DESPIITE THE MISDEMEANOURS RING-FENCING WOULD BE USELESS!
There comes a time when whingeing and moaning about the banking sector
as to why it has let society down over the past decade becomes very
counterproductive, particularly when the regulators and politicians have a
different understanding of what caused the demise and what the likely outcome
will be in the years ahead.
We have heard a proverbial litany of testimony from all the chairmen and
CEOs from the major UK banks. The Treasury Select Committee and the Banking
Standards committee are wise, experienced, acerbic and truculent and at the
same time they suffer from an acute dose of selective hearing or if you prefer
deafness! What currently frustrates me from my admittedly narrow
perspective is that these luminaries and the general public have failed to grasp
what went wrong 5 years ago. They think that the UK’s banking malaise was
the same as the US’s – sub-prime lending resulting in gargantuan losses being
posted from derivative trading in underlying markets – not so! Let’s go
back to the beginning. The UK banking sector was brought to its knees by
injudicious lending, incompetent credit analysis and the government allowing
banks to grow their balance sheets to insane levels!
There is a huge shortage of rational thinking! Those who think that
ring-fencing retail banking from investment banking will save the sector from a
fate worse than death delude themselves. Also splitting investment
banking will just be an invitation to pass on business to the US or those with
a more flexible approach. I wait with awe and trepidation for Antony Jenkins’s
views on the future due tomorrow. Burying Diamond’s legacy is all very
well, but where does Barclays go for gravy to make up the difference in
profits? 40-60% of profits in the last decade came from Barclays Capital,
which remains the UK’s last genuine investment bank.
Mortgage lending is normally incorporated within the retail and
corporate banking sections of a bank. Mortgage lending is a very complex
issue. Lending against property in London would look to be plain sailing
– not so in Middlesbrough, Barrow in Furness and the West Midlands.
No one should be under any illusion that ring fencing or splitting will
seriously damage the profitability of the banks. You may say so what?
Well UK banks already need another £35 billion of fresh capital to meet Basel
111 and regulatory requirements. Attracting perspective investors will be
difficult if not impossible if you offer them no hope for the future.
This, of course, brings the much vaunted idea that banks are really no
longer too big to fail. One could be forgiven for thinking that the
current size of a few banks suggests that the quality of the management is
simply not visionary, diligent or conservative enough to deal with the vagaries
of massive balance sheets and the on-going problems they present. Many
banking analysts would have us believe that banks have been too economical in
writing down their losses, because they could not afford to take realistic
hits, without damaging confidence and the ability to service their customers.
Anyone who listened to the evidence submitted this afternoon by Johnny
Cameron, John Hourican and Peter Nielsen from RBS on LIBOR manipulation could
only have been appalled that they were ALL in wholesale ignorance of the
professional abuses. Johnny Cameron has been out since 2008. John
Hourican has been forced to fall on his sword and why Peter Nielsen, who is
directly responsible for rates as from 2008 has managed to keep his job, based
on the premise that to fire 3 executives at the top would have damaged business
continuity does not wash with most people. How management can say they
knew nothing about it, and I doubt they did, is truly astonishing; and for them
not to be aware that rates could be fiddled is naivety personified.
Ignorance is no excuse they should have known. They were quite happy to
walk away with the millions every year, based on achievement. I have no
problem with that ethos whatsoever. However it was there responsibility to
implement iron-fisted discipline and strong line management. That’s what
they get paid for. I imagine that RBS is similar to many other
operations. There would have been little evidence of floor walkers.
They would have all been in their glass offices, ‘wheeling & dealing.’ When
on the floor you can smell trouble!
When asked by the excellent Rory Phillips QC whether
LIBOR fixing was down to a failure of management, Stephen Hester RBS CEO denied
it. Hester said he assumed overall responsibility and also affirmed that he was
worth his £780,000 bonus, judged on the overall success of improving the bank’s
parlous state. In fairness to Mr Hester that job is a poisoned chalice
and he should be paid. For Hester to leave at this juncture would be a
disaster.
We look forward to hearing Antony Jenkins’s views on
the future when Barclays’ annual results are posted tomorrow morning. There are
options for RBS to provide more
competition on the high street and pay the tax payer back more quickly.
Firstly the 314 unsold branches of RBS yet unsold could be IPO’d or probably
what would be more constructive would be to investigate separating RBS from
NatWest. Perhaps NatWest could also be offered to the public, though splitting
it will be very difficult. One thing I am confident about is that
ring-fencing achieves absolutely nothing apart from making our banks less
competitive on a global basis. As already discussed they need more
capitall; so we must make it attractive for investors. A positive
attitude from politicians would be a step in the right direction. Just slamming
banks would be detrimental.
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