Outlook: Bureaucrats should sleep well at night, if not homeowners

Lost mail; Kwik-Fit sale
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The Independent Online

The hyperactive Financial Services Authority's pronouncement on regulating mortgage brokers – its 84th edict this year – seems designed to slam the door on the puppies while leaving the window open for the rottweilers to escape and continue to roam free.

The hyperactive Financial Services Authority's pronouncement on regulating mortgage brokers – its 84th edict this year – seems designed to slam the door on the puppies while leaving the window open for the rottweilers to escape and continue to roam free.

Up until now, mortgage regulation has been an area which the FSA's chairman, Sir Howard Davies, was happy to leave to others believing that the market worked pretty well on its own. His description of the endowment mortgage – like a thief entering your house and leaving money instead of removing it – remains one of his more memorable observations.

But last December, the Treasury, in its wisdom, decided to lumber the FSA with mortgages and the Treasury's fingerprints are all over yesterday's consultative document.

The paper covers mortgages, home improvement loans, debt consolidation loans, lifetime mortgages and secured credit cards. An impressive list you might think, except that it excludes second mortgages, home reversion schemes (a form of equity release scheme) and the widely discredited buy-to-let mortgage which Sir Howard has personal experience with.

Second mortgages are additional loans taken out on the security of a property that is already mortgaged. Home reversions, meanwhile, involve older occupiers effectively selling their home to a finance house in return for a lifetime payment, the kind of annuity more and more of us are going to have to survive on as traditional defined-benefit pension schemes disappear from the face of the earth.

Like buy-to-let, these are the high-risk exotica of the mortgage market, the very areas which ought to require the closest regulation. They are also the areas to which the shadier brokers will inevitably gravitate in their efforts to escape the FSA's clutches.

Maybe, once the FSA has got the measure of the regular mortgage market, it will feel confident enough to move on to the more complicated stuff, though it is significant that the FSA's director of high street companies declined to leap to the defence of the Treasury's demarcation.

As it is, when the rules take effect in 2004 buying a home will involve a mountain of paperwork similar in size to the volume of form-filling that nowadays accompanies investment in life policies or with-profit bonds. Everyone in the business – banks, building societies and brokers – will be busy covering their backs and the regulators will be able to sleep easy in the knowledge of a good bureaucratic job done. Responsible advisers are already behaving in accordance with the rules now being proposed by the FSA, reinforcing the impression of too little, too late. And some of the smaller groups among the 10,000 mortgage brokers will decide the form-filling is not worth it, and either sell or retire early.

Meanwhile, as is still the case in the scandalous area surrounding consumer finance, the real villains will be free to gouge at their leisure, beyond the FSA's reach.

Lost mail

There is little to be gained from biting a postman when he is down as the regulator Postcomm reluctantly acknowledged yesterday. When an organisation is already losing £1.5m a day, how much more is an £8m fine going to hurt? It is not even as if Consignia has a reputation to worry about any longer. Moreover, when that business is government-owned where is the purpose in making it pay a fine back to its owner? It would only increase the amount the Treasury is going to have to fork out any way to see Consignia through to break-even (hopefully) in three years' time.

Deprived of this sanction, Postcomm has had to make do with second best – a compensation scheme for Consignia's customers which will pay out when the service is lousy, as it habitually is nowadays in large parts of London and the South-east.

Consignia has finally admitted to losing half a million letters a week. Postwatch puts the figure at nearer a million. These are just the ones that never reach their destination at all. There are another 50 million a week which simply arrive late, which is not good news for small businesses awaiting the proverbial cheque in the post.

Royal Mail's Kafkaesque answer to this is to force them to pay £14 a week to ensure their mail arrives before 9am. Not surprisingly, only one customer has so far taken it up on this unbeatable offer.

Only having to make one delivery a day sometime between breakfast and mid-afternoon should make it easier for Consignia to comply with its licence. But don't bet on it. From next year the business will slowly start to lose its profitable bulk mail customers along with all its giro cheque business, giving the posties a whole new raft of excuses for why the regulator is squeezing them too hard.

The Government has already replaced the chairman and it is about to do the same with the chief executive, so it is running out of favourite excuses for the dismal quality of service provided by Consignia like blaming it on the management.

Once upon a time, privatisation of the Royal Mail might have been an option. It would have forced the management tackle its bloated cost base – the root of Consignia's problems – and left shareholders to pay the price for below-par performance. But that particular horse long since bolted. The objective now is to keep the poor beast alive.

Kwik-Fit sale

You can't get sicker than a Kwik-Fit seller. Ford's disposal of the tyre and exhaust fitter marks the end of a short but particularly sorry chapter in the history of the blue oval. When Jacques Nasser bought the business from Sir Tom Farmer in 1999 for the extravagant sum of £1bn, Ford had a vision. It would cease to be merely a manufacturer of automobiles and instead become a provider of the complete motoring experience. It was a mission which saw the company toy with a bid for the AA before Centrica nipped in front of it. With Mr Nasser gone and the family back in charge in the shape of Bill Ford, the business has been brought back to basics in short order.

Ford has taken a $500m loss on the $500m sale of Kwik-Fit to the venture capitalists at CVC Capital Partners, who also now own Halfords. The men from Detroit justify this destruction of value on the grounds that the car market has taken a sharp turn for the worse since the purchase of Kwik-Fit three years ago.

That is only partly correct. Ford overpaid as it usually does when it decides it wants something. Even after all this time they are still rubbing their eyes in Coventry at the £1.6bn Ford paid for Jaguar.

Given that this is not the best time to be selling assets, it would have made sense for Ford to hang on to Kwik-Fit. But that was not an option if the company was to hit its target of raising $1bn this year from disposals. The best it has been able to do is hang on to a 19 per cent stake in the hope that Kwik-Fit will fetch a better price when the venture capitalists sell out a few years down the road.

The only saving grace for Ford is that the buyer did not turn out to be Sir Tom himself. That would have put the blue oval well and truly out of shape.

m.harrison@independent.co.uk

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