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I hope that everyone had an excellent Christmas and New Year. 2011 was not without its challenges but the financial services practice of Interim Partners had another strong performance with growth over 30% for the second year running. Given the level of change within the financial sector I expect 2012 to be equally busy with cost reduction exercises, regulatory reform and integration programmes widely present in the market.
Now that the festivities are over and normal service has resumed I am fully focused on what needs to be achieved in 2012 and how to go about it. At the risk of sounding strange, I must confess to thoroughly enjoying writing business plans, it’s a great chance to step back, lift up the drains and think hard about what works and what doesn’t. Something new that I will be doing this year is working towards achieving the Chartered Director qualification with the Institute of Directors – its been a long time since I went back to school but am looking forward to sharpening up on subjects such as finance, strategy, marketing and corporate governance.
I would like to ask those within the Interim Partners network: what are your objectives for the year and what are you doing that is new for 2012?
Andrew McIntee is Director of Financial Services for Interim Partners.
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There has been a campaign running for some time now for a “Robin Hood Tax” or “Tobin Tax” on financial transactions where a levy is applied to all share, bond and currency trades. The debate intensified this week when the Church officially came out and supported the idea (I wonder if this was an attempt to divert attention from the pickle they have gotten themselves into at St Paul’s).
The Church is not alone, the EU is very much in favour of implementing a transaction tax and Nicolas Sarkozy and Angela Merkel are keen to implement it. They no doubt do so knowing full well that London will bear the brunt of such measures and take the effective risk of driving its valuable financial services sector abroad. If additional taxes were proposed on agricultural or engineering output instead I very much doubt the French or German stance would be so enthusiastic.
David Cameron and George Osborne have naturally been cautious on the idea in a bid to protect the UK’s interests, agreeing in principle but arguing such a tax would need to be globally implemented to avoid a mass flight of financial services businesses to relocate in countries with more favourable tax conditions. There has already been the “super tax” on bonuses, the four year banking levy came into force this year and now the Tobin tax is under discussion. Will there become a point when the UK will lose its appeal to be a major centre for financial services? How big in reality is the threat to the UK’s financial sector from other global locations and what could those locations be?
Your thoughts as ever are appreciated.
Andrew McIntee is a Director and Head of Financial Services at Interim Partners.
Click here to read other blogs on the Financial Services sector
I was amazed to hear of the 31 year old trader at UBS who has been charged by the City of London police today following the discovery of £1.3bn of unauthorised trading losses. What raised my eyebrows more was that it was the actions of the trader himself informing his bosses of the positions that brought the matter to a head, rather than being picked up by any of the risk management controls.
I accept that no systems are perfect and a few quid will go astray here or there, but £1.3bn is more that UBS earned in the first half of the year. Of course financial services is a zero sum game and no money is ever lost, it is simply transferred, I’m sure that their loss is somebody else’s gain, but that will be of poor consolation for the UBS employees whose bonuses hang on good results. This will be exactly what UBS doesn’t need at this time; the recent strength of the Swiss Franc has been killing the competitiveness of the bank and it is already under pressure back home after receiving a £35bn taxpayer bailout in the banking crisis, this episode will do nothing to reassure them that their money was well invested.
I have never seen a time when greater focus was applied by senior management within financial services companies to risk, controls and compliance yet 3 years on from the eye of storm and it would appear that some companies have learnt very little.
So what is the answer? More proactive regulation, greater external auditing of controls and risk management, more personal liabilities for Directors of banks? Do we have to accept that no system is fool proof and determined people will always find a way around it?
Comments, as ever, are welcome.
Andrew McIntee is a Director and Head of Financial Services.
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Following on from my blog post in early April about the Vickers Report, it would appear that the Chancellor has accepted the major finding of the report that large banks must ringfence their retail operations to make them independent of any investment banking divisions. Increasing the tier 1 capital ratios from the current 7% to a forecast of 10% will also be imposed – thus providing a Government answer to the ever present question of “too big to fail” that has been debated to death since 2008.
I thought it was interesting that George Osborne has come out in public support of it now, rather than wait until the publication of the final report in September. This will send a clear signal to the banks involved, mainly RBS, Barclays and HSBC that the time for lobbying is over and to start making plans to comply with the new rules. Ed Balls has also come out and supported the findings; given the cross party approval I would suggest that at this point any arguing against the Vickers Report is now futile.
What will this mean for interim management? Certainly a lot more change to deliver which as ever remains the engine room of the market. Ringfencing will require that retail operations will need to be able to stand on their own two feet – with their own IT systems, finance and risk functions etc. Considering the size of the organisations in scope it could boost demand for interim managers in the sector for several years.
All these changes and increases in capital to improve market security will have to be paid for somehow and no doubt the banks will be looking to pass some of this cost on to customers – for everything there is a price!
