Azure Global : 08/20/13

Tuesday 20 August 2013

If Greece needs a third bailout, Europe had better find a formula that sticks

A better approach would see Greece's lenders take more pain up-front – but is Germany prepared to support that?

So, Greece will soon need a third bailout. German finance minister Wolfgang Schäuble admitted as much on Tuesday – and was even prepared to say so during the pre-election period in Germany. One assumes Schäuble deemed it safe to dive into these politically contentious waters only because he also stuck to the party line that Athens would receive no more debt forgiveness.

What a shame. If a third bailout is required the time has come for the euro-powers to find a formula that sticks. A small loan package, to fill the hole already identified by the International Monetary Fund, would represent another dose of medicine that isn't working. The Greek economy, weighed down by austerity measures, would stumble along for a while – but a fourth package would loom sooner or later.

Germany's finance minister Wolfgang Schäuble.

A better approach would see Greece's lenders take more pain up-front – get the debt down to manageable levels and hope to see economic growth reduce the burden further. Is Germany, after the election, prepared to support that idea? If it's not, we'll be talking about a fresh eurozone crisis by the end of the year.

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

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Barclays branch chief vows culture change at scandal-hit bank

Ashok Vaswani pledges action to cut customer complaints, including PPI issues which have cost Barclays £4bn

Humility is not a word often associated with bankers but the head o f Barclays' high-street branch network insists that that is what guides him.

Ashok Vaswani, who has a key role in a new management team charged with altering the culture at the scandal-hit bank, says: "If you are not humble you cannot learn. It is a core value that drives me a lot."

Sitting in a meeting room above a busy branch on Borough high street, London, the 52-year-old is keen to get across the message that he wants to put customers at the heart of everything done by himself and his 30,000 branch staff across the UK.

He describes the data recording complaints against the bank as horrendous. There were 381,740 complaints in the first six months of this year. He insists, though, he is cutting out problems such as requirements for customers to send faxes and inform the bank of their travel plans to be able to use a credit card abroad.

In the last six months of 2012 Barclays was the most complained about bank in Britain – by some measures with more than 400,000 complaints.

"I want to put the company out there to say we are totally committed to driving these complaints down," Vaswani said.

Referring to Barclays' slogan promoting itself as the "go to" bank – a line devised by his boss, Antony Jenkins, after he was promoted to chief executive in the wake of the Libor scandal, – Vaswani said: "What is 'go to'? Antony would say it was an emotional connectiveness to the brand. You can't build emotional connectiveness with a brand if you've got so many complaints."

Vaswani joined Barclays in 2010. He knew Jenkins from their work at the vast US banking empire of Citigroup

Ashok Vaswani faces creating a better service for bank users, after almost 400,000 customer complaints over six monthsHe arrived in the Middle East with just $14 in his pocket and met the India-born daughter of a client whom he later married. Their daughter was born in Dubai.

From there he went to Turkey, Brussels, New York and Singapore, then back to New York. No sooner had he arrived in London than he was running Barclays' African operations. He gained his current role, that of running 1,577 UK branches, and 797 branches elsewhere in Europe, by stepping into Jenkins' shoes when he moved up from retail chief to the top job.

He got a Singaporean passport after falling in love with the island city state while running Citi's Asian operations, a career route that left him returning to New York 15 times a year to visit his wife and daughter who preferred to stay in the US.

During the banking crisis, when Citi incurred heavy losses, he was working in private equity with former colleagues from Citi before returning to banking again with Barclays.

He says he now intends to publish Barclays' complaints data every three months, twice as often as required by the Financial Conduct Authority, and to outline the key causes of complaints.

Payment protection insurance has been a leading cause of customer anger, and has cost Barclays £4bn. The bank had 381,740 complaints in the first six months of the year. Vaswani would rather focus on the numbers without PPI, where complaints were down 46% to 91,215 in the first six months of the year.

Vaswani is keen on digital banking, technology and social media. He has ruled out job cuts.

