The labour movement and the banks

Given the scale of financial and political support the banking sector has received in the past few years, it's surprising just how little change the labour movement (both Labour and the TUs) has managed to demand of it. I am sure that this is at least in part because when the crisis first hit the principal concern was simply to keep the system working. We had a Labour government in power and - rightly - the biggest issue was keeping the financial system on its feet.

Following the recapitalisation of the UK's banks, we did embark on a reform effort but, in retrospect, it looks like we missed the opportunity to push further. There were big changes in the governance of individual banks (ie board members forced out & replaced), but the reforms of corporate governance in the banks as a whole were limited, and very much cut with the grain of existing practice.* It was a largely technocratic exercise. Given what Bob Diamond was paid prior to getting the boot, I think we can safely say that pay 'reform' is largely cosmetic, for example (make it more long term, pay is shares, yawn).

Similarly, there was no serious challenge to the structure of the UK's banks - either the number of banks, or whether universal banks are an acceptable model (these are both things I haven't taken a view on because I know far too little to say anything sensible). Labour has subsequently in opposition toughened up its position significantly but the parliamentary wing of the movement is, currently, unable to do much with this.

But what if we get another opportunity? Suppose that the banks again face the need to raise capital quickly. They could turn to taxpayers (ie further Government bailout) and/or shareholders (right issues). If it is the former then I would hope that the parliamentary party makes the argument that there must be a quid pro quo - if the taxpayer is funding the bill then there must be a pay freeze, and those banks requiring support should commit to split retail and investment arms completely.

But the same holds if the banks had to turn to shareholders. The asset managers, remember, are just the middle men. Effectively they will be tapping up our pension funds. In such a scenario I think the TUs ought to make the point very loudly (and quickly!) that working people's retirement savings would be providing support for the banks and that, again, something would be required in return. Unions could get into the trustee-asset manager link and make the case that this is not a decision the asset management industry could make alone. If you want our money you need to commit to reforms.

Who knows what will happen with the banks. At the moment things look stable, though the sector has been hit be scandals like Libor, PPI and money laundering. But if things got tight again in terms of capital there would be a window in which the movement could influence the structure of the industry. Just a thought.


*As I've written previously, arguably the more interesting overhaul has occured within financial regulation. A much more open-minded discussion (eg Turner Review) has taken place there than within the corporate governance microcosm, which never misses the opportunitry to pat itself on the back about how great 'comply or explain' is. The regulators are now more proactive, and looking at different issues. The result, I believe, is that in the UK-listed banks shareholders will basically get to approve things that regulators have already decided are OK. Shareholder primacy on paper only.   

Barclays pay vote updated, again

OK, have found a few more

FOR - BlackRock, Goldman Sachs, Martin Currie, Standard Life
ABSTAIN -
OPPOSE - Aberdeen, AXA, F&C, Fidelity, Henderson, Hermes (as disclosed via BTPS), Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows, State Street

Still looking like a big NO from big institutions.

Barclays deal

I have to admit I've not been following this one as closely as I should, but Pesto has and there's some incredible stuff in there:

But it's not a sale in the sense that most of us would recognise. Because it has lent the buyer, the private-equity house CVC, £2.1bn of the purchase price...

What's even more delightful for the purchaser, Barclays will pay CVC £120m if it rats on the deal by securing better terms from another bidder (there's also provision for both Barclays and CVC to receive between £34m and £120m if either side walks away for other reasons).

Is all this to simply avoid any state ownership? If so this independence is coming at a very high price.

For your reading pleasure

1. More on Fred's pension. Two local authority pension funds (not fund managers you notice) have decided to see if they can take legal action to claw the pension back. Meanwhile Myners has done a decent job defending himself in front of the Treasury select committee, and was asked about legal action. He said it might target the RBS board.

2. Some interesting historical parallels in terms of stockmarket movements over at Socialist Economic Bulletin.

3. Barclays still looks like it's having problems according to lots of people. iShares is up for sale, what about BGI? And why would a financial institution apparently sound need to raise cash by flogging off the family silver?

4. Another great post looking at the real nature of the TPA. Look at how often the TPA is getting (critically) blogged about now (including by me, obvously!). Why is it that the mainstream media fail to acknowledge the ideological alignment of the TPA?

Bits and pieces

1. A couple of TUC docs worth checking out. The latest issue of the trustee newsletter (PDF), plus a useful guide to investor engagement.

