Sunday, 22 July 2018

TSC serves, Diamond volleys; Back to deuce

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With the markets going nowhere, yesterday turned into a great afternoon to watch the office TV where one could choose between the live transmission of Bob Diamond’s appearance before the Treasury Select Committee on Banking and Wimbledon. One channel was all about serve and volley, the other about tennis.

Anthony Peters, SwissInvest Strategist

I don’t know how many out there have enjoyed the privilege of formal media training which is as much part of being a senior executive as is an MBA or initiative exercises in Greenland with nothing but a pen knife and a ball of string. What I do know is that Bob Diamond must have sat in the front row when he did the training.

They teach the executive interviewee to listen carefully to the question, then to disregard it completely and to make whatever point one wants to make, irrespective. So the panel members asked their questions. Bob answered a question he had not been asked. The politician repeated the question and Diamond repeated his answer.

That went on and on for three hours without a tie-breaker and in the end we knew nothing we hadn’t known before and probably suspected even less. If this is the flavour of what a parliamentary enquiry into banking might bring, let’s just forget it.

The idea of trial by jury is to be judged by one’s peers. This has caused untold difficulties in trying business cases in court because of the complexity of the facts and the evidence and the near impossibility of finding fingerprints and smoking guns.

Most readers of this column either work or have worked on a trading floor at some point into their careers but for those who haven’t, let me explain. There can be three or four or even five hundred people lined up like chickens in a battery farm except that these chickens average a 140 point IQ score. For a greater concentration of brain power, you’d likely have to go to the common room at CERN in Geneva.

An Oxbridge common room might be brighter but it is a lot smaller and the bar at the House of Commons…say no more. The floor is populated by highly motivated and highly intelligent individuals but as I have pointed out in the past, it is not a team. Managing the floor is like herding cats and the best management can hope to do is to point these loose cannon in more or less the same direction.

Of people who sit more than two rows away and who are not part of one’s own division, one rarely knows their names and probably hasn’t got a clue what they do either. I am not directly defending Bob Diamond for he was head of the investment bank and what happened on his watch was his concern and his responsibility but I have no problem in believing that he did not have detailed knowledge of what was being done in the bank’s name and if he did, he probably would have dismissed it as not being the biggest issue he had to deal with.

He had just bought Lehman’s US operations for just $5bn, a snip in anyone’s book. He had what was left of that business to save and to integrate and had Lehman’s US creditors up in arms for him having beat the system by paying so little for the remnants of the firm.

I suggested last week that the most vociferous critics were the ones who knew least about the subject and appear to have been proven right by the Daily Telegraph which headlined an article with “Libor scandal may have cost families their homes” which came out of a sound bite from a housing minister and was penned by the political editor.

I also sensed that the Committee members yesterday were largely out of their depth too. The idea of trial by jury is to be judged by one’s peers. This has caused untold difficulties in trying business cases in court because of the complexity of the facts and the evidence and the near impossibility of finding fingerprints and smoking guns.

If left to the politicians, the solution will not be assiduous pruning with a pair of secateurs but driving a combine harvester through the whole garden in the hope of catching those few weeds. I shudder at the thought.

France’s 5-4-3

Meanwhile, on Planet Hollande, we get a new version of the 5-4-3 policy. In the run up to the currency union, France declared that its 6% deficit to GDP would decline by 1% a year until it hit 3% in 1999 and, behold, it did (the Greeks didn’t invent creative accounting). Now we are looking at 4.5% public sector deficit forecast for this year and a 3% deficit in 2013.

Anyone prepared to take a bet on that being achieved in the Treasury, even if it isn’t in the rest of the country?

I’m not sure what the forecast revenue is supposed to be from the 75% rate on earnings over €1m but my guess is that whatever it is – I think they’ve penned in €2bn – it will not be achieved. Hollande, if given his head, will tax French business out of existence.

As far as spending cuts are concerned, even the bone dry Tory austerity in this country has so far only found 10% of the savings announced. Put that in a French context and you can smoke the whole, whole policy. Nevertheless, OAT 10yrs are holding in steadily at around 115 bps option adjusted spread over Bunds. Whether this is because they are loved or because they are second best alternative to the hard core, I cannot say with certainty.

The warm and fuzzy after-glow of last week’s eurozone summit lives on – for now.                     

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