Libor fines may frighten the banks, but beware more skeletons in the cupboard
This week's third-quarter results will give an indication of some of the financial headaches lurking in the wings
This week brings Halloween, the time of year when ghastly deeds are generally afoot. Apt, then, that the banking industry will update the City on third-quarter trading, at a time when businesses are moaning that the banks are bleeding them dry. In the sweetest of ironies, Barclays has chosen the day of the ghoulish festival itself to allow its new chief executive, Antony Jenkins, to explain how the bank has fared since the undignified departure of predecessor Bob Diamond.
Diamond paid the price for the Libor-rigging scandal now hanging over many of its rivals. Royal Bank of Scotland, Lloyds and HSBC have all admitted to co-operating with international regulators on the matter. RBS chief Stephen Hester has gone as far as he can to prepare expectations that the bailed-out bank will be slapped with a big fine when watchdogs around the globe finally finish their investigations into the manipulation of interest rates.
But Libor is not the only skeleton in the cupboard for this industry. Barclays, again, is the bank that reminded the City about the scale of the payment protection insurance mis-selling scandal, with its shock announcement earlier this month that it needed to put aside another £700m to cover the cost of claims. This takes the bill for the big banks up to nearly £10bn even before the updates due this week, when Lloyds is regarded as likely to need to stump up more on top of the £4.3bn the episode has already cost its shareholders.
And Barclays, again, is the bank that best illustrates the new mis-selling scandal of interest rate swaps to small businesses. It will be in court tomorrow facing claims from Guardian Care Homes that it was mis-sold £70m of these swaps, which were intended to protect against rises in interest rates. The Wolverhampton care home operator claims to have lost £12m.
Barclays is not alone in facing claims over interest rate swaps: the Financial Services Authority estimates that 44,000 businesses may have been mis-sold swaps. Every bank's third-quarter numbers this week will be scrutinised for signs of additional provisions to cover new claims.
And then there are the new scandals just lurking in the background. Santander this week took a mish-mash of a provision – of £232m, no less – to cover "conduct remediation" and future regulatory changes. The bank did not spell it out, but only a small part of the £232m is likely cover interest rate swaps. Some will be the cost of helping the card insurer CPP pay out redress to bank customers sold identity-theft protection. On Friday CPP admitted it had made a £25m provision following an FSA investigation into the way the insurance was sold. Several banks used CPP to sell such insurance and may be forced to help cough up the compensation bill.
Then there is the potential scandal brewing from the sale of interest-only mortgages taken out in the boom years and now described as a £100bn time-bomb, as customers may never be able to pay off the actual sums borrowed. It may not take much to tip this skeleton out of the cupboard, if customers start to complain they were not given proper advice or if the FSA decides to get heavy. In the runup to the crisis, up to a third of all mortgages were interest-only deals – a truly scary number if customers are unable to switch to a repayment mortgage when the moment comes; and as we report, the same claim firms that have helped drive PPI payouts to astronomical levels are now turning their attention to mortgage mis-selling.
So much of the activity that has taken place in the banking industry is enough to spook even the hardiest soul. But it takes a lot to scare Bank of England executive Andy Haldane, who is due to give his views on "socially responsible banking" in a speech tomorrow. Perhaps he'll finally frighten bankers into behaving in a way that will not come back to haunt them.
But that was not the epistle that arrived. Only three signatures were on the letter that landed at BAE headquarters last week. The most important was that of Neil Woodford of Invesco Perpetual, which owns 13.3% of the defence company. But Woodford had found only two minor recruits among the fund management community, and one of those, Artemis, appeared squeamish, trying and failing to keep its name out of papers.
Still, the rebels had a plan: leak the letter and trust that more fund managers would rally to their flag in the wake of the defence group's failed attempt to merge with EADS. They didn't – or, at least, not publicly.
Instead, the rest of the week was dominated by a strong rearguard defence of Olver from the City establishment. "Woodford has overplayed his hand," said one veteran chairman. "We are all in favour of active and engaged shareholders but Neil has to understand that he doesn't always speak for everyone. He doesn't have a majority here. Most people think Dick has done a good job."
That does indeed appear to be the prevailing mood. If Olver is sufficiently determined, he might be able to stay in post until his intended retirement date of May 2014, by which time he would have served a decade as chairman.
But would it be wise? A state of hostility and distrust for 18 months between the board of the country's largest manufacturer and the largest shareholder is unsatisfactory all round. Strategic paralysis might set in, to nobody's benefit.
Olver's best option may be to show that he carries the support of most shareholders, which he is half way to doing, and then declare before next May's annual meeting that he will go early. After all, 10 years as chairman does feel too long – especially when the share price has mostly been falling for the past five.
But after the announcement that Pearson's long-serving boss Dame Marjorie Scardino is stepping down – and, further down the corporate food chain, that Kate Swann at WH Smith and Sly Bailey at Trinity Mirror are handing in their passes – it's becoming increasingly difficult to argue that we're making much progress towards better balance in the boardroom.
While it's relatively easy to find heavyweight generalists to appoint as non-execs – and a number of women have built up a portfolio of such posts – it's harder to ensure that managers in an organisation work to nurture talented women for senior executive roles. Carroll's right that tokenism at the top helps no one: companies must also take a good look at what's going on well below board level.
