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Martin Wheatley legacy – tough on the City, but selective briefing a shambles Martin Wheatley legacy – tough on the City, but selective briefing a shambles
(34 minutes later)
“I would like to be remembered for setting up a good, solid organisation,” Martin Wheatley said after the Financial Conduct Authority’s annual meeting yesterday, his last as chief executive. “We have delivered a systemic shift in the UK in how people think about the financial sector.” “I would like to be remembered for setting up a good, solid organisation,” Martin Wheatley said after the Financial Conduct Authority’s annual meeting on Wednesday, his last as chief executive. “We have delivered a systemic shift in the UK in how people think about the financial sector.”
The second boast is fair, up to a point. The FCA has whacked payday lenders and Libor manipulators, imposed record fines on errant banks and argued loudly that a healthy financial system requires good behaviour.The second boast is fair, up to a point. The FCA has whacked payday lenders and Libor manipulators, imposed record fines on errant banks and argued loudly that a healthy financial system requires good behaviour.
Wheatley could have done more, of course. Yesterday’s meeting was dominated by grumbles about the regulator’s slow and inadequate response to the scandal of banks’ mis-selling of interest-rate hedging products to small- and medium-sized companies. Wheatley was obliged to concede that lessons would have to be learned. Wheatley could have done more, of course. Wednesday’s meeting was dominated by grumbles about the regulator’s slow and inadequate response to the scandal of banks’ mis-selling of interest-rate hedging products to small- and medium-sized companies. Wheatley was obliged to concede that lessons would have to be learned.
On many occasions, too, the FCA seemed to lack the dynamism of its US counterparts when tackling big market-wide abuses. But, after the timidity of the old Financial Services Authority, credit is due. The FCA has created greater confidence that City wrongdoing will be pursued; firms have been obliged to take compliance seriously. That is why George Osborne’s ousting of Wheatley has been widely interpreted as a triumph for those big banks that grumble about regulatory overkill.On many occasions, too, the FCA seemed to lack the dynamism of its US counterparts when tackling big market-wide abuses. But, after the timidity of the old Financial Services Authority, credit is due. The FCA has created greater confidence that City wrongdoing will be pursued; firms have been obliged to take compliance seriously. That is why George Osborne’s ousting of Wheatley has been widely interpreted as a triumph for those big banks that grumble about regulatory overkill.
But Wheatley’s first claim – the one about establishing a good and solid organisation – doesn’t stand up. Last year’s cockup in which the FCA over-briefed a tale on exit fees on old insurance policies to a newspaper and then watched as share prices plunged was regulatory incompetence at its worst.But Wheatley’s first claim – the one about establishing a good and solid organisation – doesn’t stand up. Last year’s cockup in which the FCA over-briefed a tale on exit fees on old insurance policies to a newspaper and then watched as share prices plunged was regulatory incompetence at its worst.
Mistakes happen, but that episode remains astonishing. The FCA should never have indulged in selective briefing in the first place. Worse, it took until the afternoon for the FCA to clarify the modest scope of its inquiry on exit fees. The regulator, supposedly in charge on spotting price-sensitive material, seemed incapable of realising it had breached its own rules. As more than one insurance-sector boss has argued privately, they would have lost their own jobs for less. Mistakes happen, but that episode remains astonishing. The FCA should never have indulged in selective briefing in the first place. Worse, it took until the afternoon for the FCA to clarify the modest scope of its inquiry on exit fees. The regulator, supposedly in charge of spotting price-sensitive material, seemed incapable of realising it had breached its own rules. As more than one insurance-sector boss has argued privately, they would have lost their own jobs for less.
That is why Wheatley’s authority was damaged and why Osborne was able to oust him. Wheatley is “disappointed to be moving on” from the FCA but he cannot be surprised. If the botched briefing hadn’t happened, he could have survived the lobbying campaign against him.That is why Wheatley’s authority was damaged and why Osborne was able to oust him. Wheatley is “disappointed to be moving on” from the FCA but he cannot be surprised. If the botched briefing hadn’t happened, he could have survived the lobbying campaign against him.
Don’t bet on it, chairmanDon’t bet on it, chairman
Meanwhile John Griffith-Jones, chairman of the FCA, says he hopes still to be in post for next year’s meeting. He would be wise not to risk any cash on that outcome. If Osborne wants “different leadership ... to take the organisation to the next stage of development” – the official reason why Wheatley’s contract was not renewed – it’s hard to understand why he wouldn’t also insist on a new chairman. It’s the chairman, after all, who is supposed to hold the executives to account.Meanwhile John Griffith-Jones, chairman of the FCA, says he hopes still to be in post for next year’s meeting. He would be wise not to risk any cash on that outcome. If Osborne wants “different leadership ... to take the organisation to the next stage of development” – the official reason why Wheatley’s contract was not renewed – it’s hard to understand why he wouldn’t also insist on a new chairman. It’s the chairman, after all, who is supposed to hold the executives to account.