2. There's an interesting piece on page 3 of the companies and markets section of the FT on one of my favourite themes - the role of shareholders in corporate governance. I suspect this will be one of the big issues that needs to be thrashed out in the wake of the banking crisis.

3. Barclays is still in trouble, despite last week's rally. One to keep a close eye on.

4. Minsky quote of the day... "[Banking]... is a disruptive forces that tends to induce and amplify instability even as it is an essential factor if investment and economic growth are to be financed."

Bank stuff

There's a stack of stuff to look at today. First up, Unite has put out some stats put together by LRD on remuneration at the banks -

Unite has a detailed dossier exposing the pay of senior executives in the financial services taken from annual reports, between 2003 and 2007. The dossier shows that the basic pay and cash bonuses (excluding share based payments) of just 5 CEOs at HBOS, Lloyds TSB, RBS, Barclays and HSBC totalled over £52 million.

A few executive directors (named in the annual reports) of RBS, LTSB and HBOS, 3 banks which the government will take a £37bn stake in, have earned a combined £122 million in pay and bonuses including over £64 million in cash bonuses alone.

Excluding share based payments, between 2003 and 2007, CEOs Fred Godwin (RBS) made £15.5 million, Andy Hornby made £6.9 million and Eric Daniels made £10,2 million.

The total remuneration (excluding share based payments) for a handful of executives included in the annual reports of the major British finance companies and the majority of UK subsidiaries of overseas parents totals an astonishing £729.3 million.

Unite members are also protesting outside the Lloyds TSB EGM which seeks approval for both the HBOS takeover and the HMT capital injection.

Secondly, the TUC is one of a number of organisations giving evidence today to the Treasury select committee on remuneration at the banks, so it might be worth keeping an eye on that one.

Robert Peston has another punchy piece on his blog about the Barclays deal, this time looking at the large fees being paid to Barclays Middle Eastern investors (over 4% of the total value of the deal). As he says the fees look even more ridiculous in light of the fact that existing investors have snapped up their slice of the RCIs (the bond-like debt bit of the deal)immediately.

Arguably... Barclays has needlessly given away £300m. And don't think this is about losses suffered by funny, remote people in the City with no connection to you. It represents an erosion of wealth for millions of us saving for a pension, since most of our pension funds and life companies have an interest in Barclays. You should be concerned.

Finally Jeff Randall gives the Barclays deal the thumbs up. For him it is clearly an ideological position -

If Varley could rewind the video, he would not start from here. That said, I applaud his determination to steer clear of Government intervention. At 12pc, the Treasury's money would ostensibly be less expensive than cash from desert kingdoms, but it would come with the burden of political strings, the real price of which is always far greater than what's written in the contract.

Notably he makes the point earlier in the piece that small HBOS shareholders are kicking off about the Lloyds TSB merger (which, as the Govt supports it and will have a stake, he doesn't like). True, but I bet you they aren't kicking off half as much as small Barclays shareholders are, judging from my experience this week.

ABI tightens the screw

Wow, I'm a bit surprised by this (from Citywire):

Changes to Barclays' cash raising plans win few supporters

By Deborah Hyde | 14:30:21 | 18 November 2008

Institutional investors have expressed ‘grave concerns’ about Barclays’ capital raising measures, with the new measures taken by the bank appearing to have done little to appease those who oppose the deal.

Despite the bank’s decision to allow institutions to participate in some of its capital raising measures and for its directors to forgo their bonuses, both analysts and shareholders remain unconvinced of the merit of the deal, with one analyst describing Barclays’ latest measures as a ‘small olive branch’.

The ABI, which represents leading opponents Legal & General and Aviva as well as other insurance groups, has slapped a ‘red top’ on the bank.

The group said that the red top, a designation which the organisation rarely dishes out, does not constitute advice to vote against the proposals, but highlights the presence of an issue of grave concern.

It said it had made the decision because the changes announced today did not address all of its concerns.

'These changes cannot offset the concern of shareholders at the serious breach of the pre-emption principle, especially on an issue with a large discount,' said Peter Montagnon, the ABI’s director of investment affairs

The ABI met with Barclay’s management last week to discuss their opposition to the plans to raise £7 billion fin the Middle East.

