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Showing posts with label City. Show all posts
Showing posts with label City. Show all posts

Monday 2 July 2012

After Barclays, the golden age of finance is dead

Retribution and regulation are sure to follow the Barclays scandal, but if the City is shackled, Britain as a whole will suffer

Everyone's a loser: punishing the City is inevitable following the Barclays scandal, but the whole of Britain could suffer Photo:

Just when you thought bankers could sink no lower in public regard, they’ve done it. News that Barclays has been found guilty of repeatedly falsifying the interbank rate – sometimes for the personal gain of traders, sometimes to make the bank itself seem more creditworthy than it really was – tops off another calamitous week in the seemingly never-ending litany of banking misdemeanours.

Coming hard on the heels of the chaos surrounding an IT breakdown at Royal Bank of Scotland, it is as if bankers are actively out to confirm their reputation for recklessness, incompetence and self-enriching disregard for the interests of customers and the wider economy.

At a time when the political and regulatory backlash against finance is already at fever pitch, much of it ill-thought out, counterproductive and economically harmful, there could scarcely have been a more spectacular own goal. And it doesn’t end there. Banking faces a whole new raft of separate regulatory strictures over the mis-selling of interest rate swaps to business customers.

A year ago, Bob Diamond, chief executive of Barclays, told a committee of MPs that it was time to put the crisis behind us, move on and stop apologising for the failings of the past. He should be so lucky. Not since the Thirties has finance been so much in the dock. On and on the combination of retribution and regulatory crackdown will go until banking is once again thought sufficiently imprisoned to be safe. European policymakers will delight in the ammunition they have been given to rein in the Anglo-Saxon bankers and make them subject to the rule of Brussels and Frankfurt.

Many have already said it, but it is one of those observations that bears constant repetition: in all my years as a financial journalist, it’s hard to recall a case quite as shameful as this – and I’ve certainly seen a few.

There is no industry in all commerce that relies as much on public trust and reputation for probity as banking. We have seen what happens when trust is lost: we get the legion of banking runs that lie at the heart of the financial crisis; people run for the hills and the economy grinds to a halt.

To have American regulators accuse Barclays of lies, deception and manipulation is an appalling indictment of one of the oldest and most respected names in British banking. It is like discovering that your local branch manager has routinely raided your hard-earned savings to finance his champagne lifestyle.

Entrusted with the public’s money, bankers have to be seen as whiter than white, pillars of their community and morally beyond reproach. All these old-fashioned virtues seem to have been lost in pursuit of the easy rewards of international finance. “My word is my bond” – once one of the sacred principles of City finance – has become reduced to a laughable parody of itself.

Now, it may well be unfair to single out Barclays. We already know that at least 20 other banks are under investigation for alleged manipulation of interbank interest rates, including most of the other UK high street banks. It could be that others are equally at fault. We know about Barclays only because in a practice that City lawyers sometimes call “rowing for the shore”, it has decided to abandon the flotilla of co-defendants and settle with regulators.

Downside of plea bargain

In so doing, it may have succeeded in winning both a lower fine and immunity from criminal prosecution, as a corporate entity at least, though the individuals involved may not escape. The downside of such plea bargains is that they involve admission of guilt. The regulator gets free rein to be as critical as it likes, while the mitigation of any defence there might have been is lost.

That these practices appear to have been endemic, not just at Barclays, but across a wide range of international banks, neither excuses nor explains what happened.

It’s interesting that when the fines were first announced on Wednesday, there was barely a flicker of recognition in the Barclays share price. The investigation has been known about for some time, the misdeeds complained of date back three or more years and are therefore water under the bridge, and many in the City judged Barclays to have got off relatively lightly.

But as the night wore on, the seriousness of the situation began to sink in. Bob Diamond, the Barclays chief executive, long despised by regulators found himself politically friendless, too.

As calls for his head mounted, the share price began to plunge. The key concern about Barclays has always been that it is a “black box” operation that only Bob himself properly understands. At a time of growing financial chaos, Barclays could be left leaderless, with the investment banking brains behind much of its recent profitability and successful navigation of the banking crisis thrown to the wolves.

