Abigail with attitude: Carney and global regulators keep moving the goalposts

By:
Abigail Hofman
Published on:

L’Roubi may be a chameleon when it comes to his sartorial mores but Bank of England governor, Mark Carney resembles a chameleon when it comes to his views on UK interest rates.

Since Carney started his tenure as governor, his contradictory pronouncements have made me feel as giddy as if I were riding a big dipper at the fun fair. Initially, we had forward guidance and assurances that rates would stay low for a long time.

Six months later this changed and interest rates were to be loosely linked to the "output gap". In mid-May, when the Bank released its inflation report, Carney was still making soothing noises about weak employment, and spare capacity.

Some four weeks later, Carney startled everyone when he warned, at the Mansion House dinner, that rates could rise "sooner than markets currently expect".

Is it any wonder that when Carney testified, a few weeks later, before the Treasury Select Committee, and changed his stance once again, committee member Pat McFadden exploded. McFadden accused the governor of behaving like an "unreliable boyfriend", who was "one day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand".

Poor Carney. Within a year, he has gone from being the central bank’s answer to George Clooney, the cool kid on the block with a man-bag, to an ignominious inamorato, who lacks credibility.

I sympathise with McFadden: Carney needs to man-up and take some hard decisions. UK interest rates have been too low for too long. The financially illiterate have been encouraged to take on more debt than they will be able to service in a more normal interest rate environment. Carney risks continuing the typical UK boom-and-bust economic cycle, unless he acts quickly to dampen excessive speculation.

I may be confused by Carney’s Delphic utterances, but I am also increasingly perplexed by the behaviour of global regulators, who seem to be constantly moving the goalposts. Since the financial crisis, the regulators control the puppet strings and it is unwise, verging on the foolhardy, to challenge them. Ian Hannam, a respected, former JPMorgan Cazenove banker, may therefore be rueing his decision to challenge a 2012 decision, by the UK’s Financial Conduct Authority, that he had committed "market abuse".

Hannam’s appeal was heard before the Upper Tribunal of the Tax and Chancery Chamber. In late May 2014, the tribunal published its verdict and found against Hannam.

As readers may recall, Hannam passed information about his client, Heritage Oil, which was not in the public domain, to a third party. Many have argued that Hannam was merely doing what bankers have done throughout the ages and trying to entice a potential bidder by dangling a tasty tit-bit. Moreover, since neither Hannam, nor the recipient of the emails (Dr Hawrami, the minister for oil in the Kurdish Regional Government), acted on the information, no harm had been done.

However, the tribunal saw things differently and found, in a 130 page judgement, that Hannam had indeed engaged in market abuse and that his actions were not in the proper course of the exercise of his employment. Hannam had appealed because he wanted to clear his name. However, he may now be regretting ploughing on with the case.

The tribunal was not impressed by Hannam as a witness and stated: "Mr Hannam projected an engaging yet forceful personality…We formed the impression of him as a man much more interested in, and comfortable with, the large picture than with the detail." The tribunal then grumbled about " the unfocused nature" of much of Hannam’s evidence, his "very discursive" answers and chastised him for becoming "argumentative".

"They were dreadfully cutting," my mole sighed. "And I simply dread to think how much the whole thing has cost Ian in legal fees." I hate to be the person who imparts bad tidings, but the tribunal has not yet pronounced on the penalty for Hannam. So further legal argument, and thus expense for Hannam, will be necessary.

We all acknowledge that we are living in a new world of "Regulators rule, OK." Given this backdrop, it surprises me that things have gone quiet between Barclays and the UK’s Serious Fraud Office. The SFO has been investigating the bank for a while, over allegations of wrong-doing during a 2008 capital raising exercise that involved the Qatari authorities.

The SFO is questioning a number of former employees including past chief executives John Varley and Bob Diamond, as well as those lower down the totem pole such as Roger Jenkins, the bank’s one-time head of tax advisory, and Chris Lucas, a previous finance director. For the bank, the ultimate risk of the SFO’s investigation is a corporate prosecution. But the individuals could, if found guilty, face a most unpalatable jail sentence. All the former Barclays’ employees deny any wrongdoing.

As if this were not bad enough, in June, the New York Attorney General, Eric Schneiderman, pounced upon the bank with a securities fraud lawsuit. Schneiderman claims that Barclays told customers who chose to trade in its dark pool that they would be protected from so-called high-frequency traders. But customers were not protected at all and the bank actually courted high-frequency traders. When news of the lawsuit surfaced, Barclays shares fell some 6%, sliding to a level last seen in November 2012. Antony Jenkins, Barclays’ current chief executive, must feel as if he is Sisyphus, the ancient king of Ephyra. Sad Sisyphus was forced to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever.