Royal Mail privatisation – Goldman Sachs and UBS to be grilled by MPs
Investment banks to be asked in Commons why sale of asset favoured foreign investors and if float price was set too low. Read more…
MPs summon bankers to explain their valuations of Royal Mail
MPs investigate whether the £3.3bn sale of shares in the Royal Mail shortchanged taxpayers. Read more…
UBS analyst’s forecast 12p price rise would open up part-taxpayer-owned bank to sell-off of state stake
Shares in Lloyds Banking Group could get close to the level the taxpayer paid for its 39% stake in the bailed-out bank, the company’s house broker forecast on Monday – setting a price target for the shares of 72p.
The shares closed on Monday at 61.62p, still below the 73.6p average price that taxpayers paid for their stake in the bank. But they are above the 61p that the chancellor has signalled could be used as a point to begin a sell-off.
George Osborne is expected to use his Mansion House speech to the City later this month to set out his approach to reducing the taxpayer stakes in both Lloyds and Royal Bank of Scotland, in which the taxpayer has an 81% share holding, possibly through a distribution of shares to the public.
Raising his price target for the Lloyds shares by 12p, John-Paul Crutchley, analyst at UBS, said the bank’s profits should rise in the coming years as its margins began to rise while its costs and provisions for bad loans fall.
He set out the investment case of Lloyds as “a market-leading high-return UK retail bank where excess capital is distributed to shareholders”.
UBS, which acts as broker to the bank, said that Lloyds’ shares had risen 29% so far this year.
“Although recent performance has been strong, we see potential for further re-rating over the coming 12 months as Lloyds completes its transition from restructuring and shrinkage to profitability and balance sheet growth,” UBS said.
Lloyds has been selling off troublesome loans to bolster its capital position to plug a capital shortfall identified by the regulators and also shrinking its lending.
“We expect both core lending and mortgage lending to grow in the second half of 2013,” UBS said, as Lloyds will benefit from improving demand, government initiatives and a more resilient housing market.
“With regulatory dilution risk eliminated, we believe that the main consideration for a prospective Lloyds investor should be future earnings power and capital distribution,” UBS said.
Lloyds has not paid a dividend since it rescued HBOS in September 2008 and was banned from making such payments to shareholders by the European Union as a result of the bailouts. That ban has now been lifted but payments have yet to resume.
The 61p level for a potential sell-off emerged in March when the Treasury linked a potential bonus for the Lloyds boss António Horta-Osório to selling off part of the government stake at this price.
UBS expects Lloyds – which has sucked £6.6bn out of lending since June last year according to Bank of England data – to “open the tap” on new lending in the second half of the year, which will benefit the bank and the UK economy. Lloyds owns the Halifax, traditionally the country’s biggest mortgage lender.
Government announces selection of Goldman Sachs and UBS to advise on Royal Mail’s sale and collect majority of fees
Goldman Sachs and UBS will lead a syndicate of banks collecting about £30m from the £3bn privatisation of Royal Mail.
The government announced that it had selected Goldman Sachs, which has been accused of treating its clients like “muppets”, and UBS, which was fined £940m for its role in the Libor rate rigging scandal, as global co-ordinators and bookrunners of the largest privatisation in two decades.
As the lead banks advising on Royal Mail’s sale the pair will collect the majority of the fees, understood to be set at about 1% of the target £2-3bn flotation value. Barclays and Bank of America Merrill Lynch will also collect millions in fees from more junior roles in the sale.
The department for business, innovation and skills (BIS), which is in charge of the sale, refused to state how much the banks will collect in fees but said it had “negotiated very hard to get the best value for taxpayers”. Banks can collect up to 2.5% for running flotations.
A BIS spokesman said the banks had been selected because of their past experience advising the government on Royal Mail and declined to comment on the banks’ roles in recent scandals.
Goldman Sachs hit the headlines last year when one of its British-based bankers resigned in a letter in which he accused his former employer of being “morally bankrupt” and routinely ripping off its “muppet” clients in order to increase its profits
Michael Fallon, the business minister, said the banks’ appointments “build momentum” for the sale, which he hopes to complete within a year. Fallon said a float in London, in which staff would be granted shares worth 10% of the company, was still the government’s “preferred option” but insisted no final decisions had been made and other sale options “remain on the table”.
He has warned the Communication Workers Union (CWU) that the world’s oldest postal service could be sold to sovereign wealth funds or other foreign buyers if the CWU continues to fight a flotation.
Moya Greene, chief executive of Royal Mail, has taken the company on an investor roadshow in Canada and the US and said it would be “foolhardy” not consider the sale of the company to foreign buyers.
