FSA New Leadership, renewed Culture

“Lord Adair Turner needs his firefighting skills”

"The Financial Services Authority is the worst financial regulator in the world." ... But it is not so bad that it can’t be made worse by Adair Turner ... growled one of the City’s leading figures following confirmation that Lord Turner would be the FSA’s new chairman.

The statement may be on the extreme wing of City opinion. But it underlines the scale of the task Lord Turner is taking on. The supervisory failures over Northern Rock have blown the FSA’s reputation out of the water and led to a crisis of confidence in the organisation.

Morale is low and the FSA is said to be finding it increasingly difficult to recruit good people.

While the FSA still has many admirers on Wall Street, London's lead over other financial centres feels like it is narrowing. The fight against financial wrongdoing – as measured by fines and scalps – seems stalled. And perhaps the biggest prize of all, getting a fairer deal for ordinary consumers, seems as elusive as ever.

FSA officials seem to spend a great deal of time studying the fine print in financial advertisements. But they missed the biggest potential disaster since the the authority’s formation – Northern Rock’s business model – which was staring them in the face.

Increasingly now, the FSA has no one to blame but itself. It already has sweeping powers and when it asks for additional weapons, it gets them, in recent months winning additional powers in banking supervision and dramatic new powers to offer witnesses immunity from prosecution. It also has plenty of resources in the form of a 2,000-strong army of well rewarded and well qualified staff. What it lacks, is a can-do culture.

This is a bureaucracy that still measures effectiveness in terms of numbers of lever-arch files filled and length of meetings attended. It is an organisation with a bottomless capacity to create consultative documents but less appetite to root out bad behaviour and punish it. Its instinctive reaction is to create more rules for everyone, including the innocent majority, rather than to go out and challenge the guilty minority. Its senior people rejoice in issuing myriad warnings and sermons, but then tend to see their work as done.

Lord Turner’s experience of business and bureaucracy make him an attractive candidate for the job. (Quite why he wants it is less clear). He has one foot in Whitehall and one in the Square Mile, but is not seen as too much of a City insider – in spite of his service over the years at Merrill Lynch, Standard Chartered and Paternoster. And as a fully paid-up member of the great and good on government working parties should help him to avoid the more obvious elephant traps of public life.

In the City he may be regarded with a little suspicion. His relations with new Labour when running the CBI in the mid 1990s were seen as a little bit too cosy at times. His pro-business credentials cannot be doubted, but some in the City see him as too cerebral and technocratic with little feel for the shopfloor of financial services.

It is providing leadership that may be Lord Turner’s biggest challenge. As part-time chairman, he cannot do much about the minutiae of the regulatory work.

But culture works down from the top. The FSA needs someone with the capacity to inspire the troops into enforcing better behaviour and preventing new disasters without piling up costs and stifling innovation. If Lord Turner can achieve that, he will earn his peerage all over again.

Source: Times 30 May 2008

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Power companies are ripping off consumers

“British consumers are being ripped off by a “comfortable oligopoly” of bloated electricity and gas supply companies, MPs were told yesterday”

At the opening of a parliamentary hearing into competition in the UK power market, Allan Asher, the chief executive of Energywatch, the consumer watchdog, launched a two-hour tirade against the industry’s leading players. He accused Britain’s big six energy suppliers of engaging in “tacit collusion”, said that competition in the market was a “myth” and that consumers were “getting it in the neck” from companies with no incentive to compete or innovate in order to win business.

“Sadly, we have seen the 20 suppliers of ten years ago shrink into just six,”

Mr Asher told a cross-party group of MPs on the Business and Enterprise Select Committee. “Consumers are the losers.” While he acknowledged that there was no evidence of outright price-fixing, Mr Asher claimed that the largest suppliers followed British Gas, the dominant market player with 16 million customers, in raising or lowering prices.

“In oligopoly markets, you don’t need to meet in smoke-filled rooms,” he said, citing figures showing that for dual fuel paid for by direct debit, the most popular product in the industry, the annual price difference between the six main UK energy companies - E.ON, British Gas, SSE, ScottishPower, nPower and EDF - was less than £30, or “just a few pence a week”. He said: “There is a myth that there is vigorous price competition between them.”

