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ALEX BRUMMER: After financial crisis there was Titanic effort to make sure no bank would be too big to fail – Business Secretary should adopt same hair shirt approach to energy firms










You might think the protests and vicious shoot-on-sight crackdown in Kazakhstan had little to do with Britain’s cost-of-living stresses. 

But the roots are the same as they were for the yellow-vests protests in France from 2018 onwards and the raucous demonstrations disrupting Chile’s political order. 

At the global level, Cop26, the IMF and the World Bank as backers of climate change action want to see higher carbon taxes and for business and consumers to pay realistic prices for energy. 

Feeling the heat: Britain has made terrible choices on energy

Feeling the heat: Britain has made terrible choices on energy

In Kazakhstan, a doubling of the super-low petrol price of 0.47 US cents a litre was enough to let all hell loose. 

Britain has made terrible choices on energy, ranging from the coolness towards opening up untapped offshore oil and gas resources such as Cambo, off the Shetland Islands, and by failing to invest speedily enough in new nuclear. Dependence on just-in-time imported oil and gas, without sufficient storage, exacerbates the problems. 

There is no escaping the reality that our cost-of-living problems are global in nature. This is illustrated by eurozone inflation, which zipped up to 5 per cent in November, the highest level it has ever been for the single currency bloc. In Germany, the historic exemplar of stable prices, it came in at 5.7 per cent last month. 

The same factors which have led to surging UK consumer prices are driving those on the Continent, with energy costs and post-Covid supply chain bottlenecks key factors. Energy prices across the eurozone are the main drivers. Average household gas and electricity bills on the Continent are forecast to climb by €650 (£542) to €1,850 (£1,541) in 2022. 

That may not be quite as big a shock as in the UK, but domestic users in Germany will still be required to stump up £19billion in extra charges, creating an early challenge for new Chancellor Olaf Scholz. 

Rather than face market realities ahead of France’s presidential elections in April, President Macron has responded by temporarily freezing electricity and gas bills, which is easier in a country where the government has a big stake in the main suppliers. 

The Tories, who cling on to the idea that shrinking the budget deficit is a good idea, don’t have that option. Electoral arithmetic, which dictates something must be done, should focus on the hardest pressed consumers rather than bailing out an under-capitalised industry.

In the aftermath of the financial crisis, there was a Titanic effort to make sure no bank would be too big to fail. Business Secretary Kwasi Kwarteng should adopt the same hair shirt approach to energy firms.

Digital do 

Martin Sorrell at S4 Capital is demonstrating with great skill where digital, tech and advertising meet. 

So the inside-the-tent assault by tech entrepreneur Vin Murria on M&C Saatchi looks to make sense. It is also reminiscent of Sorrell in his glory days at WPP and S4 in that Murria recognises that being in the public sphere offers the opportunity for the brave to make use of equity by issuing new paper. 

This is the converse of private equity, which operates a debt model. 

Martin Sorrell at S4 Capital is demonstrating with great skill where digital, tech and advertising meet

Martin Sorrell at S4 Capital is demonstrating with great skill where digital, tech and advertising meet

Murria, as deputy chairman of M&C, has a clear view of the value of the brand and its prospects having boarded the advertising group when it was in a pit of despair after the 2019 accounting scandal. She bought a commanding position directly through a 12.5 per cent stake and via an investment vehicle, AdvancedAdvt, which owns 9.8 per cent. 

Minority investors looking for a cash exit from M&C are distinctly cool on an all-paper deal which limits the escape route. If Murria really wants M&C, she must step back from her deputy chairman’s role, improve the offer and provide a cash alternative.

Sporting life 

The Athletic transformed sports reporting with the variety, range and quality of the analysis on its digital platform. 

It uses data well with a flair and intelligence of the kind first brought to public notice in Michael Lewis’s Moneyball.

In snapping up the San Francisco-based publication for £404m, the New York Times not only gains 1.2m subscribers (including this writer) but a reporting staff that understands finance and is prepared to expose sex abuse and other scandals. 

