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Posts tagged Financial crisis
Auditors face inquiry call after Lehman revelations
Mar 14th
MPs and financial experts demand regulators reform industry in effort to eliminate risky practices, writes Phillip Inman
Pressure was mounting this weekend for a root-and-branch review of the role played by auditors in the credit crunch, following the revelation that Lehman Brothers was able to hide $50bn (£32bn) of debts from regulators despite checks by accountancy firm Ernst & Young.
MPs and financial experts called on regulators to clean up the audit industry as part of a clampdown on reckless and risky practices in the financial sector.
Liberal Democrat treasury spokesman Lord Oakeshott urged the government to commission a fundamental review, while Tory MP Michael Fallon, who is deputy chairman of the influential treasury select committee, said: “Too much is being concealed. We need a fresh approach that gives a more realistic picture of bank finances and not one that disguises risky practices.”
Oakeshott said the treasury select committee’s investigation of Northern Rock’s collapse had already revealed that accountants should be banned from accepting additional consultancy work for the firms they audit; but, he added, “that is just a starting point to cleaning up the whole profession”.
Prem Sikka, a professor of accounting at Essex University and a leading critic of the accounting profession, warned that without deep-rooted reform the crisis could repeat itself. “The report into the collapse of Lehmans is indicative of a deeper malaise,” he said. “We rely on the discretion of eminent firms of auditors and lawyers that are paid millions of pounds for their efforts, but that discretion is too often abused.”
A damning 2,200-page report commissioned by the US bankruptcy courts into the collapse of Lehman said that Ernst & Young’s failure to act over off-balance sheet accounting practices which allowed the bank to hide $50bn of debts, and failing to investigate the concerns of a whistleblower, amounted to “professional negligence”.
Ernst & Young, which earned fees of $31m from auditing Lehman Brothers in 2007, has insisted that a thorough internal review showed it did nothing wrong.
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Fortis becomes ‘ageas’, to signify shift from banking, but was it worth it?
Mar 14th
Corporate rebrandings are almost always pointless, pompous or both. So it’s a relief that bailed-out Benelux insurer Fortis has provided a crib-sheet to explain why as of April, it will be called “ageas” .
Apparently, the a and g at the beginning “celebrate our roots” – the firm began as AG Leven; the e and a in the middle refer to its two key markets, Europe and Asia; and the “as” at the end stands for “assurance”. The absence of capital letters “heightens the sense of unity within our group” and shows that “we don’t want to force our opinions on anyone”. How very modest. To give Fortis its due, the pared-down, pure insurance firm that emerged from the £10bn cross-border taxpayer carve-up is a very different business from the banking conglomerate it had become. BNP Paribas got the group’s Belgian banking interests, while a chunk of the ill-fated ABN Amro that Fred Goodwin didn’t get his hands on was taken over by the Dutch state. What’s left looks more like a boring old insurer, give or take some toxic legacy assets from the credit crunch era, which its boss Bart De Smet has been able to return to profit. But wouldn’t it have been refreshing if he’d applied the same back-to-basics approach to Fortis’s name, instead of succumbing to the brand consultants? It could have been Fortis’s most sensible decision in ageas.
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Bring on the Robin Hood tax | Polly Toynbee
Mar 13th
Everyone but the rich is outraged by the financiers’ billowing wealth. At the budget, Labour can tip the balance back to the people
The budget is 10 days away and yet already the chief secretary, Liam Byrne, appears to have ruled out any new tax rises to deal with the deficit. That is a deeply alarming prospect – and as a political stand, a blunder. If the election squeezes out any honesty about the cuts to come soon, then voters need to know the choices. The Institute for Fiscal Studies warns the likely cuts will wipe out virtually all the extra spending of the Labour era – an unimaginable blow. Unless taxes rise to mitigate that disaster. Whether or not Byrne really meant it, why was he pretending tax rises were off the agenda?
Last week Gordon Brown warned of “bumps in the road” ahead. The man who denied the looming crunch doesn’t say such things lightly. Economists warn that Britain is wobbling on a tightrope over a second recession where spending cuts would precipitate more unemployment and risk sinking the economy into a downward spiral. Mortgage lending figures just plunged, house prices are predicted to fall and export and manufacturing figures were dreadful. Growth figures for this year’s first quarter may have fallen backwards – and they will emerge two weeks before election day. Blame the January snow for lack of shopping – but the outlook could be grim.