The warning comes amid fears that the industry will increase prices again this summer. Energy companies have blamed rising wholesale prices for a succession of rises in domestic charges this year, which have taken the average annual dual fuel bill to £1,048, up from £662 in 2005. Global oil prices reached a record of almost $130 yesterday.

Mr Asher’s comments unleashed a storm of protest from the industry. A spokesman for Centrica, the owner of British Gas, said that he was “misleading” consumers. “Despite the impact of record oil prices on the cost of gas internationally, Britain’s household gas bills remain the lowest in Western Europe, and our electricity is among the cheapest, too,” he said.

Mr Asher rejected the argument that the level of switching — five million last year — offered a guide to the level of competition in the industry. He said that 4.8 million customers, many of whom were among Britain’s poorest people, were “closed out” of the switching market because they use pre-payment meters. Customers could not switch if they had no bank account, no internet access or problems with debts.

He said that the possible sale of British Energy, the UK’s biggest electricity generator, to EDF, of France, would compound the problem of a lack of industry competition. The top six suppliers control 55 per cent of the generating market, which would rise to 75 per cent if the EDF deal proceeded.

Winter gas prices hit a record high of 89.1p per therm yesterday, and winter 2008 power prices rose to £78.85 per megawatt hour, because of rising costs for power stations

Source: Times Online - Robin Pagnamenta, Energy and Environment

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Treasury backs down on corporate tax

“The threat of a corporate exodus to countries with more business-friendly tax structures forces a rethink by the Government”

Several big multinational British companies had said that they were prepared to move their headquarters from the UK amid concerns that the Treasury was preparing to tax the profits they derived overseas.
A Treasury spokesman confirmed yesterday that the department had drawn up a new set of tax plans after extensive consulation with UK companies. The move will be seen as another embarrassing government climbdown.
The spokesman said that new proposals would be put out to consultation in mid-June, with a view to introducing legislative changes next year.

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Source: Times

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British Gas sues Accenture

"Accenture faces a £182 million High Court writ ...”

An IT system that was supposed to make British Gas the darling of consumers nationwide has instead become the focus of a multimillion-pound legal battle.

British Gas had hoped to consign complaints about the business to history, but in the event it was described by watchdogs as being in meltdown and thousands of its customers decided that they had suffered enough and switched to a rival.

Now the origins of the customer service problems a year ago, which caused complaints about Britain's biggest residential energy supplier to rise nearly threefold to record levels, are at the centre of a £182 million High Court writ.

Centrica, the parent company of British Gas, confirmed yesterday that it was suing Accenture, the global consultancy group, about the state-of-the-art IT system.

It claims that the “Project Jupiter” system reduced British Gas's customer billing process to such a mess that the energy supplier had to hire 2,500 extra staff and invest millions more pounds to fix the problems and make it work.

The showdown promises to last for months as each company fights to prove that it was not to blame for inaccurate bills sent to homes across the UK. Complaints to Energywatch, the watchdog, about British Gas hit a record 14,001 in March last year.

Accenture vowed yesterday to fight its corner, stating: “We are confident, based on the facts of the situation, that this claim is baseless and without merit. Centrica is only trying to shift the blame for a situation it created.” Centrica hired Accenture to provide the new billing system seven years ago.
It was to bring together the records of British Gas's 12.5million gas and electricity customers on to one platform capable of handling 250,000 meter readings and 200,000 bills a day.

The £317million fee would come from the £397million of savings that British Gas expected to obtain from the project. Centrica claims that, after a number of glitches, in March 2006 Accenture guaranteed a software upgrade that would work. Centrica argues that, instead, the system continued to struggle and generated a high level of “exceptions” - billing issues that required manual intervention.

Centrica also claims that Accenture failed to provide adequate computer hardware and did not integrate the system properly. The energy supplier formally notified Accenture that it was in breach of contract in February 2007.

A British Gas spokesman said: “An independent analysis of the billing system has concluded that Accenture was responsible for fundamental errors in the design and implementation of the system. British Gas has been left with no option but to pursue legal redress against Accenture.”

