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| Banking reforms: two-nil to the banks | Banking reforms: two-nil to the banks |
| (about 5 hours later) | |
| A regulatory victory for the banks? Of course. Actually, it’s two victories. First, under the new ringfencing rules, the retail operations of big banks will be able to pay dividends to their parent companies. Second, when things go spectacularly wrong at big banks, senior executives will no longer have to prove they took all reasonable steps to prevent catastrophe; instead, the burden of proof will lie with the regulator. | A regulatory victory for the banks? Of course. Actually, it’s two victories. First, under the new ringfencing rules, the retail operations of big banks will be able to pay dividends to their parent companies. Second, when things go spectacularly wrong at big banks, senior executives will no longer have to prove they took all reasonable steps to prevent catastrophe; instead, the burden of proof will lie with the regulator. |
| Only one of these victories – the first – is deserved. An outright ban on ringfenced retail units paying dividends never made sense. Who would want to own, or invest in, a high street bank where surplus capital could be trapped permanently? Banks are still businesses, let’s not forget. | Only one of these victories – the first – is deserved. An outright ban on ringfenced retail units paying dividends never made sense. Who would want to own, or invest in, a high street bank where surplus capital could be trapped permanently? Banks are still businesses, let’s not forget. |
| Related: UK government waters down financial regulation regime | Related: UK government waters down financial regulation regime |
| The important thing is that the regulator should decide how much capital a critical ringfenced bank requires and have the ability to veto distributions of cash to non-ringfenced entities. As long as those safeguards are in place – and are enforced rigorously by regulators – the system should be able to work smoothly. | |
| The Treasury’s change to the burden of proof rule, on the other hand, appears to be a straightforward case of weak ministers capitulating to bankers’ aggressive lobbying. | The Treasury’s change to the burden of proof rule, on the other hand, appears to be a straightforward case of weak ministers capitulating to bankers’ aggressive lobbying. |
| The original idea, which flowed from the long parliamentary investigation of the collapses of Royal Bank of Scotland and HBOS, was conceived as an honest answer to a serious problem. MPs, like the rest of us, were sick of hearing bosses of failed and unscrupulous banks pleading that they couldn’t possibly be at fault because they had delegated their responsibilities or that decisions were made collectively. Andrew Tyrie, chairman of the Treasury select committee, spoke of an “accountability firewall”. | The original idea, which flowed from the long parliamentary investigation of the collapses of Royal Bank of Scotland and HBOS, was conceived as an honest answer to a serious problem. MPs, like the rest of us, were sick of hearing bosses of failed and unscrupulous banks pleading that they couldn’t possibly be at fault because they had delegated their responsibilities or that decisions were made collectively. Andrew Tyrie, chairman of the Treasury select committee, spoke of an “accountability firewall”. |
| Thus it was reasonable to oblige senior bankers to show in future that they had acted responsibly. This was a reversal of normal UK legal principles, as bankers protested furiously, but the legislation was approved by parliament knowingly. It was still thought fair that bosses of large banks, organisations vital to the UK’s financial health, should be able to explain their actions. We’d had enough Macavity-like bankers who were never there. | Thus it was reasonable to oblige senior bankers to show in future that they had acted responsibly. This was a reversal of normal UK legal principles, as bankers protested furiously, but the legislation was approved by parliament knowingly. It was still thought fair that bosses of large banks, organisations vital to the UK’s financial health, should be able to explain their actions. We’d had enough Macavity-like bankers who were never there. |
| Yet the bankers’ protests have now won the day, long after the final whistle was supposed to have blown. There will still be a “duty of responsibility” but the regulator will have to prove individuals’ shortcomings if it wants to impose fines or bans. | Yet the bankers’ protests have now won the day, long after the final whistle was supposed to have blown. There will still be a “duty of responsibility” but the regulator will have to prove individuals’ shortcomings if it wants to impose fines or bans. |
| Andrew Bailey, head of the Bank of England’s Prudential Regulation Authority, calls it “a change of process, not substance”. That statement feels far too breezy. The Treasury’s intervention takes us several steps back towards a pre-crisis system that failed to instil a culture of accountability. One of these days (months?), the official report into the failure of HBOS may be published to remind us how badly one of the country’s biggest banks was managed. | |
| Tyrie – rightly – sounds less than impressed by reversal of the burden of proof, saying he would have preferred to see the original reforms given a chance to bed down. “It would be concerning if this change was a response to special pleading from the banks,” he says. Yet that’s exactly how it looks. | Tyrie – rightly – sounds less than impressed by reversal of the burden of proof, saying he would have preferred to see the original reforms given a chance to bed down. “It would be concerning if this change was a response to special pleading from the banks,” he says. Yet that’s exactly how it looks. |
| Peak Burberry? | Peak Burberry? |
| Christopher Bailey, the designer who invigorated Burberry, now fills his days inspecting the minibar bills of his globe-trotting executives, or something like that. In his other role as chief executive, he’s having to learn new tricks. Without “swift action on discretionary costs”, as the company put it, Burberry’s minor warning on profits would have been the full check. | |
| Related: Burberry sales hit by Chinese slowdown | Related: Burberry sales hit by Chinese slowdown |
| An efficiency drive, meaning less travel and fewer expenses, will save £20m and a cut in bonuses will save another £20-£30m. Even after a dose of (relative) austerity, however, pretax profits are expected to arrive at £445m for the whole financial year, which, within a million or two, would represent a second flat year in a row. | An efficiency drive, meaning less travel and fewer expenses, will save £20m and a cut in bonuses will save another £20-£30m. Even after a dose of (relative) austerity, however, pretax profits are expected to arrive at £445m for the whole financial year, which, within a million or two, would represent a second flat year in a row. |
| The problem is the sales line: on a like-for-like basis, it was up 6% in the first quarter and down 4% in the second. Has Burberry peaked? | The problem is the sales line: on a like-for-like basis, it was up 6% in the first quarter and down 4% in the second. Has Burberry peaked? |
| That’s probably premature, but the long run of easy growth on the back of a buoyant China is over. Chinese consumers are spending less and, increasingly, are doing so in places unhelpful to Burberry, such as continental Europe and Japan, where it has too few stores. | That’s probably premature, but the long run of easy growth on the back of a buoyant China is over. Chinese consumers are spending less and, increasingly, are doing so in places unhelpful to Burberry, such as continental Europe and Japan, where it has too few stores. |
| There seems to be little wrong with the brand; and there is no evidence that Bailey’s design flare has been affected by doing two jobs. But you can understand why the City took fright, pushing the shares down 8%. Burberry is a company set up for strong growth, and adjustment to a harder world probably won’t be painless. | There seems to be little wrong with the brand; and there is no evidence that Bailey’s design flare has been affected by doing two jobs. But you can understand why the City took fright, pushing the shares down 8%. Burberry is a company set up for strong growth, and adjustment to a harder world probably won’t be painless. |