Hector Sants Resigns Again

Hector Sants (CEO of the failed, and soon to be defunct, FSA) has finally resigned from office.

He had resigned once before in 2010, and was due to leave in the summer of that year. However, he was persuaded by George Osborne to stay on to become deputy governor of a new regulator due to "go live" in 2013:

"As predicted on this site, George Osborne has sounded the death knell of the ineffectual and inept FSA (ironically, despite its lousy performance, FSA staff were paid nearly £22M in bonuses last year).

Osborne has stated that it will cease to exist in its current form, and a "Consumer Protection and Markets Authority" will be created.

Hector Sants, the CEO of the FSA, will stay to become the new deputy governor and chief executive of the new regulator. That announcement is to be treated with a degree of scepticism. The new body will be considerably less powerful than the FSA, and it is likely that as soon as the transition has occurred Sants will depart (as this in effect a demotion)."

As noted, this was in effect a demotion, as the Bank of England's role is to be considerably enhanced. Therefore it is not surprising that Sants has decided to step down this summer, his role in the new Prudential Regulatory Authority (PRA) body will be taken on by the Bank of England's Andrew Bailey.

Despite persuading him to stay on in 2010, Osborne doesn't seem to have offered official public thanks to Sants for his work.

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The Death Knell Of The Tripartite System

As predicted on this site, George Osborne has sounded the death knell of the ineffectual and inept FSA (ironically, despite its lousy performance, FSA staff were paid nearly £22M in bonuses last year).

Osborne has stated that it will cease to exist in its current form, and a "Consumer Protection and Markets Authority" will be created.

Hector Sants, the CEO of the FSA, will stay to become the new deputy governor and chief executive of the new regulator. That announcement is to be treated with a degree of scepticism. The new body will be considerably less powerful than the FSA, and it is likely that as soon as the transition has occurred Sants will depart (as this in effect a demotion).

The widely derided tripartite system, set up by Brown, is to be terminated and the Bank of the England given wide ranging powers to prevent another financial crisis; ie the Bank is now in charge of regulation.

The Bank will become one of the most powerful regulatory bodies in the world, with responsibility for both monetary policy and financial regulation.

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Hector Sants Resigns

Hector Sants, the CEO of the Financial Services Authority (FSA), has resigned.

Sants will leave the FSA this summer. He will have held the job for 3 years.

He has been in a corner for sometime now and, in the event that the Tories win the next election, knows that the Tories will shut down (or most certainly emasculate) the FSA.

He has chosen a good time to jump ship.

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FSA Talking Nonsense

Hector Sants, CEO of the FSA, seems to have been talking nonsense when it comes to self certification mortgages.

Ray Boulger of mortgage broker Charcols noted that Sants said on the BBC Today programme that, in the boom times, self cert mortgages were around half of those offered.

"This claim is complete nonsense and it is very worrying that the FSA is trying to set policy on the basis of such a serious misunderstanding.

It is true that about 50% of mortgages were 'income non-verified' - but only about 10% were self cert."

It seems that Sants is so concerned about trying to save the FSA from being shut down under a forthcoming Tory administration, that he is prepared to ignore the facts in order to garner a media soundbite.

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New Mortgage Rules

The FSA intends to firmly slam the door after the horse has bolted on "risky" lending, and is advocating new rules that will ban self-certified mortgages and impose rigorous new checks on homebuyers applying for mortgages.

Seemingly borrowers may even be asked how much they spend on booze and shoes (how does the FSA think that the banks can check up on that?).

Hector Sants, CEO of the Financial Services Authority (FSA), said that the FSA was going to "get rid of the irresponsible practices that put banks and consumers at risk".

All very well. However, the FSA has been in existence for well over a decade and these "irresponsible" practices have been well reported for many years.

Why, only now, do they seek to reform these practices?

The FSA will make banks and other lenders liable for loans that cannot be repaid.