The chancellor should be listening to the group of 80 MPs and economists calling for another fiscal stimulus to keep the economy afloat: Britain is one of only two G20 countries withdrawing the stimulus this year. To invest in housing, transport and clean energy with growth and jobs is the Rooseveltian way out of recession and debt. The cabinet debates how to use a windfall from the bank bonus tax and lower than expected unemployment. With an abyss gaping below, of course it must be put back into investment. And this is no time to rule out tax rises.
So far Labour has failed to find the words to express public outrage at the financiers’ billowing wealth while the Treasury is drained. Only weeks since launching, the campaign for a Robin Hood tax on all financial transactions has gathered extraordinary support. It hasn’t been hard, so profound is the untapped public anger at the bankers. This week the European parliament voted for it overwhelmingly – 536 to 80 – supported by the social democrats and the majority conservative EPP grouping: opponents were the ECP rump rightwingers the Tories belong to. Nicolas Sarkozy and Angela Merkel support it. Vince Cable will put it into the Lib Dem manifesto. Gordon Brown supports it but, as ever, he wants US support, which is unlikely. Backed here by some 100 organisations from Oxfam to the Salvation Army, Professor Jeffrey Sachs of Columbia University came to London this week to promote the tax, urging the EU to go it alone.
Rarely has a campaign gathered such momentum in so short a time: 140,000 have joined and more gather by the day, besieging MPs (RobinHoodtax.org.uk). In this budget, campaigners want a sterling transaction tax, to come in at once. Imposing just 0.005% on every sterling deal is within Britain’s sole control, raising £4bn. If the EU agrees a wider financial transactions tax, it would bring Britain another £4bn – one estimate is £100bn across Europe, to be used at home, in foreign aid and on climate change.
Money must be raised, but deficit panic has become a tulip mania in reverse, a group-think stoked up by those with a strong interest in no change. Frighteners about loss of credit rating are absurd: British debt is borrowed long, without need to refinance for some 12 years, and interest rates are low. But the Conservative’s City friends are good at scaring the public about imminent bankruptcy and they lean hard on the Treasury. Look at the budget demands of the Institute of Directors: cut public spending by 35%, (but ringfence cash for roads, rail and airports). Cut corporation tax on companies to 15%, reverse national insurance and 50p tax rises and cut the protections for agency workers. Make the rich richer and the poor poorer – so who are the real class warriors?
Labour has failed to cash in politically on public fury at the rich who brazenly resist fair tax. HSBC’s information has been stolen on 24,000 private accounts in Switzerland and now it frantically assures clients the contents won’t reach tax authorities: HMRC hopes it does, but where is the Labour tub-thumping? Swiss and Liechtenstein bank doors are jemmied open by theft, but why does the EU tolerate any tax haven secrecy? General De Gaulle sent troops to surround Monaco over hiding tax fraud, and cut off its water: they relented. Meanwhile “respectable” consultants with government contracts advise top earners on avoiding the 50p tax rate by describing income as capital gains, or giving interest-free loans to be written off once the Tories get in and the tax is cut. PricewaterhouseCoopers tells the Financial Times it recommends paying dividends out before 1 April – their corporate social responsibility boasts somewhat at odds with denying cash to the state at a time of national emergency.
Where is the shame? The threat is that top people will flee to tax havens, but HMRC has finally toughened rules for residency. Do the rich relish the life of Guy Hands, the private equity head of Terra Firma who loves his money more than his school-age children and parents he can no longer visit from his Guernsey refuge, avoiding that 50p?
What we face here, which Labour has yet to find words to express, is a war between those who control the money sucked up into their own pockets, against the great majority who are the losers. This is the tidal pull of inequality that Labour tried and failed to swim against. This budget is the time to tip the balance on reward and tax towards the people. The reason the Robin Hood campaign is galloping forward so fast is that everyone but the rich wants that tide reversed. This is a totemic tax: many others are needed too.
