UK News

from Felix Salmon:

Immoral bankers

The UK's Institutional Investor Council has issued a blistering report on the excessive fees that investment banks charge companies to issue new shares -- fees which one issuer are "usually immoral". It certainly seems that way, looking at this chart: fees have been steadily increasing over time, even as the discount at which the new shares are issued has got larger and larger. The bigger the discount, of course, the less risk taken on by the underwriter, since the more that the share price would have to plunge overnight in order for the underwriter to risk losing money on the deal.

Yes, this chart includes the financial crisis, and it stands to reason that fees for rights issues would rise during a crisis. But we're not in a crisis any more, and the fees aren't coming down to their historical levels, even though the discounts are still enormous. And it's notable that fees hit these highs on a percentage basis just as the amount of underwriting was surging:

What we're seeing here is a textbook example of banks squeezing every last dollar they can out of their clients just when those clients are most desperate for money. And it stands in stark contrast to legal fees, which were considered fair by issuers and which have not risen visibly at all over the past few years.

None of this is illegal, of course, but it's fair to call it unethical, if ethics are fundamentally based on the principle of "treat others as you would like to be treated".

Christina Rexrode had a long article on banking and ethics in Sunday's Charlotte Observer, and she concentrated on the kind of behavior which steps close to or even over the line into outright illegality. Maybe it's just so blindingly obvious that banks behave in a fundamentally immoral manner most of the time that her editors considered that not to be news -- charging $35 for a $2 cup of coffee, slapping enormous overdraft fees onto those who can least afford them, pushing high-interest credit cards on desperate customers, locating credit-card operations in South Dakota where usury laws are at their laxest, encouraging people to use the bonkers anachronism that is signature debit, steering customers into the financial products which pay the highest commissions, etc etc. All of this is legal, and all of it is designed to funnel as much money as possible from the customers' pocket to the bank's bottom line, and none of it is in the customer's best interest, which means that none of it can really be considered moral.

Testing the limits of animal lab experiments

A mouse that can speak? A monkey with Down’s Syndrome? Dogs with human hands or feet? British scientists want to know if such experiments are acceptable, or if they go too far in the name of medical research.

The Academy of Medical Sciences has launched a study to look at the use of animals containing human material in scientific research.

Using human material in animals is not new. Scientists have already created rhesus macaque monkeys that have a human form of the Huntingdon’s gene so they can investigate how the disease develops; and mice with livers made from human cells are being used to study the effects of new drugs.

But scientists say the technology to put ever greater amounts of human genetic material into animals is spreading quickly around the world — raising the possibility that some scientists in some places may want to push boundaries.

Religious groups are among those that are uneasy about the trend. One Catholic cardinal, Keith O’Brien of Edinburgh, has branded such work “Frankenstein science.”

Martin Bobrow, a professor of medical genetics at Cambridge University is chairman of a 14-member group looking into the issue.

He says: “Do most of us care if we make a mouse whose blood cells or liver are human? Probably not. But if it can speak? If it can think? Or if it is conscious in a human way? Then we’re in a completely different ballpark.”

The ethics of gazundering

I have a confession to make. I pulled out of a property transaction earlier this year and left the seller high and dry. I’d like to say it was because of my impeccable sense of timing in all matters financial. That I  could see the UK housing market was tanking and that commuter flats (such as the one I was trying to buy) would tank more than most.  Or even that I was playing hard-ball and but had my bluff called. In fact, it was none of these – my solicitor spotted a show-stopping legal hitch and off I went to rent instead.

It didn’t stop the estate agent questioning my decision though. Was I trying to ‘gazunder’ the seller, he mused aloud in a subsequent phone call. Fortunately, though journalists (and estate agents) are sometimes accused of being only loosely acquainted with ethics, I was able to show I had the purest of motives. But, according to estate agents, gazundering – where buyers demand a last-minute price drop - is back with a vengeance.

“It’s increasing and we’re finding the average reduction purchasers try for is between 5-10 percent, says Richard Cotton, senior partner at London-based property consultants and surveyors Cluttons. “The 10 percent figure is mainly at the top end.”

So far, in London and the southeast of England anyway, sellers still mostly have plenty of equity in their properties and there hasn’t been a rush of forced sellers. Unhappy vendors will also tell would-be gazunderers to get lost if they try it on at the last minute, particularly if – as is often the case – they have already dropped the price by 10-20% to attract them in the first place.

But this could change as thousands of homeowners on low fixed term mortgages find repayments rising to much higher, unaffordable levels. They may then have to sell for whatever they can get.

“We’re not there yet. But in those circumstances the chances are that you might not find a buyer for up to six months,” Cotton told me. “Then my advice would be to take it on the chin. Get on with your lives, cut your losses and move on. If you’re in a chain, the obvious thing is to share the price cut with those further up the chain.”

Discussion of gazundering usually provokes extreme reactions. In the same way that gazumpers,  those who trump others when the market’s going up, infuriate the losing bidders, vendors usually express contempt for those who try it on when the market’s going the other way.