Supermarkets face fine of percentage of turnover for mistreating suppliers

Christine Tacon, the new groceries code adjudicator, will be able to arbitrate on contract disputes and investigate complaints

The UK's new supermarket watchdog wants to fine retailers a percentage of their turnover if they mistreat suppliers.

Christine Tacon, the groceries code adjudicator who started work on Tuesday, is able to impose fines and force supermarkets to apologise publicly with ads in national newspapers if they do not treat suppliers fairly. She is in charge of overseeing a legally binding code of practice, put in place more than three years ago, for supermarkets with a turnover of more than £1bn, such as Tesco, Sainsbury's and Asda.

The code does not govern the prices retailers agree with their suppliers, but aims to prevent changes part-way through the contracts. It covers groceries including food, drink and toiletries, but does not include clothing or tobacco.

Christine Tacon, new groceries code adjudicator, will oversee a code of practice governing relations between supermarkets and suppliersSpeaking on her first day in office, Tacon said her first job is to recommend the rules under which investigations would occur and the maximum fines that could be imposed.

Those recommendations are expected to be published in the next few weeks and will then undergo a 12-week consultation. The new system must be in place before Christmas Day, before which MPs will have to approve the maximum fine.

Tacon said she was inclined to base fines on supermarkets' turnover as this was a straightforward approach similar to that used by the Office of Fair Trading. She said: "Fines are there as the ultimate deterrent. I am prepared to use my powers but I hope we don't have to get to that stage."

She has spent several months talking to suppliers ahead of her official appointment this week but will only be able to look into complaints about breaches of the code that occur from her first day in office. She will be able to arbitrate on disputes and investigate complaints made anonymously or by third parties such as the National Farmers' Union.

She will be looking at issues such as supermarkets charging up to £1m to display suppliers' products, or the imposition of fines for customer complaints that have nothing to do with quality of the goods supplied. Tacon argues that such ruses add extra costs to the industry, forcing up prices for shoppers.

Article Source : http://www.guardian.co.uk

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Anglo Irish Bank tapes: executives mock Germans amid bailout

Latest leaked recordings compound outrage over behaviour of Anglo Irish bankers amid multibillion-euro state rescue

The Irish prime minister has pledged to open an investigation into the €30bn (£25.5bn) bailout of Anglo Irish Bank as it emerged that an executive sang "Deutschland, Deutschland, über alles" as colleagues joked about German money flowing into the country after a state guarantee of the institution's deposits.

A banker is heard on tape joking and singing the former first lines of the Deutschlandlied – not used since the Nazis made the first stanza their anthem – as the bank's then chief executive, David Drumm, urges his executives to "get the fucking money in". The recording was made in September 2008, when the Irish state stepped in to rescue a bank brought low by a property lending spree.

Enda Kenny, the taoiseach, paved the way for a parliamentary inquiry into an "axis of collusion", although he stopped short of a full, Leveson-style inquiry. Referring to the former taoiseach Brian Cowen, who ran the country during the Anglo Irish bailout, he said: "I assume that our predecessors here, people who served … in high office and in those governments, would have the opportunity and would have the willingness, I assume, to come to a parliamentary inquiry."

The latest recordings to be leaked from inside the bank will compound national outrage in Ireland over the behaviour of Anglo Irish bankers.

Anglo Irish Bank headquarters in St Stephen's Green, DublinDublin intervened in September 2008 with a guarantee of the bank's deposits to keep it afloat – a move that angered London and Berlin because it enticed money from British and German savers.

Cowen's blanket bank guarantee, much criticised as foolish by other European Union governments, was designed to prevent Anglo's immediate collapse but instead put Ireland on a slippery slope to bailing out all six Irish-owned retail banks. In one conversation, two days after the fateful bank guarantee, Drumm giggles while his colleague John Bowe, then director of capital markets, recites lines from the Deutschlandlied.

Drumm, who has since fled to the US, and Bowe are heard laughing about fears that the guarantee would drive a wedge between Ireland and its EU partners.

The former said he would give "two fingers" to UK concerns.

Bowe was recorded boasting that he had picked as the cost of the state rescuing them a random figure, of €7bn (£5.9bn), "out of my arse".

Ireland's deputy prime minister, Eamon Gilmore, admitted on Tuesday ministers had been unaware the recorded conversations existed, even though the state has owned the bank since it was nationalised in 2009.

He said the degree of arrogance and hubris of the bankers highlighted in the tapes was shocking, and made clear the need for a full parliamentary inquiry into the Irish banking collapse.

"That's why we have brought forward legislation to establish such an inquiry, and I hope that the legislation will be enacted before the summer and we can get on with it," Gilmore told RTÉ radio. Gilmore added that the revelations couldcompromise Irish attempts to win further debt relief from the European Union. "It makes it more difficult, of course it does, but we're going to continue to work to get the best possible outcome for the Irish taxpayer," he said.

Kenny later confirmedthat the country's that police had had the Anglo Irish Bank tapes for four years. He told the Dáil they had been originally handed over to the Gardai when they began their when criminal investigations into the bank.

His cabinet colleague, the finance minister, Michael Noonan, confirmed that he, too, was unaware of the tapes, even though it was standard procedure to record calls between senior banking personnel.

Recordings obtained by the Irish Independent of Drumm joking about the rescue plan on the tapes will intensify anger in Ireland towards the top bankers, given that he remains in exile in Boston, allegedly owing the state €8m.

Bowe has denied trying to mislead the state, adding that the reported remarks were "off-the-cuff comments".".

The secret tapes have compounded suspicions that Anglo Irish Bank's senior executives had lured the then Fianna Fáil-led il-led government into a costly financial trap in the autumn of 2008. The figure of €7bn cited by Bowe more than quadrupled, to €30bn.

