Vintage heaven; vintage hell

The transformation of Fine Wines

As you raise a glass of Chêne Bleu Rosé on a sizzling hot summer’s day, spare a thought for the wine industry, which is facing a perfect storm.

Global warming, increasing regulatory pressures, and disinvestment, are set to dent if not destroy what had seemed a simple story of emerging markets growth and increasing quality which would lead global wine consumption to reach $207bn in 2022.  

But the overall global wine and spirits market has slipped by -1.4% in the last five years, according to industry body IWSR, and disruption of the status quo is set to accelerate.  In the US, 54 per cent of the population chose to abstain from alcohol, driven largely by 21-34 year olds, according to a 2018 Nielsen Survey.

Parallels with the tobacco industry are not an exaggeration. Imagine a photograph of a liver riven by cirrhosis on a plainly packaged bottle of wine, along with a warning that alcohol can abet breast cancer. Inside, the magnum of Château Kirwan lies, un-drunk and unloved.

Demand for wine in developed markets is under pressure from older generations who are drinking less and younger generations who prefer cocktails and don’t buy into the elitist, obfuscating language used by connoisseurs. Millennials and Generation Z are in any case also drinking less, as evidenced by the drop in turnover at university bars and the increased availability of non-alcoholic cocktails and beers. Hashtags such as #sobersaturday are trending. The ever-widening legalisation of cannabis is another factor in wine substitution.

Health is on the global agenda, with the World Health Organisation (WHO) using increasingly alarmist language about the effects of alcohol, and cash-strapped governments looking more closely at the costs of ill-health from excess use and, in parallel, the benefits of increasing so-called sin taxes. This is affecting investor behaviour too.  KLP, Norway’s largest pension fund with $80bn under management, announced in May that it would divest from any company that made more than 5% of its revenues from alcohol. French champagne and wine house LVMH and beer giant Heineken are among those affected. It is likely that this policy will spread as Scandinavians generally lead the way on Environmental, Social and Governance (ESG) investing.

Meanwhile, climate change is harming crops, disrupting supply chains and eroding corporate profits. This summer’s European heatwave is likely to be the norm, not an exception, while global cooperation on climate change lies moribund amidst the wreckage of the post-Second World War order. Disorderly trade patterns – be it between China and the US or Britain and the EU – add to the confusion. The door to the fastest growing wine market in the world slammed shut in the face of the US wine industry when President Donald Trump imposed tariffs on China.

Can the industry adapt? Over two sun-drenched days in Bordeaux, 70 winemakers, technologists and reviewers from around the world, came together for a convivial brainstorming on Fine Wine’s evolution. Organised by ARENI, a wine institute, many of its conclusions were just as relevant for the broader wine industry and, potentially, for other consumer companies.

Navigating a future where sustainability and inclusiveness are among the paramount values is crucial to its survival. That means clarity on everything from the wine-growing process to the treatment of the seasonal labour who pick the grapes, along with an openness to sharing information via blogs and tech solutions like the Global Wine Database (GWDB).  Even information that may seem ridiculous. “Your millennials want to know the name of the wine maker’s dog - it’s true!” exclaimed a 27-year old sommelier from New York.

Websites like Wine Folly use straightforward language and by so doing are creating new enthusiasts, as are wine bars with top wines by the glass via the clever Coravin system, which doesn’t damage the cork, and apps like Palate Club. Champagne houses like Moët & Chandon are enlarging their offering to a younger clientele by offering a cocktail-like experience. Ice Impérial, a sweeter champagne poured over ice, is the result. Wine makers are exploring lowering the alcohol content without compromising on taste and signing up to wider industry campaigns to advise consumers on drinking responsibly.

China is set to become the second largest wine market after the US and by 2022 its value will be over $19.5bn, reports IWSR. Prestigious winemakers are taking the opportunity to make local wines to feed the increasing appetite of the growing middle class. Château Lafite is launching its first Chinese wine, Long Dai 2017, later this year. In India, private equity group Visvires Capital expects wine tourism to be a source of revenue. The business plan for its four vineyards includes an estimated 300,000 visitors over the next three years for wine tastings, restaurant meals, hotels stay, and wine buying.

 Global warming is an opportunity, as well as a challenge. English wine evoked sniggers when it started; wines like Chapel Down from Kent are now classified as Fine Wine and sell at premium prices. Spain’s Bodega Torres has been buying land at higher altitudes. Nordic wine could be the next discovery. 

