For Goldman Sachs, it was probably an easy hire to make. The bank needed a new chair for its London-based international operations, based in London. The UK had just voted for Brexit, creating complexities over passporting rights and so on. So send for José Manuel Barroso, former head of the European commission, just the chap to guide the bank through the negotiation mash-up.
Cue uproar among some of Barroso’s former staff in Brussels. An online petition organised by “a spontaneous group of employees of the European Institutions” has damned him for joining the US investment bank and called for “strong exemplary measures,” like removal of his pension. Almost 125,000 people have endorsed the view that Barroso’s action is “morally reprehensible” and has caused “dishonour” to the “European civil service and the European Union as a whole”.
Up to a point, one can agree. The revolving door between banks and senior bureaucrats and central bankers turns far too freely. Barroso waited only two months after the expiry of his 18-month cooling-off period before taking the Goldman gig. And Goldman, of course, is a bank alleged to have helped Greece to massage its books to get into the euro. Barroso knew the sensitivities and decided to take the job anyway. As a tale of gilded elites shuffling between public and private realms, it’s a classic.
Yet it’s hard to believe the EU’s ethical watchdog, prodded by the petition to ask a few questions, will manage a single bark. First, Barroso seems to have obeyed the rules. Second, if Goldman is off-limits, the commission would have to explain why European banks, retirement homes for other former top officials, are acceptable.
Third, if the European commission really wanted to preach financial purity and transparency to the world, it would start by shining more light on the tax affairs of Luxembourg, home state of Barroso’s successor, Jean-Claude Juncker. One suspects this entertaining affair is going nowhere.
PPI saga runs and runs
Is there anyone in the country who only just heard it is possible to claim compensation for mis-sold payment protection insurance (PPI)? Plenty of people, it seems. Complaints to the Financial Ombudsman are still rolling in at a rate of 3,000 a week.
Some of these claims will be bogus, of course, as the banks keeping telling us. Not all will be, however, and the volume of complaints should make lenders understand why the Financial Conduct Authority was right to extend its proposed cut-off for claims to June 2019 rather than spring 2018.
The principle of a cut-off is sensible because the PPI scandal, which has cost the industry £37bn in claims and administration costs, cannot be allowed to run indefinitely. But legitimate claims still require time for proper consideration. The banks could have helped themselves by handling all claims properly but Lloyds Banking Group, for example, copped a heavy fine on that front last year. Regulatory sympathy will rightly be in short supply even as a few more billions are added to the final PPI bill.
Startup loans come at a price
Here’s a subject for the Treasury select committee to chew over on a rainy day: at what rate is it acceptable for the government to lose money when lending to startup businesses?
The question is prompted by the Press Association’s revelation, via a freedom of information request, that 31% of the loans distributed by the government-backed startup loan scheme have been written off or are in arrears. In hard money, bad debts are £72.4m out of £232m lent.
In the commercial world, a bank would be on its knees if such a high proportion of loans, carrying an interest rate of 6%, failed. For this scheme, 31% is deemed perfectly acceptable: the ceiling rate for defaults is set at 40%.
Indeed, the Department for Business, Energy and Industrial Strategy goes further, arguing the loans are “creating thousands of jobs and generating a return on investment to the economy of £3 for every £1 spent.” That calculation, of course, deploys a very liberal definition of returns to include payroll taxes and the like.
Perhaps that’s fine if you are pursuing a policy goal of filling a gap in the market left by conventional banks, which was the justification for the launch of the scheme in 2012. All the same, discipline in lending is still meant to part of the mix. The line is thin between giving entrepreneurs a boost and throwing public money at worthy but unviable ventures. A default rate of 31% seems alarmingly high.