There is no immediate intention to merge with the NYT’s sports output. But the combination of two powerful franchises will create capacity to transform the quality and breadth of sports analysis. 

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The wheels of British financial justice move at a snail’s pace. In the US, the Securities and Exchange Commission brought the first charges against Elizabeth Holmes, the founder of Silicon Valley start-up Theranos, in March 2018.

Federal prosecutors brought the first criminal charges within a year, although court hearings were postponed several times because of Covid.

Nevertheless, the whole affair was largely done and dusted, after a jury trial, by January this year. All that is now awaited is sentencing for Holmes on four federal counts of fraud. 

Some two-and-a-half years after the implosion at Neil Woodford’s investment empire around 300,000 investors are still waiting for answers

Contrast this with the UK. An FCA investigation into management culpability for the near collapse of HBOS in 2008 was completed in 2015. But it has been tied up in legal wrangling since then.

A separate inquiry into who, at the top of HBOS/Lloyds, knew what and when about large-scale fraud at the bank’s Reading branch is still in abeyance. 

This is despite the fact that fraud convictions in the £245million case were obtained in 2017.

Some two-and-a-half years after the implosion at Neil Woodford’s investment empire around 300,000 investors are still waiting for answers as to who was responsible for the collapse and failures in the regulation.

In a procedural note, City regulator, the Financial Conduct Authority, has told the Treasury committee that after seeking ‘45 information requirements’ it completed most of the investigatory work by the end of 2021

If anyone involved might have thought that justice and potential compensation for their lost savings could be around the corner, there will be disappointment.

Woodford is said to be advising Acacia Research on life sciences investments. Those of us exposed to his Patient Capital fund, now managed by Schroders and more than 60 per cent down on its asset value, will wonder how on earth that is permitted. 

There are also questions to be asked about investment platform Hargreaves Lansdown which exposed around a quarter of its clients to Woodford funds. 

Authorised manager Link was meant to be there to protect savers’ interests, but clearly fell short.

No disciplinary action is possible yet because of the need for counsel to evaluate the evidence. It will then require legal analysis to assess what regulatory action, if any, is required. 

These steps are ‘not a public process’. Beyond that, there are many hoops to be passed through before matters reach a Regulatory Decisions Committee and eventually the Upper Tribunal, which has court-like powers.

As we know from HBOS and other inquiries, legal hoops are formidable, and armed with the help of City law firms the opportunities to obfuscate and delay are enormous.

One way around all of this (used in the case of RBS) is for the Commons to take control of the FCA’s report and publish it using parliamentary privilege. 

Known facts are then put into the public arena. It provides a great opportunity for Treasury committee chairman Mel Stride to align himself with damaged savers.

Cleaning house

Auditors KPMG have been involved in so many accounting pratfalls, ranging from the Co-op bank debacle to the Fifa bribery scandal, that it is hard to keep track. 

Its position as a Big Four audit firm only remains intact because there is so little competition in the sector. 

Nevertheless, it is refreshing that UK chief executive Jon Holt decided that the best response to its mishandling of the audit of collapsed construction and engineering group Carillion is to make a clear breast.

Rather than tie up the Financial Reporting Council tribunal in legal knots, he acknowledges that the case against his firm, its partners and some junior staff is both ‘disturbing and upsetting’. 

Instead of KPMG partners drawing attention to bad behaviour among others – the real job of an audit – the mistakes were allowed to take place with disastrous consequences for jobs, customers and shareholders.

Restoring KPMG’s reputation will be a long-haul. Recognising the scale of wrong-doing will help.

Price right

If the private-equity backed owners of Morrisons and Asda were hoping to escape wounding grocery price wars in 2022, they will be disappointed.

German-owned Aldi has thrown down the gauntlet by promising it ‘will always offer the lowest prices for groceries, no matter what’. 

That is terrific for consumers but not for owners loaded up with expensive short-term debt.

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