You see, Japanese Knotweed has a root system that beggars belief, so I reckon this invasive flora has similarities with some insidious corporate structures that have hit the headlines recently. Toshiba, for example, has extended the examination of its books to include ALL its subsidiaries and the $1.2bn scandal has seen the departure of nine senior executives so far. The company has promised to reorganise its structure and internal control systems but where have we heard that before and what exactly does it take to achieve an acceptable level of corporate governance?
The inflation of Tesco’s property portfolio pretty much shook the nation and the recent debacle at Barclays has left me with uneasy feelings – the CEO sacked and Sky News reporting fresh rumblings about “fees” paid in the bank’s rescue deal with Qatar.
There is plenty to complain about in the world of corporate governance but the hefty fines and redress requirements imposed on our banks for misdoings before and during the financial crisis should now come to an end.
According to EY’s ITEM Club, UK banks incurred fines and redress of £7.7bn in 2014, up from only £0.5bn in 2010. In its latest report, the economic forecaster comments: “Despite constant hopes from banks that fines are tapering off, provisions suggest there are almost certainly more to come.”
With over £25bn having been paid out by the banks in PPI alone, and Lloyds announcing that the group has increased the provision by a further £1.4bn (total provided by Lloyds so far, £13.4bn), the costs are impacting growth and therefore competition. When it comes to competition, I am with Virgin Money boss Jayne-Anne Gadhia who has recently renewed her plea for compensation costs to be curbed, arguing that too much capital has been taken out of the system via PPI claims and the like, which should now be capped. Ms Gadhia wants to see the market “compete away the bad practices”, and so do I.
A change could be on the cards with the departure of Financial Conduct Authority chief, Martin Wheatley, famous for his “shoot first and ask questions later” approach - hopefully, he has been offered up as a sacrificial hog.
On a brighter note, we have recently seen a LIBOR-fixing trader locked up for 14 years - that, I am certain, will help promote excellence in corporate governance. We need to punish bankers who break the law; learn the lessons; make the changes and prepare for the next bit of skullduggery. We must stop draining the banks of capital to pay for misdemeanours going back a decade or more. Lloyds TSB, for example, has been forced to pay the price of an aggressive sales force built at TSB before it even acquired the bank. What is RBS supposed to do - review PPI sales at Williams & Glyn’s when it carried the name in the 1970s? Jurisprudence dictates that redress claims are one-offs that have an end date. So we need to stop raking over the coals and dragging the dead bodies round the streets.
Prior to the creation of the FCA, the Financial Services Authority, encouraged the sale of payment protection insurance - in some circumstances, borrowers had to sign a waiver to say that they didn’t want to take it out. The PPI scandal and financial crisis itself was a result of failure on behalf of the banks, the regulators and the community at large, as millions of us forgot the meaning of “restraint” and “prudence” in our financial affairs.
We also need to halt the PPI money stream to gain a truer picture of our domestically (please note) driven economic growth. We already know that car sales have been hugely boosted by these payments in recent years, so I only hope that HM Treasury is doing its sums right when it comes to projecting growth. That is to say, taking into account the money that still pours into the pockets of consumers via PPI claims. The £25bn in PPI redress paid out so far equates to 1.2 times the GDP of Latvia, which sits above the halfway mark in worldwide rankings. When did it make sense for any nation to build a claims culture that equals the GDP of a first-world economy?
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