The budget should lay out the facts – the country is still in great economic peril. If the deficit were paid off by cuts alone, that means a cut of 17% in every department except schools and aid – unthinkable and unnecessary. Money must be raised: it would be a positive social good to raise it from those still making fortunes out of easy processing and skimming of our money in these hard times. Put the case to the voters and see what they think. Labour has little to fear on this. If this is class war, the other side declared it – so let’s fight it.
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Could Lehman’s Dick Fuld end up behind bars?
Mar 12th
What should be the fate of Lehman Brothers’ chief executive, Dick Fuld? After this week’s 2,200-page potboiler from the bankruptcy courts, one former Lehman banker has an uncompromising opinion.
“I think this is gross negligence of the highest order and I want to see people behind bars,” says Larry McDonald, a former Lehman vice-president whose book, ‘a colossal failure of common sense‘ chronicled the bank’s collapse.
Some 18 months after Lehman’s demise, anger is still raw among the bank’s former employees towards the “31st floor” which housed the executive suites of top management.
“On the trading floor, most people were making money in bonds, currencies, commodities,” says McDonald, who says thousands of careers and pensions imploded when the bank went bust. “People lost millions and millions and millions of dollars overnight. Most people want jail time – and not just for Fuld.”
The court-appointed examiner mandated to scrutinise Lehman’s collapse, Anton Valukas, concluded in his report that there were grounds for “colorable claims” against Fuld, the bank’s auditor Ernst & Young and three successive chief financial officers – Chris O’Meara, Erin Callan and Ian Lowitt – for presenting a misleading picture of Lehman’s finances in its accounts. A series of temporary asset sales under a trick known as “repo 105″ artificially bolstered Lehman’s balance sheet to the tune of $50bn.
Like few other financiers, Fuld, 63, has become a lightening rod for public outrage over the credit crunch. The man once nicknamed the “gorilla” for his pugnacious style was memorably named last year as the worst American chief executive of all time by Portfolio magazine, which said he had remained “belligerent and unrepentant” since Lehman’s demise. During a Congressional probe into the bank’s failure, Fuld offered little apology, preferring to express outrage that the government declined to bail out his firm – he said he would wonder “until the day they put me in the ground” why taxpayers did not come to Lehman’s rescue.
For the bank’s final full year of existence, 2007, Fuld received $22m in remuneration. Since Lehman’s demise, he’s been working for a new firm, Matrix Advisers, and he spends spare time at a country home in the backwoods of Idaho. When a Reuters reporter tackled him in September, he delivered a self-pitying lament about his unfair treatment.
“They’re looking for someone to dump on right now and that’s me,” said Fuld. “You know what they say? This too shall pass.”
Fuld’s response to this week’s report by the bankruptcy court has been a shrug of the shoulders. A statement from his lawyer, Patricia Hynes, asserts that he did not know of the bank’s Repo 105 transactions that papered over financial cracks: “Mr Fuld did not know what those transactions were – he didn’t structure or negotiate them, nor was he aware of the accounting treatment.”
That’s a big declaration – since Fuld’s long-serving right-hand man, chief operating officer Bart McDade, says he recalls discussing it with the CEO. In an interview on January 28 with the examiner, McDade is quoted as saying: “Fuld knew about the accounting of Repo 105.”
The department of justice’s success rate in Wall Street convictions over the financial crisis has been poor. One high-profile prosecution against two Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, ended in abject failure in November, when a jury decided that incompetence and mismanagement didn’t amount to a crime.
Experts say that for all the public appetite for charges, it could be tough to make them stick. Jacob Frenkel, a former SEC enforcement lawyer now at the Washington law firm Shulman Rogers, says the examiner’s language was careful: “What I found striking is that even when Valukas’s language was tough, it didn’t venture into the arena of fraud. He talks about gross negligence, which isn’t criminal, and he talks about materially misleading – but he notably avoids the word ‘false’.”
In other words, the “I knew nothing about it” defence might just work – even for the man in the corner office during the most notorious Wall Street banking collapse since the Great Depression.
