Monday, 20 March 2017

Blog Updates: Lloyds Sets up HBOS Review for Victims of Scourfield’s Fraud; A New Wave of Warnings for Executive Pay in Advance of AGM Season; and Barclays Threatens Theresa May Because of Brexit

Today’s post provides for updates on posts from last month in Financial Regulation Matters, as recent news has suggested that there are particularly important developments looming. Firstly, the post will look at the developments being undertaken by Lloyds in response to the fraud undertaken by Lynden Scourfield, via Halifax Bank of Scotland (HBOS). Then, the post will provide updates on the new wave of warnings being aimed at executives in receipt of large pay packages. Lastly, the post will provide a passing comment on the recent, undeniably brash warnings given by the Chairman of Barclays to Theresa May.

Lloyds’ Griggs Review

On the 6th February, the case of six financiers being jailed for almost fifty years was the target of a post in Financial Regulation Matters. The financiers, led by the head of the Corporate Division in HBOS Lynden Scourfield, conspired against the owners of small and medium sized enterprises (SME) – the scheme was to funnel the business into the hands of Scourfield’s division, enforce the acceptance of increased levels of finance (often without merit), and then pick up the pieces for a fraction of the true value once the businesses inevitably collapsed under the fabricated pressure that increased financial pressure brings to such companies.

So, in response to the claims by those affected that they have spent years attempting to have their claims taken seriously, and in response to the recent convictions of course, Lloyds has now commissioned Professor Russel Griggs to lead a review into the cases of those affected. The bank says that it has selected Professor Griggs to lead the independent review because of his ‘experience in overseeing high profile reviews of a complex nature and for his clear understanding of SME businesses’, which is based upon the Professor’s appointment as an External Reviewer to the SME appeals process in 2011 which ensured that SMEs were provided with a fair and transparent appeals process whenever they were denied credit. The bank continues by confirming that the customers who have been identified as being affected will be included within the review process, and those that have claims to be affected will be consulted shortly and a decision made as to whether they should be included in the review. The news cycle has rightly opined that the recent successes of Lloyds, as detailed in a previous post, should not become a reason to shirk responsibility and sweep issues like this under the carpet and this, arguably, cannot be doubted. With banks, it is vital that we judge them by their actions, and not how we would prefer them to act, because the divergence puts society at a distinct disadvantage – it remains to be seen what the outcome is regarding the compensation awarded to those affected by this despicable fraud, but Professor Griggs’ appointment to an independent review is an encouraging start.

Executives Warned Again Ahead of AGM Season

On the 9th of February, the focus of Financial Regulation Matters was on the warning from leading British institutional investors that the forthcoming Annual General Meeting (AGM) season would be characterised by an ‘increased amount of investor-activism when it comes to executive pay’. The post looked at the instances of Imperial Brands, the massive tobacco company forced to scale back its plans for an increase in the remunerative package for its CEO, and also the pressure being exerted by Church-led groups against energy giants BP and Shell in terms of improving its environmentally-concerned actions.

Today, in the Guardian, the Chief Executive of the Investment Association described how the number of companies approaching the Investment Association – an association of institutional investors, investors like pension funds, that have binding voting power to veto the pay packages being put forward for management teams – has more than doubled in the past six months in advance of this coming AGM season; the companies know that the power to veto or confirm the pay packages for the next three years is now stronger than ever before and that the flag-ship sentiments offered by the Prime Minister – namely that she would lead a crackdown on executive pay abuses – have only increased the pressure on them to justify the pay increases. Chris Cummings continues by stating the focus of investors this AGM season will be on three key components: pay and future increases; the structures of those awards and the need to simply them; and finally the link between pay and performance. If this tripartite approach is realised, then the effects may be particularly beneficial for holders of pensions up and down the country.

There is a distinct need to proactively monitor the actions of companies who only exist to create profit. The current environment is slowly developing into one that is fertile for abuse (as will be discussed next), so it is vitally important that someone with influence takes the leading role in doing so. As will be discussed next, there is a growing concern that regulators will be hamstrung in their ability to do so because of external pressures, so perhaps that societal protection can come from pension funds who have the power and influence to direct the actions of the largest institutions in society. That state of affairs is unnerving, because we are then trusting private institutions with the regulation of private institutions when it is the public who will bear the biggest brunt – however, in this post-2016 world, it may be best opportunity we have. The results of AGM season should be followed particularly closely this year as a result.

Pressure Grows on Theresa May to Open the Gates for the Venal

It was discussed on the 5th of February in Financial Regulation Matters that Theresa May, the British Prime Minister, was facing an era-defining predicament in terms of choosing to focus upon the short-term successes of the country in response to the decision to leave the European Union, or whether she would use the opportunity to institute lasting financial practices that would protect the British people and lead the way in terms of corporate governance. It was opined that the pressures facing the U.K. after it secedes from the E.U. would be too great, and those that have the capability to exert pressure because of their importance to the British economy i.e. banks and other large financial institutions, would be far too great. Today, that opinion was ratified by the Chairman of Barclays.

With Theresa May poised to formally signal the U.K. Parliament’s intent to secede from the Union, John McFarlane broke ranks with other bank leaders and declared that ‘the challenge for the U.K. is not to assume it’s unassailable’, and that ultimately ‘advantage needs to be renewed’. McFarlane continues this remarkable declaration by stating that ‘there needs to be a tangible, compelling economic or collateral reason to be here or to do business here, rather than somewhere else, and this needs to be renewed continually’. So, Barclays, the British bank that traces its origins back to London in the late 1600s, is now leveraging that historical connection and informing the British Government that unless it creates a favourable environment for it to earn, it will take its business elsewhere. The British Bankers’ Association has also had their say, with its head, Anthony Browne, opining that if the U.K. wants to remain attractive as a financial centre, then ‘having a range of bank-specific taxes is not a good way to go about it’.

It is very likely that Paris and Frankfurt will now seek to demonstrate how friendly they can be to these massive financial institutions if they are to leave the U.K., as was discussed in a previous post. However, there is little to suggest the French or German governments will bow to the excessive demands of these institutions to facilitate the firms’ movement to their capitals – their citizens will be put at risk just like the British will be if the British government bow to the demands. Not only is it the case that London will undoubtedly remain a location for high finance, but these statements by McFarlane have had an unintended consequence, hopefully. What his comments show is the irrepressible venality that the largest financial institutions have incorporated into their very fibre. Yes an institution must seek to advance its own interests above others – this is logical and rational – but this uncompromising push to destroy everything in their way for the purpose of short-term gains is remarkable, clear, and something that needs to be addressed and repressed as much as humanly possible. It is vital that the British government respond to these threats with the vigour with which they were uttered – whether they do so remains to be seen.

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