Archive for the ‘Finance and Economics’ Category

Diamond resigns, Cameron announces limited inquiry

Bob Diamond has this morning resigned as CEO of Barclays. Clearly, the reputation of Barclays is under some pressure over this LIBOR-fixing scandal. That said, one is still incredulous to hear shareholders this morning defending him – or at least his aggressive banking style that they think suits their dividend requirements.

Yesterday, David Cameron announced a parliamentary review of banking – or rather professional and cultural standards in the banking industry to be chaired by Andrew Tyrie. Tyrie is now doing some back peddling in light of Labour’s call for a more substantive review of banking presided over by a lawyer similar to Leveson currently investigating phone hacking.

Barclays and the LIBOR

On 6 November 2011 (see below), I reported on Bob Diamond’s Today lecture and his subsequent appearance on the programme the following day (that interview was uploaded to this blog). Well, now we find that Barclays made a lot of money from manipulating the inter-bank lending rate at the expense customers and citizens. The corporate price to pay is roughly £290m with £60m as a straight fine. Job done!

Well, not quite. Was this illegal? The suggestion is that this practice was systematic; i.e. orchestrated by the senior managment of the bank in which CEO Bob Diamond, at the time, was certainly a player. If so, surely it is time for a criminal prosecution? Giving up a bonus will not do.

Some of the reporting from this morning’s Today Programme, including a clip from Bob Diamond’s lecture on corporate culture, an interview with a former Barclays CEO, Martin Taylor, and the inevitable Robert Peston comment can be heard here.

Bank bonuses

So, Stephen Hester has declined his £1m bonus. Well done.

This morning’s radio comments on the issue have been revealing and need a more robust response. Though I give credit to Evan Davis again for challenging one interviewee who suggested that firms need to be able to pay on the basis of desert. Davis came back very quickly and said that the logic of capitalism was that firms try to get labour as cheaply as possible. Only senior managers seem to think that they deserve high salaries.

Stephen Hestor, noted Robert Peston on the Today programme, is a ‘determined man’ who may find himself with job offers to go to other banks where he could claim his bonus without political interference. Here are the things to say to all of those senior bankers – and anyone else who thinks that they deserve more.

Go. If you can find a better place to live than London, go. Second, having got us into this mess, you might feel that you have some responsibility to help clean up the mess. The banking sector owes the taxpayer a lot of money and gratitude. There wouldn’t be a banking sector without us. Go to Beijing, Singapore, Dubai. We really need a reformed banking sector – one that serves the citizens rather than exploits them. We want small businesses to be able to function and develop. Banks, as they are currently manifested, are a hindrance.

Finally, I have heard the argument that we need Stephen Hestor so that we can return the bank to the private sector and retrieve the £45bn or so that we have invested. At the moment it is ‘worth’ half of that. The experience from Northern Rock is that we will not get our money back with or without Stephen Hestor with or without his bonus.

Giving Northern Rock away

The sale of Northern Rock  to Virgin at a loss to the taxpayer of £450m demonstrates something. First, nothing has been learned from recent experience. All this nonsense about bringing competition to the high street is meaningless in the world of financial services. One would have thought that if the government had wanted to develop competition then a second option might have been better.

That second option might have been remutualisation. Was it not the demutualisation of Northern Rock that got it into bother in the first place? And what happened to the government’s proclaimed love affair with co-operative ownership? I would have thought that mutual ownership was a viable and desirable option. The high street would have benefitted, businesses short of capital might have benefitted? But oh no. The taxpayer subsidises the transfer of a valuable asset – tens of thousands of viable mortgages – to an already very wealthy man. However, Jill Treanor writing in the Guardian on 2 December sees that large sums of money will also be transferred to existing senior managers:

The annual report for 2010 states that:

“The company will operate a long-term incentive plan for senior employees that will deliver financial rewards if the company achieves certain targets over a three year performance period. As the company did not make Ltip [long-term incentive plan] awards in 2010 it is the company’s intention to make awards in 2011 covering 2010 and 2011. The 2010 award will vest in March 2013 and the 2011 in March 2014 or upon successful exit from temporary public ownership if earlier” (emphasis added).

How convenient that the transfer occurs before the close of the year saving all of that unnecessary waiting around until 2014.

Now I understand.

Bob Diamond on Today

Bob Diamond, the CEO of Barclays Bank, was on The Today Programme on Radio 4 on Friday 4 November. He’d given the inaugural BBC Economics lecture the night before and came on to face John Humphrys in a kind of defence of banking. Listening to him, one might have thought that all was rosy in the the world of banking. These valued institutions have regrettably moved away from the Captan Mainwaring approach – sitting down with the local bank manager to agree a loan – but the branches are friendly and well decorated. A bit of miss-selling of financial products – in particular pension protection insurance – was nothing too serious. And paying lots of money for the best financial talent is justfiable. Himself included. It’s a global business. His own salary was a bit of a contention – he didn’t like being asked about it. As always in these situations, they generally argue that it is up to the remuneration committee to decide salaries. The fact that the global economy is on its knees because of these people seems not to have registered. Listen here

Nice tie.

Debtocracy

Well, having posed the question four days ago, I now discover that there is quite a movement for default. The link below is to the hottest documentary at the moment making the case for default. It was featured this morning on the Today programme which surprised me somewhat. The film discusses ‘odious debt’ and how both the United States and Ecuador used it to write off debts (the US over Iraqi debts after the invasion). The Ecaudorian odious debt was uncovered by a panel of experts who trawled through the country’s finances to find out who were the creditors and whether the transactions that had brought it about were ‘legitimate’. For example, there is an accusation that large enterprises, including Siemens in Germany, used bribes to win large contracts such as for the Athens metro. The film makers, not surprisingly, call for a similar audit to be conducted in Greece.

http://www.youtube.com/watch?v=qKpxPo-lInk

Financial Crisis

It seems this morning that Greece is not only going to default on its Euro commitments, but that it is probably heading for some ugly political instability. And watched over by the helpless partner economies in Europe, most notably Germany. What is the right thing to do? Default or not default?