Who was responsible for Lloyds' crass sales scheme? Don't ask the FCA

http://www.theguardian.com/business/2013/dec/13/lloyds-fca-misselling-fine-boardroom-responsibility

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Two questions stand out from this week's £28m slap on the wrist for Lloyds Banking Group. First, how could anybody of seniority at Lloyds in 2010 or 2011 have thought it a good idea to threaten staff with demotion if they didn't meet a quota for stuffing customers with investment products? Second, why doesn't the Financial Conduct Authority think it important to find out who at the bank approved and encouraged a crass incentive scheme that also offered "grand in the hand" bonuses to super-salesmen?

Remember the context. In late 2009 Lloyds, freshly bailed-out by the state, had completed its takeover of HBOS. It was a moment to impose common standards on the new banking beast and recognise that those newly minted pledges about treating customers fairly would require a dose of caution.

Yet managers in January 2010 introduced revamped schemes that offered pots of gold and promotion to salesmen who helped to meet group targets, and threatened the lazy and the scrupulous with demotion and pay cuts. A 10-year-old could have spotted the danger that mis-selling would follow.

By March 2011 the bank had yet another prompt to examine itself. António Horta-Osório had arrived as chief executive and, in almost his first act, declared that Lloyds' past mis-selling of payment protection insurance, or PPI, was a grave wrong that had to be put right. So best to ensure the same thing couldn't happen again, right?

Not exactly – or not immediately. The incentives farce ran until March 2012. The only relief, from Lloyds' point of view, is that the stock market rose and most of the equity-based products did well. Thus the bill for redress should be modest. In that regard, Lloyds was lucky.

"The findings do not make pleasant reading," said Tracey McDermott, the FCA's director of enforcement and financial crime. Yes, but your analysis is not impressive either. The FCA doesn't seem interested in identifying who at Lloyds ordered, or approved, the absurd incentives. In a 35-page report, no names are mentioned. The closest the regulator comes to acknowledging that decisions are taken by people is this passage: "Retail Finance had overall responsibilty for the process, including reviewing and challenging the sales plan and approving the final sales targets. This was subject to supervision and approval by senior management and relevant committees."

Senior management? Relevant committees? What does that mean? Is Helen Weir, head of retail banking until 2011 and now finance director at John Lewis, ultimately responsible? Should Archie Kane, head of the insurance side, carry some of the blame? How about former chief executive Eric Daniels?

Was Horta-Osório, having spotted the seriousness of the PPI scandal, at fault for not ordering an immediate review on incentives in March 2011? Should chairman Sir Win Bischoff have intervened? Did the non-executives on the remuneration committee, led by Anthony Watson, bother to explore incentives outside the boardroom?

Don't ask the FCA or Lloyds, it seems. Instead, shareholders, and the outside world, will have to wait until next spring to learn whose bonuses for 2010, if anybody's, Lloyds claws back. Weir, for example, may still have about £300,000 outstanding from her 2010 award.

In an era when it is agreed that greater boardroom accountability is an important way to make banks behave better, the Lloyds tale is a classic case of responsibility being lost in the wind. The same applies to the £28m fine that Lloyds accurately says "is not expected to have a material impact on the group". Feeble.

RSA chief quits

Farewell Simon Lee, we hardly knew you. Two years into the job, the chief executive of RSA has had to walk the plank. There can be no complaints: three profit warnings in six weeks, a dividend in peril (again) and the emergency dispatch of £135m across the Irish Sea requires a resignation.

RSA's shares have plunged almost to levels seen a decade ago, when investors were wondering whether the old Royal Insurance and Sun Alliance could ever be successfully welded together. Asbestos claims and a weak stock market didn't help either.

Andy Haste, Lee's predecessor and boss, completed the welding job and, in 2010, confidence was so high that he could make a cheeky approach to Aviva to buy its non-life business. That now seems a long time ago. After the surge in Irish whiplash claims, plus alleged "accounting irregularities" in the Irish unit, RSA is definitely a seller, not a buyer of businesses. That's what "optimising the group's business portfolio", as chairman Martin Scicluna puts it, means.

A radical remedy would see one of the crown jewels – the Canadian and Scandinavian divisions – depart. Or perhaps RSA's need for capital can be met with minor disposals plus a rights issue and a dividend cut. A rights issue is "not our current plan", says Scicluna, keeping his options open.

At this stage, that's the only possible position to adopt. Scicluna, thrust into an executive role, first has to get to the bottom of the crisis in Ireland, still a mystery to shareholders. Then he has to determine how much capital RSA requires and find a chief executive. It's a long to-do list.

If would-be bidders for RSA emerge along the way, one suspects shareholders will demand that Scicluna talk to them. Investors are understandably weary.

Manchester United going down

Would you say Manchester United, the New York-listed company, is worth 20% more than it was a year ago? Minus a long-serving managerial genius, and with the club standing 9th in the Premier League, it is hard to understand why the shares trade at $17, (about £10) versus the $14 at which the Glazer family sold a 10% stake in August last year.

United may yet scramble into a top-four slot this season, ensuring qualification for next year's Champions League, which is where the big bucks are earned. But, even if they do, it's obvious that a hefty bill will have to be paid in the transfer market to improve the squad.

In the age of Gareth Bale, for whom Real Madrid paid £85m, being a forced buyer of top-end footballing talent is not a comfortable position. The Glazers have paid down a lot of debt since their leveraged buyout in 2005, but the company was still carrying net borrowings of £300m at the end of June this year.

Hedge funds, such as Odey, are taking short positions in the shares. There are no open goals in the shorting game, but this one looks attractive. United's stock market value is $2.78bn (£1.7bn). When total revenues are just £400m-ish, and staff routinely consume half, the valuation looks too rich for a business facing a major capital expenditure programme.

Turbulent airports commissioner

Get ready for another round of the great runway debate. It should be worth watching because Sir Howard Davies, head of the airports commission, may have an opinion that ministers, and the Mayor of London, do not like.

Davies will unveil his interim report on Tuesday. As a rule, interim reports skirt around their subject and leave everything up for grabs. Davies may not play ball. He seems determined to advance only a few options for a new runway or runways.

If they all involve expansion at Heathrow, there will be panic in government ranks. Ministers were hoping the politically-toxic issue could be ignored until after the 2015 election, which is when Davies' final report is due. If a new Thames estuary airport gets a thumbs-down, watch Boris Johnson explode.

The view here is that Gatwick is the way to go. Far more important, though, is that Davies says what he actually thinks. Reports of last-minute political lobbying to expand the shortlist are alarming.

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