As a member of the executive committee he finds his pay does not need to be disclosed. It seems likely he receives about £2m a year. He admits that, as "for any normal person, money is important" but what motivates him, he says, is his desire to improve the banking culture.

In a lecture this year to the Oxford Centre for Hindu Studies he defined culture as being about "how you behave when no one else is looking". It a definition that was used by Bob Diamond, the former Barclays CEO ousted during the Libor scandal, and Vaswani admitted that culture could be hard to instil across a large workforce.

"This is about looking at the end of the assignment, looking at myself in the mirror and saying I was a trustee for a great company and a great franchise and I did everything humanly possible to make it a better franchise [for the successor]," he says.

An only child, his mother, an Indian government official, was his main motivator after his father, a businessman, died when he was six. If his father had lived longer his career path could have been different, he suggests. But it was his mother, he says, who encouraged humility, and it was the opening of his mind to learning that "was the huge thing" she gave him.

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

UK banks defer bonuses to beat top tax rate

Bonuses across the economy were all but flat in the year to March 2013 – but finance payouts up 4% to £38.6bn once April figures are taken into account

Britain's best-paid workers delayed bonus payments worth up to £1.7bn until April to take advantage of George Osborne's 5p cut in the top rate of tax, according to evidence collected by the Office for National Statistics.

Bonuses across the economy were all but flat in the year to March 2013, increasing by 1% compared with the same period a year ago, to £36.9bn, or an average £1,400 per employee.

But the ONS said the picture was distorted by firms deferring payouts until April, when those earning over £150,000 a year would pay income tax at 45p instead of 50p in the pound.

Payouts were £1.7bn higher in April than the same month last year, with the banking and finance sector accounting for £700m of the increase.

Some of the rise since April 2012 is likely to reflect a more generous bonus round – taking January to April together, bonuses in the finance sector were up by 13% on last year, at £10.3bn. But the ONS said businesses had reported deliberately deferring their bonus rounds so that employees could benefit from the tax cut.

If the £1.7bn had been handed over to staff before the 50p top rate was scrapped it would have brought the Treasury an extra £85m.

Reducing the 50p rate of tax brought in by Alistair Darling at the height of the economic crisis in 2009 was the most controversial policy in last year's "omnishambles" budget.

Treasury officials insisted yesterday that the higher rate had generated little, if any, extra revenue. A spokesman said the bonus data were, "broadly in line with the Budget forecast".

However, labour market expert John Philpott, of consultancy the Jobs Economist, said, "I just find it deplorable: there should have been a failsafe built into the policy that allowed for some sort of clawback if that behaviour was seen to occur. I don't see why that's any less immoral than all the tax avoidance practices the coalition have criticised."

Labour said the data helped hammer home its argument that the majority of people in Britain are suffering a "cost of living crisis", while the lucky few are thriving.

Chris Leslie, shadow financial secretary to the Treasury, said, "working people are worse off under the Tories as prices continue to rise faster than wages. But while ordinary families on low and middle incomes are seeing their living standards fall those at the top are reaping the benefits of David Cameron's tax cut for millionaires."

Taking the 2012-13 financial year as a whole – and excluding the April payouts – finance workers banked the biggest bonuses, according to the ONS, taking home an average of £11,900 per employee.

The sector was followed by mining and quarrying, where the average bonus was £6,700; and IT, where it was £4,400.

The Leadenhall Building (the Cheesegrater) & 20 Fenchurch Street (the Walkie Talkie) dominate the City skyline. Finance bonuses are up on 2012.Excluding the financial sector, total bonuses across the rest of the economy in 2012-13 were £23.6bn, almost as high as during 2007-08, before the UK plunged into recession.

Despite high-profile stories about lavish payouts for top public sector bosses, bonuses remain largely a private sector phenomenon, the ONS data shows.

The average bonus in the public sector was £300 per employee – falling to £100 once the bailed-out banks, including Royal Bank of Scotland, are excluded. Private sector employees received bonuses worth on average £1,700.