On the back of an uncertain future, the Fine Wine industry is acclimatizing to a new world. Let’s raise a glass of Château Talbot to toast its journey. 

How can the City recover its political capital?

The good news? The financial sector is no longer enemy number one. Its place has been taken by our fumbling politicians. The bad news? The City has not regained its political capital.

Post the financial crisis the City, meaning financial and professional services in the UK, lost the trust of the nation. A perfectly understandable and justifiable result, but one that must change because of the harm that is being done to our economy when the City has no advocates beyond its own members.

As the country grapples with Brexit, assembly lines of MPs appear on television defending the UK’s manufacturing base. Not one talks about the need to defend the City, despite it being responsible for over 13.5% of tax revenues – that’s a lot of hospitals, infrastructure and schools. It is also responsible for around 2.3m jobs – jobs that aren’t just in the Square Mile, or London and the South East, but also in Liverpool, Glasgow and Bournemouth.

A lot of work is going on to regain the trust of the population, but it doesn’t make the headlines. UK Finance and The City UK are coordinating their members (banks and other professional services companies) with politicians to deal with the issues that generally fill the inboxes of MPs, most notably fraud and the finances of small and medium-sized enterprises (SMEs).

The £4mTake 5 campaign against criminal money transfers, an initiative between financial services companies and the Home Office, has raised awareness of smooth-talking criminals asking for PINs and passwords. Meanwhile, a new ombudsman scheme, plus a complaints review and redress policy, will be in place by September this year to deal with dispute resolutions between the banks and SMEs. Less than a year ago, 22 banks were forced to publish the results of their customer service ratings on their branch walls.

Yet none of this represents a positive campaign to clarify the City’s national role and international role. Those who see press reports on mega-bonused bankers or financiers in court for rigging Libor need to see other images which are just as real. Kevin, the bank worker in Bournemouth, where financial services is the biggest employer.  Sue, the elderly lady in Somerset who relies on her pension. Lucas, the toddler whose parents have bought him a Junior ISA. And the hundreds of sports grounds and start- ups, coffee shops and corner stores, that rely on finance to survive and prosper.

The City’s human face should be shown in granular detail. It is never more in evidence than on September 24, City Giving Day, an annual event where businesses raise money for charitable causes. It began with tea and cakes in Guildhall Yard, the centre of City government, in 2015. Last year, 313 companies participated, from Bank of China’s renown market stalls selling home-made Chinese specialties to Tour de City, a team effort on static bikes where enthusiasm and buckets of sweat abound. Insurance brokers and lawyers in City Giving Day red t-shirts race around the streets on a treasure hunt. The initiative was so successful that it was taken up by Birmingham and is set to spread to other cities later this year.

The City’s creative energy and its ability to implement change should be celebrated. This isn’t only in Green Finance, or Fintech, where we are the world’s leader, or Social Impact investing.  A few years ago, Barclays posted a 5-minute video on its intranet in which an employee detailed their mental health struggles. The reaction in the bank was so positive in encouraging conversations around mental health and broadening the mental health offering that This is Me, as it was called, was taken up by the Lord Mayor’s Appeal and publicised. By the end of 2018 the initiative had reached over a million employees in over 500 organisations and was launched in the North West and Scotland.

What should also be showcased, not least at a time of national division, is the City’s nearly 2,000 years of history, from its Roman beginnings to its famed coffee houses, the precursors to markets like Lloyd’s of London, and the huge contribution immigrants like Sir Sigmund Warburg made to its success. The Lord Mayor’s Show dates back to the 16th century. It is still the longest and most grand annual civic parade. Yet it is barely marketed in London or the regions, let alone abroad. This is surely a wasted opportunity. 

Over the last two years the City has lost an estimated 75,000 jobs and a trillion in assets as companies seek to guarantee seamless access to the European Single Market by moving parts of their operations abroad. But it is still a European jewel. supplying half the debt and equity to EU business and over a trillion a year in direct lending. And its position as a global jewel -with difficult-to-replicate regulation, rule of law and a wide pool of talent – must be defended.

Whatever happens in the next few days in politics, the uncertainty is likely to continue over weeks and months. It is time for the City to stop hiding its lights under a bushel. With humility and humanity, and an acknowledgement of its wrongs, the City should use storytelling to regain its rightful place in the national narrative.