The trouble is that the economy, during Brown's "no return to boom and bust" years, has been built up on lending made to eg self employed, those with risky credit ratings etc etc. To take lending practices back to the 70's will inevitably take the economy backwards as well.

Like it or not, the genie is out of the bottle and will be very difficult to put it back in without causing further damage to the economy.

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Sants Fights His Corner

The embattled CEO of the Financial Services Authority (FSA), Hector Sants, fought his corner on BBC radio this morning.

In response to criticisms that the FSA's new remuneration code is too soft on bankers, he stated that politicians have "ducked" the issue and have passed "the buck to the FSA".

He quite correctly noted that the FSA was not set up to take a "moral view" on the scale of payouts. However, its role is to ensure that pay packages did not encourage inappropriate risk-taking.

He also, rather wisely, noted that it was "reasonable" for the government, as a shareholder in some institutions (ie Royal Bank of Scotland and Lloyds) to set parameters on how the companies were run. Thereby neatly reminding the government that, at least in those two cases, they really are in charge and do have a say.

Doubtless that suggestion will fall on deaf ears, as the government would very much like to pretend that it has no control over these two institutions; to admit that it does would mean that it would be blamed for the poor results.

Demonising bankers is all very well. However, like it or not, the country needs banks and bankers in order to function.

Short of returning to a primitive barter society, we will have to continue to endure seeing a handful of people making large sums of money for apparently doing very little.

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Squeezing The Balloon

As the tide of public opinion turns against mega bonuses, Citywire reports that the City has come up with a "novel" wheeze for ensuring that their "star" players are not inconvenienced by having to cut back on their lifestyles.

Salaries are being increased to sop up the shortfall on bonuses.

Those of you with even a rudimentary intelligence will have probably guessed that would have happened anyway, you squeeze a balloon at one end it will expand at another.

The FSA have tried to direct people's attention to their "pro active" (albeit many years a coming) actions wrt bonuses. Hector Sants claims that the FSA would not allow any "new" multi-year guaranteed bonus payments to be made.

However, as the article points out:

"The FSA fears that if base salaries were low, it would make it difficult for a bank to eliminate or cut bonuses in a poor financial year."

In other words, in order for the FSA to show that it has actually done something (ie cut bonuses) it has to allow (nay force) companies to increase base salaries.

The FSA truly is a creation of Brown!

I look forward to its demise in the next 18 months.

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The Scary FSA

The FT reports that the FSA is trying to live up to the stated wishes of its CEO, Hector Sants, when he stated last month that people "should be very frightened" of the FSA.

The paper goes on to quote Tony Woodcock, partner at Stephenson Harwood, who said that he and his colleagues had come across cases where applicants were summoned for taped interviews, often with a member of the FSA's enforcement team present.

Quote:

"We have been left asking ourselves why this was thought to be necessary.

It inevitably causes delay, sometimes to the point of wrecking or risking the wreck of a transaction."

All very well but the FSA shutting the stable door after the horse has bolted, and trying to look intimidating is not the solution to a fundamentally flawed tripartite regulatory system.

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Be Afraid!

I see that Hector Sants, the head of the Financial Services Authority (FSA), is telling the City that people should be "very frightened of the FSA".

That will most certainly be a first!

He has warned that there will be a new, more proactive approach, to regulatory enforcement, which would be far more direct and intrusive. All very well, but this is shutting the stable door after the horse has bolted.

Whether or not the FSA finally develops some cojones is not the issue. The fundamental reason for the failure of financial regulation is the tripartite system created by Brown. As long as that is in place, the regulatory failings of the past will be destined to be repeated in the future.

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The Sleepy Old Watchdog

In the most telling outcome of the Northern Wreck fiasco of last year, a Freedom of Information request has revealed that most of the officials at the Financial Services Authority (FSA), who fell asleep at the wheel whilst "supervising" Northern Rock have quit.

The Times reports that five of the seven FSA supervisors working closely on Northern Rock have left.