If the flotation is successful it will be the biggest privatisation since the sell-off of the railways in the 1990s and Royal Mail will enter the FTSE 100 list of Britain’s biggest companies.
Royal Mail last week reported a 60% increase in pre-tax annual profits to £324m. Sales, which were boosted by a 30% rise in the price of first class stamps to 60p, increased by more than £500m to £9.3bn.
Eric Knight and his crew own less than 1% of UBS, but do they make a good point about the Swiss Bank Corporation merger?
Knight Vinke, the activist investor, is not everybody’s cup of tea and the directors of UBS may believe that the grumbles of a shareholder that owns less than 1% of the bank can be ignored.
That would be foolish. Eric Knight and his crew have a good record in pointing out uncomfortable truths and some of their ideas (but certainly not all) eventually become adopted. Remember HSBC, where Knight Vinke was lobbying for years for the bank to cut costs and remember its Asian roots, two pillars of today’s strategy.
Knight is not the first person to argue that UBS would be better off without its investment bank but he is armed with an excellent statistic. Since the merger between UBS and Swiss Bank Corporation in 1998, he calculates, the investment bank has paid Sfr 115bn in salaries and bonuses to its employees but contributed a negative Sfr 25bn to its parent and shareholders. That’s how painful were the colossal write-offs during the crisis, plus the fine for Libor-rigging and the loss on the Kweku Adoboli fraud.
Worse, the calamities in investment banking “weakened the reputation of its prized wealth management division and the all-important trust of its clients”, argues Knight. That’s almost undeniable given the outflows of funds in 2009 and 2010.
It’s all in the past, UBS might respond, the investment bank has just had a sparkling quarter and the private-client business is back on form. Okay, but Knight’s point is that the risks have not been removed. He is perfectly right to say that the time to consider a split is when the sun is shining.
He is, however, gloriously vague about how divorce would be achieved in practice, given the capital complications.
Forcing the employees to buy ownership over time sounds like wishful thinking. But at least the branding part would be easy.
If they dig around in the cellars, UBS will find one of the best names in the game – SG Warburg.
UBS should give Knight a proper response. He is probably not the only shareholder who thinks the investment bankers have grown fat at their expense, and may do so again.
Group says Swiss bank should sell off its investment arm and sell it to staff
Activist investor Knight Vinke has reopened the debate about investment banking by calling on the Swiss bank UBS to sell off its casino investment banking arm to its employees.
On the day of the bank’s annual meeting, the fund management group said: “We question the merits of keeping the investment bank under the same roof as the wealth management and Swiss banking businesses”.
The investment bank, a major employer in the City and fined £940m for rigging Libor last year, is already being scaled back by a new management team, led by Sergio Ermotti who was installed in the fall out from the unauthorised £1.3bn trading losses caused by Kweku Adoboli, who has since been jailed for seven years.
The division has just posted strong results for the first quarter of 2013 and Knight Vinke, which sent a representative to the annual meeting on Thursday, said this was now the moment to debate the structure of the group.
The investment bank had “nearly destroyed UBS” between 2007 and 2009 when the bank was bailed out by the Swiss authorities, said Knight Vinke, which has in the past criticised HSBC.
Knight Vinke said: “Investment banking is a very risky business and these risks pose a serious threat to UBS’s wealth management and swiss banking franchises.
“They may also be preventing them from achieving their true potential. This is a discussion that is best had when all the businesses are doing well – as is the case today – and the board needs to be encouraged to act quickly and decisively so as not to lose the opportunity.”
The fund manager, led by Eric Knight, suggested that the “best owners” for the investment could be its employees. Since 1998, the investment bank has paid Sfr115bn (£80bn) in salaries and bonuses to its employees but knocked a Sfr25bn hole in the entire group. “Transferring full or partial ownership of the investment bank to insiders would almost certainly lead to more prudent behaviour,” Knight Vinke said.
The group voted against the remuneration report at the annual meeting at which 18% of shareholders failed to back the pay policies which included a potential £17m signing on fee for the new investment banking head Andrea Orcel.
However, this was an improvement on the 40% who had failed to support the pay awards the previous year. In response to the criticism by Knight Vinke, UBS said its shareholders had the opportunity to speak out at the annual meeting.
At the meeting “UBS confirmed that the firm is on track and comfortable with its new strategy”.
“The results of the first quarter 2013 confirm that the company made significant progress and is reaping the benefits from its focus on wealth management and the Swiss bank supported by focused and de-risked investment banking activities and asset management,” UBS said.
