Tonight:
5°c
At the risk of being lynched, I want to kick off today by saying that under the circumstances I think the banks are doing rather a good job. Agreed this is not the general perception. The public mood is much better summed up by a press release yesterday headlined “Banks pull the plug on a third of UK firms”.
This dramatic claim referred to findings in a survey conducted by strategy consultants Roland Berger. But unfortunately it is not true. The headline was based on the finding that in a third of the 132 firms surveyed (not very many then), the banks had cut unused credit lines. Note the “unused”.
But it also turns out that where these unused credit lines had been cut, they had been reduced on average by just a third. So in reality these businesses still had two thirds of their unused credit lines intact, plus, of course, all the funds they had already drawn down. Does that really amount to “pulling the plug on a third of UK firms”?
The release went on to say with equal drama: “Half of firms forced to cut jobs owing to lack of liquidity”. But this was hypothetical. Firms were asked whether they agreed with the statement: “Lack of liquidity will force us to cut jobs.” Half agreed. But none had run out of liquidity. No jobs had actually been cut.
Given that the banks have no choice but to shrink their lending because they can no longer get the wholesale funds from overseas banks they used to lend on to the British market, making a one-third cut in unused lines in a third of your customer base seems a pretty responsible way to go about it.
While the assertion is often made that there is no credit for anyone, anecdotal evidence suggests otherwise. One still hears of banks backing start-ups; one still hears of them renewing unsecured facilities for small businesses. In fact, banks such as Barclays say in aggregate they are lending more to business this year than they were last.
It may still not be enough but if it isn't, that is because the Icelandic banks who were big players here have all gone bust and other foreign banks have gone home, and the British banks can't take up all that slack.
The lesson in this is not to deny that there are problems in banking, but rather to be clear what those problems are and what is causing them. Otherwise a lot of time and money will be wasted trying to sort things out.
Fugitive' with a warning for us all
Few people in this country will have heard of Raoul Weil, or be concerned that a judge in Fort Lauderdale, Florida, has declared him a fugitive from justice. But we need to pay attention.
Weil is a 49-year-old Swiss national, who lives and works in Switzerland. From 2002 to 2007 he ran the global wealth management arm of UBS in Zurich and oversaw its cross-border private-banking business. It is this that has got him into trouble. The US authorities allege that this part of UBS helped US citizens evade American taxes — specifically that, thanks to UBS, 20,000 of them hid $20 billion (£13,686.2 billion) of assets from the Internal Revenue Service.
Weil was the man in charge of the private bank at the time of the alleged offences, so last November the Americans charged him with conspiracy to defraud the US through tax evasion. If convicted, he faces five years in jail and a $250,000 fine. He is considered a fugitive because he has not flown to the States to get himself arrested.
The worrying thing is that while UBS has clearly upset the Americans, no one has charged Weil with doing anything to hurt his homeland or contravening any Swiss law. So the logic of the case is that any employee in any non-American tax jurisdiction is vulnerable — unless they comply, not just with their own laws but also with American law.
It is not just individuals who face this threat. Lloyds TSB paid a $350 million penalty to settle a case brought against it by the Americans, in which it was alleged it had helped circumvent US sanctions against Sudan and Iran.
There are several other cases pending against other British banks for aiding terrorism and suchlike — a typical one being the case in which a bank opened an account in London for a Palestinian charity that provides aid in Gaza.
It was recognised as a genuine charity by the UK Government, but the Americans said it aided terrorism. And it is made clear to these British banks they will comply with US law across the world if they want to do business in the US. Needless to say this is not a reciprocal arrangement.
The problem going forward is that, when the current banking crisis is resolved, it is generally accepted that there will have to be a new regulatory approach to banking, and for this to be effective, it will have to be international, just as the banks are international.
This is fine in principle — but given the way the US already seeks to enforce its laws on non-Americans living and working far beyond its shores, can anyone believe it will participate in a genuinely international regulatory approach to banking? Will the US simply decide what it wants, and then impose it everywhere else?