This article was published in the Daily Telegraph on Tuesday 30th April 2019.

Bring back Boris

An unlikely saviour

Much as one hates to welcome back a turncoat who sacrificed his Remain views on the altar of unparalleled ambition, bring back Boris!

The UK’s June 8th general election was Theresa May’s to lose and this she did. The catchphrase “strong and stable” turned out to be untrue, as U-turn followed U-turn with not even a glimpse of an apology. Being the recipient of years of austerity – however much it was needed following the financial crisis – was always going to make defending government positions on health and security a dreadful task. Labour leader Jeremy Corbyn, meanwhile, could scatter largesse for all and sundry like a bridesmaid’s petals. Cleaning up the mess was never going to be his problem.

At the time of writing, the Tory majority has collapsed with the loss of 13 seats, nine of them government ministers, while Labour has won 29. To reach the 326 seats needed to govern, the 318-seat Conservative Party is in talks with Northern Ireland’s 10-seat Democratic Unionist Party (DUP).

A weak minority government with a discredited leader will not last. Nor is it the right position from which to negotiate Brexit. A new Conservative Party leader is needed to fight a new election.

The country’s saviour, Foreign Minister Boris Johnson, is an unlikely figure. Yet the contrast with Prime Minister May is where his strength lies. Bumbling and dishevelled vs controlled and neatly clad. Eton-honed debating skills vs May’s ducking the party leader debate. An excess of everything on display – flesh, words and humanity, vs containment. Well-documented sexual transgressions vs a steady marriage of 37 years.

Boris could recover the London and youth votes that May lost. He also stands a better chance of keeping the Hard Brexiters in the party under control. Not necessarily due to his charm, although that helps, but because the party has just received a horrendous shock. The actual share of the vote is truly terrifying for them, with the Tories at 42% compared to Labour’s 40%. The complacency of May is giving way to a June panic. And the biggest unifier for any party is a credible opposition.

Helpful to Boris will be the perception that voters are tired of austerity. The government will borrow more to fund policies ranging from increased police numbers to the NHS health service. It will also have to raise taxes. What this will mean for interest rates and the pound is far from clear due to a host of external factors, such as the German general elections in September and the timing of the Brexit negotiations. But with Boris at the helm, a soft Brexit looks more likely.

As the UK continues its slide into international irrelevance on the international stage, it is time for the return of the Teddy Bear, this time to head the Conservative Party, head the next government, and arrest the decline.

Germany – you are the weakest link. Goodbye!

The travails of a giant

Which country, dear reader, is the weakest link in Europe? Greece with its annual debt reschedulings? Italy with a banking crisis of massive proportions? Spain, with no government in eight months?

All problematic, yes. But I would argue that it is mighty Germany, whose economy makes us all sigh with envy, which is looking shaky. Its institutions have lost credibility, its economy is facing headwinds, and its people are angry.

Let’s take those in turn.

Angela Merkel, having been in power for over a decade, certainly counts as an institution. Her approval ratings are at record lows, even as she mulls over running for a fourth term in elections next year. In the last few days, in an early September regional election, her party had its worst-ever result, polling in third place behind the AfD (Alternative for Deutscheland). The AfD with its anti-immigrant, anti-Muslim stance is making huge strides on the back of the Chancellor’s “open door” policy decision on refugees a year ago. There are now well over 1 million in the country.

Merkel’s modus operandi hasn’t changed – taking her time, seeking consensus, moving her party, the CDU, to the more popular centre ground. But public opinion has, and they see her as ineffective and misguided in her refugee strategy.

Another institution, Deutsche Bank, poses the biggest risk to the global financial system, according to the IMF. Germany’s banking system in general is not that healthy. The country is overbanked, useful for financing business, but as we saw in the financial crisis, when there aren’t enough profits at home, the temptation to buy risky assets increases.

And what about Volkswagen? An institution that stood for all we admired in German manufacturing, turns out to have been faking emission results.

That lack of trust also applies to the press. In fact, the Germans have coined a word for it, “lugenpresse”, which stands for “liar’s press”. One German, whose home borders the Austrian border, told me about television last year only showing images of refugee families with young children streaming into Germany, when in fact he was seeing young, male refugees.