The fact that this information had to be extracted by use of a Freedom of Information Act request speaks volumes about the FSA and their concept of "transparency".

The fact that five officials have left speaks volumes about the quality of the supervision by the FSA.

A report by Rosemary Hilary, the FSA's internal auditor, about the FSA's supervision of Northern Rock will be released later this month. Hector Sants, CEO of the FSA, is already denying speculation that the report will be a whitewash.

However, despite his claims, Sants also slips in the fact that some details will be held back to protect the legal rights of employees and to respect the confidentiality of competitor banks examined for purposes of comparison.

The FSA doesn't seem to to like the idea of public accountability.

I find this to be somewhat ironic, given that the FSA is meant to supervise and hold accountable organisations that operate within the financial services industry.

The FSA doesn't seem to "get" that the concepts of transparency and accountability also should apply to itself.

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The End is Nigh

Hector Sants, the chief executive of the Financial Services Authority (FSA), has added his voice to the Greek chorus of doom and gloom that is currently serenading the financial services industry.

He has stated that the era of cheap borrowing by British banks is over. As such, in his view, the banks will revert to more "old fashioned" financial products and "relationship" banking.

Sants makes his comments at an interesting time for the FSA, as it is about to publish an internal review of its handling of the Northern Rock crisis.

He has already admitted that, although the FSA identified the risks in Northern Rock's business model, it failed to communicate adequately the potential problems and to force the mortgage lender's management to address the risks.

In other words, the FSA was asleep at the wheel.

He attempted to redirect the "story" by talking about banks and the ease of obtaining credit. He told the BBC:

"Banks themselves need to give consideration to how their business models will need to adapt to the changed market circumstances they have seen.

Secondly, we will be looking for firms to treat their customers fairly in these arguably more difficult times in prospect."

He predicted that banks would stop pushing complex financial products onto their customers, and instead get know their clients in the long term.

Whilst I agree that the market has changed, and that banks will change their approach, I do not agree that we will see them improving the relationships with customers or indeed even trying to "get to know them".

The credit crunch is a direct result of the greed and stupidity of banks and other financial institutions. They have no intention of being held accountable for this, and are passing on the costs of this fiasco to the retail consumer, via increased interest rates and credit restrictions.

The banks are now so highly automated and reliant on computer driven statistical analysis of their customers, for making decisions, that they will never return to "relationship banking".

Credit decisions are made by computers and statistical models, the banks merely use humans as the interface to try to "explain" (ie obfuscate) their often "bizarre" decisions to their helpless customers.

As regards not trying to push complex financial products onto customers, that is tosh. The banks' greed has not been abated, as soon as they come up with another "pyramid" style scheme (such as sub prime mortgages) they will most assuredly pump and dump it on their long suffering customers.

The FSA needs to wake up to the reality of banking (greed and stupidity) in Britain in 2008, otherwise it will have many more Northern Wrecks on its hands.

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The Failings of The FSA

The Commons Treasury Select Committee will haul The Financial Services Authority (FSA) over the coals tomorrow, for its failure to adequately supervise Northern Rock.

The committee will question Sir Callum McCarthy, the FSA chairman, and Hector Sants, the chief executive, about Northern Rock's growth and "risky" business model.

Seemingly Northern Rock may have just saved itself from extinction, in the short term, by agreeing a £10BN loan from Citigroup. This will help fund its ongoing operations and reduce its dependency on more expensive Bank of England funds, while it continues negotiations with possible buyers.

An FSA spokesman is quoted in The Times:

"We don't object to securitisation per se. There are some benefits in terms of spreading risk, but it has to be done sensibly."

A child of ten could see that the Rock's model was hardly "sensible", the question therefore remains "was the FSA asleep at the wheel?"

Rock's shares rose to 171p this morning, as speculators gave it is some breathing room. However, a bank so heavily indebted can hardly be said to have a rosy long term future. Those who hold shares in this company are in for quite a few sleepless nights.

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