OUTLOOK: Maurice Saatchi and colleagues should come clean

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The Independent Online
It looks as if Maurice Saatchi is going to have the last laugh after all. Or is he? So far events at the beleaguered advertising group seem to be following the glide path to disaster he predicted with a precision that must bring despair to long-s uffering shareholders. In quick order, the group has now lost its top three people, including its acting chairman, Jeremy Sinclair, and David Kershaw, the man credited with coining the slogan "Labour isn't working".

All three have walked out in support of the deposed chairman. Whether the next tier down, the men and women who create and direct the campaigns for clients, will follow is anyone's guess, but there seems a high chance. It will be the clients who go afterthat. The industry is already alive with rumours that Maurice, who apparently is under no obligation to his former company, has approached former clients to tell them he will be up and ready to do business within weeks. For the time being Mr Sinclair and his colleagues will be unable to join him aboard the pirate ship; they are all locked into year-long restrictive covenants, which the company insists it will hold them to.

None the less, there must be some kind of a plot. Advertising men of this calibre do not resign out of loyalty alone. Like Maurice Saatchi, they also did so in a manner apparently calculated to do their former company as much harm as possible. Each issued a public statement saying in effect that they could not go on working for the grey accountants who now appear to be running Saatchi.

Whatever the intention, the effect has been to plunge the agency into a chaos so deep that it was unable even to respond with a formal statement to the resignations until a good two or three hours after they had become common knowledge in the City. Everyman and his dog bailed out of the stock in the intervening period. The resignations were such common knowledge that they hardly merit the term inside information.

So what could the plot be? The most obvious possibility, to drive down the price to a level at which Maurice and his associates might be able to buy the company back, is denied by all. Certainly if the intention is merely to slam the share price in a madand destructive act of final vengeance, it will ultimately do Maurice and anyone else involved a great deal of harm. No one will thank them for it. Many will refuse to do business with them.

Maurice Saatchi can hardly feel any sense of obligation to his former shareholders. Afterall, they hounded him out of the business. Only one institution holding more than 1 per cent of the shares was prepared to support him when the time came for a show of hands. His motive for revenge is as powerful as they come. To the outside world at least it appears there must be some dastardly plan afoot. Maurice and his colleagues owe it to their former company and the investors who at vast cost to themselves have financed Maurice's grand schemes and ambitions, to come clean on their intentions. Nobody gains anything from the present uncertainty.

Labour must think again on the banks It's bank bashing time again - such good and easy sport. You never know, it might even be possible to win a few votes from it. Certainly that's Gordon Brown's hope. Bankers have never been an easy corner to defend. Most people think of them as a public service, a kind of utility. Though not a monopoly, they certainly act together as an oligopoly. Repeated attempts to differentiate themselves one from another through high-profile and costly advertising compaigns have had little imact. To most people they are all much of a muchness, an effective cartel whose only real interest and purpose is to crunch the customer. That is the general perception, anyway.

Now consider the following. Barclays made a dismal return on shareholders' equity of 3.8 per cent over the five years to 1993, and a still meagre average of 7.6 per cent if you go back to 1986. Worse still, in the late 1980s the bank had the cheek to relieve shareholders of a large part of their cumulative dividend payments, by picking their pockets with a record-breaking rights issue.

The proceeds went straight down the drain in bad debts during the recession. Much the same low long-term profits have been seen among the rest of the clearers, whose eight-year average return on equity of 10.7 per cent only just beats the hotel industry.Something radical clearly needs to be done to raise these inadequate profits to a respectable level.

Oops . . . surely some mistake? Aren't these the profiteering clearing banks that the shadow chancellor wants to bring under control? Can we be talking about the same organisations?

You can do just about anything you like with clearing bank averages. This is a highly cyclical industry that has gone from boom to near disaster three times in the last 15 years.

Mr Brown's claimed 50 per cent increase in clearing bank profits in 1994, to £10bn, comes near the top of the current cycle, when return on equity could well pass 20 per cent for a while, before the next downturn starts. It also includes the profits of several really big multinationals such as HSBC and Barclays, and all their investment banking operations, so has very little relevance to how much the banks are making from high street customers. NatWest may have made £1.6bn last year, but it will be surprising if more than £500m of this proves to have come from UK retail banking.

Much of the increase in clearing bank profits has come from falling bad debts anyway. With loan demand stagnant it has been hard to raise operating profits. And as for the 50 per cent rise in bank charges during the recession, it is hard to see where Mr Brown found the figure. It must have come from bank annual report data on fees and commissions, which embraces much more than personal bank charges.

Indeed, the suggestion that the rise in bank charges fuelled the increased profits is madcap. Only a quarter of customers pay charges, since those in credit get free banking. There is no way overdraft customers at UK branches can be financing a profits recovery on the scale we are now seeing.

It is certainly true that those with overdrafts are being badly overcharged, but the reason is that they are being used to cross-subsidise the other 75 per cent who do not pay. This is a crazy way to levy charges that is unfair to borrowers, and the banks know it. But none of them has yet dared abolish free in-credit banking and charge everyone. One reason is that they would be massacred by another angry broadside from Mr Brown if they did.

While Labour's arithmetic is embarrassingly bad, there is nothing intrinsically wrong with its ideas for a statutory banking ombudsman and codes of practice, to beef up the present weak voluntary systems. But if Labour is bent on turning banking into a price-regulated world like water or electricity it should think again.

Mr Brown's concerns about lack of competition among banks can be addressed far more efficiently by setting the building societies loose on them - as the present government has already done with spectacular results. As a result, banking is an immensely more competitive market than it was 15 years ago, before deregulation. Mr Brown is barking up the wrong tree.

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