UBS has attempted to show restraint over pay since pharmaceutical company Novartis was forced to scrap a payoff of Sfr72m for its former head Daniel Vasella. There was also a national referendum which voted to ban big payouts for new and departing managers.UBS is said to have warned half its 16,000 investment bankers than they would not get bonuses and cut its total bonus pool by 7% to Sfr2.5bn.
After bank scandals, UBS, Libor rigging and money laundering, the FSA should itself be censured over its Pru regulation
The Financial Services Authority deserves to be censured for making UK financial regulation look ridiculous. The £30m fine dished out to the Prudential is wildly over the top when you remember that UBS copped only a similar sum for failing to detect Kweku Adeboli’s fraudulent trading. Which offence is more serious? Failing to give the regulator a heads-up on a possible deal, even a big one, or allowing a trader to run riot and clock up a £1.2bn loss? Come on, UBS’s sins were many times greater.
And the censure for chief executive Tidjane Thiam is beyond parody. Think about what has been going on in our big banks in recent years. Libor has been rigged. US sanctions against Iran have been breached. Rules against money laundering have been flouted. Small businesses have been fleeced via interest rate swaps. Punters have been stuffed with inappropriate and overpriced PPI policies. Yet no chief executive of a big bank has been censured for anything. Thiam, by contrast, has been put in the stocks – he is the only FTSE 100 chief executive to receive a censure from the FSA.
At a push, one might agree that the Pru kept quiet for too long. The $35bn (£23.2bn) purchase of AIA would have been a very big transaction. It would have involved a £14.5bn rights issue and, conceivably, there were implications for UK financial stability. Yet the FSA’s rule on disclosure is vague – principle 11 imposes an obligation to “disclose appropriately information of which the FSA would reasonably expect notice”.
That phrasing introduces an element of judgment. The detail that seems to have annoyed the FSA was Thiam’s failure to mention the Pru’s ambition to buy AIA at a regular supervisory meeting on 12 February; a non-binding proposal had been dispatched to AIG, AIA’s owner, by that stage. But Thiam’s reticence at the meeting is easy to understand. Loose talk costs deals and a leak could have been a killer.
Yes, on balance, Thiam waited too long to tell the FSA – and, indeed, it was a newspaper report of the talks that came first. But a modest fine for the Pru plus criticism of the entire board, not just the chief executive, would surely have made the FSA’s point about the importance of prompt disclosure. Better still, the regulator could have offered clearer guidance on when firms are supposed to report possible deals.
The big fine and censure make it look as if the FSA, in its final hours, is trying to make up for lost time. It is a classic case of UK regulation at its worst: miss the big stuff and then stamp on minor infringements.
Following Prudential’s £30m acquisition fine, we run down the FSA’s top 10 fiscal grabs
Insurance group Prudential has been fined £30m for failing to tell the Financial Services Authority (FSA) about its attempted takeover of the Asian arm of US insurer AIG. The regulator has also censured the company’s chief executive, Tidjane Thiam. This is the fifth largest fine imposed by the FSA to date.
Here’s where it fits in the FSA’s 10 largest fines to date:
1. £160m, UBS, December 2012, Libor rigging
3. £59.5m, Barclays, June 2012, Libor rigging
8. £17m, Shell, August 2004, market abuse
Former UBS and Citigroup banker and two others questioned as part of Serious Fraud Office investigation into Libor manipulation
A former UBS and Citigroup banker and two others had their homes raided early on Tuesday morning and were taken in for questioning as part of the Serious Fraud Office investigation into the manipulation of Libor interest rates.
The intervention came amid mounting speculation that the Financial Services Authority is preparing to take action against a number of banks in relation to Libor setting.
The SFO and City of London police arrested three men aged 33, 41 and 47 after searching a house in Surrey and two properties in Essex. The three were taken to a London police station to be interviewed “in connection with the investigation into the manipulation of Libor”.
The three are understood to be Tom Hayes, who has worked for a number of banks including UBS and Citigroup, and two men who worked for City-based inter-dealer broker RP Martin – Terry Farr and Jim Gilmour. They are either on leave or have left the company. Citi and UBS declined to comment. RP Martin stressed it was co-operating with the authorities but not under investigation.
A lawyer for Farr declined to comment, while Gilmour and Hayes could not be contacted. It was anticipated the three would be release on police bail after questioning without being charged.
The SFO’s investigation into Libor rigging was sparked by the £290m fine for Barclays in June, which led to the departures of chairman Marcus Agius, chief executive Bob Diamond and newly promoted chief operating officer Jerry del Missier.
Investigators working in collaboration with multiple parallel inquiries around the world are racing to establish the international reach of alleged Libor manipulation rings.