Barclays folds... a bit

So, Barclays and its Middle Eastern investors have agreed to grant a couple of concessions to investors, one quite valuable, the other pretty meaningless. The former is this bit -

Barclays has also held discussions in recent days with Qatar Holding LLC and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan (“the Investors”) who agreed on 31st October 2008 to invest substantial funds into Barclays. The Investors wish institutional investors to be able to participate further in the capital raising. The Board of Barclays today announces that the Investors have each offered to make available up to £250m of Reserve Capital Instruments for clawback by existing Barclays institutional investors at par. By consequence £500m of Reserve Capital Instruments (excluding Warrants) will today be made available to Barclays institutional investors by way of a bookbuild placing.

The RCIs are one of the tasty bits of the deal, as they pay out a generous coupon. Originally existing investors weren't being offered any of this, now they are going to get access to about a sixth of the total. It's a significant move in favour of institutional investors, though small shareholders won't get a look in (though this might not be practical/possible anyway). But there's no movement on the warrants- effectively an option to by Barclays shares in future.

Part 2 of the concessions are as follows -

In recognition of the extraordinary circumstances of the Capital Raising, the Board of Barclays also announces that:

*all members of the Board will exceptionally offer themselves for re-election at the Barclays Annual General Meeting to be held in April 2009; and
*no annual bonuses will be paid to executive directors of Barclays PLC for 2008, following the offer by the executive directors to waive any annual bonus for 2008.

This doesn't add up to much and surely ought to be standard operating procedure for the banks now. On the bonuses Barclays is simply following the now well-established trend that acknowledges that in the current crisis giving your top team rewards for good performance might look a bit wrong, though presumably it will be a bit painful for Bob Diamond.

And does putting all directors up for election at the AGM (and this isn't - yet - even a commitment to annual re-election) really mean much? Perhaps we really are in a new world where institutional investors will pull the trigger if they think directors aren't up to the job. Judged on previous evidence I think we ought to be a bit sceptical. How many directors actually get voted off boards? (admittedly some get knifed before it gets anywhere near a vote). If shareholder don't use the vote effectively, what sort of concession is it?

Unfortunately this kind of 'back me or sack me' initiative plays out in the corporate world rather differently to the political world. Business journalism plays a part here since it tends to play up the idea of superhero chief execs. Business leaders can garner the kind of fawning coverage politicians can only dream of if the organisation which they lead does well, and this attitude seems to seep into many people's views of companies. Therefore when execs pull the equivalent of a John Major resignation it is perhaps not surprising that many investors blink first. If we are ever to get to a position where shareholders really do act like owners this is exactly the sort of issue over which investors ought to call the company's bluff. Here's hoping...

Interesting snippets

On Capital Matters there are a few details about some individual votes that took place during the election that affect investment of assets.

There's another left-leaning website about the current crisis here.

Snowflake has a look at Osborne's comments on Sterling here.

AVPS recasts Charlie Brooker's zombie series Dead Set as the class struggle. (I must put up a zombie post of my own soon).

And Prem Sikka on the Barclays deal.

Barclays again

A bit more news from The Grauniad:

Pressure is mounting on John Varley, Barclays chief executive, and his boardroom colleagues amid growing shareholder opposition to the bank's £7bn fundraising plan.

Pirc, the body that advises pension funds and other major investors, is today urging shareholders to oppose the controversial capital raising at next week's extraordinary shareholder meeting. It wants shareholders to send directors a "clear unequivocal message" that the new investors from the Middle East are not a good solution to the need to raise funds.

The deal is already facing criticism from RREV, which also advises pension funds, and corporate governance advisory group RiskMetrics Group. The Barclays chairman, Marcus Agius, tried to convince major City investors of the merits of the fundraising at a meeting at the Association of British Insurers, which also has concerns about the fundraising, last week.

I still think they will get through the vote ok though.

Bank vs State

There's all kinds of spin and counter-spin going on out there about the nature of the Government's involvement in the banks in which it is taking a stake. In today's FT, Sir Philip Hampton and John Kingman play down the idea that HMT will be a back seat driver. Rather, in their comment piece, they pitch their role as comparable to an institutional investor:

First, we will operate like any other active, engaged shareholder to maximise the sustainable value of the taxpayer’s investment in the banks, taking account of risk...

Like any other large institutional holder we will engage robustly with banks’ boards and management, holding both strategy and financial performance to account. We will also need to understand the views of and, where appropriate, consult with other investors – again, as any engaged investor would...

