Lehman's wrong lesson
It is nine months since the collapse of Lehman Brothers and the financial crisis is—so we are told—pretty much over. The banks are unfreezing and things are returning to normal. A host of American banks are queuing to repay the money they got from the US government last autumn under the Tarp scheme. In Britain, Lloyds TSB has been doing the same. "Here's your money," is the near universal refrain from the bankers to the politicians. "We want our laissez-faire economy back. If you won't give it to us, we won't lend and there won't be any recovery. And if that's the case, it will be your fault."
People have pondered long and hard since last September whether the US government was right to allow Lehman Brothers to collapse. Some believe that it was a reckless act that imperilled the global financial system. Others think it was a necessary shock that gave us at least a chance of changing behaviour in the financial system and checking the bubble mania of recent years.
I am in the latter camp, but find myself increasingly feeling that the opportunity to reform the financial system has been fumbled. We have had the pain without the gain, so to speak. The view now seems to be that the crisis of last autumn was so scary that it is imperative that the system should be shored up quickly, even at the cost of effective reform. Hence the queue of banks on either side of the Atlantic clamouring to repay their government money. They want to get back in the game as fast as possible.
The Lehman crisis was supposed to shock the financial system into behaving better—to force it take fewer risks with investors' (and ultimately taxpayers') funds. But far from cowing the bankers, who have recovered their bounce, it has cowed the politicians, the very people who were supposed to take charge and enforce new rules. The best hope for change now probably lies with the central bankers. Let's hope they rise to the challenge.
Excessive roaming charges
The British public has turned its fire on politicians over their expenses in recent months. The tumbrils have been duly diverted from Fred Goodwin's Edinburgh villa to the moated mansions of Sir Bufton Tufton MP and his pals. No doubt a few fat cats in the boardroom are crossing their fingers that that the heat is off.
Hopefully not.
The case of Arun Sarin, erstwhile chief executive of Vodafone, reminds us how much needs to be cleaned up on the corporate front. Sarin ran the mobile phone company for five years, during which time he was paid between £1.1m and £1.3m a year in base salary. A reasonable whack, one might think, but it did not satisfy Sarin's healthy appetite for cash. In addition, he received more than £1.3m in "relocation expenses"—£835,000 when he came to Britain from America in 2003 and another £500,000 when he went back again. That, in effect, increased his base salary over the five-year period by 20 per cent—but in a way that obscured the true picture from shareholders. It was no more reconcilable with any moving expenses he might actually have incurred than Margaret Moran's dry rot was directly connected to her duties as an MP. If I am wrong, Sarin should produce the receipts and I will apologise.
Of course the argument will be made that Sarin is an extraordinarily talented figure, so the pressures of the market meant Vodafone had no choice but to pay up. But the results look differently: while he ran the company, its total shareholder return (capital appreciation plus dividends) was 12 per cent, while for the FTSE100 index it was 55 per cent. The remuneration committee that agreed his moving expenses included then Vodafone chairman Ian MacLaurin and former Warburg chairman David Scholey. They should hang their heads in shame. But the real lesson is that boards in general can't be trusted. It is high time that companies gave their shareholders a binding vote on executive pay. That would force companies to disclose contracts in their entirety. It would also force bosses to moderate the extortionate deals that they now demand.
Those in doll houses
A large number of investment bankers recently thronged the Donmar Warehouse to see a new production of Ibsen's A Doll's House, in which X-Files actress Gillian Anderson took on the role of Nora. But the bankers weren't there because they were fans of Ibsen. It was a special "bring a client" evening hosted by Barclays Capital—the surprisingly resilient investment banking unit of Barclays Bank.
A daring idea, one might think, for a bank to sponsor a play with the central theme of the peril of taking on debt—and then invite its customers to see it. Maybe the crunch really is over.
True, the Donmar had commissioned a new version in which the play's setting was changed from a Norwegian bank in the 1870s to British high politics circa 1909. But it still contains a splendid line in which one of the characters, who has borrowed a large sum out of necessity, bemoans the difficulty of repaying it. Apparently it's not the principal amount which is difficult; it's the unexpected need to pay interest as well. Well, quite.
