Temporary truce for shares
HOW curious that it took the head of the European Central Bank (ECB) Mario Draghi, who presides over a hopeless monetary union, to halt the bear tide gripping markets this week.
All it took was a hint from Draghi that the ECB would do the right thing in March, perhaps lowering already negative interest rates or stepping up its bond-buying operations to turn the tide.
The willingness of traders, from Tokyo to London and New York, to listen would suggest that much of the panic from earlier in the week – and the start of this year – has been overdone. Perhaps, but little fundamentally has changed.
The oil market is still over- supplied – a cold snap across the Eastern Seaboard of the United States notwithstanding.
China’s growth is stalling and on a downward trajectory, and there is growing scepticism about the leadership’s ability to navigate the change. The downward pressure on natural resource prices has kept pressure on the balance sheets of mining giants such as BHP and raw material economies from Bra- zil to Canada and Russia are in the doldrums. The eurozone remains weak despite an uptick in the IMF projections for 2016 and 2017. There are exceptions, with Spain and Ireland out of the sickbed.
But two bigger beasts – France and Italy – are barely growing fast enough to combat unemployment.
German confidence is unsettled by the l arge- scale arrival of migrants and China’s slowdown, since the People’s Republic is one of its biggest export markets.
The difficulty surrounding moneyprinting by Frankfurt is that the pipelines of cash from eurozone central banks into the economy are clogged. One of the less-noticed features of a turbulent week is the poor state of European banking.
Yields on Italian bank bonds, some of which were designed to meet regulatory requirements, have jumped to above 10pc as con- cerns about bad loans, both domestically and to Eastern Europe, have surged. New weakness at both German and Spanish banks have been exposed. And here in the UK there have been new jitters in the shares of Lloyds (unjustified) and Royal Bank of Scotland, which makes George Osborne’s plans for early reflows of taxpayer money trickier.
One reason why Draghi gets so much attention is because of market fears that the US already has withdrawn its crack cocaine of bond buying from the market and has moved on to normalise interest rates. So its policy options look diminished unless it does a U-turn.
The Bank of England is watching and waiting but clearly would prefer not to do any further reverse ferret on rates and quantitative easing.
Uncertainty remains the prevailing wind.
B&B overhang
IF AND when the Treasury gets around to choosing some new leadership at the Financial Conduct Authority, one of the useful things that might be done is unearth the buried report on the collapse of Bradford & Bingley in 2008.
The FCA has relied on the words of Lord Turner, chairman of its predecessor the FSA, for not pursuing the matter. But this is not good enough. The taxpayer is still the custodian on the B&B loan book, and the published accounts show that as of March 31, 2015, the Government was still in hock for £ 21bn of l oans, according to accounts prepared by PwC. Among the reasons B&B needs scrutiny, as was the case with HBOS and more recently the Co- op Bank, is that the auditors were KPMG.
As the chairman of the FCA, John Griffith- Jones happens to be a former senior partner at KPMG and would doubtless want to see any issues over the pre- collapse audit of B&B properly scrutinised, and for this to happen a definitive report would be essential.
If any auditing issues were to be thrown up it might be a chance for accounting watchdog the Finan- cial Reporting Council to show its mettle. The FCA and FRC did reach a settlement in 2014 with former B&B finance director Chris Wilford for what it described as ‘misconduct’ as it embarked on a rights issue in the final days of the buy-to-let lender. The taxpayer is still blindsided as to what the auditors KPMG did or didn’t know.
It is in the public interest that any work done on B&B is disinterred, re-examined and released.
Longevity risk
MORE joy for WPP shares as its digital agency Possible Worldwide buys Germany’s Conrad Caine.
This year chief executive Sir Martin Sorrell will celebrate his 40th year at the helm and, having ridden out a financial crunch in the 1990s, he has built the world’s most impressive advertising agency, demonstrating a mastery of the online revolution.
Along the road there have been dozens of acquisitions, posing mammoth command and control issues. Just how difficult knitting disparate parts together could be was shown at education group Pearson earlier this week. One trusts Sorrell and his eventual successors will not suffer the same indigestion.