On the economic front, Germany’s obsession with achieving a balanced budget means its much-vaunted infrastructure is suffering from chronic under-investment. Even Transport Minister Alexander Dobrint admits “there is a lot of catching up to do.”

The German post-war approach, a belief that policy decided between government, business and the unions, would boost growth and protect workers, has also suffered a collapse. Following the Hartz reforms, German workers accepted years of salary restraint, while during the financial crisis they agreed a shorter working week to protect jobs. Yet there is increasing inequality, automation is making inroads, and 6.1% unemployment looks likely to rise, not least because of Brexit.

Last year, Germany exported €89 billion worth of euros to the UK, with cars a major part of it. The collapse in sterling won’t help this trade. Plus, there is a deep division between German business which is looking for continued access to the UK, while German politicians have to juggle their voters’ jobs with the need to make exiting the EU as difficult as possible, to avoid other countries following suit.

If internally, there are problems, these are mirrored on the international stage. Germany is becoming ever more lonely.

US Treasury Secretary Jack Lew recently stated that there was a consensus about putting growth ahead of austerity in the developed world. Yet is not true for Germany. Finance Minister (and putative heir to Merkel), Wolfgang Schauble insists “the debt-financed growth model has reached its limits.” Or, in the phrase Germans use internally, the “black zero” is sacred.

Meanwhile, Southern Europeans say the euro is simply a devalued Deutschmark, of benefit to German exporters but a disaster for them. Germans, instead, believe they are continually bailing out the So

A Lament for Britain

Why Grayson Perry is right

Broken-hearted, I write this column a couple of weeks after Brexit. We seem to have decided to imprison 16 million bright, mostly young people into an old people’s home led by a myopic political class that is too intent on back-stabbing to notice the flames engulfing the nation.

Youth are not sad. They are fuming. One Facebook post from a 22 year old university student read: “To the 17 million idiots out there [who voted for Brexit], Fuck You.” The morning after the result was announced, young people gathered outside former London Mayor Boris Johnson’s house. “Shame on you, Boris!” they shouted, alluding to his choosing to side with Brexit in full knowledge of the ensuing damage to the country (allegedly).

A Dublin-based digital company is not alone in posting a job ad on various social media sites: “Fancy leaving the UK? We’re hiring more than 50 people across engineering, sales and marketing.” In the four days following Brexit, there was a 57% increase in complaints about xenophobic attacks reported to the police. Our political parties are in disarray at a time when level heads are needed. Uncertainty will reign for years as a new deal is negotiated.

At the Financial Times’s summer party, stuffed to the rafters with 400 Londoners, the global elite shook its collective head at the referendum result. We gave a resounding cheer when Editor Lionel Barber stated that turncoat Boris was now out of the race for Prime Minister. We lamented together when he stated the evident truth: the UK is no longer stable and predictable following Brexit and our imploding political parties. We depend on foreign investors to finance the nation and our companies via financial instruments and foreign direct investment. No listed, accountable company can put money into the UK over the next few years.

However it was famed cross-dressing artist Grayson Perry (absent from the FT party) who encapsulated the truth in his post-Brexit remark, “Well that’s taught us peace-loving, country-running, money-earning, forward-looking liberals a lesson.”

Governments and companies need to spread the benefits of globalisation wider and shout its advantages to the rooftops. This is an issue that has been on the West’s agenda for a number of years. We in Britain are the ultimate warning, and where Brexit goes, Trump and Marine Le Pen may well follow.

As for the UK, social unrest looks likely. Firstly, how the country exits and what sort of a deal it strikes will not be known for a few years. A full 28 states have to agree a deal, and the departing state is torn asunder. A petition to hold another referendum has already garnered over 4 million votes and it only takes 100,000 for Parliament to consider a motion for debate.

Additionally, the worst affected will be many of those who voted Brexit, such as a vocal car worker at the Nissan plant in North East England, lured by false promises that Britain’s contribution to the EU would be spent domestically. Interest rates, pace Bank of England Governor Mark Carney and his soothing remarks post-Brexit, could well rise. The UK is bound to pay more to finance itself following the loss of its coveted triple A credit rating. Meanwhile, imported inflation looks likely, with estimates of 4% in 2017 on the back of the plummeting pound, and recession lurks as growth forecasts nose-dive.

