The Barclays scandal goes global

2nd July 2012

A success? But is it playing the game? In cricketing terms, is Agius just an A.N.Other taking the bouncers for to protect the star batsman?  And, changing the sporting metaphor, is the City of London to ape the England football team and become number eight in Europe?

For Agius, who three decades ago was the spinner to the serious Sunday papers of takeover stories for then employer investment bank Lazard, it could be the ultimate sacrifice. Just as he did in the 1980s, he took the heat from his boss. 

It will not last. Dropping Agius as the shareholder meeting's master of ceremonies still leaves Diamond on the bridge as the star turn. And once the novelty of Agius falling on his sword (with details of any golden goodbye package) has passed – he was due to leave anyway in the next year or two having already served nearly six years in the chair – the focus will return to Diamond and to the wider Libor scandal.

There will be a desperate attempt to contain the Libor issue.  Already, many  banks beyond Barclays including HSBC and RBS are in the "too big to fail, too big to jail" category.

The first question is whether big finance has other skeletons to hide. It probably does but that will take time to emerge.

The second  is how this will play overseas. And that will go far wider than Barclays or British banks. It could go straight to the heart of "dictum meum pactum" the City of London's appeal to the world built on the "my word is my bond" concept. If you cannot trust the financiers anymore, then the City of London must lose its role. 

According to the Economic Times of India, it is "not cricket". Barclays has not kept a straight bat, the banks have been bowling googlies at the public, and, to compound matters, Diamond has not "walked" when caught out. Instead, he awaits TV replay after TV replay to contest where his foot was when he played the shot.

In a more in sorrow than in anger piece, the Indian paper says:

The whole system only worked assuming that the club would play cricket and, of course, nobody would dream of cheating. It's a system that harks back to a kinder, gentler era of gentleman banking, and like so many things, in England, the tradition carried on. It's the "that's how we've always done it since 1462" syndrome, the one where everyone assumes that just because a system always worked, it always will.

21 thoughts on “The Barclays scandal goes global”

  1. Robert S says:

    Shaun,

    As usual, an excellent piece of analysis, thank you. However, on a different topic, I remember, perhaps 18 months+ ago, you used to keep an eye on the Baltic Dry Index (BDI) & comment upon it. I had forgotten all about the BDI, but it drifted back into my mind after reading a BBC News article about a new cargo ship that is about to be launched. When you were discussing the BDI, I THINK you were mentioning that there were a plethora of new ships being launched in a short space of time, just as the BDI had started to decline. How is the BDI doing these days, and what impact, if any, have all the new ships made to the Index and on World trade? I was wondering if a collapse in Euro GDP would be having some impact. Is it a answer short, or is it worthy of an article?!

    Thank you.

    Robert

    1. Anonymous says:

      Robert
      Have just seen this on ZeroHedge which may be of interest to you.http://www.zerohedge.com/news/2013-02-19/freight-shipment-volumes-plunge-lowest-two-years

    2. Alex says:

      I read the same article about the shipping on the BBC. What struck me was the bit about our biggest export still being fresh air in the empty containers. Hmm I said, then thought ‘theres a business opportunity there if we could export helium in the containers it would ‘lighten the ship’, reduce the ships fuel consumption and deliver the gas to the other side of the world’. Then again I’m still not a millionaire and I’m sure theres a good reason for it.

      Meanwhile the sales of vehicles across the eurozone is down, but number of financial vehicles is on the up.

      1. Anonymous says:

        Hi Alex
        It does sound a clever idea, is there a way of getting a (cheap) patent as you never know….?

    3. Anonymous says:

      Hi Robert

      I can see you have replies already so I will move onto a measure of container shipping or a bit further up the food chain from the BDI. There are several but if we look at the Harpex one we see an index which plunged to 275 in 2009 as the credit crunch hit hard,followed by a rally to 901 in the spring of 2011 but it then fell again and is now just below 370. So not inspiring as the rally from the lows (352) of late 2012 to 370 doesnt really back up the equity market surge does it when you think it hit 901 in 2011?

