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.

Ode to London

A look at exile and taxes

“You cannot tax me out of London,” says a retired top banker who has made a considerable amount of money in his lifetime. HMRC, the UK’s tax collecting body, will be glad to hear that. Not least because an extreme-left government and a wealth tax are looking more probable than they were a few years ago.

As the growth estimates for the British economy are downgraded amid Brexit uncertainty, tax-exile Portugal, where foreigners with assets pay minimal tax, might be an attractive option for some, or even other cities on the European continent. Rather more attractive than locations like built-up Gibraltar or small, floating islands of minimal culture and maximum sun.

But oh, the wrench of leaving London! The city with its blend of multiracial, multi-world events and people, with its magnificent mix of high and low culture, with antiquity and modernity oozing from its pores…

No more could I attend the Dog Party at George armed with a Paddington Bear-like Norfolk Terrier. In the heart of Mayfair on an autumn evening, bejewelled owners appear with their pooches big and small to raise funds for the Dog’s Trust. Elegant waiters in white vests and long aprons offer trays of canine treats, paying no heed to the bottom-smelling that is going on around their ankles. Owners take advantage of the free dog training class, where their pets will behave impeccably – behaviour never to be repeated outside the doors of the private club.

Lisbon, can you offer that?!

A wealth tax is relatively easy to implement. It would affect many professionals who would not consider themselves “wealthy”. Over half a million homes in the UK are worth over £1m, with the majority of those concentrated in London and the South East. In France last year, an annual wealth tax of 0.5% was payable on those with a total net wealth between €800,000 and €1.3 million, rising to 1.5% with wealth over €10m.

In exile, no more could I attend public lectures at the London School of Economics and hear Nobel Prize winners cum Heads of State like Juan Manuel Santos, an LSE-graduate, talk about the state of the world and submit to questioning from eager students.

Geneva, can you offer that?!

Also at the London School of Economics, Dr Cristobal Young of Stanford University last month presented his findings from the first large scale study of tax exile. He looked at 45 million US tax returns along with the Forbes rich list. His conclusion was that, despite conventional wisdom, the actual migration of the rich when taxes are high is limited. Ed Miliband, the former leader of the Labour Party was present for the discussion and this will no doubt be fed into party policy.

No more could I go to a little church on Walton Street to see Mark Rylance, the foremost Shakespearean performer of his generation, supervising a three-hour workshop with actors from disadvantaged, ethnic minority backgrounds who belong to theatre group Intermission, which also works in prisons and in schools. They stage plays like Verona Road, an interpretation of Shakespeare’s Romeo and Juliet, using street language mixed with Shakespeare’s immortal lines. The audience reaction is rarely other than a standing ovation. All for £16.

Luxembourg, can you offer that?!

No more could I drink mediocre, warm wine at The Amorist’s party in a small gallery, where an 80-year old lady in fishnet tights and excessive makeup lambasted a speaker for not mentioning love in his discourse on sex. The Amorist magazine “has been created for readers who want to lose themselves between the sheets of a publication that’s as romantic about sex as it is discursive, philosophical, truthful, wayward, wry, flirtatious, occasionally baffled and downright engrossed.”

Frankfurt, can you offer that?!

And, the cheapest entertainment of all would be no more: walking along the streets of London, forever being distracted by looking at the vast range of London faces and wishing I was a sculptor.

In the immortal words of man of letters Samuel Johnson, “Why, Sir, you find no man, at all intellectual, who is willing to leave London. No, Sir, when a man is tired of London, he is tired of life; for there is in London all that life can afford.”

They are as relevant in 2017 as in 1777.

An anti-globalisation duet: Trump & Corbyn

Why domestic bank M&A is set for a boom

As Donald Trump and his toupee continue to ride high in the US presidential opinion polls, I find myself musing on his fellow jockey, UK Labour Party leader Jeremy Corbyn.

Mirror images of each other on the political spectrum, they will never lead their respective countries. Yet the unelectable duo are worth listening to, for they represent large elements of the population that are opposed to the globalised world we live in.