“Bob is mistrusted in the City,” says one seasoned fund manager, “but he’s the glue that holds the whole thing together. Without him it might well disintegrate.”

What went wrong?
 
So what really went wrong here? The London Interbank Offered Rate, or Libor, and its companion, Euribor, are two of the most important benchmarks in finance. Essentially, they are an aggregate of the rates at which banks lend to one another. They are also used to help price a vast array of lending decisions and derivative products, including mortgages.

Yet even in financial markets, it is not widely understood how these benchmarks are arrived at. Unbeknown to senior managers at Barclays, some traders, starting in around 2005 and stretching through to 2009, began persuading those responsible for compiling Barclays’ input to distort the rate in a manner that made their own derivative positions more profitable, hence the excruciating series of incriminating emails cited by regulators.

This was bad enough, but if it had stopped there, the damage would probably have been containable. Even the best of internal controls cannot prevent the determined rotten apple. What has transformed this case into something much more serious is that at the height of the banking crisis “senior managers” themselves – it is still not clear exactly who – ordered that the Barclays submission be manipulated so as to make it look as if the bank was receiving more favourable funding terms than it was. Deceitful behaviour seemed to have become endemic, stretching from top to bottom.

To the extent that there is a defence for such blatant deceits, it runs something like this; everyone else was doing the same thing. Rival banks that were plainly in even worse shape than Barclays were making Libor submissions that appeared to show they were enjoying more favourable wholesale funding rates than Barclays was. On the “if you cannot beat them” principle, Barclays determined to join them.

If this version of events is correct, the whole escapade doesn’t look as bad as it first appears. It is hard to identify who exactly lost out as a result of these fictions. Since there was no interbank funding to speak of at the height of the crisis, it may not in any case have mattered very much.

Even so, it’s quite damning enough. There appears to be nothing bankers will stop at in order to feather their own nests. With tempers already at boiling point over egregious levels of pay and aggressive tax avoidance, the whole affair has now taken on a life of its own.

When the history books are written, this may be seen as a defining moment, the point at which public anger with the banks bubbled over into something much more seismic in its consequences than the general atmosphere of bank bashing we have seen to date. Despite the crisis, there has been a sense of back to business as normal for the City these past three years.

There have been few signs of behavioural change. But this may be the straw that breaks the camel’s back.

Market and regulatory pressures are already laying waste to great tracts of previously highly lucrative banking activity. A major cull of investment banking jobs is expected over the next year, with once bumper bonuses and earnings much reduced on top. Retribution and punishingly restrictive levels of regulation won’t be far behind.

Those who believe that Britain has become too dependent on finance for its own good will no doubt welcome this humbling of an apparently out-of-control City, but they should be careful what they wish for.

Finance’s golden age may be drawing to a close; with no new industry or manufacturing renaissance coming up in the wings, it is not entirely clear what’s going to take its place as a source of British wealth, jobs and tax revenues. It is not just finance for which hard times lie ahead. - Telegraph

Wednesday 23 November 2011

London Offices Foreign Owned!



 Over half London's City offices foreign owned - report

by Andrew Macdonald; Editing by Dan Lalor) Keywords: PROPERTY LONDON

LONDON, Nov 22 (Reuters) - British investors own less than half the office properties in London's City financial hub, with foreign ownership of towers such as the Gherkin likely to continue, a report said.

Property company Development Securities said 52 percent of City office blocks were foreign owned in 2011, up from 8 percent in 1980, with German and U.S. investors hiking their stakes considerably over that period.

'City (of London) offices are perceived to offer quality and transparency -- a 'safe haven' for foreign buyers who have, in turn, deepened liquidity in the market,' chief executive Michael Marx said in the report 'Who Owns the City'.

IPD figures showed property values fell 50 percent during the global financial meltdown to August 2009, subsequently rebounding 25 percent, creating a buying opportunity for cash-rich investors such as sovereign wealth funds, pension funds, insurance firms and real estate investment companies.

'Traditional owners -- livery companies, institutions, established property companies -- have experienced a sharp decline in City office ownership,' Development Securities said, noting these investors now held 17 percent of the office stock, from 29 percent in 2005.



