MPS should not be the ones to decide if TSB chief loses his job
It used to be said that the governor of the Bank of England could correct irresponsible behaviour in the City with a discrete raise of his eyebrows. It was, for example, Mervyn King’s facial hair, in the best recent example of the power of regulatory supercilium, that ultimately did for one Robert E. Diamond following the Libor scandal at Barclays back in 2012.
Now it seems MPS on the Treasury Select Committee are attempting to grow their own pair of lethallyarticulate facial appendages and waggle them in the direction of Paul Pester, the chief executive of TSB.
On Thursday night Nicky Morgan, the Conservative MP who chairs of the committee, spent an epistolary rocket to Richard Meddings, the chairman of the TSB. It was incendiary stuff. Morgan said that the committee had “lost confidence” in Pester following the IT debacle, in which thousands of customers were locked out of their accounts, some were surprised to find the bank had erroneously given them seven-figure overdrafts and yet more were sent commiserations for having died when they had merely switched accounts.
Pester’s subsequent downplaying of the problems and car crash testimony to the committee clearly made matters worse. Morgan accused the bank boss of “dissembling” and asked the board to “give serious consideration as to whether Dr Pester’s position as chief executive of TSB is sustainable”.
It is getting increasingly hard to see how Pester, whose grip on his job was growing ever-more tenuous, can continue to hold on now. And it is perhaps right that he should go. Things go wrong in business as they do in life; it is how you deal with problems that counts. Pester is a good guy with some genuinely interesting ideas about how to shake up the UK retail banking industry. However, his performance since the IT meltdown has been found wanting.
But – and it’s a big but – that doesn’t mean MPS should be the ones that are effectively enacting his defenestration. The chief executive of a privatelyowned company serves at the pleasure of its board and, more importantly, its shareholders. If the regulator thinks that those two groups are collectively shying away from doing the necessary then the eyebrows can start to twitch.
Perhaps the committee thought that TSB was a special case. Perhaps they believe that Pester must be forced to wave goodbye and that the board isn’t robust enough to bid him adieu. Perhaps they are worried that the shareholder (there being only one) is based in Spain and doesn’t quite grasp how bad things are over in Blighty.
They may further consider that Banco Sabadell is conflicted because it shares some of the blame for the massive IT fiasco. It is an interesting theoretical exercise to question whether Pester would currently be in situ if TSB was still a listed company.
That said, the bank remains under the purview of the Bank of England. It is clear that regulators in Threadneedle Street are surprised about the strength and the ferocity of the Treasury Select Committee’s attack on Pester. So far the board is sticking behind their man. If it continues to do so, the MPS will look very silly; if the board capitulates, the MPS will have set a dangerous precedent.
If the chief executive of a UK bank must be forced to walk the plank, it should be either the chairman and/or the governor of the Bank of England that are the ones waving their cutlasses along with their eyebrows.
BT shows how it’s done
Talking of impressive hair – and for an example of how chief executives should be dispatched – look no further than BT. Here it was the still relatively new chairman Jan du Plessis, with the robust encouragement of BT’S shareholders, that put paid to Gavin Patterson’s tenure.
Looking back at his big strategic initiatives it’s hard not to agree with that course of action. Patterson set out to keep hold of the prized Openreach division, fix the company’s yawning pension deficit, buy EE to bolster the mobile offering and dive two-footed into football rights. Only his takeover of EE can be deemed an unqualified success. It sailed through regulatory scrutiny, to the astonishment of rivals, and puts BT in the driving seat for the future of connectivity. EE is also now BT’S growth engine.
The pension scheme is still an albatross around the company’s neck – with the accounting deficit widening to £6.4bn, the Openreach question remains unresolved with telecoms infrastructure under government review yet again, and the foray into football rights failed to build a genuinely large scale pay-tv business.
Throw in an accounting scandal in the Italian division and Patterson’s reluctance to do up enough buttons on his shirt and it’s not hard to see why shareholders were beginning to feel the negative side of the ledger was outweighing the positive.
In his statement, Du Plessis, said: “The broader reaction to our recent results announcement has though demonstrated to Gavin and me that there is a need for a change of leadership to deliver this strategy.” In other words, BT’S shareholders have said: we like Gavin’s strategy but we don’t think he’s the person to pull it off. Toodle pip. And that, Nicky Morgan, is how corporate governance is supposed to work.
Bigger doesn’t mean better
History repeats and when it comes to the banking industry it does so on fast forward. A couple of weeks ago, there were reports that Barclays and Standard Chartered were in talks. A few days later it was the French banks Société Générale and the Italian lender Unicredit (whose chief executive Jean-pierre Mustier worked at Socgen for 20 years) that were supposed to be in talks. This week, it is the executives at Deutsche Bank and Commerzbank that have apparently been chatting.
These rumours have a familiar ring to them. We just need to hear that JP Morgan is eyeing an acquisition of Standard Chartered – the top trump in any game of fantasy financial M&A – before we have the full set.
The question is whether they are now resurfacing because bank bosses and their advisors – notorious for their short memories – have forgotten how destructive bank mergers are or because European lenders are starting to get a bit desperate.
Either way, in the highly unlikely scenario of these tie-ups coming to anything, will regulators have forgotten the concept of banks getting too big to fail? The fact that the Volcker Rule in the US, designed to prevent banks betting their own money, is slowing being rolled back suggests the answer is: quite possibly.
‘Things go wrong in business as they do in life; it is how you deal with problems that counts’