Outlook: Sir Howard bows out of FSA not with a whisper, but a bang

Marconi gloom; Cordiant/Ojjeh

As is his wont, Sir Howard Davies is going out with a bang as chairman of the Financial Services Authority by criticising just about everyone he's been responsible for regulating this past five years. In his last annual meeting as head of the FSA, Sir Howard yesterday lambasted the practices of the retail financial services industry and the wholesale, capital markets in equal measure.

Again and again, Sir Howard said of the big savings institutions, high street firms continue to disregard suitability rules that most service companies would regard as just good customer practice. They had failed to learn the lessons of past mis-selling scandals. The Association of British Insurers' "raising standards" initiative was a "worthy response" but "there is still a long way to go".

As for the wholesale markets, too often disclosure obligations are ignored, auditors have been too easily distracted from their public interest responsibilities, and investment banks are not always good at managing their conflicts of interest. All of them need to work harder to restore investment confidence, "which has been badly dented in recent years".

My goodness. Is there anyone who escapes his ire? Curiously enough, there is just one: the FSA itself. The Government's decision to replace the previous patchwork of financial regulators with a single entity, the FSA, is found to have been "amply justified". The benefits are now widely understood and appreciated, and the new regime is "functioning as Parliament intended". Well there's a thing. In fairness to Sir Howard, it ought to be said that if no one else is going to beat your drum, you had better do it for yourself.

Regulators are never going to be popular figure among those they regulate, and the FSA chairman is largely justified in giving himself a pat on the back for a job well done, even though there are plenty who would disagree with his judgement that the FSA acted appropriately at all times in its handling of the Equitable Life crisis.

Sir Howard and his spin doctors have worked hard to get the message across that the die was cast on Equitable long before the FSA came into existence, and he has largely been supported by independent investigation in his insistence that there were no actions the FSA could reasonably have taken that would significantly have altered the outcome. None the less, the Equitable will for most remain the biggest single black mark against Sir Howard's rule at the FSA.

Much of the criticism Sir Howard levels at financial services companies is entirely justified, yet at root it is the bear market of the past three years that has caused the collapse in public trust in the savings industry. Sir Howard can hardly be held responsible for that, yet it is as much a problem for the FSA as the savings industry itself, for when there is calamitous loss of capital, presumed regulatory failure always gets at least some of the blame.

Even so Sir Howard is surely right to suggest that regulating even more heavily would not be the correct response. The primary role of the FSA is to protect investors from abuse, not to make investment choices for them. It is easy to see why, after the mis-selling scandals of recent years, some would like to shift retail regulation on to a higher plane, based on government-designed, low-risk products and price controls, but the urge must be resisted. It is a thin line that separates market regulation from market control. We may already have strayed too far on the side of control.

Marconi gloom

Refinanced and requoted on the stock market, Marconi was hoping by now finally to have rid itself of the "beleaguered" tag so long associated with its name, but as yesterday's quarterly figures demonstrate, the British-based telecoms equipment maker is by no means out of the woods yet. In the three months to the end of June, sales continued to plummet, down 14 per cent on the previous quarter and a thumping great 31 per cent on a year ago. Some IT hardware companies have begun to hail the end of the long recession in their industry, but there is little sign of it at Marconi.

The full scale of the meltdown in sales is illustrated by the fact that Marconi peaked in the year to March 2001 with sales of £4.7bn. Annualising the latest quarterly figures gives running revenues of less than a third that, which even taking account of the fact some businesses have since been sold or closed, is a collapse of such magnitude that it really is a wonder bankers allowed the company to survive at all. Their wager is that they will ultimately get more money back by agreeing the debt conversion than they would have done in a fire sale of an administration.

Most of them will by now have taken the loss and sold on the equity they received in return for their debt, but they still have some ongoing loans to company which they expect eventually to be fully redeemed. The worry is that Marconi is just too small to survive at the frontiers of what's become an intensely competitive industry requiring high levels of investment in research and development.

Marconi's chief executive, Mike Parton, believes that sales may now have stabilised, with flat or slightly increased revenues expected for the quarter to the end of September, and he points to positive signs, in particular the fact that some network operators are beginning to forecast increases in capital spending for the first time in at least two years.

Marconi's best hope lies with the rapid take-up of broadband, which could eventually force a quite significant degree of extra investment by the big networks. The transformation in network capability needed to convert networks fully to broadband is in many respects comparable to the switch from analogue to digital, though regrettably for Marconi, it may not be as expensive.

With the benefit of hindsight, it is impossible to see how markets could have got so carried away as to assign the sort of value to Marconi they once did. To justify the valuation achieved would have required extraordinary levels of growth into the almost indefinite future even from the peak level of sales just cited.

As it is, Marconi is unlikely ever again to reach the level of revenues seen at the height of the boom, even with the extra investment going into broadband. What happened back then was a once in a lifetime investment boom. How strange that so many people believed it could go on for ever.

Cordiant/Ojjeh

As the battle for control of the fast shrinking advertising group, Cordiant, reaches its final denouement, only one thing is clear; Nahed Ojjeh, the Syrian born billionairess who has built up a 10.95 per cent stake in Cordiant, is one of the worst chess players ever to have graced the game. From the moment the self-styled chess promoter first appeared on the Cordiant share register, she's kept everyone guessing as to what cunning strategy she might be pursuing. Certainly it was in none of the textbooks.

As it transpires, she appears to have had no strategy, or none she will admit to, and like a complete chess novice she now looks set to fall victim to one of the oldest set of moves in the game - fool's mate. In the process she's been wrapped by the Takeover Panel for breaking disclosure rules, for which she is duly contrite, citing ignorance by way of excuse.

At the very least, Mrs Ojjeh stands to lose around £400,000 on her little escapade, and if she decides to press the game to the bitter end by forcing Sir Martin Sorrell's WPP to put the company into administration, she'll lose more than a million. That may not be any more than petty cash for a billionaire, but she's been made to look foolish, and damaged pride cannot be measured in anything as vulgar as money.

Still, she doesn't look half as stupid as Active Value, which by building up a near 30 per cent stake in Cordiant at an average price well above the value of Sir Martin's offer, seems finally, in a bizarre reversal of the old quest, to have discovered the secret of how to turn gold into base metal. Check mate.

jeremy.warner@independent.co.uk

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