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Linklaters defends handling of Lehman Brothers deals
Mar 12th
Report for United States Bankruptcy Court says City law firm approved off balance sheet transactions that disguised true state of Lehman Brothers’ finances
Linklaters, one of London’s premier law firms, is battling to defend its reputation after a US report into the failure of Lehman Brothers showed it approved controversial deals that shifted billions of dollars of debt off the balance sheet in the years before the bank collapsed.
The hard-hitting report found that the crucial deals, which were also sanctioned by Lehman’s auditors, Ernst & Young, were described as “window dressing” by bank staff and masked the precarious state of its finances while it was under scrutiny from regulators and investors.
Linklaters is expected to come under intense pressure to reveal the full extent of its dealings with Lehman in the run-up to the bank’s crash in September 2008. The firm is one of the “magic circle” of solicitors operating in the City, which in recent years have expanded rapidly to compete with US rivals.
The impact of the bank’s crash has been described as incalculable by some economists after governments around the world were forced to implement trillion-pound bailouts for their own banks caught up in the disaster. Investors are preparing lawsuits against the bank and are expected to turn their fire on lawyers and auditors advising it.
The report, for the United States Bankruptcy Court by examiner Anton Valukas, claims Lehman booked fund transfers as sales and failed to disclose them in regulatory filings in the US. Valukas alleges that Lehman turned to Linklaters after New York law firms said that they were unable to approve the deals under US law.
It was common practice to use so-called “Repo 105″ agreements at Lehman to sell and buy back funds, but their frequent adoption in the two years before its collapse amounted to balance sheet manipulation, the report said.
Linklaters dismissed suggestions that it played a central role in disguising Lehman’s mounting debt pile. A spokesman confirmed that the firm gave opinions on several transactions, but said it was not aware of any “facts or circumstances that would justify any criticism”.
He also pointed out: “The examiner, who did not contact the firm during his investigations, does not criticise those opinions or say or suggest that they were wrong or improper.”
Valukas said that the part played by auditors Ernst & Young was also crucial to hiding the fund transfers, and amounted to professional negligence.
UK regulators came under scrutiny in the report for their role during Lehman’s collapse. While Hector Sants, the Financial Services Authority chief executive, refused to give evidence directly to the US investigator, he published written evidence that showed a series of transatlantic telephone calls during which the US authorities begged the UK to help facilitate a possible takeover by Barclays.
The FSA’s evidence claims that Christopher Cox, then chairman of the US regulator the securities and exchange commission, was still lobbying the FSA at 3pm on Sunday 14 September – hours before Lehman called in administrators. Cox wanted the FSA to waive rules that required Barclays to hold a shareholder vote before the deal could take place.
Barclays later bought Lehman’s US businesses from the administrator.
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Lehman Brothers: Repo 105 and other accounting tricks
Mar 12th
There are lies, damned lies and investment bank balance sheets. It’s always been a puzzle how Lehman Brothers was able to spout reassuring figures on declining indebtedness and healthy underlying trends until the day it collapsed, sending the global financial system into a near-apocalyptic meltdown.Now, thanks to bankruptcy examiner Anton Valukas’s exhaustive 2,200-page “autopsy” of the bank, we have a clearer idea of how Dick Fuld and his team disguised the 158-year-old firm’s desperate predicament and carried on trading through weeks of insolvency.
The term “Repo 105″ will take its place in the annals of big-brained, misguided Wall Street distortions. It was a trick allowing Lehman to sell packages of mortgages, Treasury bonds, Eurobonds, even Canadian government instruments, on a temporary basis at the end of an accounting quarter, with an obligation to buy them back a few weeks later. The deals, amounting to $50bn, allowed Lehman to publish healthier accounts than it really had.
People within the bank knew this was a sleight of hand. In one exchange of emails, a senior Lehman executive wrote: “It’s basically window-dressing.” A colleague replied: “I see…so it’s legally do-able but doesn’t look good when we actually do it? Does the rest of the street do it?” One of Fuld’s top lieutenants, chief operating officer Bart McDade, referred to Repo 105 as “another drug we’re on”. A US law firm didn’t like the look of the practice, so Lehman turned to Britain’s very own Linklaters, which duly signed it off as lawful. London-based auditor Ernst & Young concurred, taking “virtually no action” when a Lehman whistle-blower, Matthew Lee, raised a red flag.
