Financial regulation

Coverage of the appearance of three UK bank chief executives before the Treasury Select Committee on Tuesday has focused once again on bonuses. But this focus has once again obscured other equally important issues aired on TUesday. Eric Daniels of Lloyds did his own version of Alastair Campbell’s “I stand by every word”, telling the committee that he thought due diligence around the disasterous takeover of HBOS had been “thorough”.  Asked why the size of support for HBOS from the Bank of England was not disclosed to shareholders when they were asked to vote on the deal, Mr Daniels told the incredulous committee “It was not felt to be necessary”. And then to general consternation he repeated that due diligence and disclosure were “thorough”. Take a look at the testimony on the Parliament website.

Also intriguing was Mr Daniels affirmation that Lloyds had worked  to avoid participation in the Government’s Asset Protection Scheme partly because it feared that accessing more government support would precipitate more onerous directives from the European Union’s competition directorate.

It was fascinating to observe the contrast between the styles of the three protagonists. Stephen Hester of RBS arguably batting on the stickiest wicket was assured, open and businesslike. Shame that one or two throw away self-deprecating remarks “my parents think I get paid too much” have been taken out of context.  What he had to say about the underlying business of RBS was also encouraging, as was Gary Hoffman’s account of the situation at Northern Rock. But Mr Daniels’ style, in turn defensive, stiffly formal, superficially polite then acidly hostile only served to antagonise the committee.

Related links:
MPs grill bank executives on bonus policies

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

For the second time in a year Gordon Brown has demonstrated decisive leadership on an issue of import, making an unpopular, mould-breaking decision, and then had the satisfaction of seeing others follow him.

In the spring he “saved the world” by rejecting the complex US approach to bailing out the banking system in favour of straightforward and direct state-backed recapitalisation.  “I saved the world” is poignant because it is only a small exaggeration of the reality.

No wonder the UK prime minister feels righteous indignation that bankers plan to cash big bonuses riding the bailout wave that he created, and no wonder that he feels he has the moral authority to tax them.

For the second time others seem to be following Gordon’s lead. France plans a copycat measure on bank bonus tax and Goldman Sachs and the German banking industry (of about equal import in the global banking industry) appear to be planning preemptive measures.

It must be very hard being Gordon Brown.  Sometime master of the universe, a hero to his wife, but those pesky voters just don’t seem grateful.

Related reading:

Pre-Budget report 2009 FT

Investment banking industry FT

Westminster blog FT

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

Much gnashing of teeth about the threat to London as a financial centre at the Merchant Taylors’ on Tuesday night.

Forgive me if Banquo doesn’t get too alarmed. London’s status has been under threat since the Hanseatic league, and funnily enough its market share keeps on growing.

London’s preeminence is built on much more than “light touch regulation”. More regulation won’t help London, relative to New York or Geneva, but the expertise to develop and manage within that new regulatory framework exists in London.  Each new regulation will spawn a new business line.  Reg Q lead gave us Eurobonds, Basel II was the mother and father of shadow banking. The worst outcome for London and markets generally is a prolonged period of uncertainty.  If Monsieur Michel Barnier brings some French dirigisme to the overhaul of regulation London and its European hinterland should cheer.

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

Banquo

This blog is no longer updated but it remains open as an archive.

Banquo has spent more than 20 years in investment banking and the hedge fund industry, splitting his time between London, New York and Geneva.

Why is Banquo anonymous? Because he operates at a senior level across the financial markets, advising and investing, buying and selling, hiring and firing. He's still in the game but if he has a relevant financial interest in the subject of his posts, you'll know about it. Being anonymous keeps things simple. Banquo will never betray a confidence although he is privy to many.

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