."

Levene is one of Britain's business grandees, a veteran of numerous boardrooms, from the Haymarket group to General Dynamics. His heart is in the City, being a former Lord Mayor, Alderman, even governor of City of London School. He sits on the Chancellor's high level group investigating competitiveness, alongside Archie Kane, chief executive of Scottish Widows and Lloyds TSB director, and the pair joined SFE officials at a private dinner in Edinburgh on Thursday night.

Of all his roles, Levene is best known as chairman of insurance institution Lloyd's of London – "the other Lloyd's, the older one" he gently reminded an audience in thrall to the current banking merger between HBOS and Lloyds TSB.

He has seen crisis in action when Lloyd's suffered from the hurricanes of 2004 and 2005. Prior to his appointment six years ago a number of Names – wealthy individuals – lost fortunes and 1,500 went bankrupt due mainly to big claims on asbestosis. By the early 1990s, Lloyd's was in a mess with Names suing agents and syndicates suing each other.

But recent events may well cap it all. "On the way up to Edinburgh I was thinking what a difference a year makes," says Levene. "We had a Labour Government desperate to obliterate the word nationalisation from its constitution. Now the role of taxpayer as shareholder in the banking sector sounds almost normal. We have seen the unthinkable become the thinkable."

Levene believes strong leadership is a prerequisite to getting the global economy out of the mess, and he is satisfied that the rescue plans "appear to have done their job so far". But he's worried about regulation – particularly of the knee-jerk kind – and the "hunt for scapegoats". He says: "This makes the task for our political leaders all the more difficult. They must act, but act wisely."

He's concerned that there is no repeat of the reaction to the Enron scandal, which gave us the Sarbanes-Oxley legislation, which was designed to improve transparency but was generally regarded as a constraint on companies.

He agrees with calls for an end to the culture of excess and for senior managers to curtail their remuneration demands. Levene admits to being aghast at the way Dick Fuld, chief executive of Lehman Brothers, appeared to have lost touch with reality when he corrected a congressional hearing on exactly how many hundreds of millions he had earned while his staff were losing their jobs. In another story, he tells of an executive working abroad who was unable to sleep and so sent his private jet back home to collect his favourite pillow.

"It would be ridiculous not to reward good performance or pay bonuses, but this is just so bizarre," he says, adding that it is not just regulators and governments who must put a stop to such behaviour: shareholders must be more active in policing it, he says.

He admits to being concerned, despite recent assurances, that the insurance industry may be hit "by the same problems that hit the banking sector", though Lloyd's benefits from "medium" storms because they help push up prices. "I received a letter from the insurance company for my home north of Florida telling me the rate was down 40%. As the owner of the house I was delighted, as chairman of Lloyd's I was horrified," he joked.

Insurance may be populated with forecasters and actuaries, but Levene concedes that predicting anything in these markets is only for the brave. Asked by a member of his audience how he saw the shape of the financial world if he could wind the clock forward a few years, he replied: "I don't think I could wind the clock forward seven days. If I was speaking here back in January (when he was invited] I would not have made anywhere near the same speech."

Afterwards he offered some encouragement to Scotland's financial services sector, which had helped him in his business dealings in the past. Would Edinburgh and Scotland be impoverished by the loss of a corporate bank headquarters and be irrevocably damaged by it?

"Irrevocably, no. There are some smart people here. Edinburgh is one of the biggest centres of finance in Europe and it didn't get there by accident.

"But you should remember that when I was Lord Mayor of London, people accused us of selling our investment banks to the Americans, the Swiss and Japanese. We didn't see it like that. They were international institutions which had chosen to be in London. The same applies here in Scotland.

"I read this morning (Friday] something about whether the Lloyds-HBOS deal was a takeover or a merger. It doesn't matter at the end of the day. When you are bringing together two businesses it is about the ability to use the people who are here.

"I don't think Edinburgh will lose out – unless it gets complacent. Will it become a backwater? These institutions would not invest in it if they thought that would happen. It is up to the people here to make sure they stay on top."

In his earlier address, Levene had warned that "we need to continue to press the point that in finance the idea of national markets no longer exists". He later says this was not a reference to Scotland or the debate on independence. The raised eyebrows suggests the thought had not even crossed his mind. "I was thinking about America," he says.

What he does believe, is that the global map is changing and that the centre of gravity is moving eastwards. Last year, for the 15th consecutive year, China was the top emerging market in attracting foreign investment. "We have to be very careful that we do not get left behind," he says.