The City, chock a block with excellence from all over the world, will lose business and jobs to other jurisdictions – a serious matter for the country as it contributed 11% of total tax revenues in 2015.

Some pundits are busy predicting the UK might remain in the single market by agreeing a Norway-style deal, although as this includes free movement of people it looks unlikely. Others say a bilateral trade deal is the only possible solution.

I would no longer dare a prediction, for these are truly sad and unprecedented times.

Watch out for a Saudi failed state

All change on the ECB and BoE boards

I plan to be an old lady whose smiley enthusiasm will be tempered by a series of oft-expressed bugbears. Every other sentence will begin with a croaky shout of, “It’s a scandal that…!” I shall then proffer solutions that are fairer and more sensible, with a wave of an imperious, wrinkled hand.

In a bid to get some practice in, here are five of my current irritations: greedy fund managers; greedy companies; inconsistency on the ECB and BoE boards; the rash change in foreign policy towards Saudi Arabia; and reckless Brexiters.

1. Greedy fund managers whose missives begin with endless paragraphs on the world economy, the markets and their strategy, finally ending with a throwaway line which almost makes it clear that they lost money. Your money. Your capital. Yet they talk about “underperforming” their benchmark. You as the investor still pay their fees. The CEO of Aviva Investors recently had the gall to say that he didn’t think his company’s charges were excessive. “The vast majority of our funds are ahead of their reference benchmark (my italics),” said Euan Munro.

What would be fair: There should be a commensurate loss of fee income for fund managers when their funds lose investor money.

1. Greedy tech companies. The focus on the Panama Papers and the wealthy with legitimate offshore entities is misguided. True, there are criminal money launderers who must be apprehended because they are breaking the law. But the biggest non-payers of tax in the world today are technology, digital economy and sharing economy companies. The British Office for National Statistics (ONS) announced in April that it is (finally) working on a feasibility study to officially gauge how to measure the sharing economy i.e. companies like AirBnB and Uber.

Governments are busy bowing very, very low to all these companies, in the erroneous belief that they create many jobs and that any tax increase will scare them off to another country. Google’s pitiful £130m tax settlement with the UK authorities earlier this year was defended by Google’s UK chief Eileen Naughton with the phrase: “Its international tax law. Google didn’t set the law.” She admits that if the law were different, the company would pay more.

What would be fair: Operating in the UK, or any other country, should be dependent on paying a reasonable amount of corporate tax here. What is “reasonable” could be decided in a number of ways, including a committee of representative stakeholders.

1. The Governing Council of the European Central Bank consists of 25 members. Two of them, or 8%, are women. Germany, France, Italy and Spain, the major euro area countries governed by the ECB, all have gender quotas for their larger company boards, including banks. These range from 33% to 40%.

The Bank of England’s Court of Directors does better than the ECB on the gender front: two, or 18% of the Board is made up of women. There are no quotas in the UK, but there are targets under the Davies Review. 25% of FTSE-100 boards, including banks, are now made up of female directors. The next target is for all FTSE-350 companies to have 33% female board representation by 2020.

What would be fair: The ECB should bring its governance up to date with that of the banks it governs. So should the Bank of England. At least 33% of the ECB Governing Council should be women and at least 25% of the BoE’s Court of Directors.

1. Saudi Arabia could well face its own Arab spring within the next twelve months. Four factors are playing a big role. The fall in revenues due to the collapse in the price of oil; US disengagement – both real and perceived – from its erstwhile allies; arch-enemy Iran’s re-joining of the international community; the Saudi demographic challenge, with 70% of the population under 30 years old and around a third of them unemployed.

There is no question that the country’s alliance with the West is defective. There are reportedly ties between a few members of the Saudi establishment and some of the 9/11 bombers, detailed in a US intelligence report whose findings could well be published if a US Senate bill is passed. It is no secret that the royal family owes its permanence in power to a deal with Wahabi clerics, including the export of this particularly unpleasant branch of Sunni Islam. Women still cannot leave the house without a male guardian nor open a bank account without their husband’s permission. The country’s strategic decision to push down the price of oil so as to safeguard its market share has been done by bankrupting Western shale producers.

On the plus side, the powerful new Deputy Crown Prince, 31-year old Mohammed bin Salman, is intent on transforming the economy. Yet even here, MBS, as he is known, has as many detractors as fans. The German secret service published a memo stating that he is a danger to regional stability, while it is not even clear that he will make it to the top job when his 80-year old father, King Salman, dies.

