Lombard

December 13, 2012 8:50 pm

Bank fines fail to reflect wrong-doing

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Regulatory testimony to justify an anticipated fine of over $1bn against UBS would need to be as salacious as the modish smut of Fifty Shades of Grey. The punishment would be double that borne by Barclays for the same offence: allegedly fixing Libor rates. So infractions by the Swiss bank must be twice as bad. Those final notices should be scorchers.

The question that regulators’ political masters would need to answer in a cooler frame of mind is whether such penalties are useful and proportionate.

A settlement with regulators by UBS would underline the fact that Barclays was not alone in fiddling benchmark rates. The swaps trade figures as a breeding ground, with bent traders hopping between banks and big cities like plague-bearing fleas.

Analysts reckon 10-15 banks could carry serious liability for Libor-fixing. The art of predicting fines for banking misconduct is inexact. But based on a figure of $800m estimated for Royal Bank of Scotland by Bernstein, the total could easily hit $12bn. Top that up for other misdeeds and you could get to $20bn for the industry.

Such big penalties are unnecessary to improve behaviour. That might be done cheaply by kicking key staff out of finance. The more capital the state takes from banks, the less they can lend.

As to proportion, no one has shown what detriment Libor-fixing created. The cost of laundering Mexican drugs money – among the offences HSBC was fined $1.9bn for this week – is numbered in cadavers. It is risible to conclude the first is even half as immoral as the second.

Redaction man

The tangled tale of Bumi Plc gets ever-tanglier. The London-listed business is the subject of three rival proposals for its future. One is from financier Nat Rothschild. Another has been hatched by the Bakries, a powerful Indonesian business family. Independent directors are responsible for a third.

Relations between the trio are toxic. But all agree the Bakries should buy back a stake in coal miner Bumi Resources from Bumi Plc and quit its share register through a stock swap and cash payment.

Bumi PLC’s back story, which is as convoluted as the plot of a Latin American telenovela, is not the only thing that stands in the way of the market setting a proper price for Bumi PLC’s bombed-out shares. Accusations of criminality lurk below the surface.

These are so legally explosive as to encourage vigorous self-censorship by UK newspapers who write about Bumi Plc. So I will not tell you that ■■■■■■■■ claims ■■■■■■■■■■ has been siphoning money out of the group. Or that ■■■■■■■■■■ is alleged to have commissioned the illegal hacking of the emails of ■■■■■■■■■■■.

The story is becoming unreportable. The situation at Bumi Plc tarnishes the London market as a place for foreign businesses to raise capital. Uninformed investors should steer clear of the company. Well-informed ones should consider their reputations.

London calling

The resumption by WPP of UK tax residency has been painfully slow and politicised. It is piquant that another exile to Dublin, Henderson Group, has beaten the ads group across the tape. The investment company, helmed by down-to-earth chief executive Andrew Formica, switched quietly on Thursday. WPP, led by Sir Martin Sorrell, the media pundit and high-pay campaigner (he is in favour of it, particularly for himself), will not return until the new year.

Several big businesses shipped out in protest at UK tax policies, the least popular of which was the chancellor’s treatment of foreign dividends. According to the refugees, these were exposed to double taxation if HM Revenue deemed tax havens had been misused, a jeopardy dispelled by recent legislation.

Perhaps UK Uncut will stage a homecoming celebration for the returning prodigals? Some hope, eh?

Medal at your peril

Diageo’s $3bn-plus plan to buy Mexican tequila group Jose Cuervo collapsed not just on price, but over which assets the founding Beckman family would part with. It is understood that as they showed Diageo boss Paul Walsh round, they held back quite a few heirlooms.

The final straw may have been medals for quality, embossed in miniature on bottles of one variety of alcoholic cactus juice. Mr Walsh was permitted to admire these. Then he was told the deal did not include the right to display the trophies, won by long-dead Beckmans.

For a Mexican spirits dynasty, blood is thicker than water, tequila or a fat wad of dollars from a multinational drinks group.

jonathan.guthrie@ft.com

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