It is nine months since the collapse of Lehman Brothers and the financial crisis is—so we are told—pretty much over. The banks are unfreezing and things are returning to normal. A host of American banks are queuing to repay the money they got from the US government last autumn under the Tarp scheme. In Britain, Lloyds TSB has been doing the same. "Here's your money," is the near universal refrain from the bankers to the politicians. "We want our laissez-faire economy back. If you won't give it to us, we won't lend and there won't be any recovery. And if that's the case, it will be your fault."
People have pondered long and hard since last September whether the US government was right to allow Lehman Brothers to collapse. Some believe that it was a reckless act that imperilled the global financial system. Others think it was a necessary shock that gave us at least a chance of changing behaviour in the financial system and checking the bubble mania of recent years.
I am in the latter camp, but find myself increasingly feeling that the opportunity to reform the financial system has been fumbled. We have had the pain without the gain, so to speak. The view now seems to be that the crisis of last autumn was so scary that it is imperative that the system should be shored up quickly, even at the cost of effective reform. Hence the queue of banks on either side of the Atlantic clamouring to repay their government money. They want to get back in the game as fast as possible.
The Lehman crisis was supposed to shock the financial system into behaving better—to force it take fewer risks with investors' (and ultimately taxpayers') funds. But far from cowing the bankers, who have recovered their bounce, it has cowed the politicians, the very people who were supposed to take charge and enforce new rules. The best hope for change now probably lies with the central bankers. Let's hope they rise to the challenge.
Excessive roaming charges
The British public has turned its fire on politicians over their expenses in recent months. The tumbrils have been duly diverted from Fred Goodwin's Edinburgh villa to the moated mansions of Sir Bufton Tufton MP and his pals. No doubt a few fat cats in the boardroom are crossing their fingers that that the heat is off.
Hopefully not.
The case of Arun Sarin, erstwhile chief executive of Vodafone, reminds us how much needs to be cleaned up on the corporate front. Sarin ran the mobile phone company for five years, during which time he was paid between £1.1m and £1.3m a year in base salary. A reasonable whack, one might think, but it did not satisfy Sarin's healthy appetite for cash. In addition, he received more than £1.3m in "relocation expenses"—£835,000 when he came to Britain from America in 2003 and another £500,000 when he went back again. That, in effect, increased his base salary over the five-year period by 20 per cent—but in a way that obscured the true picture from shareholders. It was no more reconcilable with any moving expenses he might actually have incurred than Margaret Moran's dry rot was directly connected to her duties as an MP. If I am wrong, Sarin should produce the receipts and I will apologise.
Of course the argument will be made that Sarin is an extraordinarily talented figure, so the pressures of the market meant Vodafone had no choice but to pay up. But the results look differently: while he ran the company, its total shareholder return (capital appreciation plus dividends) was 12 per cent, while for the FTSE100 index it was 55 per cent. The remuneration committee that agreed his moving expenses included then Vodafone chairman Ian MacLaurin and former Warburg chairman David Scholey. They should hang their heads in shame. But the real lesson is that boards in general can't be trusted. It is high time that companies gave their shareholders a binding vote on executive pay. That would force companies to disclose contracts in their entirety. It would also force bosses to moderate the extortionate deals that they now demand.
Those in doll houses
A large number of investment bankers recently thronged the Donmar Warehouse to see a new production of Ibsen's A Doll's House, in which X-Files actress Gillian Anderson took on the role of Nora. But the bankers weren't there because they were fans of Ibsen. It was a special "bring a client" evening hosted by Barclays Capital—the surprisingly resilient investment banking unit of Barclays Bank.
A daring idea, one might think, for a bank to sponsor a play with the central theme of the peril of taking on debt—and then invite its customers to see it. Maybe the crunch really is over.
True, the Donmar had commissioned a new version in which the play's setting was changed from a Norwegian bank in the 1870s to British high politics circa 1909. But it still contains a splendid line in which one of the characters, who has borrowed a large sum out of necessity, bemoans the difficulty of repaying it. Apparently it's not the principal amount which is difficult; it's the unexpected need to pay interest as well. Well, quite.
