The moment of truth has finally arrived for Britain’s banks. What resembled the regulatory equivalent of long grass in June 2010, when the Independent Commission on Banking was set up, now has the scent of freshly cut lawn.
The turf wars are only just beginning, however. Monday’s final report by the ICB will renew the debate in Whitehall over the apparently competing tensions of an economy in stagnation and a banking system in need of a more effective safety valve.
By detailing the terms of a ringfencing structure to protect depositors’ funds in a future crisis, restating tough capital requirements and recommending a bail-in framework, which would force bondholders to take losses if necessary, Sir John Vickers’ report will demonstrate the commissioners’ imperviousness to bank lobbyists.
A draconian ringfence would bring its own risks, most notably a potentially immediate repricing of credit and a sector-wide ratings downgrade that might oblige the government to respond to Sir John more rapidly than it had expected.
Talk of immediate funding problems, which some UK-based banks have suggested to the Treasury might be a factor in the wake of the report, is probably overblown. Nonetheless, the ICB’s impact has been visible for months. Analysis of the ratio of UK banks’ share price-to-tangible book value shows that HSBC, for example, is trading at levels it has not touched since its 2008 rights issue.
Paradoxically, the tumble in UK bank shares might turn out to contain a silver lining – that the worst-case ICB recommendations are already priced in.
Beyond that, the sole recipient of good news is likely to be António Horta-Osório, chief executive of Lloyds Banking Group.
Sources close to the ICB, which this year said Lloyds should extend its branch disposal programme, say Monday’s report will pave the way for a compromise with the state-backed bank. It will suggest that a credible challenger bank would be created by combining an existing operator such as National Australia Bank’s assets with the 632 branches Lloyds is already selling. That could eliminate the need for more disposals.
Combined with strict enforcement of a new regime for customers to be able to switch current account providers more effectively, that would be a sensible arrangement.
Although some flexibility will be factored into the scope and timing of the ringfencing structure, Mr Horta-Osório’s opposite numbers are unlikely to react so cheerfully.
Brought back to life
Tony Hayward has got his life back. Less than 15 months after his ignominious departure from BP, the company’s former chief executive has his hands on a $20m-plus paper windfall: not bad for a man whose career was said to be in ruins in the wake of the Macondo oil spill.
At the time, Mr Hayward’s only consolation prize was a directorship at TNK-BP. His appointment to the board of Glencore, the commodities trader, continued his rehabilitation. Now, having engineered the merger of Vallares, the cash shell he listed in June, with Genel Energy, a Kurdistan-focused oil independent, Mr Hayward has shown his determination to move on.
That is set to include a further step. Riven by infighting over BP’s aborted attempt to strike a tie-up with Rosneft, the Russian state-owned energy group, the temperature in TNK-BP’s boardroom has in recent months been frosty.
Friends of Mr Hayward say that he is poised to relinquish his position there owing to his other time commitments. That may be a flimsy but convenient excuse: placing himself amid the legal battles between TNK-BP’s warring shareholders has been unfulfilling, according to those close to him.
Either way, shareholders in Vallares will welcome Mr Hayward’s prospective departure from TNK-BP. His successor at BP, Bob Dudley, might reflect that it merely serves to illustrate the widening gulf between Mr Hayward’s fortunes and those of his erstwhile employer.
Football’s financial clash
London vs New York, Hong Kong vs Singapore, Doha vs Abu Dhabi: competition between financial centres is a dog-eat-dog world.
The imminent flotation of Manchester United in Asia offers a case study of intra-regional rivalries that are every bit as fierce as an Old Trafford encounter with Liverpool. Hong Kong-based bankers were about to roll out the red-and-white carpet for the Premier League champions when rivals from Singapore snatched the equivalent of an injury-time winner.
The prospect, then, of more cordial relations between two large financial hubs has the anachronistic air of a more genteel era. And given recent diplomatic relations between Downing Street and the Kremlin, London and Moscow would seem less-than-likely economic bedfellows.
However, TheCityUK, the Square Mile’s lobbying group, intends to strike a trilateral co-operation agreement with a Moscow-based financial task force and the country’s state development bank during David Cameron’s trade visit to Russia, according to people familiar with the plan.
Expected to be signed on Monday, the initiative has the backing of Dmitry Medvedev, the Russian president. Last week’s raids on BP’s Moscow office demonstrated the risks of doing business there. They will certainly do little to reassure City stakeholders that they are participating on a level playing field.
Mark Kleinman is City editor of Sky News and writes a blog at www.skynews.com/kleinman.
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