Bad old ways at the banks
Bankers have been off the invitation list for much of the last decade. so it took a brave BBC producer to put Virgin Money chief executive Jayne-anne Gadhia on Desert Island Discs.
Gadhia came up with the goods, blaming an ‘alpha-male’ culture for the downfall of her former employer royal Bank of scotland. she observed that after the edinburgh bank swallowed natWest in 2000, the group’s chief executive Fred Goodwin adopted an ‘I am going to win at all costs’ mantra.
Tellingly Gadhia lost faith in the future of rBs when asked to get involved in subprime mortgages, which she admitted were difficult to understand. That was a signal to leave. at Virgin Money she was a beneficiary of the financial crisis, notably when it bought the good part of northern rock in 2011 in a £747m transaction. The Government was criticised for selling on the cheap, but it was better that the rock was taken off government books rather than left to moulder like the stake in rBs.
The Virgin Money boss claims that banking had been ‘transformed’ by the crisis. But that is not strictly true. In the post-cri- sis period banking behaviour has been as ugly as ever with the emergence of the interest rate fixing scandal on the Libor market and widespread money laundering.
Many outstanding issues, such as compensation for the fraud at HBOs’s reading branch (now part of Lloyds), are still not fully resolved.
Indeed, there are signs of history repeating itself with the build-up of Personal Contract Purchase deals for cars on both sides of the atlantic and dodgy sales practices at Wells Fargo, once regarded as the gold standard for retail banking.
Virgin Money is not without stain. It has been involved in a huge expansion in creditcard lending, which has climbed from £200m to £2.65bn. There is nothing wrong with that in and of itself, except that some 18pc of its balances have been attracted by zerorate deals stretching over 41-months. It was by pushing the envelope too far with 120pc mortgages that northern rock found itself in trouble in august 2007.
Gadhia may be the acceptable face of banking but behaviour in the sector is far from having been reformed.
Growth myths
HOW fussed should we be about the downgrade of the IMF’s 2017 growth forecast from 2pc in april to 1.7pc now? not very.
after all, as recently as January the Washington-based group was projecting Uk growth of 1.5pc and upgraded in april after a robust final quarter of 2016.
The latest forecast is, in fact, a scrap more optimistic than the 1.6pc consensus the major private sector groups who track British output and a bit firmer than the Parisbased OeCD, which is at 1.6pc.
If recent patterns for the Uk economy are any guide, then there should be a firming up as the year progresses.
The rebalancing towards exports as a result of sterling depreciation should make a positive impact, as will the decline in inflation as import price effects moderate.
no country (with the possible exception of australia!) has managed to escape the ups and downs of the economic cycle. so when slowdown or recession does happen, Brexit will doubtless be blamed.
You heard it here first.
Pension trade-offs
aMID the chopping and changing in British pensions policy, a source of stability has been alan rubenstein, who is stepping down as chief executive of the Pensions Protection Fund at the end of this year.
rubenstein has seen the assets of the PPF swell from £2.9bn to £30bn in his eight years at the fund, and the franchise expand to 235,000 members as a long list of troubled companies have found an escape route.
earlier this year, rubenstein helped to keep the BHs pensioners out of a PPF, which would have seen their pension rights diminished and he has been working with Tata steel as it seeks to sort out the 120,000 strong British steel legacy funds.
There is still risk out there. The combined deficit on defined benefit schemes currently stands at £185bn. That could move down sharply with a return to positive interest rate yields.
In turn, that will bring its own problems. Higher interest rates could send zombie firms over the cliff edge creating a queue at the doors of the PPF.
Quite a challenging inheritance for the next PPF boss.