Andrew McIntee is a Director and Head of Financial Services
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I see shares in the major banks rose yesterday due a collective sigh of relief that they have “dodged a bullet” following the interim proposals put forward by the Vickers review of the banking sector. Although there are greater requirements to hold tier 1 capital ratios at 10% as opposed to the current 7% and the ring fencing of retail banks from the riskier investment banks to protect deposits, the report stopped short of calling for the divestment of retail and investment banks altogether.
Such an approach would surely have been a hugely complicated affair; one can only imagine how much time and money it would cost to separate Barcap from Barclays or RBS Global Banking & Markets from RBS Group.
I also couldn’t help feel a little bit sorry for the shareholders of Lloyds Banking Group who were singled out for having a dominant position of 30% of UK current accounts. That is statistically true but only because they stepped into the breach to purchase HBOS during the worst point of the banking crisis, heavily encouraged by the Prime Minister at the time. With a limited window for due diligence available they unwittingly bought a book of commercial property loans that cost them a fortune in write downs. The Banking Commission have since branded the merger a “mistake” and are likely to enforce the sale of more than the 600 branches originally slated to possibly up to a 1000 branches. It would appear Lloyds has taken a big risk, endured significant financial pain but won’t be allowed to see much of an upside.
As this report is an interim one, no doubt Lloyds et al will be embarking on a major lobbying offensive over the next few months. Have the reforms been too lenient and has the Commission “bottled it” as some suggest? Have they gone too far and reduced the competitiveness of the UK banking sector by increasing capital requirements to greater than those of our international competitors? Due to the costs of restructuring have we just heard the death knell of free current account banking in the UK?
As ever, I would be keen to hear the views of interim managers within our network.
Andrew McIntee is a Director and Head of Financial Services practice.
Click here to read other blogs on the Financial Services sector
I have noticed a sea change in the stance of the banking sector in recent weeks – and not before time in my view. Now that the Project Merlin agreement with the largest UK banks on lending, pay and bonuses has been announced, Treasury sources said that the time had come for us to move from “retribution to recovery” with regards to financial services. Officials are looking for a shift in the argument away from endless talk about bonuses to meaningful discussion on how banks can play a part in building UK Plc.
Under Project Merlin, banks will lend about £190bn to businesses in 2011 – including £76bn to small firms – limit bonuses and reveal some salary details of their top earners, major players such as HSBC, Barclays, RBS and Lloyds Banking Group have all signed up.
Bob Diamond, once described as the “unacceptable face of banking”, was quizzed by a Treasury Select Committee in January and he made his standpoint very clear:
“There have been apologies and remorse from bankers. What we need is a dose of confidence; we need to think about what’s best for the economy of the UK.”
“I really resent the fact that you refer to this as blackjack or casino banking or rogue trading,” he said. “It’s wrong, it’s unfair, it’s a poor choice of words. We have some fantastically strong financial institutions in this country and frankly they deserve better.”
I tend to agree, whilst it is clearly true that the financial services sector is culpable in causing economic carnage across the globe, it is not the fault of the entire sector and the industry is not without significant merit. The report prepared for the City of London Corporation by PwC in December estimated that for 2010 the financial sector as a whole made a total tax contribution of £53.4bn to the UK economy – that’s 11.2% of the total government tax receipts for all taxes that year.
The sector is not yet out of the woods, however, although George Osborne ruled out imposing a formal bonus tax he did increase the levy on banks to £2.5bn this year, costing an extra £800m. The political storm still rages also, Liberal Democrat Treasury spokesman Lord Oakeshott resigned after the Merlin agreement was announced, branding Treasury negotiators “incompetent”.
My own view is financial services is a global business and very portable, if the UK doesn’t want the tax receipts there will be plenty of other countries who will gladly take it. After making necessary regulatory changes we need to draw a line under demonising a critical part of our GDP.
As ever, I would be interested to hear your views on this; should we move on and stop the bank bashing – or do they deserve everything they get?
Andrew McIntee is a Director and Head of Financial Services practice.
Click here to read other blogs on the Financial Services sector
Even though the Irish banking crisis began in 2008 it is still having major repercussions for the financial services sector. Bank of Ireland’s share price plunged 20% yesterday and Allied Irish was down 15%. The property crash that resulted in a 50 to 60% fall in house prices has left the banks with enormous bad debts and the subsequent £39 billion bailout by the Irish government has crippled the national finances, the budget deficit will be 32% of GDP this year.
Ireland has been left with no option but to ask the EU for assistance which could add up to £77bn. This uncertainly is now spilling over into the world’s financial markets and European and Asian shares are sharply down.
One thing is for sure, whether you are an interim looking for your next role or a provider looking to deliver assignments, we are all hoping for a speedy recovery to the financial services sector. So the key question is, what are the critical success factors that will lead to a recovery?
