The Trump presidency – China a winner

Rhetoric vs Reality

Donald Trump wants to take on China. The president’s winning campaign promised to impose heavy tariffs on imports of Chinese goods and brand the Asian superpower a currency manipulator. Several analysts subsequently forecast that it would make the Middle Kingdom one of the biggest losers from his presidency. And yet, counterintuitively, this column believes China looks likely to be a winner.

The world has indeed gone topsy-turvy when President Xi Jinping appears on stage at the World Economic Forum defending globalization. The vacuum left by a lack of US leadership is rapidly being filled.

At an economic level, China’s rise is visible in trade and treasuries, as well as the renminbi’s increased importance and enhanced profitability of the country’s banks.

First, the US-led Trans-Pacific Partnership, from which China was excluded, looks dead. Both Trump, and the Republican Party, which dominates both houses of Congress, have expressed opposition to it. As a result, in December, US ally Australia spoke out in support of the Beijing-directed Free Trade Area of the Asia-Pacific (FTAAP) proposal, as well as Beijing-supported regional trade pacts, which exclude the US.

Second, given that a Trump government plans to increase spending while lowering taxes, larger borrowings will be needed. China has been by far the largest foreign owner of US treasuries for several years. This amounted to $1.185 trillion – or over 19% of foreign-owned treasuries – as of August 2016, according to estimates from the Federal Reserve. China’s goodwill is crucial to issuing more debt, although, as usual in these cases, Beijing’s ownership of such a large stock of US government bonds ensures the relationship is one of mutual dependence.

There is a third area, foreign direct investment. Data from 2015 shows Chinese investors bought a record $15 billion worth of companies and real estate in the US, a figure which is set to be doubled in 2016, according to data from the Rhodium Group and the National Committee on US-China relations. Late in 2016, Dalian Wanda, China’s largest real estate company, acquired the US company behind the Golden Globe awards for $1bn. Around 90,000 people are employed by Chinese-affiliated companies across more than 80% of congressional districts – a handy lever for China if relations deteriorate.

Additionally, China could prove an important ally in improving ailing US infrastructure, a $550m Trump promise and one that all parties can agree on. The Chinese are master builders and their experience in Africa – where they have built roads and bridges in exchange for minerals and land – will stand them in good stead. (Your intrepid correspondent recently witnessed this for herself, driving along the asphalt roads of Tigray in Ethiopia, all built by the Chinese.)

The dollar’s status as the primary reserve currency remains. Yet last year over 22% of China’s external trade was settled in RMB, well up from zero in 2010, while HSBC estimates it will shoot up to 50% in 2020.

Among other effects, this will give a funding cost advantage to Chinese banks who had been labouring under the disadvantage of Western banks’ greater access to US dollars for trade, writes research boutique Redburn. The report outlines why Chinese banks look likely to increase their profitability at the expense of their Western counterparts.

China, the great imitator, a country accused of illegally copying Western designs, broke the record for patent applications last year. Granted, there was government pressure on companies to file and not all will stand up to international scrutiny. Still, well over a million patents were filed, more than those in the US, Japan and South Korea combined.

Underestimating China is as foolish as believing pollsters can predict who will win the US presidency…

Why Trump’s election is China’s triumph

There is huge speculation and fear about Donald Trump’s intentions. Figuring out which of the future President’s election tweets represent his real views is a complex task. The policy implications will become clearer over the next few months.

In the meantime, here are four distinct winners, some more serious than others.

China

Forget Trump’s rhetoric on the campaign trail. “We can’t allow China to continue to rape our country,” he said, referring to the US trade deficit with China.

When a bullying buffoon is elected President of the US, the decline of the West is accelerated and the momentum behind the rise of China accelerates. This is visible in at least two areas, trade and Treasuries.

The US-led Trans-Pacific Partnership (TPP), from which China was excluded, is dead. Both Trump, and the Republican party which dominates both houses of Congress, have expressed opposition to it. The vacuum left by a lack of US leadership is rapidly being filled.

Already this week US ally Australia has spoken out in support of the Beijing-directed Free Trade Area of the Asia-Pacific (FTAAP) proposal, as well as Beijing-supported regional trade pacts, which exclude the US.

Secondly, given that a Trump government plans to increase spending while lowering taxes, higher borrowing will be needed. China has been by far the largest foreign owner of US Treasuries for a number of years. According to estimates available from the Department of the Treasury/Federal Reserve, this amounts to $1.185 trillion, or over 19% of foreign-owned Treasuries, at 31 August 2016. China’s goodwill is crucial to issuing more debt.

There is a third area, foreign direct investment (FDI). Data from 2015 shows Chinese investors bought a record $15 billion worth of companies and real estate in the US, a figure which is set to be doubled in 2016, according to data from the Rhodium Group and the National Committee on US-China relations. Earlier this month, Dalian Wanda, China’s largest real estate company, acquired the US company behind the Golden Globe awards for $1bn. Around 90,000 people are employed by Chinese-affiliated companies across more than 80% of congressional districts – a handy lever for China if relations deteriorate.

Additionally, China could prove an important ally in improving ailing US infrastructure, a $550m Trump promise and one that all parties can agree on. The Chinese are master builders and their experience in Africa, where they have built roads and bridges in exchange for minerals and land, will stand them in good stead. (Your intrepid, fearless/foolhardy correspondent witnessed this for herself two weeks ago, driving along the asphalt roads of Tigray in Ethiopia, all built by the Chinese).

Interestingly, US FDI into China was less than Chinese FDI into the US for the first time in 2015. Lower growth is one cause, but the Chinese government’s obstructionist stance towards foreign businesses has played a major role.

US universities

They are benefitting from the UK’s policy mistakes, including: the government’s insistence on foreign students being included in the immigration statistics, a hostile tone towards immigrants over the last few years and the 2012 decision to abolish visas that allowed non-EU students to work in the UK for two years after graduating. While Indian enrolment in UK universities fell to 6% of total foreign enrolment last year from 14% in 2010, Indians are the fastest growing foreign students in the US.

Most study Stem (science, technology, engineering and maths) subjects at graduate level. Many go back home to run major enterprises or to join government. Fond memories of their American sojourn and contacts most likely lead to their doing business with the US. Others, like Indian-born Sundar Pichai, graduate from Stanford University and end up becoming CEO of Google.

Donald Trump has no quarrel with these immigrants.

