Make sure banks keep their integrity? They’ve got to have it in order to lose it

 

OUTLOOK: “Integrity cannot be regulated, it comes from within,” Mark Carney, the Governor of the Bank of England, opined as he agreed to help choose the chairman of Sir Richard Lambert’s new Banking Standards Review Council.

The theory seems to be that integrity can at least be monitored from without. Which is what the council will do, while at the same time seeking to haul up professional standards that have for years languished in a cesspit of scandal.

This will be achieved by naming and shaming bad banks in an annual report. The council is thus the banking industry’s equivalent of Super Nanny. “This behaviour is unacceptable” will be the charge levelled at miscreants, which run the risk of being consigned to the naughty step for a year.

Before we dismiss the council as an expensive talking shop (the cost to the industry of funding it will be up to £10m a year), it’s worth noting that this is a reasonably significant step, assuming Mr Carney and friends can come up with a credibly independent figure to chair the body.

Businesses tend to be quite fond of codes of practice, with nice little logos they can attach to their goods or services. They tend to be much less fond of handing them over to people with the power to humiliate them publicly for non compliance.

But – before joining in with the two, even three, cheers that Sir Richard received from most external commentators yesterday – it is worth making a few salient points.

The new body will not be a regulator, because the industry already has two of those in this country alone. Thanks to their activities, and to those of their equivalents overseas, banks have paid more than $6bn (£3.5bn) in fines relating to the Libor interest rate fixing scandal. In excess of £20bn (and counting) has gone out or will go out to people mis-sold payment protection insurance.

Then there are those interest rate swaps that were mis-sold to business customers. More than £3bn has been set aside to cover the cost of dealing with that scandal, although some estimates put the final tally at up to £10bn and perhaps more.

Meanwhile, HSBC paid out $1.9bn for acting as a conduit for Mexican drug money and innumerable smaller penalties have been shared out by its peers. And we haven’t even got started on the growing foreign exchange trading scandal as watchdogs around the world continue the painstaking task of sifting through (data) warehouses full of documents, emails and Bloomberg chats.

You’d think numbers like these would have had some sort of impact on the executives at these organisations. But apparently not. For it is against this backdrop that Barclays went ahead and hiked bonuses for its masters of the universe (star investment bankers of managing director rank and above) by 10 per cent, even though profits fell. HSBC, for its part, tried to hand its chairman a bonus of up to £2.25m – later reduced to £1m – for work he was already being handsomely paid to do.

Integrity doesn’t just come from within – it comes from the top – and incidents like this lead me to question whether those at the top of the banking industry really have much of it. So why should we expect any better from those lower down the food chain, regardless of what a new standards council says or does?

Pfizer chief knows time is on his side in the takeover battle

 Is AstraZeneca really going to look any different to the way it looks now in six months? Probably not, and Pfizer knows it.

The American giant has had its final – absolutely its last, cross our hearts and hope to die – takeover “bid” rejected by its British pharmaceutical rival.

Except that it never amounted to a firm offer, only a proposal, and that was where Pfizer said the cards would remain in the absence of a recommendation from AstraZeneca’s board, while in the meantime it urges “supportive shareholders” to push the target’s executives to the table.

Pfizer is in effect trying to have its cake and eat it. The phoney war until now might have been unpleasant, but were Pfizer to go hostile and table a firm offer to AstraZeneca shareholders, the gloves would really be off.

Pfizer doesn’t want that. Much easier to let AstraZeneca’s shareholders – many of whom are American – do its dirty work for it, thank you very much. If that means walking away for six months, as required by British takeover rules, then so be it.

Pfizer’s beancounter of a chief executive, Ian Read, knows AstraZeneca had some promising drugs in development. He desperately wants to get his hands on them. But he also knows that it is highly unlikely to be able to unleash a blockbuster on to the market in that time.

All this leaves the UK company’s chief executive, Pascal Soriot, reliant on other means to put some vim into his share price. For which read, perhaps, a strategic review and cost cuts. Lots of cost cuts.

Standard practice in this sort of case would be to issue a statement in a few weeks saying he has miraculously identified new savings before swinging the axe.

Which means that if, when, Pfizer comes back, the charges of being an evil cost- cutting asset stripper will be rather easier to deal with. Mr Read will simply be able to say: “What, you mean like these guys?”

Meanwhile AstraZeneca’s allies will be less likely to leap into the fray on its behalf.

Being involved in drug development, Mr Read will have become used to playing the long game. Thanks to the takeover rules in his native UK still being heavily weighted in favour of the acquirer – despite the odd tweak – he knows he holds nearly all the cards. Get ready for round two.

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