In the past year, since British Gas fixed the system itself, complaints to Energywatch about the supplier have fallen 85 per cent, the spokesman said.

Source: Times Online

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Convergence of Operations and Technologist

“Demand for well-qualified and business-aligned technologists remain high”

Operations and technology are intertwined, the idea behind operations is that the fewer hands that touch the process and the more automated the process is, the more cost effective it is, and the one fewer issues you have with mistakes. The CIO and the global head of operations roles is coming together.

More and more firms are moving toward the Goldman Sachs model - one trader, one technologist and one quant sitting together at each desk, instead of keeping these functions separate as they have in the past.

It is very important to communicate the value of technology to the business. If business heads do not understand a project they are more likely to cut it at a time when all firms are looking to take cost out of IT.

As banks set themselves big targets, organizations will shrink. Anybody who shows initiative to further develop their skills have a better chance of being redundancy-proof than somebody who doesn't try to evolve and become more business astute and aware.

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Did You Know ...

“News in numbers”

23% Y-o-Y fall in new job opportunities in London's financial sector

24% decline in value of the pounf against euro since the launch of the single currency in 2002

Over 100 MBOs went into receivership in 2007 in the UK, which is the biggest number for a long time, they'll be a lot more failures in 2008

By 2011 660 million is the number of virtualised PCs expected to grow worldwide from 5 million in 2007

A fully configured container will use up to 50% less electricity and needs 80% less coolo than a standard data centre

€21,037 million is the total revenue postedfor 2007 by BNP Paribas, the best performance in the firms history and an 11.6% rise on the previous year

66% of social networkers are more likely to buy a product as a result of a recommendation or word of mouth

$45.5 trillion is the current outstanding value of credit default swaps (designed to hedge against losses to banks and shareholders when companies fail to pay their debts), up from $900 billion in 2001

19 bn is what it cost the UK businesses in congestion charge

$70 million will be spent in 2008 by average top-tier investment bank on automating OTC derivatives processing according to Tabb Group, that figure is set to rise to $120 million by 2010

10% is the number of people working from home at least 1 day a week, the figure is expected to grow due to universal broadband, rising rail fares and taxes on parking spaces

3 EU member state countries (Spain, Poland, Czech Republic) will be taken to court for failing to transpose MiFID into national law

6 investment banks (Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS, Deutsche Bank) started trading US Dollar interest rate swaps on TradeWeb

180 staff will be employed by Deutsche Bank in the Middle East after it annouced plans to develop a resEarch facility in Dubai International Financial Centre to support its global equities business

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Rich clients deserting wealth management businesses

“UBS cuts 5,500 jobs after £5.5bn quarterly loss”

UBS cut 5,500 jobs and sold $15 billion (£7.6 billion) worth of damaged assets yesterday, shares in Switzerland’s biggest bank fell by more than 4 per cent amid fears that restructuring would wreak further havoc

The bank added to investors’ woes by revealing that rich clients were deserting its wealth management business and business banking clients in its home market had pulled almost SwFr2 billion (£960 million) from their accounts in the first quarter

Job cuts include 2,600 staff from UBS’s investment bank, which ran up most of the group’s $37.4 billion in credit crunch writedowns. Fewer than 900 jobs are expected to be lost from the investment bank in London, where UBS employs about 9,000 people. Marcel Rohner, the chief executive indicated that the worst of the staff cull was over.

UBS said that it had agreed to sell a $15 billion book of sub-prime mortgages to BlackRock, the asset management group. The mortgages had already slumped in value from $22 billion, the bank said.

Source: Times Online

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I will Listen and Lead

“A New Way Forward”

Gordon Brown says in his assessment about the results in the Local Elections that its his job to Listen and Lead following Labour sustaining its worst losses in 40 years to the Conservatives, leaving Labour beaten to 3rd place. So what has Mr Brown being doing as a Leader that stopped him from listening and leading effectively prior to the elections?

Taking on a leadership role requires you to be
accountable in gaining the best results, set the agenda for their team to follow and take action. Effective leaders say what they mean and do what the say they can.

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