Author Archives: markdowe1

Banking, Britain, Business, Economic, Financial Markets, Government, Society

Banking practices of the Royal Bank of Scotland referred to City regulators…

DAMNING REPORTS

The latest accusations being levelled at the Royal Bank of Scotland are as incriminating as any in its recent chequered history.

Small and Medium Sized Enterprises (SMEs) have long complained that they cannot get the loans they need, despite protestations by the banks to the contrary. A newly released report from Sir Andrew Large, a former deputy governor of the Bank of England, on the bank’s small-business-lending, confirms that much of the criticism levied at the bank in recent times is justified and the taxpayer-rescued institution must explain why it has not been doing all it could to assist Britain’s economic recovery. In normal circumstances, such practices would be worrying enough for the newly installed chief executive of the bank, Ross McEwan.

But these are not normal circumstances; Mr McEwan is also faced with a more troubling contention. According to another published document from Lawrence Tomlinson – deemed a successful businessman and ‘entrepreneur in residence’ at the Department of Business – RBS may have sunk to even greater depths in its condescending and haughty treatment of Britain’s SMEs. Contemptuous, because not only has the bank been transferring perfectly legitimate and profitable companies into its high-risk Global Restructuring Group (GRG), but the West Register (the bank’s property division), has reportedly been acquiring their assets on the cheap after imposing deliberate and exorbitantly high fees on them. Many companies in this high-risk category, deemed perfectly viable, have been unable to pay these fees imposed and as such have found themselves having their assets taken over by the bank at heavily discounted prices.

Both these reports must be put into context. Prior to 2008, RBS had been reckless over a number of years in its dealings, over-extending loans to many small firms that did not justify such levels of confidence. As the bank now struggles to repair its balance sheet, bad debts are continually being written off and lending practices have been tightened.

The findings contained within these reports have left many feeling aghast, not least Mr Tomlinson himself. His inquiries and formal deliberations suggest something altogether more serious. Vince Cable, the Business Secretary, has acted quickly and sent the evidence to City regulators. For his part, Mr McEwan has called in the law firm Clifford Chance to conduct an internal review of the bank’s practices. Such deviant and acute methods would be inexcusable from any bank, but from one that is largely owned and controlled by the state makes matters even worse.

COMMENT & ANALYSIS

The claims made in Lawrence Tomlinson’s report into the way the Global Restructuring Group at the Royal Bank of Scotland has dealt with struggling enterprises are truly dire.

It rightly is a matter that needs to be examined by the regulators the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

Forcing struggling firms into insolvency when there may have been a chance of survival is bad enough. Ruthlessly seizing property and assets for its own gain is immoral and much worse.

Yet, should we be surprised? RBS had a hand in almost all the post-crisis scandals, including Libor fixing, interest rate swaps and the sale of payment protection insurance. The bank is also being sued by investors for failing fully to disclose the parlous state of its finances ahead of the £12bn rights issue to shareholders in 2008.

Tomlinson and the Department of Business also have some questions to answer. The in-situ ‘entrepreneur in residence’, for example, is a little mysterious. How was he chosen for this appointment, what is the scope of his role and how much did he tell civil servants and the Secretary of State, Vince Cable, about his own business affairs before he took on this rather curious role?

What also of the poor judgement by Tomlinson not to disclose that NatWest, RBS’s main operating offshoot, had granted him an overdraft and that in the last couple of years he was engaged in a major refinancing operation? Financial analysts will find it extraordinary that this was not considered a relevant factor either by Tomlinson or the Department for Business, and that it was not disclosed in the report. Making a strong case against the predatory behaviour of RBS is one thing, the dealings and judgments of Mr Tomlinson are clearly and significantly related.

The published accounts of Tomlinson’s business LNT Group are, even by the standards of many private empires, on the opaque side. They show a group that is indebted and making losses, with a host of intercompany relationships that are difficult to untangle.

The main product of Tomlinson’s dealings looks to be the design and building of new care homes, something the UK badly needs. But this is a notoriously difficult sector in which to operate – as was seen from the fate of Southern Cross – and management often has to choose between keeping costs under control and maintaining high standards of care.

Before giving Mr Tomlinson a government imprimatur one should trust that Vince Cable and his Department looked carefully at all his dealings before approving the appointment.

