Category Archives: Economic

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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Afghanistan, Britain, Economic, Government, Politics, Society, United Nations, United States

Afghanistan is a booming narco-state…

Intro: Afghanistan is an affluent narcotic state despite the country being invaded to liberate it from the drugs trade

Prior to the war in Afghanistan, the then British prime minister, Tony Blair, said that one of the most compelling reasons for going to war was to curtail the trade in narcotic drugs such as heroin and opium. However, if one was to examine the facts it would be shown that the Taliban government had already started to deactivate Afghanistan’s drugs trade. In 2000, the Taleban were the ruling authority in the country and had declared the heroin trade as being ‘un-Islamic’. Following that decree the fundamentalist regime managed to reduce production by 99 per cent in the areas that it controlled. Yet, by contrast, the war with the West has witnessed a lucrative market for Afghan’s poppy farmers. After more than 12 years of fighting – which has cost Britain dear in terms of lost lives and resources expended – opium production in Afghanistan is at a record high. The United Nations drugs agency says that the area under cultivation rose by 36 per cent in 2013 and that Afghanistan now provides 90 per cent of the world’s heroin. The country Britain invaded partly to liberate it from the drugs trade has become a flourishing and affluent narcotic-state.

Was there a way in which this now booming trade could have been stopped? Arguably, if the West had put all its resources and efforts into eradication the likelihood of crushing the drugs trade in Afghanistan  would have been high. Unless that task is approached with the ruthless methods and barbarism of the Taliban, any other approach would likely falter. The planting of an alternative crop may have been another consideration but even that would have been troublesome because Afghanistan’s environment makes it perfect for poppy cultivation but inhospitable to almost anything else.

A genuine alternative, however, might be to turn the situation to the world’s advantage. Four years into the Afghan campaign, the Senlis Council, a think tank, suggested buying the crop and using it to manufacture palliative medicines for Western consumers – turning Afghanistan’s poppy farmers into legitimate businessmen.

If we consider that opium poppies are already grown under strict legal controls in India, and also in Britain, the idea is not as radical as it might sound. The world has a shortage of pharmaceutical painkillers, such as morphine and codeine, and the Afghan farmers could easily meet that demand. Whether the country has the ability to police such an ambitious programme, though, does raise doubts. One thing above all else is certain: the West has lost its war on the poppy.

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China, Economic, Environment, Government, Politics, Society, United Nations

United Nations: ‘Greenhouse gases have reached a record high’…

MORAL DUTY TO ACT ON CLIMATE CHANGE

It comes as a complete surprise to hear the United Nations announcing that greenhouse gases have reached a record high. This is nothing but disheartening given the increase in environmental awareness over the past decade when we consider the amount of effort that has been made by our own country and others to cut down on carbon emissions.

While strenuous and laborious efforts have been made by many developed countries in reducing their carbon footprints, these incremental shifts have not been enough to offset the vast industrialisation of emerging economies such as China, where growth is now so rapid that green and environmental considerations are far down the list of government priorities.

The Chinese, of course, want the amenity and luxury of what we in the West take for granted, but do not take kindly to being told by already developed nations that they must achieve this more ‘sustainably’. Veering away from the higher costs involved is perhaps understandable given the size of China – costs which would undoubtedly run into trillions if it were to rapidly convert to more sustainable programmes.

The net effect of the global greenhouse gas menace has led the Intergovernmental Panel on Climate Change (IPCC) to warn that, without further remedial action, global temperatures will rise by 1.1°C by the end of the century, and sea levels will rise.

A cynic’s response would be to urge the UK government to abandon what would seem to be a hopeless cause. Realistically, though, we cannot allow ourselves the pleasure of such cynicism. The UN report is hardly an excuse to do nothing.

The assertion made that efforts by developed countries is not having any tangible effect is impossible to prove, given the number of extraneous variables involved. If we can do something extra to reduce carbon emissions, then we should at least try. One of the most compelling arguments for refusing to be deflected from reducing our greenhouse gas emissions that we have embarked upon is a moral one. How will we ever persuade others to act on climate change unless we continue to act on our own convictions?

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