Plastic surgeons and chiropodists

Michelle Obama is yesterday’s woman. The new role models for girls are tall blondes with artificially puffed-out breasts, cheeks and lips. See the Trump family troupe – from wife Melania to daughter Ivanka – or buy a Barbie doll. Their exorbitantly high heels, worn at all hours of the day and night, lead to corns, bunions and other foot conditions. Plastic surgeons and chiropodists will be kept busy in Trump’s America.

The US and Europe – in sickness and in health

The importance of the Transatlantic Alliance

The venue: an estate close to New York. Our mission: to develop initiatives to help save the transatlantic relationship between the US and Europe. The participants: 40 movers and shakers from the countries involved.

I arrived full of optimism and left in despair because every action we came up with was dismissed as being unworkable due to domestic political agendas. Populism is the curse of our time.  Somewhere in the Trump/Marine Le Pen/Brexit intersection lie the forgotten remains of a transatlantic relationship that forged the post WWII liberal economic and political order.

Those who argue that its day is over, that we must accept and forge ad-hoc alliances amidst constant accommodation with our enemies, are misguided. Although returning to an earlier era is impossible, the West’s strength is dependent on its unity. “All good habits need to be practiced regularly and the Alliance is losing the habit,” in the words of one participant of the Ditchley Foundation’s weekend retreat at the Greentree Estate on New York’s Long Island.

When US President Barack Obama warns the Syrian regime not to cross a red line which it then crosses; when the West is reduced to asking Russia to “show mercy” to Aleppo residents, in the words of the UK’s Foreign Secretary Boris Johnson; when there are so many crises and flash points in the world, then the need for a reinvigorated transatlantic partnership becomes critical.

In one area, the relationship is working: NATO. Russia’s actions have forced the US to reconnect with the Continent and forced rearmament in Europe, with President Barack Obama’s 2009 “pivot to Asia” reduced to a distant memory. Ties between the European and American military are exceptionally strong, while the relationship between the UK and European NATO members have the friendliness and cooperation absent from the economic and political sphere.

Yet European leaders no longer focus on world order but on internal political stability, even as the continent is surrounded by a ring of external instability, from the Baltics to the Ukraine, the Balkans, Turkey and North Africa. For the UK, Brexit was yet another step in this isolationist direction. For the US, isolationism is the sleeping ogre in its history.

Challenges facing the Transatlantic Alliance include:

1. CHINA Managing the rise of China. The Chinese are “eating us for breakfast and lunch,” according to one participant. Note how badly the Chinese are now treating foreign companies in their own country, even as they buy up our companies and other assets, and transform the South China seas into their own domain. Their policy-makers speak of the New International Order led by a resurgent China and barely pay lip service to the idea of a multi-polar world.

The West’s only opportunity to counter their strength is through strategic unity, not apparent at the moment, and unlikely to surface. The Europeans are hungry for Chinese investment and prepared to overlook cyber-attacks and industrial espionage in the interests of GDP growth and jobs in their low-growth economies. The Americans, as the declining world power, are more combative towards their only serious rival.

2. REFUGEES German Chancellor Angela Merkel took in over a million refugees, a policy that has seen her popularity plummet. Due to families being allowed to re-unite, Germany will probably end up having to take in another 3 million.

The squabbling and disunity in the EU around the problem is no excuse for the US not to get involved in accepting a share. It would be a gesture of solidarity towards its European allies and a nod to the US/West’s role in the Middle East’s bloodbath. However, when Presidential candidate Donald Trump does so well in the polls with an anti-immigrant/Muslim message, it would be politically impossible for Hillary Clinton (if elected President) to welcome Muslims. Not only will the many Americans who vote for Trump still be around and very vocal, but the makeup of Congress may well impede any controversial policy. The massive displacement of populations due to war and the effects of climate change is, according to experts, bound to continue if not increase.

3. RUSSIA Reasons for Russia’s aggression include a declining population, the strategic nightmare of a 4,000 kilometre-plus frontier with China, jihadist problems on its borders and a shrinking economy. Not to mention a sense of humiliation post-the Soviet era and a corrupt, power-hungry President Putin who relies on creating a sense of outside menace to keep his popularity ratings high. In early October Russia launched a three-day civil defence exercise involving 40 million civilians to protect against a supposed US nuclear, biological or chemical attack – a large enough exercise to inspire paranoia in the most sensible Russian.

4. TRADE Global trade growth has decelerated notably since the financial crisis, both a consequence and a reason for lower world economic growth. The relatively simple Comprehensive Economic and Trade Agreement (CETA) between Canada (pop. 36m) and the EU (pop. 510m) nearly failed because the Walloon (pop. 4.2m) Parliament rejected it. CETA was finally passed a few days later with amendments to satisfy that region of Belgium.

The much more complex Transatlantic Trade and Investment Partnership (TTIP) between the US and Europe should be left quietly ticking over in Geneva in the hope that in a few years it could be resuscitated. Now, the coalition of interests arraigned against it is insurmountable. The lack of new trade deals is much more serious than it looks. Trade experts point out that like a bicycle, trade must move forward through new deals or else it collapses. On the transatlantic front, rows over multi-million US fines on European banks, and European Commission attacks on US giants like Google, look likely to continue. Meanwhile, protectionism is on the rise.

5. THREAT TO COMMON VALUES. The spike in hate crimes in the UK after the Brexit vote, especially directed at eastern Europeans, is still above pre-referendum levels. In the US, Donald Trump’s insulting language and behaviour towards Hispanics and women, among others, continues. The anti-Muslim, anti-immigrant platform of the National Front in France looks likely to see the party emerge as the second strongest in France in elections next year. Western societies have made huge advances in recognising the right to respect all individuals, whatever their race, gender and sexual orientation. Yet this basic tenet, one that unites both sides of the Atlantic, is nevertheless being eroded.

There is only so much time to act. The younger generation in the US are internationalists for whom Europe is “just another place full of cathedrals and museums,” as one eminent Harvard professor told us. Contrast this to a previous generation: within three weeks of taking office, President Nixon headed to Europe. The new generation are more prone to turn towards a growing, ever-more powerful Asia.

In the shorter term, the less we focus on our similarities and our combined strengths, the more we risk tiptoeing into a Third World War.

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.

Pariah nations re-join the global community

187 million new opportunities

A tsunami of pessimism overwhelms the Western world today. The cauldron of war and death in the Middle East, the refugee crisis, Islamist terrorism, Trump’s ascent, increased chances of Brexit, Brazil’s implosion and huge economic uncertainty, to name a few.

Having recently returned from Colombia, I beg to differ. Like most things in life, perspective is all. There, an historic agreement is being forged between the government and the FARC, a terrorist organisation that thrived for 50 years. Although a deadline has been missed, US Secretary of State John Kerry recently gave impetus to the talks, while the double digit growth of tourism reflects the atmosphere of optimism.

