King Denies Fed Warning

In the understatement of the decade, Mervyn King (Governor of The Bank of England) has told the Treasury Committee that there needs to be change of culture at Barclays.

"Barclays has to create a new bank with a new culture to take it forward."

He also denied that the Fed had warned the Bank of England that Libor was being manipulated:

"If the Fed had regulatory concerns they would have shared that with the regulator, [not the Bank of England].

They didn't pass any information to us that Libor was being manipulated.

The Fed could have shared that with us and they did not, all we would have done was pass it on. The Fed is a regulator, we were not; the Fed asked us for advice on how to interact with the BBA."

This denial is rather odd given the following:

"Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and establishing a “credible reporting procedure.” 

Not least the fact that King responded and thanked him for his recommendations.

Notwithstanding that apparent conflict between what King said and reality, his statement that the Bank of England was not the regulator may well be technically correct given the appalling tripartite system set up by Brown. However, it surely had more than a passing interest in what was going on with the banking system and, now that it will have "beefed up" powers, most certainly has an even greater "interest".

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Barclays Dishes The Dirt and Publishes Document

Barclays have published a document ahead of tomorrow's appearance by Bob Diamond at the Treasury Select Committee.

Here are a few highlights of the full document which can be viewed here:

"Supplementary information regarding Barclays settlement with the Authorities in respect of their investigations into the submission of various interbank offered rates

Context
In anticipation of Bob Diamond’s appearance before the Treasury Committee tomorrow, 4 July, 2012, in the interest of clarity and transparency we set out on behalf of Barclays a brief summary of the salient events and the actions that Barclays has undertaken since becoming aware of them. These explanations are in no way intended to excuse any of the events that occurred. These events should never have taken place, and Barclays deeply regrets that they did....

The investigation
The bank has conducted an exhaustive internal investigation over more than three years supported by external counsel. The bank has reviewed 22 million documents from over 200 custodians, over 1 million audio files and conducted more than 75 interviews. The results of the reviews were shared with the Authorities, who in turn made their own requests for documents and interviews.

In total, the bank has invested nearly £100m to ensure that no stone has been left unturned. The bank’s exceptional level of cooperation was expressly recorded by each of the Authorities, and was described by the DoJ as “extraordinary and extensive, in terms of the quality and types of information provided” and ”the nature and value of Barclays cooperation has exceeded what other entities have provided in the course of this investigation.”

That cooperation has led to Barclays being the first to reach resolution of these issues. It ironic that there has been such an intense focus on Barclays alone, caused by our being first to settle in the midst of an industry-wide, global investigation.....

29 October 2008 Communication from Bank of England
During October 2008, in the wake of the collapse of Lehman Brothers, when liquidity conditions had tightened acutely, Barclays raised its US Dollar LIBOR submissions more significantly than other panel members. In the month of October 2008, in particular, Barclays US Dollar LIBOR submissions for the 3 month maturity were the highest or next highest of the panel on every single day of the month and therefore excluded from the calculation of LIBOR.

Barclays did not understand why other banks were consistently posting lower submissions; Barclays firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays, and we were disappointed that no effective action was taken, notwithstanding our having raised these issues with various Authorities during the whole financial crisis period as outlined in the attached timeline.


As one would expect, Barclays (including Bob Diamond and Jerry del Missier) was in close contact with the Bank of England and other Authorities about the liquidity crisis generally.

On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.


Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.


There was no allegation by the Authorities that this instruction was intended to manipulate the ultimate rate. The bank’s submissions had consistently been excluded from the LIBOR calculation. Moreover the instruction became redundant in a matter of days as market conditions improved.


The FSA investigated Jerry del Missier personally in relation to these events and closed the investigation without taking any enforcement action.


Chronology of key issues
A. 2005 to 2009 – Trader requests

.....During this period, Barclays was consistently raising concerns with the BBA, questioning why other banks’ LIBOR submissions appeared to be so high compared to those of Barclays. Many of these concerns were based upon Barclays observations that other banks were making submissions which were lower than levels at which they appeared to be undertaking transactions. ......


Barclays also raised concerns with the FSA, the Bank of England and the US Federal Reserve. The documented occasions on which Barclays made such contact are illustrated in the attached document Timeline of regulatory contact..."

