James Moore: Even going nuclear will not deter powerful banks from ring-fence gaming
Outlook: When the new rules come in they will be obeyed... for a while
As we're all aware to our cost many modern bankers are not bankers at all. They are gamblers. What's more they are gamblers who know that if they back the wrong horse their losses will be covered by someone else. In extremis that means the taxpayer.
It's rather appropriate, then, that there has been much discussion at the Parliamentary Commission into Banking Standards about the potential for banks "gaming" the proposed ring fence that in theory will protect basic banking functions; people's deposits and loans and those of their small businesses, from the gambling.
There's been much discussion about preventing this by giving regulators a nuclear option: the power to forcibly cut the ring-fenced part out of miscreant banks.
Andrew Bailey, the head of prudential regulation at the Financial Services Authority, rather highlighted the problem with this power: a nuclear deterrent is all but impossible to use. As Mr Bailey argued yesterday, Britain's big banks, even in the midst of their current malaise, represent a very powerful lobby. They can and do hire the very best lawyers, and accountants, and lobbyists.
Despite the billions of pounds of public funds diverted from schools, hospitals and the national debt into bailing them out we are only now getting around to imposing genuinely radical reforms to the way they are governed.
It took a change of government, an Independent Banking Commission, now a Parliamentary Commission set up after yet another grotesque scandal (Libor fixing) and we are still not there. That power partly explains why.
The idea of threatening a genuine break-up on banks which try to mess with the ring fence looks attractive.
But would any regulator really dare to use it against such powerful institutions? Even a regulator as powerful as the Bank of England, which has several times called for break-ups. The answer is probably not. And banks are well aware of that. When the new rules come in they will obey them for a while. But what about in a year's time, or in five years' time, when a future chief executive fancies making a name for himself with the aid of an innovative new financing arrangement that will test the ring fence. Will even a nuclear "deterrent" put him off from taking a bet on it? Sadly, it's impossible to say yes.
Ocado won't deliver like John Lewis on tax
It's really quite rare for a company to see its shares rise when it issues a cash call, but such has been the concern about Ocado's financial health that when it tapped its investors for fresh funds yesterday that's just what happened.
The online retailer is raising £36m through the issue of new shares equivalent to about 10 per cent of its market value. It has also managed to extend its debt facility.
Hooray, said skittish investors, despite the new shares being issued at a premium to Friday's closing share price of 60.55p (about a third of the price at which the shares floated). And despite the fact that the cash call will dilute the investments of those who didn't buy in.
Whether the company will ever be sustainably profitable is another matter entirely. Ocado started off as a sort of half-sibling to Waitrose, selling the latter's lines. Even though the two have been loosening their ties, there are still many ways in which they benefit from each other. That situation won't last forever, however, and eventually Ocado will be on its own in a brutally competitive sector. All its fancy technology and market-leading efficiency might not be enough.
Waitrose's owner John Lewis has, of course, recently taken the lead on behalf of corporate Britain over the vexed issue of tax, and the fact that a variety of US-owned multi-nationals don't pay so much. Quite rightly, it highlighted that this puts UK-based businesses at a competitive disadvantage when compared with their transatlantic rivals because they have to pay up.
Just don't expect Ocado to be joining John Lewis on the battleground. For a start Ocado's founders earned their spurs at the US investment bank Goldman Sachs, which knows a thing or two about paying low levels of tax on its international operations. And guess what: Ocado has the small matter of £273m of unused tax losses sitting on its balance sheet. So it won't be troubling Her Majesty's exchequer anytime soon.
Myners' powers over MegaFon may be muted
Is it a bird? Is it a plane? No its Corporate Governance Superman!
Poor MegaFon. The Russian mobile phone company wants to be London's biggest flotation this year but looked to be heading off a cliff thanks to a lot of villainous talk about its governance.
Enter mild-mannered former reporter Lord Myners, above, who took off his glasses and donned his red cape to fly to the rescue. Here's a superhero the City can rely on.
Lord Myners is going to join MegaFon's board as a non-executive director. It's bound to be all right now because he's been chairman of M&S and Land Securities and everything.
If Alisher Usmanov, the Uzbek tycoon who will retain majority ownership of Megafon, decides to upset his fellow investors Lord Myners will be there to fight for their interests. What better person to have in your corner than a former minister from the last Labour government? Who did such a sterling job fighting for taxpayers' when it came to Fred Goodwin's Royal Bank of Scotland, or should that be state, pension?
Goldman Sachs, that's right, Goldman Sachs, passed on a potential gold mine in advisory and other fees up for grabs from this float. So why should we believe that the problems it identified will be addressed by paying Mr Myners a lot of money to sit on the board? Even if he is Corporate Governance Superman.
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