Yet Colombia, even with its troubles, was never an international pariah. There is even more of a reason for hopefulness when you look round the globe at previously isolated nations that are now re-joining the international community. Their combined populations add up to 187 million people.

In November 2015 Argentina voted out a government that was nothing but a wealth accumulation machine veiled in a thin film of ideology. President Mauricio Macri now runs a centre-right government that is briskly dismantling the Kirchner legacy by slashing currency and trade controls and normalising relations with the rest of the world, including awkward creditors.

Much more dramatically, Cuba and Iran are heading back into the mainstream. President Barack Obama’s historic visit to Cuba in March marked the end of a Cold War remnant and an official welcome to the West. In truth, changes in Cuba were already well on their way, with the government of pragmatic President Raul Castro sending officials to the West to learn how to run the country better, while economic liberalisation continues apace under the ludicrous state banner of “actualisation” of the system.

Meanwhile, lifting sanctions after a 15 year standoff with the Islamic Republic of Iran is already leading to economic opportunities for Western countries. Few doubt that with 80 million people living there, including a large and educated middle class, there is massive potential.

Still in Asia, Myanmar, a country with a population of over 54 million is also returning to the global system, grappling with a form of democracy and with forecast growth of over 9%.

There are countries whose situations are less clearly positive but where the potential exists for major transformation. Venezuela is still on the US sanctions list. But the opposition Democratic Unity Alliance won two thirds of the seats in Parliament last December. There has been a stand-off with President Nicolas Maduro, the uncharismatic successor to Hugo Chavez, and a military coup is possible. But given the dire state of the economy, even his government has had to confront reality, devaluing the currency and raising fuel prices.

On the economic front, commentators generally focus on the negatives, of which there are indisputably many. However, a record low oil price and low commodity prices benefit consumers and manufacturers. As for the lack of inflation, shoppers are profiting. Employment is at a record high in the UK, while the US has had six years of uninterrupted job gains. Both their governments have realised the need to ensure the working poor share in the good fortune by raising the minimum wage. In fact, California, one of the world’s largest economies, just agreed to raise the minimum wage from $10 to $15 by 2022. For those who argue against these sort of measures, let us remember the capitalist system needs consumers who have the income to consume.

On a multinational level, the Paris climate agreement signed in December 2015 is ground-breaking: 195 countries adopted the first universal, legally binding global climate deal to limit global warming to well below 2 degrees centigrade. The accord is also a pathway to achieving other deals on issues of world importance, such as water scarcity.

I could go on, writing about medical and scientific advances, or about gay couples being able to kiss in public, or about the Starbucks and Googles of this world finally realising they will need to pay tax. Then again gentle reader, perhaps it is enough for all of us to consider our lives and give thanks for what we have.

This column appears in Dialogue, the leadership and management review

Russia’s cash crisis and its Syrian bombing

Hermitage Capital’s Bill Browder speaks

I met a ghost the other day. Bill Browder, last seen in Davos when he was riding high on waves of adulation for his bold bet on Russia’s future, should have been dead. Few opponents of President Vladimir Putin and his favoured oligarchs remain alive, encountering death through startling “heart attacks” and plutonium poisonings.

“The reason I am still alive is that the Putin regime hasn’t figured out a way of killing me where they are sure to get away with it, “says Browder equably.” They have made lots of threats both to kill me and to kidnap me. Unfortunately, they get more brazen by the day so my safety is far from certain.”

His bold claim that Russia will run out of cash by July 2017 must be shortening the odds of his remaining alive: “In simple terms, Russian companies have approximately $600 billion of hard currency debt and the central bank has only $350 billion of reserves (of which I believe that $150 are fake). That means if sanctions aren’t lifted, the debt repayment schedule will deplete the country’s reserves within about 18 months.”

Russia is suffering economically from Western sanctions on the back of its incursions in Crimea and the Ukraine, and even more so from the collapsed oil price. Oil and gas accounted for over 50% of its budget revenues until 2014 – this year it is forecast to be a paltry 35%. A recent agreement between the Russians and the Saudis to boost the price appears to have evaporated.

President Putin is planning major privatisations to boost the state’s coffers, according to the FT, but it is not clear who would buy the substantial stakes. Foreign investors are wary of the regime’s trampling on the rule of law, while oligarchs are keen to keep extra funds safely parked abroad for when they fall out of favour with the regime.

London’s reputation for welcoming Russian money has been heightened by publicity stunts such as the new “Kleptocracy Tour” of London, organised by the Russian Anti-Corruption Foundation and two Western think tanks. Forget Buckingham Palace and Big Ben, this bus weaves its way between the multimillion properties bought by the corrupt elite.

In the summer of 2015 Prime Minister David Cameron announced that he would tackle foreigners investing dirty money in London using anonymous offshore companies. There have been no subsequent announcements. Meanwhile, the report into the poisoning of Alexander Litvinenko in London concluded that the former spy was most likely a victim of a state-sponsored murder sanctioned by President Putin. Yet again no action has been taken.

“The British government has been completely weak-kneed when it comes to standing up to Putin. I attribute it to fear – they believe it is easier to appease a bully than confront him – and greed – many powerful people in this country are feeding at the Russian trough and they don’t want the flow of money to dry up,” claims Browder.

His story is the stuff John Le Carré novels are made of. As Founder and CEO of Hermitage Capital Management, adviser to the largest foreign investment fund in Russia, worth $1 billion in 1997, Browder was a fêted man. Until in 2005 he wasn’t. There appears to be no middle ground in a country where one minute you are clasped to the regime’s bosom in lifelong friendship, and the next you are a mortal enemy whose days are numbered.

Browder’s campaigns against corporate corruption saw him declared a threat to national security and forbidden entry to the country, while the authorities stole $230 million via the Fund’s investment companies. Sergei Magnitsky, the lawyer he hired to investigate the crime, was tortured and killed in custody in November 2009. Since then Browder has dedicated his life to seeking revenge for an innocent man. His missionary zeal resulted in the US Congress passing the 2012 Magnitsky Act, which imposed visa sanctions and asset freezes on those involved in the lawyer’s death.

Browder believes that Putin has stepped up his bombing campaign on the rebels and civilians in Syria in order to create a negotiating position to force the West to withdraw sanctions in relation to Ukraine. (Russia and the US have agreed to enforce a ceasefire in Syria from Saturday, February 27. But the omens are not favourable, given the last time one was attempted it failed, and not all groups fighting in the war have agreed to it).