Tuesday's findings about financial services firms delaying payments to cut their employees' tax bills will fuel controversy about remuneration practices in the sector, after research showed that many firms were planning to increase salaries, to bump up their staff's total pay as the European Union prepares to cap bonuses.

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

Bank of Spain figures show 'bad bank' loans rise to new high

June data shows fallout from the country's property crash is still ongoing as bad loans as a proportion of total credit hit 11.6%

Spain's bad bank loans hit a fresh high in June, according to Bank of Spain figures that underscore the continued fallout from the country's property crash.

Bad loans as a proportion of total credit rose to a record 11.6% or €176.4bn (£150.5bn) in June, Bank of Spain data showed on Monday.

That was a rise from 11.2% in May as more households and smaller companies struggled with debt, and exceeded a previous peak of 11.4% in November.

Spain's banks have been hit particularly hard by bad property loans and the country is battling high unemployment, with a jobless rate of 26.3%.

There had been a slight fall in the bad debt ratio at the end of last year, when the country's so-called "bad bank" swallowed up large amounts of the toxic real estate that had brought down several Spanish banks.

The bad bank was set up by the government to fulfil one of the demands made by the eurozone countries providing a loan facility to Spain's banks. It deals with property left over from the housing construction bubble that burst in 2008, just as the credit crunch hit, and that lies at the root of Spain's protracted recession and high unemployment.

The bad bank receives building plots and unfinished developments from developers and will be expected to sell this stock at a profit over the next 10 to 15 years.

Spanish lenders' earnings were gutted last year by steep government-enforced provisions on properties and loans to developers in the wake of the crash. Those unable to cope were bailed out with European funds.

November 2012: A banner advertises houses for sale in Estepona, Spain at the time that a 'bad bank' was opened to purge the country of toxic property assets. Some top lenders, including healthy ones such as BBVA, have said that bad debts with property-related businesses in particular could keep rising into the first quarter of 2014.

While the wider eurozone was confirmed as having emerged from its long recession last week, Spain's economy has continued to contract in recent months. But some economists believe the country could return to growth before the end of the year.

Germany, credited with providing much of the momentum for the single-currency bloc to exit from six quarters of recession, is expected to see a return to "normal and steady" growth rates in the second half of this year, according to an update from the Bundesbank on Monday. That follows the strongest growth in more than a year for Europe's largest economy in the second quarter, when GDP rose 0.7% compared with the first three months of the year.

The Bundesbank said in its latest monthly report that Germany, along with other eurozone member states, would benefit from record low interest rates set by policymakers at the European Central Bank. However, it noted that the ECB's forward guidance indicating rates would remain low did not preclude a rate hike should inflationary pressures build.

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

Bank of England v the City: who's right on interest rates?

Carney's argument is that recovery is in too early a stage to cope with rate rises – but the markets think otherwise

It's early days. Mark Carney is still finding his feet as the new governor of the Bank of England. Financial markets get things wrong with stunning regularity.

All this is true, yet the fact remains that the City's response to Threadneedle Street's forward guidance policy has been negative.

The yield on a 10-year government gilt – a good guide to the long-term cost of borrowing – has been on a rising curve ever since Carney advised that interest rates were on hold at least until the unemployment rate came down to 7%. Probably. Sort of. Unless something untoward happened that would force the Bank to act. In which case, action might need to be taken earlier.

Carney's first big policy intervention may go down as a masterstroke if he eventually convinces markets that interest rates really are on hold for the duration.

For now, though, it looks like a classic case of the old saw that there are some things best left unspoken.

Bank of England will make sure that monetary conditions are kept ultra-loose until there is irrefutable evidence that there will be no growth relapse. During Mervyn King's time as governor it was implicit that there would be no tightening of monetary policy for some time to come and that helped keep bond yields and sterling low. Since the implicit commitment was made explicit on 7 August, both the bond market and the foreign exchange market have brought forward the date when they think the Bank's monetary policy committee will push up the official interest rate from its record low of 0.5%.