In their place, German investors hiked their market share to 16 percent, from 1 percent in 1980. U.S. investors held 10 percent, from zero, while Middle East investors weighed in at 6 percent, from 3 percent, the survey found.

The 180-metre tall Gherkin tower -- so-called because of its shape, one of the most distinctive in the City -- has been part-owned by German property behemoth IVG Immobilien since 2007.

Foreign ownership increased during the global financial crisis, Development Securities said, noting the changing dynamics of globalisation and international investment would continue to be reflected in City office ownership.

'Such resilience would appear all the more remarkable in the light of the City's associations with the failures of the international financial system. What offsets the systemic risk in relation to the City's lack of diversification is the exceptional liquidity that characterises its office market.'

The Development Securities survey also showed the changing profile of owners, with a growing trend towards private ownership by high-net-worth individuals.

In terms of functional ownership, 41 percent of the office space was owned by companies in the finance, insurance and real estate sectors, and 57 percent by financial and business services firms.

More than half of the City of London's financial buildings are foreign-owned

By Richard Hartley-parkinson

Many landmark buildings in the heart of London's financial district are owned by foreign investors, it has been revealed.

Germany holds the keys to one in five properties across the City including the distinctive Lloyd's Building and Gherkin 

UK ownership is down to it's lowest ever level with just 48 per cent belonging to British people or businesses. In 1980 that figure was 90 per cent.

The Gherkin (right) is owned by a German investment fund Tower 42 (left) looks like it's about to be snapped up by a South African magnate
The Gherkin (right) is owned by a German investment fund Tower 42 (left) looks like it's about to be snapped up by a South African magnate

Lloyds building, famous for having all it's services built outside, is owned by a German bank
Lloyds building, famous for having all it's services built outside, is owned by a German bank

The trend is likely to continue in the same direction as more investors look to get real estate in the UK. Tower 42 - also known as NatWest Tower - is currently on the market and South African magnate Natie Kirsh is the frontrunner in the bidding.

Matthew Weiner, executive director of development securities PLC which compiled the report, said: 'It's gone from 40 percent in 2006 to now 52 percent, so every other building in the city is ultimately owned by somebody from overseas.

'What we've seen as well is the rise for the first time in private net worth individuals which we've never been able to identify in all the studies previously and I think that's an interesting dynamic against safe haven assets that London represents.'
Other significant parts of the City that are foreign owned include 10 Gresham Street (50 per cent Canadian), City Point, Moorgate (American), and Paternoster Square (Japanese).

Mr Weiner believes that foreign ownership is actually beneficial to the British economy. He said: 'I think it's good for liquidity in the market and good for London's status as an international capital.

'I think also these investors coming in have got long term investment horizons which gives greater stability to the market which will help the occupational market as well and help London function as a centre.'

Ownership of buildings has also shifted significantly over the last 30 years.
In 1973, 40 per cent of offices in the City were owned by what the report calls traditional owners.

Now, that figure has fallen to three per cent while nearly 10 per cent are owned by individuals.


This table shows how the ownership of City of London buildings has changed since 1980In the shadow of the very British icon of St Paul's Cathedral, Paternoster Square is in the hands of the Japanese
In the shadow of the very British icon of St Paul's Cathedral, Paternoster Square is in the hands of the Japanese

This table shows how the ownership of City of London buildings has changed since 1980
Around the time of the last recession in 2008, the number of institution owned buildings nearly halved as more specialist real estate groups snapped up property while prices were low.

Despite the economic downturn in Europe London remains the world's top financial centre - ahead of New York and Hong Kong.

The housing market shows a similar pattern as the eurozone crisis continues to hit Greece and Italy, with more and more investors putting their money in London properties.

Greeks and Italians have spent £406m this year on domestic ownership - a 120 per cent increase on 201, according to the Financial Times recently.

This has taken the total number of home-owners from the two countries in the capital to 10 per cent.

There has also been a rise in house purchases by Middle Eastern and North African investors, keen to take advantage of the weak pound.