In These New Times

A new paradigm for a post-imperial world

“Investors” warn Osbourne

Posted by seumasach on July 3, 2011

More City chutzpah- the job of the authorities is to channel public funds to the banks: what they do with it is their business. The reforms are anyway too late to stave off disaster but the banks want to make a point of principle about government regulation.

“The thing that makes everyone so nervous about investing in banks is precisely the uncertainty about all these issues,”

What makes people nervous about investing in banks is the knowledge that their accounts are phoney and that they are sitting on multi-bullion losses: only state funding makes them seem viable, until you grasp that the state is itself bankrupt and the pound sterling essentially worthless.


Investors issue warning to George Osborne on ring-fencing plans


3rd July, 2011

Richard Buxton, the head of UK equities for investment giant Schroders, met Treasury officials last month to deliver the warning in person. Schroders is one of Britain’s most important investment houses, managing £180bn of assets which it invests on behalf of pension funds, charities, savers and corporations.

He said regulatory uncertainty meant that billions of pounds of investment could potentially be witheld from the sector. This would make it more difficult for banks to hit new capital rules being imposed by global regulations and lending targets to business to support UK growth.

Mr Buxton argued that Government backed plans for UK banks’ retail operations to be “ring-fenced” from investment divisions lacked detail, making it impossible to judge what the impact might be.

“The thing that makes everyone so nervous about investing in banks is precisely the uncertainty about all these issues,” he told The Sunday Telegraph.

“We cannot quantify exactly what the costs are and what the ultimate scope is for these banks to make in terms of return on equity.” In its interim report published in the spring, the Independent Commission on Banking proposed the ring-fencing plan, a move that is likely to increase funding costs for UK banks and put them at a disadvantage to banks from abroad.

“The Treasury admitted that the ICB team was pretty thinly resourced and therefore there wasn’t much concrete evidence about why they had come up with this idea,” Mr Buxton said.

“There just isn’t any cost benefit analysis. If you have a sudden loss of confidence in a bank it is not clear that a ring fence around the retail bit is going to stop material outflows.”

Mr Buxton said it was clear that the European Union, the highest competition authority in Europe, was uncomfortable with allowing different countries to have different regulatory regimes.

“During the course of our meeting [the Treasury] did raise the point that the EU legislation is going for maximum harmonisation. Everyone in Europe has to run by the same rules and no-one can have a super-equivalence,” he said.

“The EU is leaning towards going for a level playing field which would mean that this entire ring-fencing idea goes out of the window. The whole thing could be a complete and utter waste of time.”

Mr Buxton said that any enforced sale of more Lloyds branches would be “completely unacceptable”.

Schroders supported Lloyds equity capital raising “on the understanding that the future shape of the group was clear”. “If they are retrospectively going to tear that up then that’s going to lead to a much higher equity risk premium for all UK banks relative to peers because you are riding roughshod over EU law.

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