EU’s colossal banking failure
If only Europe’s leaders had listened to Gordon Brown back in 2008. Having taken the dramatic decision to pump taxpayers’ money into failing British banks he set off for the Continent to try and persuade Angela Merkel, Nicolas Sarkozy and the rest to do the same.
They sent him away with a flea in his ear saying that the eurozone had no need to respond to what was a financial and banking crisis born in New York and London. How wrong that judgement proved to be.
The European Banking Authority (paradoxically based in London) proved to be a paper tiger which, after a lot of huffing and puffing about stress tests to establish the health of the banks, remarkably concluded that with the exception of a couple of fringe players no one had anything to worry about.
This despite the fact that one of the early victims of the financial crisis was france’s BNP which was forced to liquidate a pair of trusts which had invested heavily in those fruits of Anglo-Saxon capitalism, securitised bonds based on subprime mortgages.
Enough of the history. Eight years on the Italian banking system is rot- ten to the core weighed down with up to €350bn of non-performing (read ‘rotten’) loans. The world’s oldest bank Monte dei Paschi di Siena has been bailed out more times that most people have had hot dinners and the Continent’s premier casino bank Deutsche is staggering under the burden of bad loans, poor trading and regulatory penalties.
failure of the eurozone authorities to properly address structural problems of lenders has been twofold. It has meant that the banks have lacked the capital and confidence to lend contributing to a long period of stagnation. It has also meant that much of the banking system remains sickly and untrustworthy and propped up by European Central Bank president Mario Draghi through various emergency forms of funding with a neophyte regulator, the ECB itself, seeking to come to grips with the more significant financial institutions. What the kerfuffle of the last week or so has demonstrated is that you cannot wish banking problems away. Moreover, when push comes to shove new-fangled capital, such as the much vaunted CoCos, high yielding bonds that turn into equity in the case of crisis, have come to be seen as a weakness rather than a strength.
That is why Antonio Horta Osorio risked the anger of investors when he bought back Lloyds bonds choosing to strengthen the balance sheet in a different way. Sir John Vickers makes much the same point when he argues that the banks need an extra equity buffer of 3pc to make them really safe. As the former head of the Independent Banking Commission he deserves to be heard.
One cannot help but think he might also be writing a public application to succeed Andrew Bailey at the Bank of England’s Prudential Regulatory Authority when the latter moves off to the bed of nails at the financial Conduct Authority.
Defence marshall
WHEN Sir Roger Carr moved from Centrica to become chairman of BAE in 2014 it was always clear that among his first tasks would be to identify a successor to Ian King as chief executive.
Arguably, with the exception perhaps of Rolls Royce, there is no more important job in Britain than running BAE. So the choice of Charles Woodburn, now at private- equity backed Expro, as BAE’s chief operating officer paves the way to a reasonably smooth succession.
He moves into BAE at a vital time. It is understood to be in negotiations with Saudi Arabia (where it employs some 6,000 people) about a new order for the advanced Typhoon which is festooned with British made avionics. The deal is regarded as essential if the future of BAE as a maker of air platforms is to be secured for the next decade. It is already secure as the only defence firm trusted by the Pentagon and the builder of Britain’s next generation of aircraft carriers, Astute class submarines and frigates. The firm simi- larly is growing by leaps and bounds in cyber security and protection.
Geopolitical tensions in the Middle East, South China Sea and the Ukraine mean BAE needs a boss with broad skills of realpolitik and global salesmanship. If Woodburn is demonstrated to have those talents only Corbyn-style unilateralists are going to dispute the size of his golden hello.
Dundee disunited
fAREWELL then to Katherine Garrett-Cox at Dundee-based Alliance Trust. It is disappointing to see a high achieving woman dumped by activist investors Elliott but her landing will be softened by a pay-off worth at least £1.4m and potentially more.
It has not been a very elegant departure. Garrett- Cox failed to convince shareholders (many of them investors in the main trust) that performance was good enough and has been hanging on by her finger-nails to what essentially has been a non-job as chief executive of the main investment offshoot.
Her reputation may have been enhanced if she had resigned on principle after the boarding party arrived rather than being demoted, humiliated and eventually dislodged. Sad.