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Osborne's Statement on Barclays Fraud

I see that the Treasury state that George Osborne is to make a statement on the Barclays fraudulent manipulation of LIBOR:

"HM Treasury ‏@hmtreasury

The Chancellor will be making a statement to Parliament at around 1215 about the FSA investigation into bank borrowing rates, known as LIBOR"

You will observe that they have politely avoided using the word "fraud".

Whilst the avoidance of the word "fraud" may suit the sensibilities of those in Whitehall I suspect that, once people who owe Barclays money (eg mortgages, personal loans etc) wake up to the fact that the rates that they paid were based on the fraudulent manipulation of LIBOR, the word "fraud" will be liberally peppered across the myriad of class action suits that are bound to arise.

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The Budget - Summary and Details

Here is a link to the details of today's Budget as per HMT:

Budget

Whilst here are the headlines of today's budget (source):

Tax changes

The personal allowance will rise to £9,205 in April 2013

• The top rate of Income Tax will reduce from 50 per cent to 45 per cent in April 2013.
• The Income Tax personal allowance (the amount you can earn before you pay tax) will increase to £9,205 in April 2013.
• Age related allowances will be frozen from April 2013, moving towards a simpler, single personal allowance for everyone regardless of age.
• From 2014-15, taxpayers will receive a new Personal Tax Statement, telling them how much Income Tax and National Insurance they have paid and what their money is being spent on.
• Income Tax reliefs that aren't already capped will be capped at £50,000 or 25 per cent of income, whichever is higher.
• The main rate of Corporation Tax will reduce by an additional 1 per cent from April 2012.

The new Income Tax rates for the 2012-13 tax year were published in December 2011 and will start on 6 April 2012.

• Budget 2012 - New Income Tax rates 2012-13

Benefits

Child Benefit will be withdrawn for households where someone has an income of more than £50,000

• Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually; 1 per cent of Child Benefit for every extra £100 earned over £50,000. Only those with an income of more than £60,000 will lose all their Child Benefit.
• Servicemen and women serving in operations overseas will receive 100 per cent relief on an average Council Tax bill.

The new rates for the State Pension and benefits for 2012-13 were published in December. These rates start in April 2012.

• Budget 2012 - new pension and benefit rates

Alcohol and tobacco

• Duty rates for alcohol will rise on 26 March 2012 at the same rate as last year - two per cent above inflation. The government will shortly be publishing an Alcohol Strategy to address alcohol abuse.
• Duty on tobacco will rise by five per cent above inflation - a rise of 37p on a pack of cigarettes. This will come into force at 6.00 pm on 21 March 2012.

Motoring and travel

• Vehicle Excise Duty (car tax) will increase by inflation only.
• The government will take forward many of the recommendations from Alan Cook’s independent review of the road network, including developing a national roads strategy.
• The government will also consider new ownership and financing models for the national road network.

Housing

• A new Stamp Duty Land Tax rate of 7 per cent will be introduced for residential properties over £2 million from 22 March 2012.
• The Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope will be increased to 15 per cent from 21 March 2012. There will be a consultation on the introduction of an annual charge on £2 million residential properties which are already contained in corporate envelopes.
• A New Buy Scheme was introduced last week to help those who cannot afford the larger deposits that some mortgage companies demand.
• The government will fund an extra £100 million of improvements in the accommodation of the armed forces and their families.

Pensions

• The current system, where pensioners can receive an additional State Pension as well as their basic pension, will be simplified. This means that future pensioners will receive only one single-tier pension, based on contributions. This is currently estimated at around £140.
• There will be an automatic review of the State Pension age to ensure it keeps pace with increases in life expectancy. Details of how this will work will be published this summer.
• There will be no changes to pension relief.

Employment

• The National Minimum Wage will increase by less than inflation, as recommended by the Low Pay Commission, to support employers and help protect jobs.
• Sunday trading laws will be relaxed during the Olympics and Paralympics.
• National Minimum Wage rates to rise in October

Digital economy

• The government has committed to providing 90 per cent of the population with access to superfast broadband.
• There will be improved mobile phone coverage for rural areas and along key roads.
• Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle are to become broadband super-connected cities, as part of the £100 million investment announced at the 2011 Autumn Statement.
• £50 million will be used to fund a second wave of smaller cities.