“Putin has created an existential problem for us by triggering swarms of new refugees. Many EU governments are on the verge of falling because of the refugee crisis. Putin is hoping we will beg him to stop and his condition for stopping is no more sanctions,” says Browder. “Secondarily, in the long term he would like to break up the EU and the best way of doing this is to create the conditions for hard core nationalism, which is another consequence of all the new refugees.”

Other experts agree that Putin’s aim is to make German Chancellor Angela Merkel’s position untenable, given that she is the only leader who can keep the EU united on Russian sanctions and, arguably, hold the EU together in the midst of an existential crisis. Already the Schengen open-border agreement is moribund, Hungary and Poland are evermore hostile to the EU and the political shenanigans around a possible Brexit are an unwelcome and divisive distraction.

Browder disagrees with the widely-held view that Russians are used to suffering under a Tsar-like figure and thus a revolution to unseat Putin, who has been in power for 17 years, is highly unlikely.

“That’s a myth. They have just never been rewarded for bravery because the instruments of state repression have been so effective…If at any moment there is an opening, the Russians will jump on it just like the Ukrainians, Tunisians or Egyptians did with their citizen revolutions,” he says.

Let us hope this brave man is there to see it happen. As Browder writes in the mesmerising book about his struggle, Red Notice, anyone who has read Chekhov, Gogol or Dostoyevsky, knows that Russian stories don’t have happy endings.

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.

Predicting the Spanish December elections

¡Viva la diferencia!

Spain is different.

In the midst of disillusionment with the usual parties and politicians in Europe and the US, with citizens in France heading off to the far right, voting for Marine Le Pen and her National Front; with those of Poland voting for the Law & Justice Party, which sees Hungary’s anti-democratic government as a role model; with those of Greece…well, dear reader, you get the picture.

What is Spain going to do, with general elections on December 20? After all, Spaniards have more reason to complain than many other nations: tough austerity measures and unemployment over 20%, even with the economic recovery.

But Spain does not move in sync with any country, let alone France, Greece and Poland. The governing Partido Popular despite all the corruption and the charisma black hole of its leader, the country’s Prime Minister, Mariano Rajoy, scores highest in the opinion polls with 27%.

Why? Spaniards are more pragmatic than many of their European neighbours. They’re focusing on the economic revival, which has come about due to hard-hitting austerity measures and labour reforms, helped by a low oil price, the euro’s depreciation and private sector restructuring.

The traditional opposition party, the PSOE or Socialists, whose policies are social democratic, is clinging to second place in the polls with 21%. It suffers from its own corruption scandals and a leader, Pedro Sánchez, whose party is not fully behind him.

Meanwhile, a new party, Ciudadanos (Citizens) is snapping at its heels, scoring 19% in the polls. It stands to be the kingmaker and will likely ally with one of the two traditional parties to govern from 2016.

Yet again, Spain is different. It is the only European country post the crisis to boost a new party whose politics lie squarely in the centre. Cuidadanos is fiscally conservative, while its social policies are liberal; it is pro-business and calls for corporation tax to be lowered. Rumour has it that large Spanish companies have helped fund its coffers. Be that as it may, its high poll results speak for themselves. The leader, Albert Rivera, is a fresh-faced 36-year old Catalan, a useful weapon at a time when Cataluña’s independence and its lack of governability are key issues.

Over the last three years 3,000 companies have moved their headquarters from Cataluña, mainly to Madrid. The pace and size of the companies relocating accelerated this year.

In truth, the fault for the current state of the Catalan question lies just as much on the shoulders of an intransigent, unimaginative Prime Minister. The best result for Spain’s unity and its economic health, which happens to be the most likely result, is either a Socialist/Ciudadanos coalition, or a Popular Party/Ciudadanos coalition, with PM Mariano Rajoy forced out of the picture.

In point of fact there is another protest party, Podemos, but its support in the polls has plummeted to 14% from 28% a year ago. It is led by a pony-tailed academic who has been moving briskly away from the extreme left towards the centre, where the majority of Spaniards feel most comfortable.

On the economic front, growth this year looks like being 3.2% and next year is estimated at 2.7%. The highest sustainable growth rate in Europe. Spain’s stock market may provide a buying opportunity for 2016, with the IBEX index forecast to rise over 12%, according to BNP Paribas.

Moderation, aspiration and consumption are not words that set the world on fire. But for Spain, they are likely to ring true on December 20.

¡Viva la diferencia!

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

Predicting the VW share collapse a year ago

Who else will fall?

Companies that do outstandingly well on the back of a “hero” CEO will crash, we predicted a year ago. The hero generally turns into an over-controlling, hyped up central figure who spends way too long in the job; who has the blind enthusiasm of investors and the public; who indulges in a stream of acquisitions; and who ensures there are no obvious successors.

Volkswagen was on our list. Which are the other companies? Take a look at our video on YouTube.

Why the UK’s output lags behind

August 18, 2015

School holidays and their effect on the Establishment

In a lighthearted post in the Financial Times, To boost Britain’s productivity, cancel August, Karina’s Column addressed the UK’s efficiency conundrum via the City’s holiday habits.

Six Steps to Retaining Your Promising Female Executives

Six Steps to Retaining Your Promising Female Executives

686 Lord Mayor Fiona Woolf advises

The City of London retains its ranking among the top two global world centres, but Asian centres are snapping at its heels. The City is only as good as the talented workforce that joins, grows and leads it. The fact that too many promising female executives drop out is a problem that must be addressed as part of the ongoing work to boost its international appeal.

Dame Fiona Woolf, 686th Lord Mayor, instituted the Power of Diversity programme in her 2013/14 term, a strategy followed by subsequent Lord Mayors. Here are her six practical steps to retaining women and supporting their rise.

1. Think of it as Talent Development

I ran a survey a while ago that delivered the unsurprising answer that the quality of supervision and personal development were the top factors that would keep people in a job. Next came the quality of work – everyone wants access to the top jobs. In people businesses (and most businesses claim that they are), success depends on recruiting, training and deploying the best talent so that it gets better all the time. When I ask how many of us have been trained in on-the-job talent development, very few hands go up. We should teach managers how to develop skills and create an environment where everyone learns from on-the-job experience. Regular “what went well, what went less well” conversations would be good. I am a fan of sharing individual development plans. Transparency about the way work is allocated will help to deal with unconscious bias, such as the assumption that a woman with a family will not want to get involved in a big deal, without asking her.

