Comment: Osborne’s fighting the last war, not the next

Published on 14/06/2012 00:00

GEORGE Osborne will unveil his long-awaited banking reforms today, promising they will bring greater safeguards for the consumer and ensure there will not be another banking crisis of the sort suffered in 2007-9.

But the Chancellor’s white paper, based on recommendations proposed by the Independent Commission on Banking, is irrelevant and an unnecessary distraction at a time when banks need more support, not a costly exercise in breaking them up.

The separation of retail and investment banking, one of the core recommendations of the ICB, is supposed to protect customers’ savings in the event of another crisis. But it does no such thing. Merely splitting functions will cost the banks millions they could otherwise use to shore up their balance sheets or lend to small firms.

More worryingly, this so-called ringfencing of the two will leave us with smaller, more focused banks, but not necessarily safer ones.

We will end up with high streets full of banks resembling the pre-crash Bradford & Bingley, or HBOS, or Northern Rock; savings banks, a bit like the Spanish cajas, the sort of local banks beloved of those who believe that small is beautiful but which are at the centre of the current banking crisis.

It was argued here and elsewhere from the outset of the banking inquiry that any splitting of functions was a dangerous road to travel as the disruption it will cause is a misplaced response to a crisis now passed and not a solution to present needs.

Banks are well-advanced in the process of repairing their balance sheets and disposing of non-core assets. Under the more extreme measures proposed by the splitters they would have found their flexibility and versatility to respond to customer needs seriously compromised.

Serious lobbying behind the scenes has watered down some of the more draconian plans. It’s a pity, however, that it is still deemed necessary to drive a wedge into a sector whose recklessness could have been corrected by more robust supervision, rather than by tearing it apart.

Rare misreading of his public’s mood by Sorrell

the so-called shareholder spring reached another milestone yesterday in Dublin when the board of marketing giant WPP suffered a defeat over plans to reward its directors with multi-million pound pay packages.

It was the sixth such defeat this year, a record since votes on pay policies were introduced a decade ago, and a victory for those who’ve become weary of executives sticking their noses in the trough while others are forced to accept the austerity mantra.

It doesn’t mean that chief executive Sir Martin Sorrell will not get his $10.6 million (£6.8m) package, as WPP chairman Philip Lader only said the company would take the vote into consideration, As such votes are non-binding, he and his board are entitled to ignore shareholder protests.

There are also those who support Sorrell and others who are in the pay packet premier league. Brand Finance, the global brand valuation consultancy, reckons Sorrell is “worth every penny” based on data published today showing WPP is the No.1 advertising agency portfolio brand worth some $4.8 billion. It says Sorrell’s pay packet is “quite reasonable” when compared to his peers and the growth in value they have achieved.

But shareholders have heard all about paying the market rate and have clearly decided that it is time other issues were taken into account. Remuneration committee chairman Jeffrey Rosen felt the effects of their ire with 22 per cent of shareholders voting against his re-election.

Rosen’s argument was that Sorrell had not received a pay rise since 2007 and had in fact opted for a smaller increase in salary from a proposed 50 per cent to 30 per cent (although the total package rises by 60 per cent).

However, marketing people like WPP ought to know better about how to sell their message as the watered down proposals still didn’t wash, with almost two thirds of shareholders voting against.

Their voice will add to the pressure for change being proposed by Business Secretary Vince Cable, though he looks to be backtracking on plans for annual binding votes on pay. Even so, change is afoot, not least the introduction of a 75 per cent threshold for securing pay packages.