Martin Flanagan: Vickers offers a performance to soothe troubled MPs’ worries

SIR JOHN Vickers and his fellow members of the Independent Commission on Banking (ICB) put up a decent show before their inquisitors on the Treasury select committee.

Appearances before the committee can often be a gruelling experience for witnesses, as the committee has built up much working knowledge, allied with laymen’s concerns over the years since Northern Rock imploded.

Vickers and his team looked assured on a wide range of issues. Following the recent publication of the ICB report, they told MPs that there was nothing surrounding their central proposal for retail banking to be separated from investment banking that should harm the supply of credit to small and medium sized businesses (SMEs).

They said there was a low probability that one of the major UK banks would up sticks and relocate abroad to get round the ICB report’s suggested changes, and that the competitiveness of the City of London was unlikely to be hit by the new working environment outlined by the ICB.

This must have been music to the ears of the committee, given that Britain’s financial services sector is so much more pivotal to the health of the country than in the likes of the United States and the eurozone. It currently chips in about 8 per cent of GDP here and about £1 in every £10 of tax paid.

That is a lot of hospitals, schools and housing projects. Vickers also made the telling point that we should not have got so worked up about Moody’s credit rating agency downgrading the major British banks last week.

Vickers believes, quite rightly, that we should have had reason to be much more concerned if the ratings agencies just took the ICB report and its ringfencing proposal with a pinch of salt and indicated it was nothing to get excited about.

That would have suggested toothlessness in the report’s aim to get banks to put their capital houses in order. Instead, Vickers said, the rating downgrade was not a cause for panic. It shows the agencies, by implication, view the ICB proposals as a step to sharply curtailing if not abolishing the implicit government guarantee for banks, and so is a definite step towards the goal of getting British taxpayers off the hook they have been on since the financial turmoil of 2007-9.

As Martin Taylor, commission member and former chief executive of Barclays, told MPs, we should also feel some measure of comfort in how banks are recapitalised in this country compared with the situation now facing counterpart banks in the eurozone as the sovereign debt crisis boils.

The ICB members’ responses were far from suggesting everything is for the best of all possible worlds in British banking. But MPs seemed to accept their arguments that the report is a rational response to what has happened and is not fighting the last war.

Rather it is putting in place proposals that could sharply limit damage in any future crisis.

It is a fair point made by the ICB honchos that we should also avoid fretting that other countries are not queuing up, a bit like rail privatisation in the 1990s, to follow Britain’s example, this time on ringfencing.

As mentioned above, the fallout on the high street from a major banking crash in Britain is far greater than abroad because of the greater ratio of banking assets to GDP here. Other countries don’t need a retail ringfence so much.

Pulling out of takeover talks is a safe bet for Ladbrokes

THE muted reaction to Ladbrokes’s share price yesterday of the breakdown of talks for its potential takeover of online gaming firm Sportingbet is a sigh of relief from investors.

They bought into the logic of the deal but they were worried that the bigger company would overpay for the assets being acquired.

Worries about the uncertain regulatory environment in which Sportingbet operates in Turkey was an obstacle recognised right from the off when talks began in June.

That also looks to have been an insuperable stumbling block. Sportingbet has no assets in Turkey but runs a website offering wagers to Turkish residents. Ladbrokes is known to be averse to operating in unregulated territories, and who can blame it after the regulator clampdown on internet betting in the United States a few years back.

However, talk about organic growth though he might, the termination of talks does nothing to ease the difficulty of Ladbrokes chief executive Richard Glynn in convincing investors that his company is not the one‑trick pony of organic growth.

At some stage I suspect Ladbrokes will therefore explore meaningful acquisitions again.