During the Irish boom, Anglo Irish Bank became the preferred lender to property speculators and builders. Among its high-profile clients was Ireland's one-time richest man Seán Quinn, who borrowed hundreds of millions of euros from the bank to fund a global property portfolio stretching from the US to the Ukraine and Russia. When the world property market crashed, Quinn's empire crumbled, leading him to bankruptcy and prison.

Article Source : http://www.guardian.co.uk

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Credit crunch confusion sends China's stock market on wild ride

Down 6% in the morning, up 6% in the afternoon. The wild ride in the Chinese stock market on Tuesday tells the tale of confusion about the depth of the China's credit crunch and the authorities' ability to control events.

China's lending almost doubled last year from the year before to 200% of economic output The trigger for the afternoon rebound was comments from the central bank that it would guide interest rates to "reasonable levels" and that cash in the financial system would be managed flexibly. In normal circumstances, such a statement would be regarded as woefully vague, almost meaningless. But the People's Bank of China traditionally runs its communications in a near-vacuum. Two statements in two days counts as an outbreak of verbosity. Investors took that as reassuring evidence that the authorities are at least aware of the risks as they attempt to defuse a credit boom.

Well, it's something to cling to. Confidence, however, looks fragile. The big problem is the scale of the ramp-up in credit in recent years. Fitch, the credit ratings agency, has calculated that the total lending in the $7.3tn (£4.7tn) Chinese economy reached almost 200% of economic output last year, up from 125% five years earlier. That rate of explosive growth can be dangerous. History is littered with example of economic blow-ups and banking crises that followed massive increases in lending – Japan in the late 1980s, most famously.

China's recent credit explosion started in 2009, when Beijing reacted to the west's banking bust and recession by ordering a massive programme of investment, principally in public infrastructure, offices and flats. That succeeded in restoring strong growth to the economy – and, indeed, helped to prevent a bigger global downturn. But, for the bears, the critical point is that the Chinese credit boom never slowed down: the skyscrapers and flats continued to be built before demand could catch up.

"The excess borrowing that occurred in 2009 has never been absorbed by the real economy and now more borrowing is being piled on top of this," said Wei Yao, an analyst at the Société Générale bank, earlier this month. She thinks "the debt snowball is getting bigger and bigger, without contributing to real activity" and suspects many borrowers are rolling over loans at punitive rates in a desperate struggle to stay in the game.

SocGen's chart shows where the credit has come from – most of the extra lending is not being made by mainstream banks but by the so-called "shadow banking" system, which largely means small finance houses that have often funded speculative property projects.

Beijing has traditionally tolerated the shadow banks. They are viewed as an essential part of a financial system that is steadily liberalising, even if they have also become a way for state-backed banks themselves to bypass official lending caps. But it was these shadow lenders that the People's Bank of China seemed to want to punish last week.

Short-term lending rates between banks were allowed to soar – to 11% for one-week money. The official message seemed blunt: rein it in, apply discipline, and don't assume the state is always on hand to keep interest rates low. Having made its point, then central bank then managed rates back downwards, albeit not all the way down.

Beijing's mission seems reasonable enough – if there is excess credit in the Chinese economy, it's better to tackle the problem before a bigger bubble is blown. Mark Williams of thinktank Capital Economics comments: "The episode is arguably the strongest sign yet that the leadership is willing to suffer short-term economic pain if necessary to achieve more sustainable growth."

But Williams also calls the People's Bank's behaviour "extraordinarily reckless" since it offered no explanation for its initial inaction. Indeed. It's all very well to have a policy but surely it's better to communicate it. The risk is that confidence is damaged.

What's more, shock and awe tactics look ill-suited to the delicate task of finessing investment away from unprofitable property projects while simultaneously keeping the economy stable. Bank of America Merrill Lynch's analysts think the biggest risk lies in the central bank mishandling the situation. "In our view, dealing with banks in breach of regulations should be done by improving prudential regulations rather than engineering an interbank credit crunch which could potentially backfire should banks lose mutual trust," they said.

Viewed from outside, China's building boom also looks to rely on inherently shaky financial structures. The shadow banks attract cash in short-term products from middle-class savers keen to escape the low deposit rates on offer at state-sponsored banks. But then they lend to long-term illiquid building projects. In a full-brown credit crunch, they would be horribly exposed. We would also see the first test of how far Beijing is willing to go to protect the shadow banks.

"I would say the [Chinese] authorities have the situation well in hand," said incoming Bank of England governor Mark Carney. For now, that's the consensus view. While economists are busy trimming their forecasts of GDP growth – Goldman Sachs now expects the economy to grow 7.7% in 2014, not 8.4% – they are also praising China for acting early to prevent a bigger debt crisis.

The alternative view is that China has left it late to rein in the credit boom without risking a major slump. If Wei Yao at SocGen is right about the chronic problem of over-extended corporate borrowers, there are lots of bad debts that haven't been recognised. In the past, recapitalising banks has never a problem for China – but the economy's new reliance on shadow banks and hazy specialist financing vehicles makes events harder to predict. Given the size of the building boom, is it even possible to estimate accurately the accumulation of bad loans in the system?

China will also have to attempt the trick against an uncertain global backdrop. The US economy is growing but not everybody is convinced the recovery can withstand higher interest rates. In the meantime, recession rumbles on in the eurozone. But Beijing seems to have decided the country's credit pains have to be confronted anyway. After 12 years of boom, Chinese-style capitalism faces its biggest test – how to apply the brakes without crashing.

Article Source : http://www.guardian.co.uk

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