Questions hanging over role of the regulators
"If they cannot co-operate even on a simple inquest, you have to wonder what prospect there is preventing another Barings"
Wednesday 18 October 1995
If this is how the policemen conduct themselves, what hope is there that they will be any more sucessful in crime prevention next time round?
"For the limited assistance rendered to us by the Board (of banking supervision) we are grateful" say the Singapore inspectors, in a backhanded wallop of a tribute to the Bank of England's clearly less that generous assistance. For its part, the Board complained in its report in the summer that it had been unable to talk to the Singapore Monetary Exchange or look at its files and had to rely on a brochure for some of its information.
Taken on their own, each side's explanation of why cooperation was so poor probably makes some sort of sense. The Bank of England was caught up in the tentacles of the Banking Act 1987, which has some tough clauses aimed at maintaining confidentiality. For its part, Singapore clearly felt the Bank failed to move rapidly or effectively enough through local courts to secure access to documents in the Far East. The dispute degenerated quickly into a tit-for-tat row. The two reports are clearly the worse for it, since neither gives the whole picture. That, unfortunately, remains deeply confused.
If regulators cannot co-operate even on an inquest, you have to wonder what prospect there is of preventing another Barings - or for that matter a Daiwa, where there was a yawning communications gulf between the US and Japanese authorities. Regulators will tell anybody who cares to listen that one of the best prophylactics for unwanted financial disasters is better co-operation between the national organisations responsible. Judged on the record so far, pigs might fly.
The Singapore version of events has to be read with circumspection. As a relatively new financial centre, the last thing the Singapore financial establishment wants is to sully its reputation if there is any possibility of blaming London. Nevertheless, the Singapore report does put a new perspective on what happened, alleging a blatant cover-up in London. By contrast, the Bank of England report went no further than suggesting culpable ignorance on a grand scale.
If the Singapore version is right, it deepens the mystery of why the UK authorities are so desperately reluctant to see any aspect of the case reach the UK courts. More significantly, it reopens questions never satisfactorily answered in the Board of Banking Supervision report about the extent of the Bank's culpability. The Singapore report claims that as late as February Barings could have averted collapse. The critical mistakes, or oversights, occured in January.
The Barings management had long had an informal concession from the Bank of England that allowed them to risk more than 25 per cent of their bank's capital on Nick Leeson's activities. As we now know, the Bank became increasingly concerned about this. During January, there were serious discussions at a senior level within the Bank of England about why Barings had been allowed to exceed this crucial limit. Plainly, if more forceful action had been taken then the outcome might have been very different. In the event, the discussions led to a letter from the Bank on 1 February withdrawing the informal concession, but giving Barings time to come into line.
When it took this decision, the Bank already had evidence that in the last three months of 1994 Baring's exposure had exceeded 75 per cent of its capital, evidence which "did not evoke a strong reaction either from the Bank of England or Baring Group's senior management," according to the Singapore version.
The main blame for this lamentable episode clearly lies with Nick Leeson and the Barings management, of that there can be no question. Nonetheless, there are still big questions still to be answered by the Bank of England and other regulators. The Bank of England's own report failed to clear the air, indeed it only reinforced the suspicion of cover up. The Singapore report, suspect though it may be, adds further to those suspicions. This is an inquiry that needs to be reopened.
Another Grand Met golden handshake
Not much changes at Grand Metropolitan. Another day, another re-structuring, another director walks away with a thumping big pay-off. Shareholders might wonder for whose benefit this company is run; them or the directors. The good news yesterday was that Grand Met has finally resolved the succession question (in contrast to GEC which seems as far from a solution as ever) with George Bull moving up to replace Lord Sheppard as chairman. John McGrath takes the chief executive's slot. The bad news is that it involves the usual high level casualty, with shareholders picking up the tab.
Grand Met seems incapable of managing a succession without a generous cheque for a departing director. In most organisations, those who are passed over for promotion either have to lump it or leave. Not apparently so at Grand Met. Once on the moving escalator, it's win, win, win; the top job or the redundancy cheque. The last 20 years have seen four head- to-head battles for chief executive. This time it is David Nash who has lost out, so off he goes with pounds 800,000 in his pocket. Two years ago George Bull won the scrap for the post. Off went Ian Martin, the other contender, with a not dissimilar barrow-load of money. He is now chief executive of Unigate.
Though Mr McGrath seems a popular choice in the City, the shake-up involves the usual disruptive management tinkering lower down. This can hardly be right for a company still attempting to digest January's pounds 1.7bn acquisition of Pet, the US foods company. Nor do the latest changes answer any of the strategic question marks still hanging over Grand Met. Management insists that Burger King is not for sale, even though the fast food chain appears out on a limb in the company's brand portfolio. The Pearle opticians division will surely be sold as soon as it makes enough money to attract a buyer. Haagen-Dazs is still not breaking even and the European foods business is struggling. Doubts about Grand Met's ability to manage organic growth in the foods remain.
Meanwhile, the company is plagued by bid and break-up speculation, with the IDV drinks business the obvious jewel in the crown. Under Lord Sheppard, Grand Met developed a reputation for being a deal-driven conglomerate with a penchant for financial engineering that obscured the company's true performance. In recent years, this has been far from spectacular. With no fresh blood from outside, and still no obvious corporate purpose to this oddball collection of businesses, there is depressingly little reason why things should change.
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