The economy

The UK economy is predicted to grow by 0.8 per cent this year, and 2 per cent in 2013

• The independent Office for Budget Responsibility’s (OBR) forecasts for UK growth and inflation are broadly unchanged from its November forecasts.
• Growth: its growth forecast for the UK this year is 0.8 per cent; they forecast growth of 2 per cent in 2013, 2.7 per cent in 2014, and 3 per cent in 2015 and 2016.
• Inflation: expected to fall from 2.8 per cent this year to 1.9 per cent next year, and then 2 per cent by 2016
• The OBR’s forecast for the unemployment rate is unchanged from last Autumn - the rate is expected to peak this year at 8.7 per cent and fall to 6.3 per cent by 2016.
• Borrowing: public sector net borrowing (PSNB) is expected to total £126 billion this year, falling to £120 billion next year. It is then forecast to to fall to £98 billion in 2013-14, reaching £21 billion by 2016-17.

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Government Waive VAT on Military Wives’ Charity Single

HMT have announced the following:

"The Chancellor of the Exchequer, George Osborne, has today announced that the Government will waive VAT on sales of the Military Wives choir’s Christmas single by making an exceptional one-off charitable donation to the Royal British Legion, and Soldiers, Sailors, Airmen and Families Association (SSAFA), the charities chosen to benefit from sales of the song.   The donation will be equivalent to the sum of the VAT receipts collected on sales. 

Recognising the service of the armed forces and the high levels of public support for the single, as well as the exceptional contribution both charities make through their work with members of the forces and their families, George Osborne and Defence Secretary Philip Hammond want to maximise the donation that the charity receives by adding the VAT equivalent. 

George Osborne said: 

“Our armed forces demonstrate incredible commitment to the nation and make sacrifices for all of us.  The Military Wives choir is doing a great job of raising money for this hugely worthy cause. We will donate the tax collected on the single so that as much as possible of the money spent by the public on this fantastic song goes to charities helping our armed forces and their families this Christmas.”
Philip Hammond said: 

“Christmas can be a particularly difficult time for our brave service personnel deployed on operations, but also for their families at home. I am delighted to be supporting the Military Wives choir in this initiative, who in turn are supporting our Armed Forces community.”

Notes for Editors

The fundraising song (Wherever You Are) is performed by the Military Wives choir.  All net record proceeds are going to the Royal British Legion and SSAFA.  For more information, visit http://www.whereveryouare.co.uk/.

The donation will be equivalent to the sum of the VAT receipts collected on sales before the 31 January 2012 and will be funded by HM Treasury.

Update - On 19 February 2012 the Government announced that the sales deadline of 31 January would be extended to 31 March 2012 in recognition of the fact that the single’s Brit award nomination is likely to result in additional sales.

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The Ongoing Farce of The FSA Report About RBS

The ongoing farce of the FSA's report about the collapse of RBS continues.

The Treasury Select Committee has now published the terms of reference for the independent review of the FSA's report (which is still yet to be published). The review has been called for as MPs and others are heartily fed up with the FSA's handling of the matter.

Sir David Walker, a banker, and Bill Knight, a lawyer, will conduct the review which will have two aims:

- Assess whether the unpublished FSA report is "a fair and balanced summary" of the evidence gathered by the regulator and PricewaterhouseCoopers during their investigations into RBS.

- Assess whether the FSA's report does a good job of analysing its own failures in regulating RBS.

However, nothing can be done until the FSA have finalised their report.

Have they?

Of course not!

The hapless and hopeless FSA is still writing the report, which it was supposed to have finished in April, having agreed to an original deadline of March.

Citywire quote an FSA spokesman:

"It's taking longer than we'd originally hoped."

Hopeless and hapless!

Could someone please tell me why the FSA is still in existence?

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US Hits Debt Ceiling Today

The US federal debt will hit its legal limit today yet, according to CNN, Congress doesn't seem to have any plans to raise it.

What is the debt ceiling?

It is a $14 Trillion cap set by Congress on the amount of debt the federal government can legally borrow. It has been raised 74 times since 1962.

When the ceiling is reached, the US Treasury has no authority to borrow more money. As such the US is in danger of defaulting on its debts, unless the US Treasury Secretary (Timothy Geithner) picks and chooses which debts to pay and which to sit on.

Even if he manages the "debt shuffling", the damage done to "Financial Brand USA" will be immense.

It is now up to Congress to sort this out, lest the USA end up defaulting before Greece does.

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Gordon Brown's Mea Culpa

The Telegraph reports that Gordon Brown has admitted that he made a “big mistake” in the way he tackled financial regulation before the banking system collapsed.

As noted many times before on this site, the tripartite regulatory system set up by Gordon Brown failed primarily because no one body that belonged to it (ie Bank of England, Treasury and FSA) was deemed to actually be in charge of it.