Hayes, who had been based in Tokyo during his 10 months with Citi, was let go by the bank. This was about the same time as the Japanese regulator sanctioned the firm following a probe into alleged manipulation of the yen-based interest rates.
The director of the SFO, David Green, has told MPs that he knows the agency will be largely judged on the success of the Libor investigation and had deployed 40 staff on the cases which involve more than one firm.
The SFO announced a formal investigation into the complex rate-rigging affair on 6 July and by the end of that month had already concluded it had the powers to conduct a criminal investigation.
While the Financial Services Authority and regulators in the US have fined Barclays, individuals involved have not been formally named or reprimanded. Barclays’ head of investment banking, Rich Ricci, told the banking standards committee that it had “terminated the employment” of five people and that 13 staff had been disciplined in total.
Barclays is so far the only bank the regulators have penalised, but speculation is rife that other banks will face penalties before the end of the year. The FSA said that eight financial firms in total, and not just banks, were the subject of investigations by the City regulator. UBS and Royal Bank of Scotland are among those in settlement talks with the FSA that could reach a conclusion shortly.
Terry Smith, chief executive of City broker Tullett Prebon, said: “At the time I was astonished that no one thought those involved in Libor manipulation could be prosecuted without new and specific legislation. It is a modern illusion that an act cannot be prosecuted as a crime just because there is not a specific piece of legislation which proscribes it. We have some perfectly good laws, they just need to be applied.”
FSA fines Swiss bank for ‘serious weaknesses’ in systems and controls which allowed Kweku Adoboli to rack up £1.5bn losses
UBS has been fined £30m by the City watchdog and could see its investment banking activities crimped by the Swiss regulator in the wake of the jailing of its former trader Kweku Adoboli.
Adoboli, a relatively junior City trader who almost destroyed UBS through increasingly reckless illicit deals, was jailed last week for seven years after being convicted of what police describe as the biggest fraud in UK history.
Both regulators criticised the Swiss bank for serious weaknesses in controls, which allowed the 32 year-old to rack up eventual losses of over £1.5bn during three years of secretive, off-the-book trades. Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said: “UBS’s systems and controls were seriously defective. Failures of this type in firms of the size and standing of UBS not only damage the firms concerned but also wider confidence in the integrity of the markets and the financial system.”
The case has been hugely damaging for UBS, prompting the departure of its chief executive Oswald Grübel. During Adoboli’s trial, all three of his desk colleagues admitted they knew about the secret account, to varying extents, and his two bosses over the period showed an apparently relaxed attitude to daily trading maximums being exceeded. All five have either left UBS or been sacked. The bank has also clawed back bonuses and withheld compensation from individuals involved, totalling more than £34m.
On Monday, the regulators issued damning reports on the bank’s control measures, saying compliance at UBS was based too much on trust. Swiss financial market supervisory authority Finma noted that the staff in charge of controlling risk “had too little understanding of the trading activities in question” and were therefore unable to challenge actions taken by Adoboli’s desk. It said UBS had sent out misleading signals by awarding pay increases and bonuses to Adoboli, even though he had clearly and repeatedly breached compliance rules.
In a statement, UBS said: “Since the outset of this matter we have fully co-operated with the regulators’ investigations and we now accept their findings and the penalties incurred. We are pleased that this chapter has been concluded and that the regulators have acknowledged the steps UBS has taken since this incident.”
The bank said it had made progress over the year “reinforcing our position as one of the most financially sound global banks”. UBS last month announced a global cull of up to 10,000 jobs as it dramatically shrinks its investment bank, which has been rocked by a series of scandals. Earlier this year, the bank suspended some of its most senior traders in connection with an international investigation into the manipulation of Libor. It also took a £227m hit from the botched stock market listing of Facebook, which it blamed on Nasdaq’s “gross mishandling” of the flotation.
Some City analysts argued that the FSA fine – which was reduced by 30% because the bank agreed to settle early – was too low considering the extent of failings discovered at UBS. Michael Hewson, senior market analyst at CMC Markets, said: “Our regulator is a bit toothless when it comes to levying fines. If they want to set a deterrent factor with respect to these fines they really need to make them higher – £29.7m is nothing really, it’s a slap on the wrist. If you want banks to be more serious about oversight you need to hit them where it hurts and that’s in the pocket.”
Finma, which does not have the power to fine UBS, imposed capital restrictions and an acquisition ban on its investment bank. It will appoint an independent third party to “ensure that corrective measures are successfully implemented”. The regulator hinted at further sanctions, saying it continued to investigate whether the bank should increase the level of capital it holds. But analysts said the impact of these measures would be minimal.