Truce or Stitch-up?

Smooth talking Cabinet Office Minister Oliver Letwin and super smooth Barclay’s chief exec John Varley are apparently having a chat today to try and negotiate a truce between the government and the banks. The banks are tired of being pilloried. They think they’ve been standing in the corner for long enough. They want to be loved.

The country is in no mood to start loving the banks, but Mr Varley and his cohorts have started mumbling about relocating their head offices to more sympathetic financial centres, and this has spooked the government.

There is no doubt that the economic recovery needs the support of the banks, but we need to beware. What we are witnessing is the banks starting to play hard ball. They sense the need and they intend to exact a high price for their ‘cooperation’. The government needs to play hard ball too.

Make no mistake the banks are going to turn every screw to ensure that they are allowed to operate as they wish. They have absolutely no intention of being fettered by new regulations or having their style cramped by populist legislation.

Will Olly Letwin allow himself to be bullied by the artful Mr Varley? Will he be taken in by sweet talk and thinly veiled threats? Is he prepared to jeopardise his post politics city job by standing his ground? We’ll have to wait and see, but I’m not hopeful. The communiqué will be full of good words and may even contain a hint of contrition, but we should not be fooled.

Sir John Vickers is not due to deliver his report on banking reform until September next year. Hopefully he will recommend retail and investment banking be split and the creation of much more competition i.e. more banks. Expect the banks to pile on the pressure on government the closer we get to September. We need to be vigilant, neither are to be trusted.

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