Bank on a new jockey being in the Lloyds saddle next year, look again at 'last look' and water torture

 
Mark Kleinman
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Government Announce Lloyds Bank Share Sale Raising £3.2 Billion
A change in leadership will inevitably materialise at Lloyds Bank (Source: Getty)

If Bill Murray had played a banker rather than a TV weatherman in Groundhog Day, he may well have been cast as George Culmer, the finance director of Lloyds Banking Group.

The American actor would surely have revelled in declaring the lender’s “final” provision for PPI mis-selling. Again, and again, and again.

It’s a record we’ve heard played intermittently for at least four years. In fairness to the Lloyds board, yesterday’s extra £600m bill really should be the last, and it was arguably the most disappointing number in an upbeat blueprint for the future of the UK’s biggest high street bank.

A £3bn investment plan, largely focused on technology, solid progress towards ambitious cost-income ratio targets and a £1bn share buyback were well-received by investors.

Read more: Lloyds profits increase: Here's how the analysts reacted

Obstacles remain to their translation into a materially uplifted share price, though – namely the risk of a UK economy on which Lloyds relies experiencing a big post-Brexit stumble, which would spark a reversal of the trend of declining loan impairments. The fact that the shares are basically unchanged over the last year – a period which began with the taxpayer still on the share register – reflects that anxiety.

A change of leadership will inevitably materialise, too, despite Antonio Horta-Osorio’s insistence that he remains happy in a job he has now held for seven years.

Lord Blackwell, the bank’s chairman, will want the next three-year strategy drawn up and led by a CEO who will stick around to see it through. Midway through this new plan feels like the right time for Horta-Osorio to bow out with pride in a job well done.

Look again at ‘last look’

For a $5 trillion-a-day market, the lack of transparency in foreign exchange trading has been breathtaking. Where reforms to other financial benchmarks have been painful but progressive, FX has not yet managed to shift lingering impressions of mistrust among many market participants.

Central to that concern is the use of ‘last look’, a practice which allows banks to decline a trade request even after the customer has agreed to it. The abuse of that opportunity by some traders for personal profit catapulted FX up the ranks of global banking scandals, with billions of pounds in fines paid in 2015 and 2016.

Even the introduction of a global code of conduct for FX traders, supervised with the help of leading central banks, has done little to dissipate investor concerns about a lack of clarity.

I understand the Investment Association (IA) will today wade into the debate by publishing guidelines which set out circumstances in which ‘last look’ should no longer be permitted.

Read more: Long-awaited FX global code of conduct is published

This would include, according to the fund managers’ body, the use by liquidity providers of information derived from rejected trades, as well as pre-hedging during the ‘last look’ window.

Importantly, the IA also wants banks to formally notify clients when ‘last look’ has been applied and for time-stamps to be provided to the millisecond for rejected trades.

The group’s wishlist is both reasonable and necessary if greater confidence in market conduct is to be achieved, although it isn’t without a hint of irony. These ‘last look’ demands come as IA members face numerous transparency calls of their own.

Water torture

It’s not even March yet, but we may already have a contender for the year’s most daring act of corporate bravery: the move by Omers’ infrastructure arm to further increase its stake in Kemble Holdings, the owner of Thames Water.

Its purchase of a four per cent shareholding came just days after a thinktank estimated the cost of Labour’s plan to nationalise the water industry at £90bn.

Omers may be betting that John McDonnell, the shadow chancellor, isn’t really serious about his party’s threat to return the sector to public ownership, or that existing investors would receive a fair price for their shares.

Given the noises made by McDonnell about the possible non-compensation of investors in private finance initiative projects, that would be a gamble with increasingly uncertain odds.

Read more: Water companies hit out at Labour for calling them a "national scandal"

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