1. Identify and Motivate the Keepers of the Talent Pipeline

Many of the keepers of the executive talent pipeline are managers at mid-level who are busy doing the work, generating the income, looking for new business and trying to go home at night. They may not realise that they are responsible for talent development and that they will really benefit from it. There is a saying that you are only as strong as your weakest link. So it follows that these keepers of the talent pipeline need to be motivated to value and invest time in talent development. They need to be a part of a workplace culture that regards it as mainstream in the day job and do a little of it every day. The senior leadership can do a lot of messaging but also lead by example and be seen to monitor and celebrate promotions and vibrant teams. Understanding the costs to the business of losing and replacing someone is key. More positively, remember that the attractiveness of someone who is developing well to a client is a terrific marketing tool (and if they go and work for the client they will return as a client)!

1. What Gets Measured Gets Done

I have not come across many organisations that actually measure individual performance in talent development and reward it, but there are some. Diversity and inclusion is often a soft, but important value rather than a performance indicator. Income generation and new business acquisition as performance indicators are easier to measure and reward. We are now working with Business Schools and firms to find ways to monitor and reward talent management and development looking at the outcomes. An obvious example is to measure the number of people who leave a manager each year and to understand the reason through exit interviews. Another is the number of promotions and lateral transfers.

1. Senior Leadership Commitment to a Concerted Culture Change

In a survey that was part of what is now the continuing Power of Diversity programme, we discovered that 84% felt that their senior leadership were doing the right thing to create diversity and inclusion but only 27% felt under any pressure to do anything about it at their level. There are clearly many good initiatives like affinity networks, unconscious bias training, mentoring and sponsorship schemes but none of them will work unless they are embedded in a big change programme involving everyone. Think of it more like a campaign, led from the top but full of excitement in the big middle that then becomes the new normal!

1. Develop Support for all Rising Talent

My motto is “Get lucky and say “yes”!” because everyone these days wants women to succeed and we will be supported. We all need support when we take on something new (however senior we are) and we can be smarter at asking for it and giving it. It is not a sign of weakness. So often, we adopt the “sink or swim” approach, “dumping“ rather than helping, in the hope that people will figure it out for themselves. The same applies to returners after a career break. We should be seeing a growing market in “returner courses”. Mentoring meetings on a regular basis are good, but what about asking for someone to go to who can give you the background or a quick second opinion on what to do next?

1. Recruit and Promote on the Basis of Intellectual Capacity and Transferable Skills, not just Experience

Is it a stereotype that, unlike men, women are reluctant to apply for jobs and promotion unless they tick all the boxes? Some people do recruit and promote square pegs to square holes based on all the “previous experience” boxes. I have always hired on the basis of intellectual capacity, motivation and transferable skills. I was seldom able to find people with directly relevant experience and turn them into international electricity lawyers, so an excited engineer working in South Africa who spoke Russian was a good answer! I was not taking much risk in hiring or promoting bright people with transferable skills, nor did I have to invest excessive time in supporting them. They learned very quickly, brought new ideas and make a great contribution. Women can do this too and we should not worry about moving from a square hole to a round one!

Homage to Spain

Why recent local elections don’t change the investing scenario

All politicians are required to get out and “press the flesh,” as shaking hands with voters is dubbed. As my flesh was being pressed by Carmen,* my mother’s longstanding masseuse, the results of last Sunday’s local elections in Spain seemed a fit subject for discussion.

Mention the governing Partido Popular (PP) and her strength redoubles with indignation at the constant revelations of corruption in its midst. She pays little attention to the party’s labour reforms and austerity measures, which allied to a low oil price laid the seeds for this year’s recovery. GDP in 2015 is forecast at 2.8%, the fastest growth since the crisis in 2007, although unemployment at 24% remains high (if overstated due to the immense black economy). Exports are shooting through the roof on the back of a weak currency and the private sector’s restructuring.

Mention the opposition Partido Socialista Obrero Espanol (PSOE) and her outrage at the revelations of their corruption – less than the PP only because they have been in power less in the last twenty years – turns into the pummelling of a 25-year old. Not one knotted muscle remains untouched.

Podemos (We can) is the only party that almost makes the massage gentle and ineffective. Almost. The new protest party had to tiptoe back from its flattering embrace of Venezuela’s leaders and bankrupt political system, as its poll ratings plummeted. Spaniards may be fed up with the corruption of the main parties and with a recovery that has yet to be felt beyond the confines of the privileged. A number of them were willing to use their votes in the elections this week to punish the two behemoths of old by voting for Podemos and its other incarnations and sympathisers. But it is doubtful that this will be repeated in national elections.

When a year and a half ago Podemos was at its height, gaining 28% of the intention to vote poll, there was a whiff of concern in the Circulo Empresarial de la Competitividad which groups together top executives from the 17 largest multinationals in Spain, including Telefonica and Santander. The elite business group reportedly opened its collective wallet to support another protest party, Ciudadanos (Citizens), as a counterweight. This was a small, pro-business Catalan-based party which advocated the autonomous region remaining part of Spain.

Ciudadanos has now spread out on a national scale and won over 6% of the vote. It would have won more seats if it had put up more candidates. Carmen, whose family was on the side of the Republicans in the Civil War, sees it as little more than a mini-PP. The pressure intensifies and any tennis elbow I thought I had disappears under her disapproving strokes.

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Carmen is 70 years old. Her power reflects that of her generation in Spain. But where she is stepping back from her metier, giving me a massage in memory of old times, too many of Spain’s oldies are clinging on to power.

Over 50% of the Presidentes (Executive Chairmen) of the Ibex-35, the Spanish equivalent of the FTSE-100, are over 65 years old. One, Francisco Gonzalez of bank BBVA, has just re-taken the CEO title as well. Another, Emilio Botin of Santander, gave up his role only on his death.

“We have spent too many years with our bums ensconced in our chauffeured cars,” says a 65-plus year old Spanish tycoon over drinks at the Ritz Hotel.

Despite the intransigence of the over 65s, renovation is happening in the political class. Forty-seven year old King Felipe VI, known as the best-prepared Borbon king in history, took over from his father Juan Carlos I at the end of last year. Alberto Sanchez, a photogenic 43 year old, is the leader of the PSOE. Cuidadanos is headed by fresh-faced 36 year old Albert Rivera, while Podemos’s 37 year old leader Pablo Iglesias sports a rather last-century ponytail.

Only 60-year old Mariano Rajoy, who continues to deny knowledge of massive illegal payments by his party treasurer, Luis Barcenas, clings to power. His party garnered only 27% of the votes versus 38% in 2011. Unfortunately, the abysmal results came too late for him to step aside before general elections due in late autumn.

