Can an 'insider' clean up the City?

In the wake of the accounting and reporting failures that have scarred corporate Britain, Margareta Pagano asks Sir Win Bischoff if a banker can make a reliable regulator

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The Independent Online

When Sir Win Bischoff, the ex-chairman of Lloyds Banking Group and a former top banker with America’s Citigroup, was appointed chairman of the Financial Reporting Council earlier this year, he was criticised for being one of the City’s “insiders’ insiders” and an “odd” choice.

Put another way, what some MPs on the influential Treasury Select Committee were suggesting is that you can’t expect a poacher to shop his fellow poachers.

But the Government stuck to its guns with Vince Cable, the Business Secretary, arguing that the FRC needed Sir Win’s sharp incisors to restore trust in corporate reporting and governance after so many of the City’s biggest accountancy firms and auditors were blamed for failing to spot the build-up of risks in bank balance sheets ahead of the financial crisis.

 I can’t see how sharp Sir Win’s teeth are from where I am sitting, but his eyes are such a piercing blue (matched by his sky-blue tie) that you wouldn’t want to have him interrogating you for too long. Staring people down across the negotiating table is one of many skills that his peers say made him such a tough deal-maker when running Schroders, the UK merchant bank that is now part of Citigroup, and  handling some of the more colourful bids and government privatisations of the 1980s and 1990s.

 So maybe those MPs missed the point?  After all, it was under Sir Win that Schroders went from a tiddly bank worth £30m to one that Citigroup was prepared to pay £1.3bn for around 14 years ago. What’s more, he managed to stare down the US bankers who were gobbling up their new British colleagues for breakfast.

What does Sir Win think of the insider tag? “Well, I’d say it’s healthy that I know so much of what goes in the City, but I must stress the FRC is not just about me, the individual. I’ve got a great team and good, strong board.”

His deputy chair is Gay Huey Evans, a former Barclays banker and ex regulator with the old Financial Services Authority. 

Perhaps the more interesting question is why the 73-year-old would want to take on such a job, albeit one that pays £120,000 for his two days a week.  “That’s simple: I’m a great believer that London’s capital markets are of huge important to our status as a great financial centre. Therefore, it’s vital that we ensure the reputation of the City is as good as it can be.”

So he agrees that the Square Mile needs cleaning up? “The evidence shows that the City has not been behaving as well as it should be over the last few years and we need to improve that reputation – and that means governance as well as accounting and audit standards have to be the best possible.”

We meet in the FRC’s new offices just off London Wall, from where he can literally oversee the City. Surprisingly perhaps, he says one of the most challenging moments of his banking career came when chairing Lloyds: he had to decide whether to allow Antonio Horta-Osorio, the new chief executive, to take time out to recover from stress-related sleeping problems: “It was an unusual situation and I put my own job at stake by offering to stand down if it didn’t work out.” Both kept their jobs.

For now, he says the FRC has three priorities. “ We need to get the Stewardship Code working properly, the quality of audit improved and we have to work with international authorities on setting standards for accountants.”

At the same time, the FRC is also involved in the controversial machinations over how regulators should treat the tax practices of international companies such as Google and Starbucks, as well as resolving the tricky debate over how the balance sheets of banks should be valued. Many experts believe there are serious problems with international financial reporting standards because they distort the accounts of banks and, many  big institutional investors believe, contributed to the valuations of banks in the run-up to the crash.

While the FRC is something of a mongrel of a watchdog, it has a huge territory to guard: it sets the standards within which auditors, accountants and actuaries work in the UK as well as being sponsor of the UK Corporate Governance Code for companies and the Stewardship Code for investors. Two of the FRC’s latest, and tough, rule changes are Lord Sharman’s recommendation that companies include a statement of “going concern” and set out the main risks to the business, and new clawback rules for past performance-related pay.

Yet the FRC also acts as policeman. Of its 145 staff, 74 are conduct specialists investigating and disciplining accountants and actuaries who misbehave. Right now, it has 20 continuing investigations and is following the Tesco situation closely to see whether to probe further.

Sir Win agrees there has been a lack of punishment for some of the worst offenders in recent scandals, whether they are directors at Royal Bank of Scotland and HBOS or those involved in the Libor benchmarking scandal.

“No one has been hung from the scaffold,” he says. “I do believe that finding the right punishments for individuals who have misbehaved is something we need to get right.

“ Getting the governance of boards working better is one way. But there are unintended consequences of too much regulation such as getting the right balance for the role of non-executive director, where pressures are becoming draconian. For example, we are seeing fewer women wanting to be non-executives on the boards of banks because of the risks involved. That is not a good thing.”

As one of a few bankers to have worked at the top of both investment and retail banks, does he think the Vickers proposals to ring-fence the one from the other are enough of a barrier? Sir Win responds:  “If you look at the share prices of investment and retail banks today, you will see that the investment banks are being rated at a much lower multiple than the retail.

“It’s ironic, perhaps, but the impact of the Vickers proposals is that the market now assesses the valuations of banks and their investment bank arms far more closely.”

“Lloyds bank is today worth much more [£54bn] than Deutsche Bank (£34bm), which is odd. So you could see a situation where it makes sense for some banks to separate the investment bank entirely. We are seeing the markets at work,” he adds.

Sir Win has recently been hired for another job: in January he becomes chairman of JP Morgan Securities – not as an ambassador but to head governance as the independent adviser to the US bank’s oversight committee. Now that is one for an insider.

CV: The jobs and the man

Born: Aachen, Germany, 1941

Education: School in Cologne and Düsseldorf. Moved to Johannesburg in 1955 where he graduated from the University of the Witwatersrand

Career: 1962 Starts out with Chase Manhattan’s international department

1966 Joins Schroders

1984 Appointed chief  executive of Schroders

1995 Appointed chairman

2000 Becomes chairman of Citigroup Europe following its acquisition of Schroders’ investment banking business. Knighted for services to banking the same year.

2007 Interim chief executive of Citi for two months after Chuck Prince resigns

2009 Chairman of Lloyds Banking Group

Apr 3 2014  Chairman of the Financial Reporting Council

Hobbies: Golf and visiting Italy

Book: Alexander The Great by Robin Lane Fox

Music: La Traviata and Beethoven’s 9th Symphony (Ode to Joy)

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