Brown's admission is somewhat late in the day to be of any value!

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The Dog That Didn't Bark

The House of Lords is conducting an enquiry into the audit profession, and has been told that accounting rules were a significant contributing factor to the banking crisis.

Tim Bush, a member of the Accounting Standards Board's (ASB) Urgent Issues Task Force, told the Lords that international accounting standards forced auditors to abandon the principle of prudence in their audits.

Lord Lawson accused the profession as being "one of the dogs that didn't bark."

He quite rightly uses the phrase "one of".

As noted many times before on this site, the tripartite regulatory system set up by Gordon Brown failed primarily because no one body that belonged to it (ie Bank of England, Treasury and FSA) was deemed to actually be in charge of it.

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Economists Get It Wrong

The dismal "science" of economics has managed to get something wrong again.

This time it has massively underestimated exactly how much in debt the UK economy really is. Economists had expected a January (traditionally a good month for tax receipts) government surplus of about £2.8BN. The reality was in fact a deficit of £4.3BN, the first time since records began in 1993 that the UK was in debt in January.

The Treasury claim that the Government forecasts remain as stated by Darling, namely government borrowing will be £178BN (12.6% of GDP). However, City experts now predict that the debt will overtake the 12.7% recorded by Greece.

Economists are now calling for a more credible plan by the government, to show how it will address this issue.

They should not hold their breath!

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The Pre Budget Report

As Alistair Darling steps up to deliver his "Pre Budget Report", and probably implement an unworkable "bankers' bonus tax" (see below an article from today's HMRC Is Shite), the Office of National Statistics (ONS) reports that Britain's goods trade deficit worsened unexpectedly in October from £6.9BN to £7.1BN (the largest gap since January).

This fall raises uncomfortable questions over the UK's ability to pull itself up out of recession in Q4 this year.

To add to the pressure on Darling, Moody's warned that unless he acts swiftly to reduce the debt the UK's AAA rating will be reduced.

Article from HMRC Is Shite

Good luck to HMRC in trying to levy a "bankers' bonus tax", in the event that Darling implements one in his "Pre Budget Report" today.

Disregarding the fact that taxing one specific "class" of worker is contrary to the concept of taxes being non discriminatory, the tax will be unworkable:

1 There will be a wholesale exodus of banks, other financial institutions and individuals from the UK.

2 What is the definition of a "banker"? Those who currently fall into Darling's definition of "banker" will simply have their employment status/title changed, to eg "admin clerk".

3 Pay rises will be backdated to mop up the bonus pool.

The tax will be shot to pieces, and HMRC will be forced to waste valuable time and resources trying to "pin a tail on the donkey" of the bankers.

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Recession Worse Than Thought

Chancellor Alistair Darling will admit in the pre-Budget report that the economy performed worse in 2009 than he first predicted.

Quell surprise!

The prediction for economic shrinkage was 3.5%, the reality was in fact 4.75%.

Given this failure in forecasting, why should anyone believe the Treasury when it says that growth in 2010 will be between 1-1.5%?

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Brown's Bankrupt Britain

True to form, under Brown's "leadership" and Chancellorship, Labour have managed to bankrupt Britain again.

The Times reports that public sector net borrowing was £8BN in July.

This is the highest level of borrowing in July since records began, the irony being that July usually reaps a good harvest of tax receipts.

Net debt hit £800BN (57% of GDP).

So called "experts" had predicted a mere £500M PSBR.

Quite how the government (be it Tory or Labour) can balance the books, without dragging the economy further into the mire remains to be seen.

Brown has bankrupted Britain, what legacy!

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Welcome To Boom Times

It would seem that the financial crisis is over, that at least is the conclusion one might be tempted to draw from the fact that both HSBC and Barclays (not government owned) posted multi-billion pound profits today for the first six months of the year.

Barclays and HSBC both posted pre-tax first half profits of £2.98BN.

As a result, Barclays Capital's 23,000 staff will see their average pay and bonuses double to almost £200K for the full year, if results remain on track.

The Centre for Economic and Business Research, predicts that bonus payments by all banks could rise to £4BN this year, up from £3.3BN last year.

Whilst the government and others may moan about the banks that are state controlled increasing their bonuses, they have no right to comment on HSBC or Barclays; as these two banks did not go cap in hand the to the taxpayer asking to be bailed out.

Good management deserves good rewards!