Diamond paid the price for the Libor-rigging scandal now hanging over many of its rivals. Royal Bank of Scotland, Lloyds and HSBC have all admitted to co-operating with international regulators on the matter. RBS chief Stephen Hester has gone as far as he can to prepare expectations that the bailed-out bank will be slapped with a big fine when watchdogs around the globe finally finish their investigations into the manipulation of interest rates.
But Libor is not the only skeleton in the cupboard for this industry. Barclays, again, is the bank that reminded the City about the scale of the payment protection insurance mis-selling scandal, with its shock announcement earlier this month that it needed to put aside another £700m to cover the cost of claims. This takes the bill for the big banks up to nearly £10bn even before the updates due this week, when Lloyds is regarded as likely to need to stump up more on top of the £4.3bn the episode has already cost its shareholders.
And Barclays, again, is the bank that best illustrates the new mis-selling scandal of interest rate swaps to small businesses. It will be in court tomorrow facing claims from Guardian Care Homes that it was mis-sold £70m of these swaps, which were intended to protect against rises in interest rates. The Wolverhampton care home operator claims to have lost £12m.
Barclays is not alone in facing claims over interest rate swaps: the Financial Services Authority estimates that 44,000 businesses may have been mis-sold swaps. Every bank's third-quarter numbers this week will be scrutinised for signs of additional provisions to cover new claims.
And then there are the new scandals just lurking in the background. Santander this week took a mish-mash of a provision – of £232m, no less – to cover "conduct remediation" and future regulatory changes. The bank did not spell it out, but only a small part of the £232m is likely cover interest rate swaps. Some will be the cost of helping the card insurer CPP pay out redress to bank customers sold identity-theft protection. On Friday CPP admitted it had made a £25m provision following an FSA investigation into the way the insurance was sold. Several banks used CPP to sell such insurance and may be forced to help cough up the compensation bill.
Then there is the potential scandal brewing from the sale of interest-only mortgages taken out in the boom years and now described as a £100bn time-bomb, as customers may never be able to pay off the actual sums borrowed. It may not take much to tip this skeleton out of the cupboard, if customers start to complain they were not given proper advice or if the FSA decides to get heavy. In the runup to the crisis, up to a third of all mortgages were interest-only deals – a truly scary number if customers are unable to switch to a repayment mortgage when the moment comes; and as we report, the same claim firms that have helped drive PPI payouts to astronomical levels are now turning their attention to mortgage mis-selling.
So much of the activity that has taken place in the banking industry is enough to spook even the hardiest soul. But it takes a lot to scare Bank of England executive Andy Haldane, who is due to give his views on "socially responsible banking" in a speech tomorrow. Perhaps he'll finally frighten bankers into behaving in a way that will not come back to haunt them.
Nearly time for BAE's chairman to take off
It would have been a stunning coup for shareholder activism – a letter from a half a dozen or more of BAE's big investors demanding the resignation of the chairman. Dick Olver would have been gone in no time.But that was not the epistle that arrived. Only three signatures were on the letter that landed at BAE headquarters last week. The most important was that of Neil Woodford of Invesco Perpetual, which owns 13.3% of the defence company. But Woodford had found only two minor recruits among the fund management community, and one of those, Artemis, appeared squeamish, trying and failing to keep its name out of papers.
Still, the rebels had a plan: leak the letter and trust that more fund managers would rally to their flag in the wake of the defence group's failed attempt to merge with EADS. They didn't – or, at least, not publicly.
Instead, the rest of the week was dominated by a strong rearguard defence of Olver from the City establishment. "Woodford has overplayed his hand," said one veteran chairman. "We are all in favour of active and engaged shareholders but Neil has to understand that he doesn't always speak for everyone. He doesn't have a majority here. Most people think Dick has done a good job."
That does indeed appear to be the prevailing mood. If Olver is sufficiently determined, he might be able to stay in post until his intended retirement date of May 2014, by which time he would have served a decade as chairman.
But would it be wise? A state of hostility and distrust for 18 months between the board of the country's largest manufacturer and the largest shareholder is unsatisfactory all round. Strategic paralysis might set in, to nobody's benefit.
Olver's best option may be to show that he carries the support of most shareholders, which he is half way to doing, and then declare before next May's annual meeting that he will go early. After all, 10 years as chairman does feel too long – especially when the share price has mostly been falling for the past five.
More women in the ranks means more women at the top
When Cynthia Carroll announced her departure from mining firm Anglo-American on Friday – which will leave just two women at the top of FTSE 100 companies once she goes next year – she was keen to say that firms shouldn't appoint "token" women for the sake of it.But after the announcement that Pearson's long-serving boss Dame Marjorie Scardino is stepping down – and, further down the corporate food chain, that Kate Swann at WH Smith and Sly Bailey at Trinity Mirror are handing in their passes – it's becoming increasingly difficult to argue that we're making much progress towards better balance in the boardroom.
While it's relatively easy to find heavyweight generalists to appoint as non-execs – and a number of women have built up a portfolio of such posts – it's harder to ensure that managers in an organisation work to nurture talented women for senior executive roles. Carroll's right that tokenism at the top helps no one: companies must also take a good look at what's going on well below board level.
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