I canvassed opinion last week from Chris Plumbridge, an interim Finance Director of many years experience and his view was threefold:
- The availability of credit/liquidity. For example, in the retail mortgage sector the key constraint is the availability of funds to lend – not qualifying borrowers or properties;
- A stable and predictable regulatory regime. Understandably, in view of recent events, regulators are concerned about financial services institutions’ solvency and risk management (amongst other things). However, if the solvency regime is too stringent then it will constrain those institutions with money to lend and/or invest and slow the pace of recovery;
- Confidence. Investors – particularly retail investors – tend to invest at or near market peaks. Any sign of returning confidence and returns will attract investment out of defensive investments (For example, cash) and back into equities and other risk-based investments.
I would be very interested to hear and debate the views of interim managers within our network on what they think the critical success factors will be for the recovery of the financial services sector.
Andrew McIntee is a Director and Head of Financial Services at Interim Partners
Click here to read other blogs on the Financial Services sector
I notice that the appointment of Bob Diamond as Group Chief Executive of Barclays has caused a large amount of uproar this week. Vince Cable has predictably waded in with his “casino banking” comments and Matthew Oakeshott, the Lib Dem treasury spokesman said “he’s a great gambler but has no experience of retail banking”. Ouch.
Few would understate the importance of Bob Diamond in transforming the small investment banking arm of Barclays, BZW, into the international giant that is now Barclays Capital.
For me, this raises a number of questions:
Is it fair to label one of the greatest bankers of his generation as a “gambler”?
Is it appropriate for the Government to criticise the board appointments of a public company that has not been part of a taxpayer bail out?
Are Barclays right to appoint an investment banker to run retail bank?
Your comments, as ever, would be appreciated.
Andrew McIntee is a Director and Head of Financial Services at Interim Partners
Click here to read other blogs on the Financial Services sector
The UK housing market has exhibited signs of slowing growth in the past few days. Bank of England figures show that the number of mortgage approvals were just 160 higher in July than in June and only a little higher than the average for the previous 6 months. The National Housing Federation is also forecasting that house prices will fall by 3% next year.
Given that the real impact of the Government Spending Review scheduled for the 20th October has yet to bite into the economy, one can only wonder what effect a slowing housing market and rising unemployment will have on consumer confidence, particularly in the crucial run up to Christmas.
That said the banking sector in the UK posted encouraging half year results, Barclays reported increased profits to £3.95bn up from £2.75bn, HSBC’s profits more than doubled to $11.1bn and RBS returned to profitability to the tune of £1.14bn, good news for taxpayers who own 83% of the shares, although some of that profit was due to changes in accounting rules.
Most of the gains are due to far fewer loan impairment charges than in the previous couple of years and an increase in retail and commercial banking divisions. Contrasting with recent times the investment banking arms have struggled, Barcap for example saw its income fall by 38% compared with 2009.
In the US, banking profits are also on the up and lender profits have now reached pre-banking crisis levels owing to a fall in the rate of loan losses. The US banking market is polarised, however, with larger banks performing well but smaller banks still in the doldrums. The Chairman of the banking regulator, FDIC, said that almost 2 out of 3 banks are reporting better like for like figures.
As the old saying goes “what happens in America happens over here” so hopefully the worst is behind us and the sector can look forward to increased activity in 2011, despite the wider economic turmoil which is set to come out of the public sector.
Demand for interim managers in the financial services division at Interim Partners is very strong. We have just posted record results for July and August and appointed two new members to the team who will help expand the practice.
As always, I welcome comments and observations on the sector from interim managers in our network.
Andrew McIntee is a Director and Head of Financial Services at Interim Partners.
Click here to read other blogs on the Financial Services sector
The question of retail banking charges on overdraft fees have been back on the agenda this week. Research for Panorama reveals that high street banks surveyed are charging as much as 167% interest on unauthorised overdrafts and an average of 32% interest on authorised overdrafts, despite advertised rates of around 19%.
Vince Cable, the Government’s Business Secretary and long term critic of the banking sector couldn’t resist a broadside. Mr Cable said: “When we talk about restructuring the banks what’s going to come out of this is a more competitive system where the customers are not ripped off.”
According to the Office of Fair Trading, in 2006, Britain’s banks earned £2.6bn in profit from penalty charges. Based on that fact it may appear that Vince Cable has a point, but given that to the general public current accounts are largely offered free of charge banks have to make money from somewhere. The alternative is monthly fees for all which would surely penalise those customers who run their accounts sensibly and therefore do incur penalty charges.
Vince Cable also made the point that the banking system is now even more concentrated than before the crisis leading to less choice which allows the banks to increase margins. It was however the former Prime Minister who waived competition laws to enable Lloyds to take over HBOS, thus putting Halifax, Lloyds, C&G, Scottish Widows and Bank of Scotland under the same roof.
The FSA are also putting significant pressure on banks to strengthen their balance sheets, something which can only be done if the banks continue to make good margins.
The question remains, are banks ripping off customers or do they represent a vital pillar of the economy trying to get back on its feet?
I would welcome your comments.
Andrew McIntee is Director, Financial Services at Interim Partners.
Click here to read other blogs on the Financial Services sector