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Britain, Government, Iran, United Nations, United States

The Iranian deal exposes concerns but it’s worth the risk…

GENEVA AGREEMENT

Whilst the initial period of the Geneva agreement lasts only six months, and much of what has been agreed is based on trust, there is no doubt that Iran could have been in a position to assemble a nuclear device by next summer. Even a modest hiatus in its atomic preparations should be embraced as it pretty much ensures Israel will take no precipitate action.

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The interim agreement is a good way of testing if Iran can be trusted to keep its word. Tehran has agreed to give UN and IAEA inspectors’ better access to its reprocessing facilities, a promise that will be difficult to fudge or renege on without exposing bad faith or some covert hidden agenda. Critics are right in their assertions that the accord does nothing to dismantle Tehran’s capability to process weapons grade uranium whenever it wants, but securing the right to inspect the regime’s nuclear plants is a necessary and vital concession. This establishes a clear diplomatic tripwire that Tehran crosses at its peril.

There is, though, still much to worry about in this deal. The Iranian economy has been brought to its knees by western sanctions and the regime has been more than desperate to win a respite to mollify internal dissent and unrest. In many ways, President Hassan Rouhani has achieved that objective at comparatively modest cost, and has subsequently strengthened the grip of Iran’s religious dictatorship.

Israeli fears are well known in letting Iran off the hook. But others, too, notably Saudi Arabia and the Gulf States, have greeted the Geneva agreement with stony silence. They fear that a diplomatic win for Tehran will strengthen the resolve even further of President Assad in Syria, Iran’s client state and political ally.

On the balance of things, the Geneva deal should be deemed a worthy risk. Tehran has felt the full throttle of western sanctions and the sharpness of its teeth. It must also realise that having offered Iran diplomatic concessions and held Israel in check, President Obama will have no option but to take punitive military action if Iran reneges on its nuclear promises.

The onus in turning this interim deal into something permanent is now on Barack Obama and William Hague, Britain’s Foreign Secretary. Their job will be to tame and dismantle Tehran’s nuclear threat once and for all. Any final agreement must see Iran disband its tens of thousands of uranium processing centrifuges – far more than is needed for any purely civilian atomic energy programme. Iran’s plant for making plutonium – which can only have a military intent – must also be dismantled. It would also make sense for Tehran to dispose of the excessive amounts of low enriched uranium it already possesses – enough to make at least six atomic bombs if those stocks were sufficiently enriched to weapons grade material.

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Government, Iran, Israel, Middle East, Politics, United Nations, United States

The Geneva agreement between the U.S. and Iran…

INTERIM DEAL

The interim deal between the United States and Iran has made significant progress that will halt the advancement of the Iranian nuclear program, but it is also weak in some important respects.

The deal makes no mention of potential military action if Iran does not live up to its obligations. However, the deal is a ground-breaking agreement that will attempt to resolve longstanding concerns about Iran’s nuclear ambitions.

The interim deal ties Tehran to an ongoing diplomatic process whose primary rewards remain deferred until a far more ambitious and comprehensive agreement can be achieved.

Describing the agreement as an ‘initial, six-month deal’, President Obama said it includes ‘substantial limitations’ that will deter Iran from creating a nuclear weapon.

U.S. negotiators said the deal addresses Iran’s ability to enrich uranium and its existing enriched uranium stockpiles, but details on this remain unclear. It also dealt with Iran’s centrifuges, a component part needed which can enrich uranium for fuel for a bomb, and its ability to produce weapons-grade plutonium using the Arak reactor.

Mr Obama, both in his televised statement to the nation and the fact sheet issued by the White House, committed to no additional nuclear-related sanctions against Iran as long as Iran abides by it. Many in Congress, though, have said new sanctions are necessary to make sure Iran abandons what they consider a path toward developing nuclear weapons. Others say that whilst they share Mr Obama’s desire to resolve the nuclear dispute with Iran through diplomacy continuity for stronger sanctions against Iran is still needed to make sure diplomacy succeeds. Bipartisan legislation is expected in the United States that will impose tough new economic sanctions if Iran undermines the interim accord or if the dismantlement of Iran’s nuclear infrastructure is not underway by the end of the six-month period.

For some, the interim deal provides the world’s leading state sponsor of terrorism with billions of dollars of cash in exchange for cosmetic concessions which will neither freeze nor significantly roll-back its nuclear infrastructure.