What would be sensible (fair not being the right word): realpolitik demands that we continue to support a flawed, authoritarian regime. The West cannot afford for the House of Saud to be overthrown, resulting in another failed state like Syria or Libya, let alone one with a massive population of 32 million which happens to be a geopolitical anchor, and within whose borders is Mecca.

1. It is a scandal that Brexiters talk about a few years of disruption as the price to pay for access to the promised land of EU-free legislation. It is impossible to estimate how long and how deep a recession would ensue. But it is possible to say that this would most affect the young, the children and grandchildren of many of those advocating an exit. Jobs are precarious enough in our modern economy without taking our families down dark alleyways where additional risks lie. Plus, a vote for Brexit is a vote for Boris Johnson to take over as Prime Minister, as David Cameron would resign on principle. What emotion, gentle reader, is inspired by the thought of Boris’s finger on the nuclear button?

The vast majority of countries belong to clubs. For geographical reasons, ours happens to be the EU. However imperfect, a much better strategy is to implement a pro-active policy so as to wield more influence.

What would be sensible: vote Remain.

If it’s not bust, don’t Brexit

Destroying the Norway/Switzerland myth

The UK is tying itself up in knots over Europe. The pro and anti camps come up with ever more outrageous statements: “If we leave, the UK will float in a sea of isolation comparable to North Korea’s“ vs “The EU costs up to £10m per head of population and is responsible for the death of all puppies.”

In truth, the numbers can be added up in all sorts of honest and/or creative ways to make the case for staying in, or leaving. Even those of us who believe that it is key for the UK’s future to remain within the club are disgusted by the incompetence, waste and corruption within the EU. In the face of this, it is difficult to argue against the emotionally-appealing view of an island utopia, as propounded by Brexit supporters.

But let me, as an immigrant and an adopted Brit, who has lived for longer in London than anywhere else and holds this country dear, give it a try:

1. Stop this fantasising about the UK (population 63.5m) being able to access a “favourable deal” a la Norway (population 5m) or Switzerland (population 8m) if Brexit takes place. Both countries have similar agreements with the EU which give them access to the single market. Except they have no say over regulation, which they have to sign up to, nor a say on product standards. Plus the Swiss do not have unimpeded access to the financial and other services market in the EU, which would be a major blow for the City of London and our services sector as a whole. And, a fact that seems to have been ignored by Brexit proponents, both countries have to abide by free movement of labour rules, meaning they must remain open to EU immigrants.

2. Stop blaming the EU. It is excuse number three in the lexicon of all British governments, as a Minister recently told me. Perhaps it is time to admit publicly that much of the excessive regulation this country suffers from is due to the British civil service’s addiction to gold-plating EU Directives when they turn them into UK legislation.

3. Drop the outmoded argument that the EU is seeking ever closer union and we don’t want to be part of it. The reality on the ground is totally different. Schengen is dead. The migrant cum refugee crisis is seeing the re-emergence of barbed wire and border controls. Meanwhile, the former East bloc countries are not going to join the Euro. In fact, a number of them are becoming ever more hostile to the EU itself, including the largest of them, Poland, which is following in the steps of Hungary’s autocratic government.

4. Get over the inescapable loss of sovereignty. Welcome to a world where even giants like the US and China have to balance national interests, those of their allies and the world economy. Global integration is a fact. The world is coalescing into blocs and we want to be included in treaties like the US-EU Transatlantic Trade and Investment Partnership (TTIP).

5. Britain must become a leading protagonist in the EU, alongside Germany. That is its rightful role. There are a number of EU meetings at which no UK official bothers turning up because our direct interests are not affected, an unspoken policy that started with Gordon Brown’s government, according to top UK civil servants. All meetings are important, not necessarily because of their content, but as a way of cultivating colleagues for future coalitions. A proactive policy will yield results – not least, because the world view of the UK and Germany are much more alike than that of Germany and France, with whom Germany is forced to partner due to the UK’s disengagement.

6. On the security front, the more ties that bind us to our allies in a dangerous world, the better. Sir John Scarlett, former head of spy service MI6 recently wrote in The Times that “British agencies…collaborate intimately with their European partners and benefit greatly from their capabilities.” President Barack Obama has called for the UK to remain in Europe as it gives the US much more confidence about the strength of the transatlantic union, which has made the world a safer and more prosperous place.

