You can bank on their anger at flood of regulation

We have seen Barclays Capital last week settle a claim by Germany’s HSH Nordbank over a $151 million credit derivative order, while Italy’s Banca Popolare di Intra has sued an US bank for selling credit-linked notes at what it called an "excessive price with respect to their risk level".

But many of our bankers are more prosaic in their gloom: it is the grind of regulatory compliance that enervates their spirits and blunts their effectiveness.

The demands of such compliance are never theatrically threatening. They are attritional.

They chip away at banks’ performances, diverting the focus of the board and senior management away from the pursuit of profit, and tying up much time in box-ticking rather than business progress.

The latest annual poll of the Centre for the Study of Financial Innovation says that excessive regulation was widely seen among bankers as the biggest threat to the financial sector.

This is a big turnaround from last year, when regulation was ranked as only the sixth biggest threat to banking effectiveness. The paper storm is obviously growing in strength, from money laundering to consumer warnings on financial products.

Banks also told the survey that it was not just the fag of compliance. They said the process also gave them a false sense of security that a major problem could not happen because they had had their regulatory health check.

Unsurprisingly, there is no great meeting of minds here. The two dozen regulators taking part in the CSFI poll continued to judge hedge funds as the number one risk to the financial services industry.

The difference now is that banks, brokers, insurers and fund managers no longer agree with them.

Tourism bounce back

SHARES in hotel, restaurant and pub groups with heavy central London exposure took a pasting in the wake of 11 September, 2001.

The British capital was seen as a prime target for new terrorist attacks and American tourists stayed away in droves. Business nosedived.

Latest buoyant figures from hotels group Millennium & Copthorne suggest recovery is well in hand, however. Profitability in M&C’s London hotels jumped 12 per cent in 2004, and this has continued in the early weeks of 2005.

From Sloane Square to Kensington, London’s ritzier hotels are again far more full with American tourists in search of the Tower of London and businessmen in search of large gin and tonics and e-mail facilities.

Nothing is more indicative of the hotel industry’s confidence - or lack - than room rates. Special offers are often a gaudy bodywork covering an engine in distress.

But now M&C is far from alone in aggressively pushing for rises, buoyed by the returning custom to its flagship metropolitan properties.

It is also only a few weeks since the Bank of Scotland and the Saudi royal family announced they were combining to buy the five-star Savoy Hotel in central London - further evidence the sector is returning to health.

Optimism is the prescription

NOVARTIS’s 3.9 billion swoop on Germany’s Hexal and most of Eon Labs in the United States to spawn the world’s largest generic drugmaker shows the commercial and product pressures facing the sector.

Drugs have fallen foul of the regulators in some high-profile cases, and the benefits from the last round of major consolidation in the industry from the mid-1990s have flowered and faded.

Other major blockbuster drugs have moved out of patent and are subject to generic competition.

The weak pharmaceuticals patient needs a fresh transfusion of optimism. The best way to achieve that is either through a new cutting-edge product - perhaps in conjunction with an entrepreneurial though cash-strapped biotech - or costsaving consolidation.

Novartis, through its now massively beefed-up Sandoz division, is hedging its bets.

Private jubilation

FOOD manufacturers are remaining schtum about the Office of Fair Trading inquiry into their relationship with Britain’s major supermarkets.

It is probably unwise for them to go public with criticism that the Big Four are holding suppliers to ransom to keep retail prices low.

Inwardly, those suppliers are probably thinking ‘Yes!’.