Insights from the UK and beyond
By Clara Ferreira-Marques
Prudential’s ill-fated Asian adventure has left the company and its management badly bruised. But it has offered at least two valuable lessons for ambitious executives tempted onto the acquisition path by post-crisis, “once-in-a-lifetime” deals.
Lesson one: It’s not 2007 any more, Toto.
Lesson two: Disregard shareholders at your peril.
On the first, bold mega-deals that once impressed the market now seem to mostly unsettle both investors and regulators.
Unease at the Financial Services Authority — and a need to tick every box — was responsible for the unprecedented and damaging last-minute delay to Pru’s offer details last month.
For that, Prudential can thank the financial crisis, but also Royal Bank of Scotland’s near-fatal role in the hubristic and record takeover of ABN Amro — despite shareholder misgivings and clear signs of an impending crisis.
So the watchdog can bark after all. Adair Turner, chairman of Britain's Financial Services Authority, says the financial sector has "swollen beyond its socially useful size". That is a striking statement for any financial regulator, particularly one that counts promoting London's financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.
Turner's comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.
from The Great Debate UK:
-- Margaret Doyle is a Reuters columnist. The opinions expressed are her own --
Abracadabra! Yet again, Barclays has pulled another rabbit out of its hat. With just days to go before the end-March deadline for the bank to apply for a government guarantee of its dodgier loans, it may again wriggle out of state control.
The Financial Services Authority (FSA) has concluded, after performing "stress tests" on its loan book, that the bank has enough capital. Barclays (BARC.L) has persuaded the authorities and investors (shares are trading at over three times their January low) -- of its soundness.
The Financial Services Authority (FSA) has published a blueprint for a shake-up of global banking regulations aimed at preventing a repeat of the current financial crisis. The report, authored by FSA Chairman Adair Turner, recommends an increase in banks’ minimum capital requirements, closer regulation of hedge funds as well as proposals to stop banks lending too much during boom years and measures to restrict the ability of banks to take excessive risks.
The report comes a week after FSA Chief Executive Hector Sants said in a speech at Thomson Reuters London offices that the banking sector should be “very frightened” of the regulator.
Britain’s largest banks and the Office of Fair Trading remain locked in a case management hearing in court over the thorny issue of current account default charges, but the judge has already indicated that the banks will be given the green light to appeal the ruling against them. The appeal — on at least part of Mr Justice Andrew Smith’s ruling, which relates to “fairness” and the rights of customers to sue banks — is a hammer-blow to scores of consumers whose claims for compensation have been put on hold while the matter trundles through the courts.
The issue could now go to the Appeal Court and the House of Lords before the full case goes to court — and that could take two years or more. In the meantime, the Financial Services Authority has put on hold customer complaints and court cases relating to the charges, putting the brakes on any compensation payments. And, as the legal process rumbles on, the banks continue to rake in vast sums of money by hitting consumers who go over their overdraft limit or write a cheque that bounces with exorbitant charges. Analysts have estimated that that banks make up to 3.5 billion pounds in overdraft charges every year: by delaying the case, they could amass some 7 billion pounds.