Frankfurt’s fake passport
THE passport arrangements for City-based banks, which allow them to operate across the European Union on a single licence, were always going to be a sensitive Brexit issue.
Jens Weidmann, the president of Germany’s Bundesbank, has plunged into the debate suggesting that if the UK does not forge some kind of deal with the single market, passport rights could be endangered.
But is he correct? The post-Brexit indications from some of the largest of the banks with bases in London, including HSBC, is nothing much has to change.
Wells Fargo may be in the doghouse at home, but that has not stopped it going head on with a spanking new City headquarters.
Indeed, given that banking regulation in London is among the best-in-class in Europe, a good case can be made that there is equivalent scrutiny of banks in the UK to that in Frankfurt, so nothing needs to move.
It is quite difficult anyway to accept the advice of European central bankers on the future of the City. Deutsche Bank, Germany’s top bank, is struggling with a legacy of bad loans, US penalties for poor behaviour and inadequate capital. Germany’s regional Landesbanken remain as unreformed as ever, the political creatures of state governments.
The present stand-off between the European Union and Rome on how to fix the €360bn of non-performing loans in the Italian banking system is an illustration of why the 250 or so banks based in the City are not enamoured with the idea of being regulated by Brussels or Frankfurt.
Indeed, Weidmann is less than happy about the present state of affairs in Frankfurt where both the Bundesbank and the European Central Bank are based. He argues that the ECB has conflicting responsibilities between its role in setting interest rates and that of supervising banks. As the guardian of monetary orthodoxy, the Bundesbank was never likely to be happy with negative interest and quantitative easing on an industrial scale.
Yet the Bundesbank is also aware that without these measures banks across Europe’s southern tier would be unable to lend at all.
The lack of a coherent banking union and an adequate emergency fund for re-capitalising the banking system is at the core of the problems of the eurozone. Set against these monumental problems of command, control and governance, the UK’s passport rights look a mere bagatelle.
Credit scam
WHEN normal credit channels dried up in the financial crisis, payday lenders rushed into the empty space.
Use of digital technology made this new source of credit popular with hard pressed consumers. Elimination of collectors, some wielding baseball bats, looked like a social benefit. Thanks to work by the Church of England, among others, the more we learnt about this form of usury, the more evil it looked. It took the Financial Conduct Authority far too long to grasp the nettle.
But borrowers can be grateful to former chief executive Martin Wheatley for eventually stamping down. The latest in the firing line is CFO Lending, which disguised operations under a variety of brands such as Payday First, Flexible First, Paycfo. Far from offering borrowers transparency, CFO Lending’s systems were rotten and displayed incorrect balances leading to clients overpaying. When repayments fell behind, the customers were intimidated with threatening and misleading letters, text messages and emails. Inaccurate data was passed onto credit reference agencies.
The company has been ordered to provide £34.8m in compensation to 97,000 clients, some of whom have complaints dating back to when CFO opened its doors seven years ago. The psychological damage to people already suffering is immeasurable.
The scale of the misconduct outpaces that of the nation’s biggest payday lender, Wonga, which agreed in 2014 to pay £2.6m in compensation to 45,000 customers.
The clampdown is commendable but it also throws a light on a malfunctioning part of the financial system. The churches are making an effort to address this through credit unions but in the commercial sector it was always thus. Those least well off end up paying the highest charges and penalties.
The banks are not much better in this regard with the outrageous penalties imposed on people forced by personal circumstances into running up unauthorised overdrafts.
The clampdown on payday lenders must be a good thing. But this whole episode adds to the distrust of business whipped up by the collapse of BHS and the treatment of warehouse workers at Sports Direct.
Sweet dreams
THE sequencing is almost certainly the wrong way round. Last week details circulated of Pure Gym’s £190m equity fund raising and now we learn that Alcuin Capital, the private equity owners of the British arm of Krispy Kreme, is preparing to float the ‘luxury’ doughnut maker with a value of £200m.
The float looks out of keeping with the age as baker Greggs introduced ‘healthy’ sourdough pastries and some Pret a Manger stores go veggie. Anyone for a chocolate iced, raspberry filled?