Brexit is a siren call. Let us not crash on the rocks, but sail on. And turn up to those meetings, guns blazing and charm turned on.

This article is due to appear in the next issue of Dialogue.

The Tale of a Whale

The precariousness of JP Morgan Chase

The New York tourist sitting next to me with the map of London spread out on his lap asked where he could find the London Whale. Seriously. Unlike the London Eye, I told him, the London Whale was a human being, albeit a metaphorical landmark.

The London-based JP Morgan Chase trader’s nickname derived from his large positions in the credit market, which in the summer of 2012 resulted in the bank declaring a $5.8bn loss. It subsequently faced major fines from both the UK and US regulators for, among other things, its lax supervision and for not “adequately updating” its audit committee on the findings of an internal review, in the words of the Securities and Investment Board (SEC). The bank agreed to around $20 billion in legal settlements in 2013, almost equal to a typical year’s profit, for a range of misdemeanours.

Bereft of its gobbledygook, SEC’s phrase can be translated as “deceitful behaviour.” In other words, culture.

A recent survey highlighted that two thirds of global banks agree that a big part of the financial crisis was due to culture but only one third of banks thought there was anything wrong with their culture (my italics).

Transforming an institution’s culture is a lengthy journey, rather like chasing Moby Dick, the symbolism-laden whale in Nathaniel Hawthorne’s classic book of that name. As well as obvious factors like overhauling compensation, banks need to exercise integrity through sound judgement and rewarding decision-makers who have the guts to say no.

A very sensible suggestion on culture put forward in the Salz Review (an assessment of what went wrong at Barclays Bank pre and post the financial crisis ) was for bankers to spend two years on secondment to the financial regulator and vice versa. It appears to have sunk without a trace, despite the fact that there is a model for how to do it in the Takeover Panel, the UK’s M&A regulator, which regularly hosts top bankers and lawyers who then return to their firms.

Box-ticking is not the way forward. Unfortunately, though, the plethora of rules spewing forth from different regulators, like water from a whale’s blowhole, makes it overwhelmingly necessary. How else can universal banks active in a number of countries deal with the US’s Volcker Rule, the UK’s Vickers, the EU’s Liikanen, let alone Basel III, which appears to already be disintegrating? In fact, each country seems to be setting its own rules and banks are retreating home, capital in tow.

To add insult to injury, no sooner have banks complied with a rule that the regulator changes it. The Basel Committee admitted this autumn that perhaps securitisations per se were not “bad.” Without saying it in so many words, the implication was that forcing banks in 2009 to post higher capital requirements against them – as though all securitisations were similar to sub-prime mortgages – was wrong. The Committee is set to review the issue sometimes in 2014.

Meanwhile, the absurdity of zero or very low capital requirements on holding sovereign debt has steered banks to load up on it. This may be very useful for over-indebted governments, but as Jens Weidmann, President of the Bundesbank noted late last year, “the current regulation’s assumption that government bonds are risk-free has been dismissed by current experience.”

In truth, it doesn’t take familiarity with the last few years to realise that ‘risk-free government bonds’ has always been an oxymoron. In the best of cases their value has been damaged by inflation or currency devaluation; at the worst it has been destroyed by restructuring or default.

Moby Dick evaded his pursuers, but most of the crew of the Pequod, the whaling ship, met their death because they dared not stand up to Captain Ahab and his lack of judgment.

JP Morgan Chase’s Chairman cum President cum CEO Jamie Dimon – yes, truly three titles – admitted a few weeks ago that some investigations into the bank were just beginning, which does not bode well for 2014 results.

In May Mr Dimon fought off a shareholder revolt that would have seen him lose his position as chairman by letting it be known he would walk from the bank if this happened. The blackmail worked. He kept his triumvirate of titles and continues to lead the largest bank in the US.

This is a sell notice. It has the same whiff of omnipotence that marks the reigns of presidents who succeed in changing constitutions to allow them yet another, and another, and another term in office.

The Pequod had a problem of culture. We shall see how the tale unfolds for some of the banks, not least JP Morgan Chase. But the omens are not good: absolute power really does corrupt absolutely.*

*This column originally appeared in The Dialogue Review, an academic journal.