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Toothless and Muddled

The Treasury Select Committee put the boot into the Government's white paper on financial regulation, and called it "toothless" and "muddled" as it has failed to address the key weaknesses in Brown's failed and derided tripartite system.

As ever, the fundamental weakness of the tripartite system is that there is no one actually in charge of it.

The Treasury's "solution" is to create a fourth body to oversee the the tripartite (named the "Council for Financial Stability")

An absurd idea which would only add to the muddle, confusion and buck passing.

However, all of this is but fanciful dreams akin to rearranging the lifeboats on the Titanic, the Tory Party will abolish the FSA once it is elected and the responsibility for supervision will be returned to the Bank of England.

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Economy On The Skids

As Labour try to divert the public's attention with its headline grabbing "swine flu hotline", the economy continues to slide.

GDP fell by 0.8% in the second quarter of this year, this is the fifth consecutive quarter fall.

"Experts" had been expecting a fall of around 0.3%.

GDP has already fallen by 3.16% this year, realists expect it to fall by 4.5% by December (the Treasury has been predicting a maximum fall of 3.75%).

So much for "green shoots"!

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A Massive Fraud on The Taxpayer

Fresh embarrassment for the government, as its economic "credentials" and "honesty" have been once again found wanting. This time the shortfall between government spin and reality has been highlighted by The National Audit Office (NAO), which has refused to sign off part of the Treasury's annual accounts.

For why?

Seemingly there are some quite serious problems relating to the government's insurance scheme, which was designed to help banks with bad loans.

The scheme was announced in February, and was designed to provide banks with protection against future credit losses on certain assets in exchange for a fee, its ultimate goal was to kick start the lending process.

However, the NAO states:

"In 2008-09, HM Treasury incurred some £23.8BN more resources than Parliament had authorised in the Supply Estimate. This represents an 'excess' for which further Parliamentary authority is required."

In other words the government and Treasury attempted to act "ultra vires" (outwith its authority), its promises vastly exceeded its powers/reality.

Vince Cable, Liberal Democrat Shadow Chancellor, used a more picturesque language and described the scheme as "quite simply a massive fraud on the taxpayer".

Quite how many "frauds" of this nature the government has tried to foist upon the taxpayer is unclear.

However, yesterday's much trumpeted Nissan deal, re electric batteries and the possibility of producing an electric car in the UK, may yet be blocked by the EU.

I fear, wrt the workers who have been told their jobs are safe, it may still be too early to pop the champagne corks.

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Greater Transparency for Banks

Sir David Walker has published an initial 140 page report on banking governance that calls on banks to disclose more details about their highest paid employees, and to impose strict rules wrt deferring bonus payouts for at least three years.

Sir David calls on executive board members, whose pay is above the median, to maintain a shareholding equal to their total historic compensation.

Sir David also calls for a far greater role for non-executive directors and large shareholders to oversee companies, and challenge them about their strategy.

Risk committees should have a greater role, including the power to block large transactions.

The final report will be published in November.

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Government Takes With Its Right Hand What It Gives With Its Left

It seems that Tesco may well be interested in bidding for the government's holding in Northern Rock, as the government is desperate to offload its stake before the next general election.

Ironically, the Treasury claim that politics has nothing do with the hasty private sale.

That being the case, why not float it?

Answer, because it would take too long!

Meanwhile, Britain's most profitable rail franchise (the East Coast Main Line - run by National Express) is set to be nationalised.

Talks between the Government and National Express over the franchise broke down last week. The company will hand back the service to the Department of Transport, when its funding runs out later this year.

National Express runs two other rail franchises and it is now entirely possible, under the terms of the contract re defaults, that they will be nationalised too.

Lord Adonis, the Transport Secretary, said that there would be no limit placed on the amount of taxpayers' money that would be allocated to the nationalised service to ensure it continued to run as normal.

Hardly true surely, given that Britain is bankrupt?

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Who's In Charge?

Those of you who were worried about who is exactly is in charge of the UK need worry no more, Lord Mandelson has revealed that he is in charge and the person where the "buck stops".

In an interview with The Today programme he said:

"The spending period currently operating in Government stretches beyond the next election and therefore it is reasonable to review public spending at that time."

Adding that the Chancellor has already "made that judgment".

By making that statement in public, he has tied both the Chancellor's and the Prime Minister's hands.

Now all we need to know is who exactly is in charge of the Tripartite regulatory system; the Bank of England, the FSA or the Treasury?

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