While Repo 105 may have been a uniquely Lehman trick, it gives a broader clue to one of the mysteries of the credit crunch. Top executives at Bear Stearns, Washington Mutual, Royal Bank of Scotland and Northern Rock were adept at rattling off impressive figures on healthy debt ratios in the run-up to financial collapse. Citigroup and Merrill Lynch produced evidence that they were solvent – while analysts were dubious and the US government’s “stress tests” found otherwise. However, tightly drawn accounting standards may be, the finest financial brains will find ways to bend them.
Fuld and his lieutenants are already under criminal investigation and were subpoenaed as early as October 2008 in grand jury probes. It isn’t easy to pin lawsuits on professional advisers. Before a top law firm or “big four” accounting practice signs anything off, they will at least have constructed an argument of legality. A successful prosecution would need to prove conscious wrongdoing – that they actually knew what they were doing was over the line.
We’ve been here before. There are eerie echoes of a certain Texas energy trading firm known as the “crooked E” that collapsed in 2001. Sam Buell, a former Enron prosecutor turned US law professor, says there are “uncanny” parallels in colourful internal emails about accounting tricks, signed off by a major auditing firm, used to bolster balance sheets at the end of a quarter: “This is exactly the kind of shenanigans that went on at Enron. It doesn’t seem like anyone learnt their lesson.”
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Lehman Brothers bosses may face court for accounting ‘gimmicks’
Mar 12th
• Former chief Dick Fuld and accountants Ernst & Young criticised in 2,200-page report
• Claims that buyer Barclays received assets it was not entitled to
• Fuld tried to involve Gordon Brown to fast-track Barclays rescue
A court-appointed US bankruptcy examiner has concluded that there are grounds for legal claims against top Lehman Brothers bosses and auditor Ernst & Young for signing off misleading accounting statements in the run-up to the collapse of the Wall Street bank in 2008 which sparked the worst financial crisis since the Great Depression.
A judge last night unsealed a 2,200-page forensic report by expert Anton Valukis into Lehman’s collapse which includes scathing criticism of accounting “gimmicks” used by the failing bank to buy itself time. These included a contentious technique known as “repo 105″ which temporarily boosted the bank’s balance sheet by as much as $50bn (£33bn).
The exhaustive account reveals that Barclays, which bought Lehman’s US businesses out of bankruptcy, got certain equipment and assets it was not entitled to. And it reveals that during Lehman’s final few hours, chief executive Dick Fuld tried to get Gordon Brown involved to over-rule Britain’s Financial Services Authority when it refused to fast-track a rescue by Barclays.
With Wall Street shaken by the demise of Bear Stearns in March 2008, Valukis said confidence in Lehman eroded: “To buy itself more time, to maintain that critical confidence, Lehman painted a misleading picture of its financial condition.”
The examiner’s report found evidence to support “colorable claims”, meaning plausible claims, against Fuld and three successive chief financial officers – Chris O’Meara, Erin Callan and Ian Lowitt.
Valukis said the bank tried to lower its leverage ratio, a key measure for credit rating agencies, through a device dubbed “repo 105″ through which it temporarily sold assets, with an obligation to re-purchase them days later, at the end of financial quarters in order to get a temporary influx of cash. Lehman’s own financial staff described this as an “accounting gimmick” and a “lazy way” to meet balance sheet targets.
A senior Lehman vice-president, Matthew Lee, tried to blow the whistle by alerting top management and Ernst & Young. But the auditing firm “took virtually no action to investigate”.
During the bank’s final hours in September 2008, Fuld tried desperately to strike a rescue deal with Barclays but the FSA would not allow the British bank an exemption from seeking time-consuming shareholder approval. The chancellor, Alistair Darling, declined to intervene and Fuld appealed to the US treasury secretary, Henry Paulson, to contact the prime minister.
“Fuld asked Paulson to call prime minister Gordon Brown, but Paulson said he could not do that,” says the examiner’s report. “Fuld asked Paulson to ask president Bush to call Brown, but Paulson said he was working on other ideas.”
In a “brainstorming” session, Fuld then suggested getting the president’s brother, Jeb Bush, who was a Lehman adviser, to get the White House to lean on Downing Street.