Finally, like any engaged investor, we will take a close interest in board remuneration structures. We want our investee companies to pay fairly, but not beyond fairly, for the world-class talent they need...

Excuse me for stifling a chuckle, but who are these 'engaged investor' types that UKFI (the govt's investment vehicle) is going to act like? I would argue that they barely exist in the UK market. As I've argued previously, if you take a look at the actual voting of asset managers - on, say, bank remuneration - you won't harbour any illusions about them being very engaged. (A more prickly person than I might make a particular point about the asset management arm of a bank in which HMT might have something of an interest.)

If the Government IS going to act like a genuinely engaged shareholder, all power to them, but it's a slightly different offer to seats on the board, which Darling was suggesting not long ago. In fact the Government is bending over backwards to at least give the impression that it won't meddle. All of which does rather kick away the central argument in Barclays' decision to go for Middle East funding. In contrast to HMT, Barclays is telling shareholders that having state investment would mean interference and conflict with its global strategy. That won't happen, you understand, with two large investors holding a third of its shares.

Today the Barclays team meet with the insurers, whose trade body has amber-topped their report on the bank. Taken together with the abstention recommendation from RREV that's already a real vote of no confidence, as these are not radical organisations. Perhaps some of the large institutions would have preferred HMT to have a chunk of Barclays (especially if that was the only alternative to this deal). I still think Barclays will easily make it through the vote, simply because most asset managers rarely oppose management, but they have done some serious damage to their reputation.

RREV abstains on Barclays deal

According to Reuters:

LONDON (Reuters) - Barclays (BARC.L: Quote, Profile, Research) investors should abstain from a vote on the bank's plan to raise 7 billion pounds from the Middle East due to the high cost and dilutive nature of the plan, according to a report by a shareholder advisory service.

A report by investor advisers RREV seen by Reuters said Barclays investors should abstain from the vote on November 24 mainly due to a large discount that shares are being offered at, the high cost and dilutive nature of the capital raising, and the negative market reaction since it was announced.

But it said "it would not be in shareholders' best interest to reject this proposal outright."

RREV, part of U.S. company RiskMetrics Group, could not be immediately reached for comment.

Looking a bit wobbly now...

Barclays investors are kicking off

See here. This should become a reputational issue for fund managers - trustees should find out what their managers are planning to do.

Barclays - ownership is on the line

This is a bit of a rant, but the more I look at the proposed deal whereby the investors from Qatar and Abu Dhabi get to snap up a big chunk of Barclays, the less I find anything to like about it. It is a waaaay worse deal than that available from HMT in terms of the capital injection, plus the investors get warrants (effectively the right to buy more shares at a given price in the future), but existing shareholders don't get a slice of the warrants. For existing shareholders - and that means by extension all of us with pensions and investments that have shares in Barclays - this will be a significant dilution, plus we don't get access to any of the good stuff.

You can, and Barclays does, make the argument that having HMT as a shareholder would restrict their freedom to operate. But a) it looks like under this deal an even larger chunk of Barclays will be held by a small group of investors - how do we know they won't seek to influence the Barclays board? - and b) all the signs are that Government won't (for good or ill) be trying to be a back seat driver to the banks in which it has taken a stake. Barclays also makes an attempt to argue that having HMT as a shareholder might affect the share price but a) the opposite may actually be true, lets's wait and see and b) maybe the presence of these other controlling shareholders could also affect the price. Why not?

I really don't see why existing investors should put up with this, not least because there is quite a bit of space between the deal being proposed and taking the taxpayers' shilling. Even if the City really does want to avoid part-nationalisation of Barclays, could they not push for something better than this?

I'm starting to think that this could be an important event in terms of policy on the nature of company ownership. If shareholders - which primarily means fund managers - simply swallow this deal because management says they should, it really does punch a hole in the 'shareholders are owners' argument. If the 'owners' of a major UK-listed company can't even oppose an obviously bad deal (in the sense that a better one for them is available), in a situation where the bank needs a serious funding injection whatever remember, how can we take seriously the idea that this works effectively as an ownership model?

And remember it's your money in there. These investors are supposed to be acting in your best interests. Do you think simply meekly accepting the dilution and devaluation of the rights that they have as a result of investing your capital is doing a good enough job? I don't.