Anthony Hilton: Why the City should be wary of banking too much on the Chinese
Saturday 09 November 2013
London earns a lot of kudos when foreign companies decide to list their shares on the Stock Exchange here rather than, say, New York or Hong Kong.
So it decided a few years ago to relax its rules so it would get even more of the business. Unfortunately it rather overdid it and things got a bit too lax. Companies were listed where it seemed that big shareholders in the background rather than the official board of directors were pulling the strings, deciding on company policy and pushing it into doing deals which seemed to benefit them rather than the company.
Several abuses later and after much staining of the Stock Exchange’s international reputation, the authorities have decided to tighten up again. We saw the results on Tuesday when the Financial Conduct Authority announced a string of measures to protect minority shareholders in the main, adding rules which should help prevent them being out-voted by the main shareholders who are often the original owners based offshore.
You might think that experience would put the City on warning about the danger inherent in dropping standards to attract overseas business. But apparently not. Just last month the Chancellor, George Osborne, announced in Beijing with something akin to glee that he had struck a deal whereby Chinese banks coming to London would get an easier ride than other foreign organisations. The idea was a good one – to help establish London as a centre for trading the Chinese currency, the renminbi – but it caused quiet fury among other foreign banks, notably the Japanese and the Americans who have received no such special treatment. Indeed such was the outrage at the blatant bending of the London rules that Andrew Bailey, the man in charge of bank regulation, felt obliged a few days later to deliver a speech in which he protested that the concession was absolutely in order and the Bank of England was absolutely immune to pressure from Westminster.
It is not recorded if anyone believed him.
Now China is clearly important but Chinese banks are notorious for being potentially among the most toxic in the world because a huge proportion of their loans have been made as political favours to state-owned enterprises and others whom party officials support. One might think this would mean the bar for these banks should be set higher rather than lower. But having embarked on this course we can only hope it turns out to be a happier experience for the Bank than it was for the Stock Exchange.
Are we all dead wrong about living longer?
A couple of months ago the chief executive of one of the big insurance companies surprised me by saying that life expectancy was no longer increasing, so he expected to make far more money out of his book of annuities (which pay money to policyholders until they die) than he did when the business was written. It was startling because it was completely at odds with the generally accepted view – and the one still promoted by actuaries and pension consultants – that lifespans are increasing by about a month a year.
But maybe his was not just wishful thinking. Figures published on Wednesday by the Office of National Statistics showed that on the latest data people are indeed beginning to die slightly younger. Back in 2009 the ONS projected that on average a man aged 65 would live a further 19 years and a woman 21.3 years, to 84 and 87 respectively. Two years later after a cold winter the projection scaled back modestly and this week it came down again. The 2013 data suggests the man will have only 18.3 more years and the woman 20.6 – a change which may not seem much in terms of weeks and months, but which at a stroke knocks about 4 per cent off the cost of pensions.
The implications of this if it continues are profound. All those pension schemes said to be unaffordable might not have been after all. The expectation that the retirement age will have to increase further might no longer be valid. The projections for the amount that might have to be spent on care for the elderly look less certain.
So how is the financial and political world coping with this challenge to one of its most basic assumptions – increased life expectancy? Like all inconvenient truths it is being ignored. It is so much easier to regard it as a blip which will shortly be reversed than a trend which makes a nonsense of everything which has been done in the last few years. Only when the cumulative evidence is overwhelming – which by definition will take many more years of data – are attitudes likely to shift.
Exchange rate that made Wonga look good
Popping over to Germany mid-week I forgot my euros so made the dreadful mistake of changing a few pounds as I waited at Heathrow. It would be less painful to have done a deal with Wonga, the payday lender whose film robustly defending itself against criticism from MPs about how much it charges I was invited to see on Monday.
The exchange rate was not just poor, it was extortionate. If the £100 I changed into euros on the way out had been reconverted back into sterling when I returned in the evening I would have been lucky to clear £70.
Even payday lenders don’t charge getting on for 30 per cent a day for no risk.
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