Why? Because the City has taken a quick squint at the property market, where the interest-only mortgages that were a feature of the previous boom are making a comeback, and come to the conclusion that the UK is in the early stages of a credit bubble.

That, coupled with a slew of upbeat economic data, has convinced dealers that the Bank will need to cool things down long before the 2016 date pencilled in by Threadneedle Street in its recent inflation report.

This leaves Carney in a bit of a spot. The governor's argument is that recovery is in its early stages and would be jeopardised if bond yields continue to rise. That's quite true. The governor's problem is that the City is not listening and the Bank may need to back words with action in order to get the message across. And loosening policy just as the economy is picking up steam would take some explaining.

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

W&G Investments launches bid for RBS branches

Consortium of City funds including Schroders, Threadneedle and Lansdowne Partners floats with the aim of raising £15m

A group of City investors and pension funds have called for a return to "simple banking" as they launch a bid to take over more than 300 branches put up for sale by Royal Bank of Scotland.

W&G Investments, a consortium of City funds, is to file its official offer today to take over the 315 branches that RBS is being forced to sell off by Brussels as a condition for approving the bank's £45bn taxpayer bailout at the height of the banking crisis.

The consortium is a roll call of more than a dozen blue-blood City names, including Schroders, Threadneedle and Lansdowne Partners, and floats on the London stock exchange today with the aim of raising £15m to fund its bid.

RBS has already received two rival offers for the branches, which have 1.7 million retail customers and 230,000 small and medium-sized business accounts. One is from a consortium backed by the Church of England that is promising "ethical" investments; another is promoted by private equity firms AnaCap and Blackstone.

Royal Bank of Scotland has now received three bids for the 315 branches it is being forced to sell under EU rulesThe bank is expected to announce its decision in the next few weeks, but could reject all three bids and float the branches as a standalone company on the stock exchange.

The head of W&G Investments, former Tesco finance director Andrew Higginson, said the consortium, with £20bn of assets, was big enough to be the "challenger bank" needed to inject more competition into the UK banking sector.

"We are taking a long-term view about building a genuine challenger bank," he said. "These institutions want a simple banking business that takes deposits in from its customers and lends them out to others and makes a good margin in the middle."

The bank's customers should not necessarily expect the cheapest products, because that was what went wrong during the financial crisis, he said. "There is no great eureka magic formula. It is just a question of behaving well and doing the right thing for them [the customers]."

The group has offered £1.1bn up front, rising to £1.5bn once the branches are formally separated from RBS. The W&G investors would get a £55m payout from the state-backed lender even before the branches were sold, according to the stock market prospectus. Higginson said this was "a very, very low rate of interest" for the risk any investors would be taking on. "We are giving [RBS] £1.1bn on day one and we are getting a 5% coupon – I think it is reasonable."

The bidding for the RBS branches has sparked fierce competition. John Maltby, the former Lloyds Banking Group banker who leads the church-backed bid, insisted this offer was the best value for the taxpayer. "We have completed full due diligence. We have raised the money and we are ready to go."

To entice bidders, RBS is reviving the Williams & Glyn's brand, which disappeared from British high streets in 1986.But the return to an old brand – created by RBS in 1969 to unite its English and Welsh banks – has risks for any investor.

Higginson played down the potential for an exodus of customers. "We have come through that phase of disruption," he said. "This is a business that has had the 'for sale' sign above the door for five years."

He said the W&G team would be ready to exchange contracts this year, with the Williams & Glyn's sign going up on high streets "as soon as possible after that".

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

A group of City investors and pension funds have called for a return to "simple banking" as they launch a bid to take over more than 300 branches put up for sale by Royal Bank of Scotland.

He said the W&G team would be ready to exchange contracts this year, with the Williams & Glyn's sign going up on high streets "as soon as possible after that".

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