Wednesday, 15 August 2018

On bonfires, Bunds and bankers in the City

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Anthony Peters handicaps Wednesday night’s key speech for the industry.

Tonight the Chancellor of the Exchequer, George Osborne, will give the traditional annual Mansion House speech.

It is the annual event when the British finance minister faces the grandees of the City and tells them what he is thinking. This year’s discourse will be watched with particular interest, given the recent outright electoral victory by Osborne’s Conservatives and his fractious relationship with the banks. Although the vast majority of the individuals present will have voted for his party and will have effusively celebrated its victory, they will largely, from an institutional perspective, have very mixed feelings towards him.

The banks screwed things up in the last decade – although not entirely without hearty encouragement from governments which were gorging themselves on torrential tax revenues from the sector – and again made out like bandits when dealing with the post-crash restructuring. They have also, and that should not be underestimated, done pretty well from the oodles of cheap money which the central banks have made available to them in the past eight years.

The quid pro quo, so to speak, has been the Bank Levy, a tax on banks’ balance sheet footings, which Osborne introduced in order to chasten an industry which had forgotten what it is here for, and to assuage the tax-payers who saw what the bail-outs had cost but who had never been told just by how much they had benefited in the years before it had all gone wrong. Now Osborne is faced with the clear and present risk of HSBC and Standard Chartered, both banks which do more business outside of the UK than within it, upping sticks and moving to where life might, repeat might, be easier. The UK remains a pretty decent place to bank but it is no longer quite as compelling as it once was.

Banker bashing has offered cheap votes for too long, so tonight’s Mansion House event could be the one at which Osborne announces his intention to bury the hatchet somewhere other than in the banking industry’s back. Recent market volatility which has laid bare part of the darker side of endless regulation will not have gone entirely unnoticed at the Treasury and yesterday’s announcement by HSBC that it is to shed 8,000 in the UK alone will also have been cause for concern.

The London “Evening Standard” headlined yesterday with “Bonfire of the Bankers”, which looks good to start with but those 8,000 are 8,000 less mainly higher-rate tax-payers, it is children being taken out of private education and being placed in schools funded by those who still do pay taxes and previously privately-insured patients moving to the NHS.

It’s 8,000 less people able to buy cars, take holidays and, possibly, pay their mortgages. Some will be PhDs in Theoretical Physics or MSCs in Mechanical Engineering disguised as bankers, derivative traders and structurers but most will be innocent administrative staff and workers at high street retail branches across the country who are not only falling victim to increased on-line banking but who have become unaffordable as dwindling revenues become diverted towards funding regulation and compliance. If ever there has been a text-book case of the lunatics taking over the asylum!

Tonight Osborne has a chance to offer up a peace-pipe to the industry which, for better or for worse, remains the largest generator of wealth in this country and all indications are is that that is just what he is planning to do. Let’s review tomorrow.


Perhaps the “Standard” could have also used “Bonfire of the Bunds” as government bond markets had another horrid day on Tuesday. We didn’t quite make the 0.99% yield mark on the 10 year German benchmark which we saw on Thursday last but the market closed at around 0.95% and then broke through 1% this morning.

The air-pockets in liquidity which Jamie Dimon had warned of no more than three weeks ago showed up again as the discrepancy between investors’ expectations of and banks’ capacity to maintain orderly markets is now on permanent display. The Street truly fears for the reliability of the ECB as consumer of last resort when it comes to government paper.

Bundes-drag on Athens

And then, of course, there is Greece. The German tabloid, the Bild, reports growing opposition within the German parliament to another rescue and it describes Mutti Merkel as becoming “lonely”.

The Syriza administration seems to be making concessions one day and withdrawing them the next which is making the job of its main supporters, Mutti and the French President, Francois “Qui? Moi?” Hollande, ever more difficult.

Hitting a moving target is hard enough but if one doesn’t know where it’s coming from, where it’s going to and at what speed it is moving, it becomes nigh impossible. Now try to do it in the dark while wearing a blind-fold and with one hand tied behind your back.

Greece has 20 days to fall in line; the extension on the existing bail-out package expires on June 30 although, if I’m right, the bulked IMF payment is due in June 28 plus maybe a few days of grace. The clock is ticking and it looks very much as though it’s connected to a large stick of dynamite.

Finally facing my Waterloo

Finally, I take my hat off the Belgians who have stuck two fingers up at the French. The latter, little spoil-sports that they are, objected to Belgium striking a €2 coin to commemorate the Battle of Waterloo, the bi-centenary of which falls on June 18th. According to Paris, the coin would have been detrimental to the cause of European integration which marking Liberation and Victory on May 8th as a national holiday in France obviously isn’t.

The Belgians have now outflanked the Frogs by striking €2.50 and €10.00 coins which are legal tender in Belgium but not necessarily in the rest of Europe. Vive la Belgique/Levendig Belgie! The spirit of Waterloo lives on.

If possible, and hopefully, with the help of Brussels-based friends, I will acquire some. 

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