Climate emergency demands action, not rhetoric. So, on the eve of COP26, which UK news item promises to deliver the most positive impact for the future of the planet? Not, I suggest, Sadiq Khan’s extension of the Ultra Low Emissions Zone to the North and South Circulars, imposing stinging costs on owners of older diesels who can’t afford newer ones; nor Rishi Sunak’s £7 billion pledge for sustainable transport in cities outside London — only £1.5 billion of which turns out to be new money. No, the headline that matters more is the one that says dividend payments by UK companies are returning to normal.
During the darkest days of the pandemic, most public companies slashed or cancelled payouts to shareholders in response to plunging profits, calls for Covid solidarity and in the case of banks, pressure from the Bank of England. In our anti-business media, it was much said that dividends, akin to City bonuses, were inherently immoral anyway, and therefore ripe to be cut.
The news that dividends surged to £35 billion in the third quarter — led by miners, oil giants, housebuilders and banks, and almost double the figure for last year’s third quarter — will provoke more of the same. Capitalism’s detractors will accuse boardrooms of heaping riches on the rentier class (and themselves) at the first sign of recovery, when they ought to be improving workers’ conditions, reinforcing balance sheets and taking better care of all their stakeholders, including the natural environment.
I beg to differ. Well-run companies attend to those broader responsibilities as well as, not instead of, generating value for shareholders, including pension funds which urgently need restored cashflows from their investments to avert future shortfalls. And Earth currently needs private-sector investment on a huge scale — much more than it needs posturing politicians — to decarbonise the energy, transport, construction and food industries while sourcing rarer minerals needed to drive cleaner technologies. That capital will be raised only if it offers appropriate returns. The total of UK dividends paid for 2020 was £64 billion, down from £113 billion in 2019; this year’s forecast by the data firm Link is £93 billion, rising to match the pre-pandemic peak only by 2024. No objective observer could call that outrageous. As I said last year when dividends first came under attack: ‘Why should any investor take risks… without reasonable reward — and hasn’t capitalism’s risk-reward formula, despite bouts of excess, served society well over the long term?’
Stink of bad tuna
On the other hand, there’s never a shortage of stories reminding us how badly bankers (and others, of course) are capable of behaving when temptation or delusion gets the better of them. This week saw the denouement of the ‘tuna bonds’ scandal relating to $2 billion of financings arranged by Credit Suisse (and a Russian bank, VTB) for the government of Mozambique, supposedly to finance tuna fisheries and other worthy projects. Of this, at least $200 million disappeared, some to buy luxury cars for a son of the country’s ex-president and $50 million in alleged kickbacks to Credit Suisse bankers.
Bad banking often seems to damage only the banks themselves; but sometimes it does far wider harm. One study suggests the impact of this stinker in lost economic growth is equivalent to almost $400 for each of Mozambique’s 32 million impoverished citizens.
Encourager les autres
Meanwhile Credit Suisse has been fined $475 million and has agreed to forgive $200 million of Mozambique’s debt. Also tainted by entanglements with Greensill Capital, the failed supply-chain finance business, and Archegos, the New York ‘family office’ brought down by derivatives trading, the Swiss bank paid billions more in fines over the past decade for mis-selling mortgage-backed securities and helping clients evade tax.
If all that wasn’t so shaming, it might seem comic that the penultimate item in a helpful FT timeline of recent Credit Suisse history says ‘appoints new chief compliance officer’. There’s also a new-broom chairman, former Lloyds boss António Horta-Osório — and shareholders would say they’ve been punished enough by a decade-long share-price slump. But honestly, pour encourager les autres and to deflect capitalism’s fiercest foes, wouldn’t it sometimes be better to move the depositors to a safer bank and order the repeat offender simply to sell off what’s left or close down?
Lame ducks
If Co-operative Bank were to acquire TSB — as proposed by the former but so far rebuffed by the latter — the result would be a mid-sized high-street bank with a super-sized image problem. Both institutions used to have a clear social role. But Co–operative Bank, now owned by US hedge funds, no longer has anything to do with your local Co-op shop and the benign movement behind it. TSB, owned by Banco Sabadell of Spain, has only the remotest connection to the Trustee Savings Bank founded by a Scottish clergyman in 1810; it exists today only because its previous parent Lloyds had to dispose of a block of branches as a condition of being bailed out in 2008. Ironically, Co-operative Bank was lined up to buy them, but proved financially unfit. So the orphan branches were floated as TSB and then bought by Sabadell — resulting in a notorious IT failure in 2018 that left millions of customers unable to access their accounts.
Put these two lame ducks and their eight million customers together and they would rank somewhere between Santander and Virgin Money in the UK banking league. But bearing in mind my advice last week on the wisdom of picking random names, what would you call this merged entity to signal an upbeat fresh start? ‘SuperDuck’ might be eye-catching, with a retro cartoon logo. I’m sure you’ll have better suggestions.
Comments