FPS’ Friday Fiver

Yes, it’s back. After a break for the Easter holiday, some glorious weather and that dress, we return with the Financial and Professional Services team’s Friday Fiver. We also have a fresh contributor this week, our new regulatory and government expert, Melanie Worthy. Other pieces this week come from regulars Ed Jones, Ross G, Karen and myself.

Crunch time for RBS and the FSA…The Treasury Select Committee and the FSA announced this week that they’ve asked City heavyweight Sir David Walker and lawyer Bill Knight to conduct an independent review of the report the FSA is producing into the failure of RBS. They will examine whether the report fairly reflects the findings of the FSA’s investigation of RBS, as well as analysis of its own regulatory activities.

Sir David Walker - charged with reviewing the demise of RBS (image from guardian.co.uk)

Walker’s unique attributes of being both a credible City figure plus a trusted Government adviser make him an obvious choice for the role. His track record helps too – he has headed Government enquiries, such as in 2009 when he examined governance at the big UK banks.

Just as well then, as he’s going to have his work cut out. However “complex” the issues were, as the FSA cites somewhat reluctantly, there will be strong media interest and expectation for answers as to the causes of RBS’ demise; the excessive cost to the public purse from bailout; and the wider malaise that played out across the banking sector as the financial crisis ensued.  Whilst Walker and Knight tread through a minefield to avoid the legal conflicts to RBS employees, they’ll be mindful of the need to show teeth and forensic review on both sides of the regulatory fence.

Nick Clegg – Stick or Bust…Most observers of the Westminster Village Ed’s spoken to in recent months have agreed on one thing: May 5th and the outcome of the AV referendum will determine the fate of the Coalition Government. As we’ve said previously, the fates of Nick Clegg and Ed Miliband appear eerily interlinked, with success for one leading to failure for the other. It seems neither will come out of this episode particularly favourably though.

It's not been a vintage week for Nick Clegg

Judging by Chris Huhne’s recent outbursts, it would seem to look more terminal for Nick Clegg, and Ben Brogan was on to something this week when he said Nick Clegg’s body language in PMQs was ominous.

Cameron, demonstrating his exceptional political judgement, was keen to move the story on and talk up the other important work the Coalition has set out. But where can it realistically go from here? If Lords reform is offered as a carrot to the Lib Dems to carry on, it’s highly likely a similar demoralising defeat will occur on it. On the flip side, Lord Knight’s suggestion that an early election to deliver the Conservative’s a majority is intriguing, but given the barriers against this, difficulties over NHS reform and the current state of the economy, this would appear wide of the mark.

Where else can the Lib Dems look?…Given the loss of 300 council seats and a probable resounding no to AV, what will be telling in the coming days is how the Lib Dem rank and file respond to defeat. Paddy Ashdown has already launched an attack at David Cameron, and Clegg may well be hoping that this and other attacks distract party members from aiming their wrath at him.

Clearly, Clegg is going to have to secure some tangible wins for the Lib Dems in order to quell the growing frustration. With this in mind, he may seek to increase the fight for a greater say on health reforms. The Health and Social Care Bill should allow for greater private provider provision of health care, but the extent to which the Tories have wanted to pursue this has caused unease amongst many Lib Dems.

The current pause in the process of passing the Bill and now the increased chance of Lib Dems demanding changes means that private equity firms are going to be increasingly turned off due to the levels of uncertainty around private provision. If the Lib Dems decide to really dig their heels in, private equity firms could lose out on what previously looked like a sure investment.

Exchange-Traded Funds – the current big thing?…Earlier this week, we enjoyed a fantastic training session with David Yates from Finance Talking. One of things he focused on was the growth of ETFs in recent years. Financial News picked up on this point earlier this week as well, noting the recenty outflow of money from four of the five largest asset managers and into ETFs – the magazine claimed $41.4bn of new money was poured into ETFs in Q1 2011 according to Blackrock.

Not everyone seems convinced though. In today’s FT, Gillian Tett examined the boom in this market, and argued that concerns are building amongst regulators about it. While not as inherently dangerous as the pre-2007 fad for ‘CDOs’, she did note that there are some striking parallels here. Clearly, others are still a big fan of them though, as FT Alchemy notes today.

This week's Big Bite was all about the future

Learning about the future…The exciting guest for this week’s FPS Big Bite was Patrick Harris from The Futures Company. He gave us some great insights into the world of futures and left us with an interesting and thought provoking debate.  As Patrick pointed out ‘the future is all around us, it’s just not evenly distributed’. We hope that gets you all thinking as much as it did our team!

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