There is also the small matter of the official report into the near-collapse of HBOS in 2008. This time next year the regulators’ review may have seen the light of day, though don’t hold your breath. It would be odd if the bank’s auditors, KPMG, escaped criticism. Griffith-Jones, remember, was chairman of KPMG, which was why his appointment to the FCA caused a stink at the outset. Proper process has been observed – Griffith-Jones has not been involved in the report – but publication may bring fresh problems.There is also the small matter of the official report into the near-collapse of HBOS in 2008. This time next year the regulators’ review may have seen the light of day, though don’t hold your breath. It would be odd if the bank’s auditors, KPMG, escaped criticism. Griffith-Jones, remember, was chairman of KPMG, which was why his appointment to the FCA caused a stink at the outset. Proper process has been observed – Griffith-Jones has not been involved in the report – but publication may bring fresh problems.
Keep on digging, BHPKeep on digging, BHP
Good news from BHP Billiton, the world’s biggest miner: production hit record levels in the last quarter. But, from the point of view of shareholders, this is less than reassuring. The company is producing more but getting paid less – a lot less.Good news from BHP Billiton, the world’s biggest miner: production hit record levels in the last quarter. But, from the point of view of shareholders, this is less than reassuring. The company is producing more but getting paid less – a lot less.
Take a look at BHP’s table of “average realised prices” to appreciate how far commodity prices have slumped. In the January to June period, iron ore prices were down 45% on a year ago; oil is 49% lower; copper is 16% weaker; and the various types of coal have declined by about 20%. With the cooling of the Chinese economy, the “supercycle” in commodity prices is well and truly over. Take a look at BHP’s table of “average realised prices” to appreciate how far commodity prices have slumped. In the January-to-June period, iron ore prices were down 45% on a year ago; oil is 49% lower; copper is 16% weaker; and the various types of coal have declined by about 20%. With the cooling of the Chinese economy, the “supercycle” in commodity prices is well and truly over.
BHP, to be fair, recognised the reality a while ago. The chief executive, Andrew Mackenzie, has been talking for ages about efficiencies, cost cuts and discipline in capital spending. But those virtues can only ease the financial pain, not make it disappear.BHP, to be fair, recognised the reality a while ago. The chief executive, Andrew Mackenzie, has been talking for ages about efficiencies, cost cuts and discipline in capital spending. But those virtues can only ease the financial pain, not make it disappear.
Over-supply in iron ore, in particular, looks to be a fact of life as far as the eye can see. BHP forecasts a 6% increase in its own production this year and it still makes sense for it to keep digging. It can mine the stuff out of Australian desert for $16 a tonne and ship it to China for $10. At the current selling price of $52 a tonne, that’s still a healthy profit margin. It’s just that it feels like famine when memories of $150 a tonne are fresh. Oversupply in iron ore, in particular, looks to be a fact of life as far as the eye can see. BHP forecasts a 6% increase in its own production this year and it still makes sense for it to keep digging. It can mine the stuff out of Australian desert for $16 a tonne and ship it to China for $10. At the current selling price of $52 a tonne, that’s still a healthy profit margin. It’s just that it feels like famine when memories of $150 a tonne are fresh.
Until now, the City’s forecasting community has been confident that most of the big miners’ balance sheets are sufficiently robust to weather the storm. It’s not hard to cut capital expenditure, after all. So maybe those precious dividends can be saved.Until now, the City’s forecasting community has been confident that most of the big miners’ balance sheets are sufficiently robust to weather the storm. It’s not hard to cut capital expenditure, after all. So maybe those precious dividends can be saved.
BHP, like Shell, is a company that can boast that it hasn’t cut its dividend in decades – not since the Great Depression. If that record can be maintained, there’s a 6% yield up for grabs. Not bad. Yet BHP’s shares fell 5% yesterday, in line with a sector where share prices are at their lowest since the 2008-09 financial crash. Back then, the miners were saved by China’s decision to launch a massive infrastructure programme. That source of salvation will not appear this time. The dividend arithmetic for the big miners is getting tighter.BHP, like Shell, is a company that can boast that it hasn’t cut its dividend in decades – not since the Great Depression. If that record can be maintained, there’s a 6% yield up for grabs. Not bad. Yet BHP’s shares fell 5% yesterday, in line with a sector where share prices are at their lowest since the 2008-09 financial crash. Back then, the miners were saved by China’s decision to launch a massive infrastructure programme. That source of salvation will not appear this time. The dividend arithmetic for the big miners is getting tighter.