Take their attitude to free trade. Trump calls for a 15% tax for outsourcing jobs and a 20% tax for importing goods, and sees trade deals as “killing American jobs.” He believes trade negotiators are a bunch of “saps” and says he would appoint corporate leaders to do the job properly. Corbyn warns that TTIP, the prospective trade deal between the EU and the US, is nothing but a capitulation to “greedy bankers and multinationals.”

His refusal to campaign for Britain to stay in the EU has, ironically, withdrawn a major weapon from the Conservative government’s armoury for its future referendum. Corbyn and his allies, who embody the discarded remains of the Left’s 1970’s euro scepticism, see the EU as representing the interests of big capital. Rather paradoxical, given that big business sees the EU as excessively defensive of workers’ rights and the progenitor of too many regulatory burdens to protect citizens.

Trump and Corbyn, one 69 years old and the other 66, both fail John Maynard Keynes’s three imperatives for a balanced government. The economist and statesman wrote: ““The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty….the third needs, tolerance, breadth and appreciation of the excellencies of variety and independence, which prefers, above everything, to give unhindered opportunity to the exceptional and aspiring.”*

For Corbyn, social justice can be achieved without economic efficiency and individual excellence. This would result in a country with not enough profits to pay for a safety net for the disadvantaged. The reality for Trump, who would lay claim to both economic efficiency and individual liberty, is a country where protectionism kills efficiency and individual liberty applies to some, but not all. And certainly not to the roughly 11 million illegal immigrants who water his many lawns and serve in his many restaurants.

Just as surprising as their similarities, are their allies in the anti-globalisation movement. Joining them in the stop-the-world-I-want-to-get-off gang, are financial regulators on both sides of the Atlantic.

The European Central Bank’s post-crisis conventional wisdom is that geographical diversification of multinational banks does not protect against risk and adds a layer of complication. Long gone are the days when banks followed their corporate clients abroad and then proceeded to buy local entities and grow. The European Central Bank “comes out in a rash” when a Spanish bank mentions buying bank assets in emerging economies, affirms a bank CEO. The Federal Reserve in the US takes the same position, according to most accounts.

Regulators learned a lesson from the last financial crisis. It may, of course, not be the right lesson, for every crisis is different – the drying up of wholesale bank funding markets in 2007/2008 was very different from the run on the deposits of 37 banks in the Japanese Empire in 1927.

With foreign expansion off the cards, cost cutting reaching its finale, new digital entrants threatening the traditional business and financial supervisors breathing down their necks, banks will focus on local acquisitions to grow their profits. A domestic M&A boom is forecast for 2016.

Regional movements like those in Cataluña and Scotland are part of the anti-globalisation trend. Allied to the sense of alienation from their existing rulers is an almost blind belief that raising the barriers will lead to paradisiacal economies with full employment.

To these misguided idealists I would add proponents of Brexit, the exit of the UK from the European Union. The world is moving into ever larger trade groupings. Being outside is not a reasonable option for a major country – unless there is an appeal to being emailed instructions from Brussels without having a seat at the table. Norway pays a heavy price for its nominally freestanding position since it is forced to incorporate EU legislation into its own.

In 1944, Keynes warned in the House of Lords against “little Englandism” which pretended that “this small country” could survive by a system of bilateral and barter agreements or by keeping to itself in a harsh and unfriendly world. His words continue to ring true.*

Both Trump and Corbyn remind me of the rutting impalas I saw in Zambia this summer. A fresh male impala, the handsomest and most macho, fights off the others to breed with the herd of females. After around three weeks of non-stop sex, with no time to feed or groom himself, he is weak and easily taken out by a challenger, a young buck from the group of male impalas. If he’s lucky, the exhausted male impala might then re-join the all-male herd or, just as likely, be eaten by a herd of lions.

The only question about the future disappearance of fraternal twins Corbyn and Trump is whether they slip back into their old lives or are gobbled up by the forces of globalisation.

*Universal Man: The Seven Lives of John Maynard Keynes by Richard Davenport-Hines

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.