________________________________________________________________________________________

The outcome of May 24th means the end of the bipartite system that governed Spain from the advent of democracy 38 years ago and the beginning of endless horse trading between all the parties. In September, there will be elections to the Catalan parliament, and six months from now, general elections. A similar panorama will probably unfold.

Investors who have sold Spanish shares are panicking unduly, for economic policy will remain within a narrow band of the acceptable for three reasons.

Firstly, even in a local election where voters were understandably angry and more likely to experiment, the PP and the PSOE ended up with the most votes. In a general election, that is even more likely to happen. Either of the mainstream parties will need to govern in coalition with Ciudadanos or informally supported by them. A condition of supporting the PP may well be Prime Minister Rajoy’s disappearance and substitution – no bad thing. The distance between the centre-left PSOE and the radical left is as wide as the Grand Canyon; that between PSOE and Ciudadanos is infinitely narrower, and thus Podemos will probably be left out in the cold at a national level.

Secondly, Spain is centrist. Moderation, aspiration and consumption are three words that ring true for the majority.

Last, but not least, Spain’s economic policy is mainly decided in Frankfurt by the European Central Bank and in Brussels by the European Commission.

A couple of years ago, in November 2013, this column advocated investing in Spain. We were right and prices have since gone up. But they have further to go.

*Carmen is not her real name.

How to make your charity donations surge

A Google guru’s advice

One statistic stood out from all the damning ones included in the presentation. The charity sector’s digital spend on marketing is falling – now at a measly 1.7% from 2.3% a few years ago. Ludicrous, given that 75% of donors use online resources to look for information and the private sector has been increasing its digital spend massively.

Dan Cobley, author of the presentation, had one heartening message: there is a vast amount of free help available to boost the online presence and interaction of charities. The former head of European Marketing at Google, and now the CEO of a fintech investor group, Brightbridge Ventures, gave key pointers on how to raise donations and awareness.

He spoke at a meeting of the Kilfinan Group, where we mentor CEOs of charities, and we have passed his advice on to all 180 of our mentors, who also sit on charity boards as trustees. Do please distribute this link to anyone you know who is involved in the charity world.

Whatever policy changes the new government brings – and ’tis a very welcome government! – it is clear that funding cuts to the charity sector are set to continue. Leveraging free help to increase contributions is a powerful yet simple technique.

Below are the valuable links:

Here is a link to Google’s Get Your Charity Online site which is full of useful stuff, especially for smaller charities.

Here is a link to the YouTube non-profits playbook.

Here is a link to the Technology Trust site, with links to the software exchange, gift aid reclaim programme, etc.

Here is a link to Charity Digital News, managed by Technology Trust and full of useful info for not for profit practitioners and trustees.

Time to call a halt to regulatory overkill

…and why even Archbishop Welby agrees

None can disagree with the need for a regulatory transformation of the banking sector following the 2008 financial crisis. Yet after seven years the blitzkrieg of rules continues amidst a confusion of overlapping and contradictory requirements. It beggars belief that the rules on too big to fail were only agreed in principle in November last year by the G20, while the details have yet to be made final.

Speaking to bank CEOs and Chairs in the UK and Europe, who dare not complain publicly, the regulatory fatigue that Bank of England Governor Mark Carney spoke of is apparent, as are a number of the unintended, negative consequences.

Capital has become local as global banks withdraw to their home markets. Surpluses of capital are not being used, while demand lies unfilled. When you add in Anti Money Laundering and Counter Terrorism requirements, even long-standing, legitimate businesses in Africa are having their bank accounts closed down. Let alone HSBC’s strategically absurd decision to exit Brazil, still responsible for approximately 60% of South America’s GDP, and to do so at the worst time possible time, when the country is in the doldrums.

Secondly, loan capital has diminished substantially. The creation of credit is a problem. And which sector or instrument that credit goes to is determined by regulatory requirements rather than business sense. This can itself lead to a new crisis.

Competition has contracted, with banks either going bust or being absorbed by others, while regulatory requirements have increased the barriers to entry. As the latest results from the big US banks testify, only the large can absorb regulatory burdens and fines. JP Morgan has moved from being a big financial institution pre-2008 to bestriding the world like a colossus. There are some so-called challenger banks – new entrants unencumbered with the legacy of old systems and debts – while internet-only loan providers are growing at a dizzying pace, but it will take a very long time for them to fill the gap, if they manage to do so.

Fourthly, the myth that Brussels is responsible for myriad new rules is helping push the UK out of the EU. In fact, with regulatory equivalence, the UK would not escape more regulation even if it did leave the EU.

Lastly, even as banks cut down on front line staff, there is a vast increase in their recruitment of compliance specialists, as well as the information technology personnel needed to change systems to comply with new rules. Regulators are asking for the traceability of all credit decisions, even the smallest, all of which consumes management time. Top bank executives complain that they spend hours in meetings with junior, inexperienced supervisors who have never worked in banks and are more intent on protecting themselves from criticism by painfully ticking every box.

Complexity is not progress.

At board level the situation is no better. Bank board meetings are about the modelling of risk, rarely about strategy or how to grow the business, according to board members. One FTSE-100 financial services institution conducted 29,000 different simulations. The Non-Executive Director in charge of the Risk Committee was dismissive of the exercise. Meanwhile, potential NEDs with insight and experience say that you would have to be “reckless” to jeopardise a 30-year career by taking up an appointment on a bank board – even more so if criminal liability is extended to independent directors, as has been proposed in the UK.

The Bank for International Settlements, the so-called central banks’ bank, recently said the wave of regulation is coming to an end. Bankers disagree.

Seven years after the financial crisis, regulation needs to focus on being an enabler of financial services rather than an obstructer. To change the mind-set of the regulators – and the bankers – a system of secondment needs to be set up. Modelled on the very successful Takeover Panel, which has been ruling on mergers and acquisitions in the UK since 1968, bankers would be seconded to regulators for a pre-agreed period, with their salaries paid for by the banks. This is idea has been mooted before in the Salz Review of what went wrong at Barclays Bank, but sunk without trace.

On the macro front, the focus should shift to stimulating the capital markets so that the provision of credit does not lie mainly on bank balance sheets, as it does in Europe, while capital requirements should be lowered and the focus should shift to the leverage ratio.

Speaking to the Worshipful Company of International Bankers a couple of months ago, the Archbishop of Canterbury, Justin Welby said: “2008 continues to lurk around as an impediment, which undermines confidence. Creativity and confidence go hand in hand…Creative leadership that does more than manage is essential.”

