Inside Track: City contingency planning for Yes vote long overdue

Mark Kleinman
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YESTERDAY’S desperate round of campaigning in Scotland by the main Westminster party leaders might have offered a boost – but not to those they wanted to vote No to independence.

In the City, the reality check of a Yes vote being a genuine prospect is triggering contingency planning that should have been underway months ago. But it is the longer-term implications of secession which provide the biggest concern for UK financial services.

The increased likelihood of a UK exit from the EU is already prompt­ing some banks to prepare for relocations to Europe.

The ramifications of a Labour party bereft of realistic hopes of winning general elections and a Conservative party which might tear itself apart over Europe, would be enormous. And a UK denuded of Scotland and outside the EU could take years to convince international investors that the City remains a global financial centre. “It would be a nuclear disaster for London,” one UK financial services chief executive told me yesterday. That may be over the top, but by how much?

IT hasn’t paid to disagree with Neil Woodford often during his fund management career.

His warning that owning HSBC shares no longer makes sense because of the risk of big regulatory penalties, though, looks more like a generic comment about bank stocks than a prescient insight into HSBC’s prospects.

He said: “I am concerned that…fines are increasingly being sized on a bank’s ability to pay, rather than on the extent of the transgression. I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties.”

The scale of a potential industry-wide settlement on forex manipulation might vindicate Woodford’s view. Yet the FCA’s largest single fine for Libor-rigging was £160m (levied against UBS), a paltry sum against the HSBC’s latest £7.3bn half-year profit.

There are other reasons to back HSBC shares, not least the speed with which management has moved to reshape the business.

This may be one sell order that Woodford placed too hastily.

Parting company with a chief executive and finance director within 10 weeks of listing on the stock exchange is not most shareholders’ recipe for a smooth ride.

So the AA is doing what many companies do when faced with the threat of a breakdown: turning to the comforting bosom of City advisers.

Insiders say the AA has called a pitch to add a corporate broker alongside Cenkos, which brought the company to the market in July.

Credit Suisse, Deutsche Bank, HSBC and UBS are competing for the deal, and they’ll have their work cut out.

The AA’s management team is credible, but its huge debts are an issue that requires a resolution sooner rather than later.