Barclays eventually bought the remnants of Lehman’s Wall Street operation from receivership for $1.75bn – a sum that has enraged certain bankruptcy creditors who believe it was a windfall for the British bank.
The examiner’s report finds grounds for claims against Barclays for taking assets it was not entitled to, including office equipment and client records belonging to a Lehman affiliate, although it says these were not of material value to the deal – the equipment was worth less than $10m.
A lawyer for Fuld last night rejected the examiner’s findings. Patricia Hynes of Allen & Overy said Fuld did not structure or negotiate the repo 105 transactions, nor was he aware of their accounting treatment. She added that Fuld “throughout his career faithfully and diligently worked in the interests of Lehman and its stakeholders”.
A spokesman for Ernst & Young, which is headquartered in London, told Reuters the firm had no immediate comment because it was yet to review the findings.
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US chamber of commerce slams Tobin tax proposals
Mar 11th
• Group says levy would cause Dow Jones to plunge
• Study claims seven out of 10 people oppose idea
America’s leading business advocacy group, the US chamber of commerce, has slammed proposals for a Robin Hood tax on financial transactions by claiming that a levy would cause the Dow Jones Industrial Average to plunge by 12.5%, and that seven out of 10 people oppose the idea.
Gordon Brown has led calls for an international Tobin tax intended to curb reckless speculation in the financial industry and the European parliament voted overwhelmingly this week to develop plans for a tax to be presented to the G20 in June. In Washington, backbench Democratic lawmakers have put forward potential legislation for a levy of up to 0.25% on trades that would raise an estimated $150bn (£100bn) annually.
Virulently opposed to the idea, the chamber today said the tax would double the cost of typical transactions and would turn back the clock to the days of “disco balls, parachute pants and paper trades” before technology drastically eased the price of investing.
“Technology has democratised our markets in much the same way that technology has made it easier to search for a cheap airline ticket,” said David Hirschmann, president of the chamber’s centre for capital market competitiveness. “We should focus on ways to make our markets more efficient and more transparent.”
A study commissioned by the chamber estimated that a 0.25% tax would serve to cut the typical dividend offered by mutual funds from 2% to 1.75%. Investors would react by driving down stock prices by an eighth to restore the yield to 2%, pushing the Dow down from its present level of around 10,000 to 8,750.
“This tax is designed to punish Wall Street but it really would shoot main-street right in the foot,” said one of the report’s authors, professor Charles Jones of Columbia business school.
Firing a further shot against the concept, the chamber published an opinion poll of 800 US voters, asking whether they would support a tax that “some people have said” would “double the cost of buying or selling stock, including stocks purchased on your behalf by mutual funds”. Only 17% voiced support, with 70% opposed.
The Obama administration is sceptical about the merits of a tax but advocates include the economist Jeffrey Sachs, who this week attacked Wall Street bankers for “brazenly smirking” while they pocket huge sums of money. Fans of the concept say it would raise money to compensate the public for the cost of bailing out stricken banks.
Dean Baker, co-director of the Centre for Economic and Policy Research in Washington, questioned the chamber’s claim that a levy would cause stock prices to plunge, saying that it would simply encourage investors to hang onto shares for longer: “If people hold their stock, the tax has very little impact.”
He added that directly linking the cost of trading to stockmarket movements erroneously implied that a major proportion of the market’s rise since the 1970s was simply a factor of low-cost transactions, rather than underlying economic growth.
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Beyond the voodoo void of finance | William Brittain-Catlin
Mar 10th
The moral gulf between citizens and banks must be replaced with an ethic of responsibility
If the second worst financial crisis in history signalled the implosion of offshore capitalism – that remote, distant and out-of-control economic system that crashed and burned in 2008 – what kind of capitalism is replacing the old, bankrupt model? To see what is on the horizon, one need only look to the United States, where the Obama administration is engaged in the task of building a new, onshore capitalism.
Barack Obama wanted the US to find its home in the world and within itself after the fractious and divisive Bush years – and this applied as much to foreign policy as on the home front, with healthcare reform, for instance. It is the case too, in the reforms to the banking and financial system that the administration is pushing through Congress.