It is time to move on.

This column is based on private conversations with bank CEOS, Chairs and board members in Europe, as well as knowledge gained in my prior career as Senior Editor of The Banker and a former banking columnist for the International Herald Tribune.

It will be published in the next issue of Dialogue Review.

Geopolitics and a Muslim narrative

Why there is nothing inherently wrong in deflation

The mountain guide promised us three things as we faced climbing Wildspitz, at 3,800 metres Austria’s second highest mountain, in glacial winds. That the glacier we were going to traverse on the way there in our skis-on-skins was flat. That there would be a Group A, determined to make it to the top, and Group B, those who couldn’t take it anymore and could quit with honour, to be lead down the mountain by the second ski guide. That it would be easy to climb, roped together with ski boots and crampons.

We were misled.

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The West’s visualisation of the world tends to be geopolitical – maintaining access to natural resources and trading markets, impeding the rise of rival systems of governance and, where these emerge, undermining them. Not since the Crusades between 1095 to 1291 has religion been the main reason for a war between states in the Western world.

A Muslim visualisation of the world appears to be primarily about religion, an alternative narrative that is difficult for us to understand in a 21st century where church attendance barely deserves the name. The West does not see war in Iraq, Libya or Syria as being about faith or a conspiracy against Islam, but about oil and/or power.

Western politicians very rarely resign because they disagree with one part of the government’s foreign policy. Yet Baroness Warsi, a British Muslim who was a Foreign Office Minister in the Conservative government, quit in 2014 over its “morally indefensible” inaction over the Gaza crisis.

She said the UK’s support for Israel risked becoming the “basis for radicalisation [that] could have consequences for us for years to come.”

We must never change our foreign policy, be it right or wrong, because a minority of our population – Muslims represent about 3 million or 5% of the UK population – disagrees with it. That would be succumbing to blackmail, which would not, in any case, solve the problem of those already converted to terrorist violence. Nor should we ever stop satirising religious inanity and hypocrisy, as the heroes of Charlie Hebdo were doing, and will courageously continue to do, in Paris.

What we all need to work on, including figures in authority in the Muslim community, is integration. Harun Khan, Deputy Secretary General of the Muslim Council of Britain, admits that “we have failed as a community and as a nation to educate youth as citizens.” Multiculturalism as government policy has been declared a failure, but more must be done on assimilation. That is the mountain we have to climb. There isn’t an easier route.

We can also work harder at distinguishing in the media between extremists and moderates. Let us not forget, in the heat of atrocity, that it is the moderates who are the overwhelming majority of Muslims. Using pseudonyms like “Jihadi John” for an ISIS executioner is an offensive use of the word “jihad” for peaceful Muslims. For many of them it refers to an internal spiritual struggle, not unlike our interpretation of the violent Old Testament – no longer literal, but metaphorical.

Warsi, who co-chaired the Conservative Party, says that for her generation, the nightmare is to have a daughter bring home an Islamic extremist boyfriend. Islamic radicalisation is as much, if not more, an abomination for the decent Muslim community, as it is for everyone else. That should not be forgotten in finding our way through this.

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“There is nothing inherently wrong in deflation,” says Geoffrey Wood, Professor Emeritus of Economics at Cass Business School and a former Special Advisor to the Bank of England. Consumer prices in the year to December fell 0.2% in the Eurozone.

The spectre of deflation haunts governments in Western Europe. They have lost sight of the wider picture. Rather than focussing on the growth windfall from a record low in the oil price – the EU is the world’s largest importer of oil and gas and has long complained that this is a major factor in its lack of competitiveness versus the US – all eyes are on the European Central Bank and its possible decision to launch a programme of quantitative easing.

Between 1870 and 1914 in the UK and the US, the general price index ended up at the same level as it began. In the first half of those years it drifted gently downwards, in the second half gently upwards. Consumers did not stop spending in the late 19th and the early 20th century, points out Wood, in reference to the theory that they will put off purchases in the expectation that items will be cheaper in the future and thus send the economy into a spiral of non-consumption. “If it really is deflation, then money wages will be falling as well as prices,” he notes.

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We made it to the top of Wildspitz. The glacier was not flat; there was no option B to drop out with dignity intact; the descent was terrifying.

Being roped together with six others for hours on end was awkward and ungainly. Nevertheless, our strength came from our mutual dependence, as experienced mountaineers will attest. That is a lesson for us all, be it in politics as in economics.

From Ethiopian emperors to CEOs

Companies to sell, companies to buy

Emperor Tewodros, who reigned over much of Ethiopia for a decade from the mid-1850s, was a visionary leader. His star rose as he unified a great deal of the country, abolished the slave trade, looked to undermine the excessive power of the Church and was vocal in his disapproval of battlefield mutilations.

Yet as the years wore on, excessive power, a sense of God-inspired destiny and probably some mental imbalance, lead him to become a monster of massacres and murders, as detailed in a gripping book on his reign titled The Barefoot Emperor, by author Philip Marsden.

The pendulum often sways from recognition to obscurity, from undue heroism to disproportionate opprobrium, both for human beings and institutions.

Continuing on our royal theme, consider the British Royal Family. Following Princess Diana’s death, they were perceived as unsympathetic, cold and out of touch with the nation. Seventeen years later, they are riding high with the support of over 75% of the British people.

And so to the corporate and financial world.

Assuming the pendulum that has swung too far will always swing back, which company is due for a fall? There are common threads in many examples – the hero CEO who turns into an over-controlling, hyped up central figure; over a decade in the job; the blind enthusiasm of investors/the public; a stream of acquisitions and the lack of an obvious successor.

I propose creating an index, called CRASH, based on companies where a minimum of two of the above factors apply. Its motto would be the Biblical quote, “I have seen everything that is done under the sun, and behold, all is vanity and a striving after wind.”

Investors who shorted CRASH would be winners.

Tesco captained by CEO Terry Leahy was the retailer of choice in the UK and the darling of the City for a decade. Then it started losing market share to new competitors and in the autumn of 2014 discovered a £260m black hole in its accounts. Many blame his successors – but he was in power for 14 years and a gung-ho company culture takes many years to reverse.

Something similar may be about to happen at SKF, the Swedish ballbearings makers, transformed by CEO Tom Johnstone, who is stepping down after 11 years.

Jeff Bezos’s Amazon is already in the index, not least because like Jamie Dimon of JP Morgan Chase, the founder has gathered a triumvirate of titles to himself: President, CEO and Chairman.