  2. James says:

    Shaun,

    really interesting blog today. On the subject of the divorce of financial markets from the real economy, perhaps you have it the wrong way round.

    I think that someone described Heathrow terminal 5 as a shopping centre with a runway attached. In the same vein, I am beginning to think that countries are stock and bond markets as their real economy, unfortunately coupled to a physical economy which is not quite so easy to rig…

      1. Anonymous says:

        Hi Guys
        Also some countries are banking sectors with attached populations!

  3. Anonymous says:

    Car sales can be a bit misleading. The UK has an enormous car leasing business that supports the very large number of company cars there are here. In other countries, cars tend to be bought by individuals with their own cash. In a downturn, companies still have contractual obligations to their staff (or at least they want to keep them happy). Individuals can easily postpone their purchases and perhaps have to.

    1. Anonymous says:

      Hi Barncactus
      Actually there were a few enquiries earlier about what was happening in the UK car market and your is the best answer I have seen.
      Let’s say it is a major factor then it is helping to keep our economic noses above the waterline so maybe we should be grateful. However, how long can it go on?

  4. Rods says:

    Hi Shaun,

    Another excellent article.

    The current situation in the Western world reminds me of the cartoon Dilbert, with Western Governments and the EU the “Pointy-Haired Boss”. Most of Western Europe is in terminal decline and this is accelerating. I think the 21st century is going to belong to other continents. Thinking about that “Czech Artist” that put on a world map on how countries perceived other countries I think in the future Western Europe will be seen as: “A post industrial landscape of green fields, windmills and horses and carts, with slum cities full of very poor starving people who are ruled by a green progressive eco-warrior dictatorship”.

    Once you have a system in decline, ever increasing competition from other countries industrialization and capital finding more productive areas in the world to be used, then it will be a long hard road to recovery. This will only happen once the problem are confronted and solved by the populous and politicians and there is no will from either for this to happen. India in the 1980’s I always though of as poor by choice through politics and vested interests, while tiger economies sprung up around it and I think the same applies to the EU and the UK.

    Four stories this week which I think summarises the UK’s decline very well are:

    1. How Heathrow will lose its hub status due to 20 years of no decision on new runways and high flight taxes. Schripol, Frankfurt, Paris, Dubai and a new 6 runway airport in Ankara Turkey will and are capturing business and will eventually replace it. Heathrow employs over 100,000 people directly and indirectly, so it should be a concern.

    2. The head of OFGEN is warning due to green commitments that electricity generating spare capacity is rapidly declining from 14% to less than 5%, with blackouts from 2015 a real possibility. The Governments solution is to push for greater electric car ownership!

    3. Rules being imposed by the EU of the size of bankers bonuses. I’ve no doubt that this will accelerate the decline of the city of London and the £64bn of UK taxes they pay each year. A much better solution is bonuses paid in shares and claw back clauses.

    4. A mansion tax is gaining momentum with the Lib Dems and Labour keen to start the confiscating of capital as soon as possible.

    5. The missing story, that could make a difference, the EU and UK Government’s have no growth strategy now or from what I can see on the horizon. All we get from time to time are vague speeches on how this is a priority!

    1. forbin says:

      Hello Rods,

      yes is is depressing but a few comments on you 5 points

      1, heathrow – 20year from now ? the price of oil will increase , bumpy though its path upwards may be , China and India will out bid us and the USA for the remaining available exports. any new airports will be competing for a smaller and smaller market.

      you may disagree

      2, green car ownership meaning electric cars means more problems – not less. He’s on his way out so he can call it now how he see’s it. I have no idea what we are to do – we’re locked into expansive gas – see point 1, Nuclear could be viable but no way will Labour or Liberal do it

      we’re stuffed – until the lights go out – again

      3, yes your right , the banking crisis has little to do with bankers bonus- banking reform is needed but is not going to happen because of the Blair Effect – jobs in banks for old politicians

      Stuffed on that one as well

      4, I for one believe those who can pay should – they don’t and a Mansion tax will not affect them much at all – agreed – its a complete waste of time – but so is the new sugar tax on fizzy drinks – the politico’s are desperate for new tax sources

      5, totaly agree on that one – I wonder why they are so “clueless”……
      incompentance or malice ?

