City has nothing to fear from monetary union

COMMENT

Michael Cassidy, chairman of the policy and resources committee of the Corporation of London, is a fine fellow in many respects, but he really does talk a lot of nonsense when he sounds off about the danger European Monetary Union poses to the City's position as Europe's pre-eminent financial centre. He's been at it again this week, warning that the new settlement system for large scale transactions in the euro could cost the City thousands of jobs.

Now there is no doubt that a major league row is going on behind the scenes between the likely "ins" and the "outs" about access to this system. The two most committed ins, Germany and France, want the outs to pay more for using Target (the system's acronym) than the ins. They also want the European Central Bank to charge the outs more for the provision of short- term liquidity in the euro. The likely outs, led by Britain, argue that this is discriminatory and against both the spirit and the letter of the Treaty of Rome. Plainly, this is an issue of some importance, otherwise the Bank of England would not be in there arguing about it at single currency meetings being held under the umbrella of the European Monetary Institute.

But its significance is actually more political than commercial. The ins have taken the view that anyone not wholly with them is against them and they are determined to penalise these wayward souls on every available front. This is but one of them. Exaggeration? Just a little, but not much. The "them and us" mentality seems to permeate every aspect of negotiations about monetary union.

With Target, there is also a subtext. By disadvantaging London, there's just a chance, German and French policymakers believe, that financial markets might start gravitating to Frankfurt and Paris. This is what Mr Cassidy is talking about when he warns about the threat to jobs in the City. In practice, however, it is highly unlikely that a marginal difference in the cost of settlement is going significantly to alter London's competitive position. Alternative methods of providing adequate liquidity will be found. Indeed, because London will not be obliged to meet the stringent capital requirements of the ins, there may actually be some advantage in being out.

The City is an ingenious place. It is no accident that the main market in bund futures is in London, when logically it ought to be in Frankfurt, for London is where the traders are and like to live, this is where the systems and infrastructure exist, and this as a consequence is where it is done best.

The City has always thrived because it is out rather than in. It has a thousand year tradition of loyalty to none but itself. And that is also why, once the great bandwagon of monetary union starts rolling down the runway proper, sterling will become as much an irrelevance for the City as it is for the rest of Europe - an exotic little inflation-prone currency. The City has survived and prospered on events far more traumatic than the arrival of the euro. For the City at least, Monetary Union is not much of an issue at all.

A blow to the reputation of Finsbury Square

This time it isn't possible to blame rogue traders in far away places. This time there is no fraud, in the generally accepted sense of the word, for senior managers to excuse themselves with. And this time, unlike the recent Jardine Fleming case where the financial damage was limited to just pounds 12m, we are talking about a very substantial hole in the accounts of what are supposed to be bullet-proof unit and investment trusts.

It would be hard to imagine a more damaging blow to the reputation of Morgan Grenfell Asset Management, and the City's investment management community more generally, than the events unfolding round at Finsbury Circus.

Peter Young was an apparently able and highly ambitious young fund manager, trained in the London tradition for the highest standards of integrity and diligence. We don't know the full story yet, but it seems almost unbelievable that in his search for performance he could have breached his trading limits in the manner now suspected. More extraordinary still is that he could have done so without his superiors noticing.

The damage here is much more than one of embarrassment. Morgan Grenfell, and more particularly its parent, Deutsche Bank, are going to have to compensate investors in the three trusts for anything up to pounds 150m. It scarcely needs saying that staff can kiss goodbye to their bonuses not just for this year, but probably next as well. The questions come thick and fast. How could Mr Young's search for performance have allowed him so to stray into such an array of companies of such obviously questionable quality?

Even accepting that he thought many of his unquoted investments were in companies about to come to market, how could he have so clearly breached established rules and practice on investing in untraded securities? More seriously, what were the failures in control and supervision that allowed him to do so? It is already clear that the buck cannot stop with Mr Young. Other heads must roll.

If there is a lesson in this miserable affair, it is the old one - that organisations which encourage the development of powerful egos and star employees only have themselves to blame when things go wrong. The irony is that Morgan Grenfell, which has fallen victim to this trait once before, on that occasion on its corporate finance side, should not have learnt it. The Guinness affair is still, after all, less than 10 years old. The set and the cast are different, but the play seems to be essentially the same - an out of control star employee.

Stagecoach ride will surely end in tears

With his casual dress code, Celtic origins and pillaging instincts, Brian Souter, probably went down a storm over an acquavit or two with the Nordic folk at Swebus.Yesterday, as the Stagecoach chairman added Swebus to his ever-expanding empire, he was all praise for the Swedes. Why, he might even arrange a Viking landing party to run things here as Swebus employs fewer staff per bus than even Stagecoach.

This presumably explains why Mr Souter is paying top dollar for the company. The price tag, including debt, of pounds 232m looks pretty fancy for a business with taxable profits of less than pounds 10m. Swebus is but one more staging post along the way to his goal of quadrupling turnover to pounds 2bn. This, and last month's still more ambitious pounds 825m acquisition of the train leasing company Porterbrook, are being financed with an avalanche of Stagecoach paper and extended borrowing facilities.

And yet, the markets haven't even blinked, marking the share price up relentlessly. Stagecoach trades on a multiple of 27.5 times earnings, which is absurd for a bus operator. Shareholders may be enjoying the ride for now. But experience tells us that such helter-skelter expansion will surely end in tears.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
tvReview: Top Gear team flee Patagonia as Christmas special reaches its climax in the style of Butch and Sundance
News
people
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
Arts and Entertainment
Peter Mayhew as Chewbacca alongside Harrison Ford's Han Solo in 'Star Wars'
film
News
i100
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Tracy Emin's 1998 piece 'My Bed' on display at Christie's
artOne expert claims she did not
News
Ernesto Che Guevara and Fidel Castro, right, met at Havana Golf Club in 1962 to mock the game
newsFidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
News
Hackers revealed Oscar-winning actress Lawrence was paid less than her male co-stars in American Hustle
people
Arts and Entertainment
Clueless? Locked-door mysteries are the ultimate manifestation of the cerebral detective story
booksAs a new collection of the genre’s best is published, its editor explains the rules of engagement
Sport
Robin van Persie is blocked by Hugo Lloris
footballTottenham vs Manchester United match report
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?