Regulation

Andrew Hill

There are plenty of interesting ironies raised by the news that investment banks are charging asset managers up to $20,000 an hour for access to chief executives, often unbeknown to the executives themselves.

One is that chief executives themselves are no strangers to “cash for access”. It’s a perennial political “scandal” that big corporate donors to political parties get to rub shoulders with the prime minister or his cabinet at private parties and dinners. The last time such a hoo-ha erupted, in 2012, the FT wrote that prominent City figures were “bemused at the outrage” surrounding the affair, describing it as “a healthy part of the democratic process”. One said: Read more >>

Andrew Hill

As politicians, members of the European Parliament are justifiably proud of the bonus cap they have agreed to impose on bankers. They seem to have found a politically expedient, legally watertight, electorally popular way to use their limited powers to whack high finance where it hurts. That doesn’t mean that the measure, if confirmed, won’t have potentially grave consequences.

It will increase banks’ fixed costs, weaken the link between pay and performance, accelerate the inevitable drift of financial know-how and power from Europe to Asia, and instantly conjure up a thousand more complex, lawyer-driven alternative compensation structures to get round the rules. Read more >>

Andrew Hill

What strikes me about the findings of the UK Competition Commission’s inquiry into the audit market is that in a world of ever more rapid change, a company’s relationship with its auditor is now often the oldest fixture in the boardroom.

Think about it. The commission says 31 per cent of blue-chip FTSE 100 companies have had the same auditor – almost invariably one of the “Big Four” – for 20 years or more. During that period, on average, most companies will have changed their chief executive at least four times, their non-executive board members (assuming replacement at the nine-year mark, when they lose their independence according to UK guidelines) twice, and their computer systems probably five or six times. Read more >>

If I were a mastermind seeking to undermine the City of London, I would shift Germany’s financial centre from Frankfurt to Berlin, just as the country moved its political capital from Bonn in the 1990s. Then it would be part of a cosmopolitan city where foreign bankers and lawyers might actually want to live.

Andrew Hill

Adam Posen’s attack on the management and culture of the Bank of England may be the strongest yet, but it is by no means the first – and won’t be the last – criticism of a persistent and dismaying lack of robust governance at the UK central bank.

What is astonishing is that despite countless warnings – three independent reviews, several newspaper editorials and sundry MPs’ warnings – the central charge that the governor is over-mighty and under-governed still stands. Read more >>

Andrew Hill

For a breed that is rarely found, sleeves rolled up, trying to unblock the U-bend, investment bankers are remarkably fond of plumbing metaphors. Around this time of year, they usually rush to point out just how full their “pipeline” of deals is. (One optimist told the FT this week the very size of this pipeline might itself prove to be a problem.)

The implication is that if some way could be found to clear the impediments, initial public offerings and acquisitions would come pouring out. This wishful thinking leads to some sharp-elbowed lobbying for changes to rules that supposedly deter such transactions. Bankers – and, to be fair, some entrepreneurs – would, for instance, like more flexibility to bring to market companies with a lower “free float” of shares (allowing owners to retain a larger stake). Read more >>

Some years ago, when I was the media editor of the FT, I used to deal with one David Cameron, the public relations executive of Carlton, a large broadcasting company. Since then, Mr Cameron has become prime minister of the UK while I have stayed roughly where I was.

Andrew Hill

If I kept crashing my car, I might well decide that I needed to keep a bigger chunk of cash available to repair it, but I would also consider whether I needed to improve my driving.

Following the same logic, regulators’ efforts to force banks to hold more capital to guard against operational risk seem to me to address only half the issue: the other half is about ensuring basic management competence at financial institutions.

As Brooke Masters writes in Monday’s FT:

Operational risk covers almost any problem – bar trading losses, bad loans and legal cases – that could damage a bank, such as the weeks of computer problems at Royal Bank of Scotland.

Yet while it may suit banks to characterise some of these operational risks as bolts from the blue – interruptions to the smooth running core business of making money from money – the truth is that most of these incidents start with simple mismanagement. Read more >>

The saga of Florida’s “hanging chads”, which prolonged the disputatious US presidential race of 2000 well beyond polling day, also left corporate America hanging.

Like a man with a broken umbrella trying to hail a cab in a downpour, the maker of the famous black London taxi is clinging to its last shreds of hope. Last week Manganese Bronze announced it was no longer a going concern and intended to appoint administrators.

Andrew Hill

The contrast between the rhetoric of James Gorman, chief executive of Morgan Stanley, and that of his Barclays counterpart Antony Jenkins – in interviews with, respectively, the FT and the BBC – underlines differing attitudes to the future of banking in the US and Europe.

In remarks squarely addressed to shareholders, Mr Gorman suggests jobs must be cut and pay curbed at Morgan Stanley; Mr Jenkins’ comments, on the other hand, are aimed directly at regulators, politicians and the general public.

That’s partly down to context – the BBC interview was filmed during a visit by the new Barclays chief executive to a UK glass manufacturer, part of Barclays’ campaign to show it is helping customers to export more. Here’s Mr Jenkins:

Barclays has a significant job to rebuild trust, but I’m also confident that we can. It goes back to what we do: if we serve customers and clients, day in and day out, in a way that people perceive as socially useful, then we will rebuild that trust.

 Read more >>

Next week, the Financial Services Authority is due to announce tighter listing rules to deter abuses by London-listed companies. There is cause for disquiet: this week’s implosion of Bumi , the Indonesian coal-mining group part-owned by Nathaniel Rothschild, the financier, follows governance wrangles at the Kazakh-focused Eurasian Natural Resources Corporation.

The “fit and proper” test is regulators’ and professional associations’ tool of choice for assessing suitability for office – a spirit-level for acceptable conduct.

Asked to choose between government intervention in the delicate business of innovation and government withdrawal from the field, I always used to plump for the latter.

Andrew Hill

Barclays may rue having declared its involvement in the Libor lending rate scandal first, but as a consequence it has had first choice of “City grandees” to replace its chairman, Marcus Agius. The bank has managed to land the grandest of those grandees, Sir David Walker.

Author of the Walker report on governance in the financial system (probably the most downloaded document at Barclays’ HQ this week), Sir David is the squeaky-clean face of the old word-is-my-bond City of London, with experience on both sides of the regulatory fence. In 2009, he was one of five wise heads appointed by the Financial Services Authority to vet senior appointments to UK financial institutions (it might be interesting to know just how many of the current and outgoing crop of Barclays’ senior management he helped to approve). If you’re in doubt about what a grandee is, or whether you are one, take my patented multiple-choice questionnaire, published at the time. Read more >>