A bouquet to Alison Kennedy, ‘governance and stewardship director’ at the Edinburgh-based pensions provider Standard Life, for leading the rebellion of Barclays shareholders against the bank’s decision to pay increased bonuses of £2.4 billion, far outstripping dividends to shareholders and despite a fall in profits. At last week’s AGM, 34 per cent of shareholders refused to endorse the board’s remuneration report after Kennedy declared herself ‘unconvinced’ that the bonus pot was ‘in the best interests of shareholders’ and warned of ‘negative repercussions on the bank’s reputation’. As if to prove the latter point, Barclays chairman Sir David Walker responded not by apologising but by expressing ‘irritation’ that Kennedy had spoken up in public rather than in earlier private consultations.
Can it be that such consultations have proved utterly unsatisfactory for concerned institutions? ‘Our patience was exhausted,’ added Kennedy’s colleague David Cumming. The objectors, who in Barclays’ case also included F&C Investments and the Local Authority Pension Fund, are still in the minority among financial professionals. But this is a debate that will not go away — and has been given impetus by the political decision, allegedly driven by Lib Dem pressure prevailing over George Osborne’s instinct, not to let RBS exceed the EU bonus cap of 100 per cent of base salaries.
Bank directors remain terrified of losing the talent below them if they cannot offer the ‘going rate’ they themselves are long accustomed to receiving. They have the ear of Osborne and others who do not want tax revenues from the financial sector to dwindle, and who dislike EU interference in the City. But a growing body of opinion regards the bankers’ going rate not only as grotesquely out of kilter with shareholder returns, but also inherently dangerous in the risky behaviour it continues to provoke despite the lessons of the recent crisis. Sceptics will watch with interest whether RBS becomes a worse bank or a better one by virtue of being lower on the pay scale — or whether it simply outflanks the bonus cap, with a nod from the Treasury, by paying ‘allowances’ instead.
Meanwhile, Standard Life is not quite so far out on a limb as the spin from Barclays tried to make it appear last week. Barclays has in fact appointed a Standard Life director, former management consultant Crawford Gillies, to succeed Sir John Sunderland as chair of its remuneration committee later this year. And I’m sure Kennedy and Cumming do not speak without the blessing of their chairman, Gerry Grimstone — the formidable ex-Treasury official who also happens to be chairman of TheCityUK, the body which markets UK financial services around the world. I’m adding Grimstone to my shortlist of candidates to succeed Sir David Walker in the Barclays chair.
Pfizer will be hard to stop
The pattern of the global pharmaceutical industry has long been towards cross-border mergers that combine research strength, market access and the capital needed to sustain new drugs through multinational approval processes. The UK has done well in this game, with excellent laboratory work and two giants still headquartered here, GlaxoSmithKline and AstraZeneca. The latter is part-Swedish but has 6,700 British staff and a heritage that descends from the pharmaceuticals business of ICI, greatest of 20th-century British industrial names.
So alarm bells rang with the announcement at the beginning of the week of a takeover bid by Pfizer of the US, which has at least two counts against it: it is suspected of needing a big overseas acquisition more for tax efficiency than for strategic synergy; and it closed down its UK research centre at Sandwich in 2012, even though it was Pfizer’s British research team that invented Viagra, the company’s most money-spinning product. It’s an exaggeration to claim that the bid threatens the entire UK ‘science base’, but it’s certainly unwelcome at a time when inventions, patents and general brain-power are recognised as key elements of long-term economic recovery. But however much Vince Cable huffs and puffs, the bid will be impossible to stop if Pfizer comes up with a price that pleases international investors who hold AstraZeneca’s stock.
Gherkin? No thanks
Much as I admire the architect Norman Foster, I never liked his design for the building that is properly addressed as 30 St Mary Axe but always known as the Gherkin. Its horrid protuberance on the City skyline gives it an air of fat-cat self-importance that seems to invite ill fortune.
It was built on the site of the IRA-bombed Baltic Exchange, whose Edwardian hall was too damaged to restore; the marble remains were shipped to Estonia, where a developer planned to reassemble them but ran out of money. Meanwhile the new tower was occupied by the insurer Swiss Re, and it was in its space-age penthouse restaurant — truly a canteen for Masters of the Universe — that I listened in April 2005 to a trio of trading-floor veterans discussing the overheating of the credit derivatives market and the impossibility of quantifying its risks.
Sure enough, Swiss Re turned out to be sitting on giant losses in credit default swaps, and had to sell the Gherkin in 2007. The buyer for £630 million was a German investor, IVG Immobilien, with private equity partners, and the deal was funded by loans largely denominated in Swiss francs — which appreciated against the pound until the debt was worth a lot more than the building. The borrowers have been in default since 2009 and receivers have finally been called in.
So the building will now be sold off again, almost certainly leaving hefty losses to be carried by lenders led by Bayerische Landesbank — one of those German regional banks that really should have stayed at home, and which stress-testing EU regulators are known to be worried about. In short, the Gherkin has cast its bulbous shadow across Europe from Tallinn to Munich.