News Column

Daily Mail, London, Alex Brummer column

July 29, 2014

By Alex Brummer, Daily Mail, London



July 29--The Bank of England makes no bones about its reaction to the disclosures that Lloyds and the Bank of Scotland rigged sterling market interest rates so as to lower the cost of funds provided under the Special Liquidity Scheme (SLS).

It was, the Bank says, 'highly reprehensible and clearly unlawful'.

The wrongdoing that took place between 2007 and 2009 was particularly abhorrent in that Lloyds and Bank of Scotland were in effect cheating the taxpayer that took mortgage securities off their books in exchange for cash.

Without this cash assistance, Lloyds, which at its peak was 43.4 per cent owned by the taxpayer, might conceivably have tipped over a precipice.

Once again the email traffic among traders is shown to be cavalierly irresponsible and to include some industrial language. In fiddling the Libor for Japanese trades one dealer opines: 'Every little helps... It's like Tesco.'

In the Libor markets, as in the foreign exchanges and in dark pools, fractional changes in reference rates can produce rich seams of profits and help to fatten up bonus cheques.

Much is made by Lloyds of the fact that the manipulation took place a long time ago, that the top echelons were not aware of what was going on and that systems and controls have been cleaned up.

It is tamely paying a pounds sterling 218million fine to settle with the authorities on both sides of the Atlantic.

All of this begs several questions. If the former chief executive, the American Eric Daniels, and his cohorts were not aware of the wholesale cheating taking place then they clearly were deficient in making sure that robust compliance was in place.

More significantly, perhaps, the engagement in unlawful activities especially those directed at the Bank of England itself may represent a criminal conspiracy. Britain's bad bankers have largely been allowed to carry off the loot without any serious punishment so far. The public, that in this case was deprived of pounds sterling 8million, needs to see justice done.

If this were a great train robbery, or a raid on the Bank of England's vaults, there would be a global hunt for perpetrators and very lengthy prison sentences. We must trust that prosecutors are on the case.

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Grabbing a share of the lucrative Chinese market has long been an aspiration for British business.

Indeed, those companies which directly sell British and Continental luxury goods into China, such as Jaguar Land Rover and Burberry, have, so far, done remarkably well.

But for every success story there have been humiliating failures. GlaxoSmithKline's pre-bribery scandal sales in China may have represented less than 4 per cent of its turnover, but its involvement in alleged corruption has dented sales and delivered nasty reputational damage.

Similarly Rolls-Royce, Britain's most impressive engineering group, is suffering similar harm over alleged bribery charges.

Breaking into the Chinese market can be hugely difficult and value destructive. It is no accident that one of the more sensible actions of Phil Clarke, who pioneered Tesco's operations in China, was to spread the risk of its property-led incursions by forming a joint venture with a local enterprise.

Under the leadership of Paul Walsh, one of Diageo's proudest achievements was its growth in emerging markets and China in particular. Sales of its premium branded spirits, notably Johnnie Walker, have been impressive.

The concept of the Johnnie Walker House, which creates bespoke whisky blends, was a remarkable success. Diageo's effort to build on this by buying Shui Jing Fang one of the few direct investments by a foreign company in China has proved less fortunate. The clampdown by the current administration in China, headed by President Xi Jinping, on gifting and banquets has hurt sales of the ancient baijiu brand of white liquor. Diageo will announce a write-down of its holding when it unveils its results this week.

FTSE 100 companies were once rewarded by investors for their ambitions in the People's Republic. But the clampdown on bribery has greatly raised the political risks.

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Mothercare chairman Alan Parker was right to reject the now abandoned bid by US predator Destination Maternity.

However, it is unhelpful that a management team put in place, of new chief executive Mark Newton-Jones and finance director Matt Smith, has disintegrated so quickly.

The sharp decline in the shares in latest trading reflects the uphill task of turning around the loss-making domestic operation.

As we have seen with other famous named shopping emporiums, pulling out of a nosedive once it gathers momentum can be a titanic task.

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(c)2014 Daily Mail (London, )

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Source: Daily Mail (London, England)


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