Whilst there is also a perception that this is a deal that reflects Iran buckling under the weight of international sanctions which has truly bowed to global pressure, there is also a risk of the final deal being buttressed if factors such as a hard deadline for a final agreement is pursued, a caveat previously imposed by the United Nations Security Council. The UN has passed multiple resolutions demanding that Iran suspend its production of nuclear fuel, with a threat of military force if terms are not met.

Contentiously, before the deal in Geneva had been announced, Iranian officials said that any interim deal must declare production of nuclear fuel as an ‘Iranian sovereign right’. But even limited enrichment facilities will allow Iran to still be in a position to build all the elements to acquire a nuclear infrastructure without ever actually turning it on. The permission to enrich will ensure that the Iranian nuclear program remains an international issue for many years.

ISRAEL

Israeli Prime Minister Benjamin Netanyahu now appears to have little choice but to accept this deal that he has derided as deeply flawed.

Mr Netanyahu believes the six-month deal leaves Iran’s military nuclear capabilities largely intact, while giving Iran relief from painful economic sanctions, undermining negotiations on the next stage. At the same time, Israel’s strongest piece of leverage, the threat of a military strike on Iran, seems to be out of the question despite Netanyahu’s insistence it would remain on the table. Mr Netanyahu has referred to the deal as a ‘historic mistake.’

He said Israel was not bound by the agreement, and reiterated Israel’s right to ‘defend itself by itself,’ a veiled reference to a possible military strike against Iran.

Mr Netanyahu has spent years warning the world against the dangers of a nuclear-armed Iran, calling it an existential threat due to Iranian references to Israel’s destruction, its support of hostile militant groups on Israel’s borders and its development of missiles capable of reaching Israel and beyond.

Israel also believes that a nuclear-armed Iran will provide militant groups like Lebanon’s Hezbollah an ‘umbrella’ of protection that will embolden them to carry out attacks.

Netanyahu had said that any deal must ensure that Iran’s enriching of uranium — a key step toward making a nuclear bomb — must end. He also said all enriched material should be removed from the Islamic Republic, and called for the demolition of a plutonium reactor under construction.

A deal that would satisfy Israel was never likely from the outset due to differing ‘red lines’ between Israel and the U.S.

While Israel sees any enrichment as a cause for concern, the U.S. was willing to tolerate nuclear development as long as it was unable to produce weapons.

U.S. negotiators have said that the relief from sanctions was minimal and that the most biting economic measures, including sanctions on Iran’s vital oil industry, remained in place and more could be imposed if Iran fails to follow through.

Israel’s relationship with the U.S. will be critical as it conducts peace talks with the Palestinians in the coming months. U.S. Secretary of State John Kerry, who is mediating the talks, has set an April target date for reaching an agreement, and there is widespread speculation that the Americans will step up their involvement as the deadline approaches. Given this, Israel’s main card – military action against Iran – appears to be out of the question despite some hard hitting Israeli rhetoric on the Geneva agreement.

Enrichment is at the heart of the dispute because it can be used for peaceful purposes or for producing a nuclear bomb. Tehran insists its nuclear program is for civilian usage such as energy production and for use in medical treatment.

Uranium at low levels of enrichment, up to 20 percent, is used in research or generating electricity. Uranium must be enriched to a far higher level — above 90 percent — to produce a warhead. So far, Iran is not known to have produced any at that level, but Israel argues that the technology for doing so is the same as that for enriching at lower levels.

Under the compromise, enrichment would be capped at the 5 percent level, and Iran’s stockpile of 20 percent uranium would be ‘neutralised,’ effectively preventing it from reaching weapons-grade level. Also construction on the plutonium reactor is to be suspended. The White House also promised ‘intrusive monitoring’ of Iranian nuclear facilities.

Israel says any enriched uranium in Iranian hands is potentially dangerous, since its centrifuges can quickly convert it to weapons grade. Israel believes that Iran’s ability to keep its nuclear infrastructure intact will allow it to quickly resume the program if the talks fail.

In all, about 250 kilograms (550 pounds) of highly enriched uranium is needed to make a weapon. Iran already has about 200 kilograms (440 pounds) of enriched uranium.

The Geneva accord is not all bad for Israel, since Iran is deemed to have capped enrichment activity and slowed construction of the plutonium reactor. However, Iran’s ability to ‘break out and make a nuclear explosive device does remain intact, and is a concern being expressed by Israeli officials.

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