A similar story is to be found at Fiat Chrysler Automobiles. CEO Sergio Marchionne turned around the Italian and subsequently the American car company. He proceeded to merge them. He hasn’t looked back from 2004 when he became CEO of Fiat. So far so good.

In October 2014, a decade on, he listed the shares of the merged entity on the New York Stock Exchange in order to gain access to larger capital markets, a necessary step on the road to creating the world’s largest car maker by taking over another target, a grandiose notion that Marchionne toys with in interviews. Plus, last month, he engineered the resignation of Ferrari Chairman Luca Cordero di Montezemolo and appointed himself. There is a whiff of hubris in the air.

Another example, also in the car sector, is Volkswagen. Martin Winterkorn has been Chairman of the Management Board since 2007, fulfilling our ten year criteria. He insists on personally signing off on every model design change and refuses to speak English when dealing with investors and analysts.

Or Samir Brikho, the CEO of Amec, an energy-focused engineering services business valued at over £3.6bn. He took over in 2006 and transformed the company by ditching its construction arm, yet now his office is awash with photos of himself with world leaders like George Bush and in February he agreed the takeover of a £1.9bn US company.

Last but not least of the many examples that spring to mind is Simon Wolfson, CEO of retailer Next since 2001. When the Financial Times writes in an article that, “As so often, Simon Wolfson at Next is showing how to do it” and other press calls the company “the City’s darling,” you know Lord Wolfson’s company is a worthy component of the index.

Companies in CRASH might be taken out of the index if the CEO took on a fool (a reputable successor or Chairman), like King Lear’s, to point out his conceit. If the company head actually listened to the fool – unlike Shakespeare’s famous king – we would slip them quickly into our BULL index, whose companies we would fervently buy.

Hank Paulson’s take on the financial crisis

JP Morgan’s Dimon on trial; business opportunities in Libya

Reading former US Treasury Secretary Hank Paulson’s gripping account of the 2008 financial crisis while playing at cowboys in Colorado’s Rocky Mountains was perhaps not as much of an incongruity as it seemed.

As we rode by a vertiginous cliff, I ruminated about On the Brink, the former Goldman Sachs CEO’s aptly titled memoir of the race to stop the collapse of the financial system.

What emerges from the book is how close we came to a total breakdown, how well the team of Paulson, New York Federal Reserve President Tim Geithner and US Federal Reserve Chairman Ben Bernanke worked together, how irresponsible Congress was and what an outmoded mishmash of regulatory bodies governs the US financial system.

What is worrying is how little has changed, not least the fact that the largest financial institutions have become even larger, more interconnected and more complex, posing unimaginably big risks to the global system. JP Morgan Chase, which acquired Bear Stearns and Washington Mutual during the crisis, now has a market capitalisation of $206bn compared to $157bn in 2007, before the financial crisis. Its total assets are $2.3tr.

That makes it all the more disquieting for Jamie Dimon to have held on to his dual roles of CEO and Chairman in a shareholder vote in May via the implied blackmail of his departure from the bank.

We learned a lot about cowboys at glorious Vista Verde ranch. The lone Marlboro man from the old advertisements is a myth. Herding cattle is a group exercise, as is running a bank. Dimon may have been brought up on the East Coast but he would do well to head West for a lesson, accompanied by supine shareholders and, for that matter, some regulators.

A harsh judgement? If Fred Goodwin, the former boss of bailed-out Royal Bank of Scotland, had not been as powerful, his shareholders as greedy and his regulators as unwitting, he might still be Sir Fred.

Timely excerpts from the book include Paulson’s account of how in August 2008, while in Beijing for the Olympics and severely preoccupied about the health of government-sponsored mortgage finance duo Fannie Mae and Freddie Mac, he learned that Russian officials had made a top-level approach to the Chinese suggesting that together they might sell big chunks of their holdings to force the US to use its emergency authorities to prop up these entities.

The Chinese declined to cooperate with such reckless stupidity.

Last week President Barack Obama cancelled his planned summit with President Vladimir Putin as the Cold War continues, albeit in a rather more farcical way with the delicious irony of National Security Agency whistleblower Edward Snowden’s political asylum in Russia.

Still, the Chinese are not always the good guys. A large agricultural vehicles manufacturer from the West was launching a new model at a trade show. Two stands down, it found the Chinese had produced the same one at half the price. The company had hacked into their computer systems and stolen the blueprints, according to Mark Shepard, Head of EMEA for iSIGHT Partners , a cyberthreat intelligence agency.

When I put to him that boutiques like Robinson Hambro were surely not on anyone’s radar, he noted that we had a very juicy database of the great and the good.

“We’ve all got something that in the dark cyberworld market has value,” he said.

There is a lot of value in the Middle East and North Africa (MENA) even as the press focuses on Syrian carnage and the Egyptian upheavals. Arabia Monitor one of the most influential research companies on the region, has just published a report titled “Algeria, Libya, Iraq: the next big spenders.”

Highlights include the fact that with a combined population accounting for a third of MENA, and an average GDP growth of 9% this year, Algeria, Libya and Iraq together are set to emerge as the next big retail spenders. Founder Florence Eid notes that “as an expanding middle class becomes more sophisticated, opportunities emerge for international retailers to offer new shopping experiences, with sales growth expected to reach 14% per annum in 2012-2016.”

Although she does not dismiss the security risks, Eid believes the retail market in these countries will offer substantial rewards for early movers able to absorb operational risks.

New Bank of England Governor Mark Carney said last week that he found the dearth of females on the Bank of England’s influential Monetary Policy Committee “striking”. He aims to help change this to pave the way for a qualified female governor in years to come.

Things are different on the other side of the pond. The US, if the best candidate is chosen, will see Janet Yellen take over from retiring Federal Reserve Chairman Ben Bernanke in January. Although no-one can dispute rival Larry Summers’s brilliance, he is a controversial figure with a penchant for outspokenness and a reputation for freezing out those he does not agree with. These are not sought-after attributes in a central bank governor.

Federal Reserve Vice Chair Yellen, however, is an exceptional forecaster who is not afraid to disagree with the majority view and is steeped in central bank culture. As an added bonus, Yellen would be an outstanding female role model at a time when research has proven the benefits of having women in senior positions.

This is one of the reasons I sit on the judging panel of Women in the City an organisation that aims to promote talented women. We are currently seeking nominations for our annual Woman of Achievement Awards in sectors ranging from law to banking. We are looking for women with proven leadership abilities who have gone out of their way to help other women in their organisations prosper.

If you know of any, do please fill out the short form by clicking on this link .

Nominations close on September 20.