      Forbin

      1. Anonymous says:

        Nuclear power hasn’t ever been cheap – despite the claim “too cheap to meter”, nuclear power stations have a long history of massive cost overruns.

        There is also the regulatory risk of nuke power stations being shut down early for political reasons (Eg. Japan and Germany). Early shutdown affects the balance of payments, just look at Japan’s fossil fuel import bill since the Fukushima meltdown.

        1. Anonymous says:

          Hi Expat

          I was reminded of your point about power bills in Bulgaria having spotted this earlier on Reuters.

          http://www.reuters.com/article/2013/02/19/us-bulgaria-government-idUSBRE91I0SV20130219

          Also having watched some football tonight ( a very efficient Bayern Munich against an outplayed Arsenal) I will ask if it is also kicking-off in another form in Sofia tonight or is that being over-played?

          1. Anonymous says:

            The electric bills rose substantially last summer and they’ve been causing much angst as the higher winter bills hit home.

            There have been large public protests across many cities against extortionate electric bills (more expensive than Britain).

            Ergo the politicians sit up and take notice – allowing the opposition to lead on this issue could swing the election against the parties ignoring their constituents pain.

            Recently reported is a scam where wholesale electric was sold to a Swiss company and then resold to the distribution monopolies with a 70% mark up. I’m unclear if they can trace the fraudsters responsible.

            Today the Bulgarian press reports that the state prosecution is considering withdrawing CEZ’s license to operate for some consumer supply fraud, with the other regional utilities being fined.

            we’re trying to agree class action with other developers in Western BG against CEZ – I suspect there’s widespread fraud in CEZ’s connection practices.

            Hence there should be sufficient material for the prosecutors to shut down CEZ, however the prosecutors office has a very poor track record.

            I’d also comment that the TOP DIRECTORS of CEZ in Prague were warned about CEZ Bulgaria as early as 2007.

            The economist has done some articles about corruption in the Czech republic titled “The CEZ Republic”

          2. Anonymous says:

            I should add the Blagorevgrad story. Protesters in Blagorevgrad having blockaded CEZ’s office for days (or maybe weeks) got an independent lab to test their power. The results showed CEZ was supplying 180 volts. Standard European voltage should be 230 or 240 volts.

            This means your kettle heats slower and uses a higher current (in amp hours) to get enough energy to boil. Many electric meters only measure amps – so CEZ may have been overstating kilowatt hours on their bills.

          3. Anonymous says:

            Well spotted Shaun – I’ve been busy on work stuff & just seen the BG govt has thrown in the towel. I really hope the socialist party do not win the election. Nationalisation of the electricity system is the wrong answer & a competitive market the best answer.

            The socialists previous stint included road building contracts running year after year without a completed project (allegedly allows more money to be corruptly syphoned off). Borisov’s crew got roads built on time.

            The socialists were also responsible for a hyperinflationary currency collapse in the 1990s.

    2. Anonymous says:

      Hi Rods
      I have been doing some research on India today and if you consider a country with 5.5% expected growth and 10.79% inflation in January then cuts interest-rates we see quite a different world! Now whether this is a new paradigm or a mistake only time will tell but it is different to aging struggling Europe.
      I though the OFGEM effort was just another out of touch regulator trying to shut the stable doors after the horse has bolted.

      1. JW says:

        Hi Shaun

        I have known Mr Buchanan since the late 80s , pre-privatisation. He has always been an advisor, never ‘in and of’ the industry.
        All that is required, even at this late stage is quick investment in gas storage ( which should have been done decades ago) and stop the stupid, brainless adherence to EU rules on our coal plant which have many years of good life ahead of them.
        I have absolutely no confidence either will happen, and brown-outs will happen. Its criminal.

        1. James says:

          I couldn’t agree more. I work within a mile of Didcot B power station which will close next month. Why is it closing? because someeone deems that it has used the 20000 hours of running since 2005. It still works, is still cheaper than green etc etc. meanwhile, China carries on building power stations as it pleases.
          It’s like trying to compete with one arm behind your back

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