To be sure these reforms, like the onshore nation that Obama wants to build around them, are in essence no less capitalistic than what came before. But there is a wide margin of difference: that to function properly and equitably the national economy must establish a connected, human relationship between its citizens and their financial system.
The duty of individuals and companies to pay their taxes and for the government to crack down on tax havens is the capstone of the onshore nation. There can be no doubt that the Obama administration has shown great leadership and perseverance on this count, though there is still much work to be done in imposing higher standards of information-sharing on the recalcitrant tax haven world.
In banking, the reduction of the scope and scale of the largest operators is integral to the task of building a reformed onshore capitalism. Outlawing deposit-taking banks from using their own capital to trade in risky hedge funds and private equity deals, and imposing limits on the liabilities held by any single banking group, are measures by which the activities of banks can be grounded onshore, where they belong.
The requirement for banks to pay a fair insurance to cover the onshore nation’s cost of bailing them out when they hit the rocks of reckless finance, begins to address the moral gulf between banks and citizens and seeks to replace it with an ethic of responsibility.
Indeed, for the banking sector to face up to the destructive power that the industry can wreak on society, the processes of winding up and selling off the remains of failed banks are in future to be made so painful that investors and management will think hard before leaping into the void of voodoo finance.
As for hedge funds – a handful of whom are busy speculating on Greece’s debt crisis – they will have restrictions imposed on their short-selling of stocks in order to rein in their inbuilt tendency to create profit from disorder.
And the onshore nation will take very seriously its responsibility to protect citizens from financial institutions that attempt to hoodwink people into buying risky financial products they do not need, and mortgages whose inequitable terms and conditions deliberately go unexplained. Awareness of and proper inclusion in the financial system should be core objectives of the onshore nation.
What underlines all these policies is a focus on bringing finance – that once bright star that ignited and burst into flames – back down to earth and humanising it, giving it an approachable human dimension and scale. The complex, risky, fast and large-scale structures of the old model are to be replaced by a new model of finance; at once simpler, slower, smaller and safer.
But the onshore nation cannot be an island on its own in the world: to be so is self-defeating, for those who wish to practice the economics of destruction will always find some offshore base from which to operate, however inconvenient. Already the flag of realpolitik is being waved by nations eager to preserve their own advantage in the financial and economic sphere. The broad political momentum to change the way global finance operates, something felt so keenly in the early days of the recession, seems far away now.
This, of course, is welcome news to Republican senators, the big banks and their lobbyists in the finance industry – all of whom are gaining ground on an agenda that looks back nostalgically to the glory days of offshore capitalism. They want nothing more than to push the default button back to sometime just before the collapse of Lehman Brothers.
Even so, on a deep level, the human values underpinning the onshore nation point to a commonwealth of citizens having autonomy in the economic sphere. A better world to come onshore is remote, but the faint outline of its contours are just about visible in the US.
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Fortis becomes ‘ageas’, to signify shift from banking, but was it worth it?
Mar 14th
Posted by Heather Stewart in Business
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Corporate rebrandings are almost always pointless, pompous or both. So it’s a relief that bailed-out Benelux insurer Fortis has provided a crib-sheet to explain why as of April, it will be called “ageas” .
Apparently, the a and g at the beginning “celebrate our roots” – the firm began as AG Leven; the e and a in the middle refer to its two key markets, Europe and Asia; and the “as” at the end stands for “assurance”. The absence of capital letters “heightens the sense of unity within our group” and shows that “we don’t want to force our opinions on anyone”. How very modest. To give Fortis its due, the pared-down, pure insurance firm that emerged from the £10bn cross-border taxpayer carve-up is a very different business from the banking conglomerate it had become. BNP Paribas got the group’s Belgian banking interests, while a chunk of the ill-fated ABN Amro that Fred Goodwin didn’t get his hands on was taken over by the Dutch state. What’s left looks more like a boring old insurer, give or take some toxic legacy assets from the credit crunch era, which its boss Bart De Smet has been able to return to profit. But wouldn’t it have been refreshing if he’d applied the same back-to-basics approach to Fortis’s name, instead of succumbing to the brand consultants? It could have been Fortis’s most sensible decision in ageas.