FPS’ Friday Fiver

Hello All, and apologies for a late night Fiver – it’s been one of those weeks in financial and professional services. Still, below we have a trip through the week’s news highlights (sadly not including Tom Watson’s intern) as you head into the weekend. Thanks to Ed, Jonathan, Ross and our latest contributor, Josh Glendinning. Have a great weekend all.

UK VS THE WORLD…..While UK GDP figures dominated the headlines on Wednesday, members of the FPS team were given an insight into what lies ahead for global growth in 2012. At an event put on by British American Business we heard from, Alexis Karklins-Marchay of Ernst & Young that despite the woes of the Eurozone, the global economy can still expect growth of over 5% this year.

Much of this output will come from what Ernst & Young term Rapid-growth markets (RGMs), a set of 25 countries they expect will account for nearly half of global growth in the next ten years. Their report on RGMs and its micro-site are an excellent resource for anyone looking for facts and figures on the future shape of the world’s economy.

As an aside, one of the panellists, Stephen Castle of the International Herald Tribune, offered an anecdote from his time in the Brussels press corps. An unnamed member of the German press, brought up in the same region of the former East Germany as Angela Merkel offered Stephen an insight on Merkel’s approach to the Eurozone crisis. In the GDR, cars and appliances were never reliable, and the parts required to fix them were never available. As a result, citizens took to patching things up and making do until they broke again. The German journalist had decided Merkel was taking the same approach to the crisis…

EXECUTIVE PAY…..‘Responsible capitalism’ is the politician’s theme of choice at the moment: all three major party leaders, David Cameron, Ed Miliband and Nick Clegg, all claim to know what it looks like. It was with this in mind that Business Secretary Vince Cable announced a package of measures this week to rein in executive pay to put a stop to the culture of rewarding poor performance.

Although he has been a long-standing critic of excessive bonuses, before he could announce this week’s package he had the wind taken out of his sails. Cable’s opposite number, Chuka Umunna, pulled the rug from under his feet by getting a urgent question granted in the Commons on executive pay, thereby forcing Cable to make a statement a day earlier than planned. Rather than facing a Think Tank audience, where the statement on executive pay was scheduled for announcement, Cable was forced into presenting to a much tougher audience in the Commons, something he acknowledged was actually the right thing to do.

Once announced, the package fell short of calling for employees to sit on remuneration committees, which the unions predictably lambasted, instead entrusting greater powers to shareholders in the way executive pay it set. Cables hopes that through greater transparency, more shareholder power and the diversification of remuneration committees, a code of best practice on executive pay will be instilled across the business community. The response from the business community has been largely positive, but it remains to be seen whether they actually adopt measures of best practice.

With banker’s bonus season upon us – it was announced this week that RBS’ boss is set to receive a £963,000 bonus – one thing is for sure, this story is not finished yet. Cable’s package is by no-means the panacea to the excesses of capitalism, something he himself admitted, but it does go some way in addressing what ‘responsible capitalism’ may looks like.

LEADERSHIP PLEASE…..We noticed David Cameron grandstanding in Davos this week calling for Germany to show some leadership on the Eurozone crisis. Some of us think that Cameron would do well to follow the lead of his oft criticized, but internationally respected, predecessor Mr Tony Blair and show some leadership on the international stage. Poodle or not, it’s surely better to have a place at the table rather than a viewing platform on the sidelines. Although if a certain Monsieur Hollande gets his way, any attempt to scramble out of this drifty malaise, which sees us teetering on the brink, is utterly futile anyway.

IRANIAN OIL SANCTIONS…..The escalation of rhetoric between Iran and the West this week certainly spooked the oil markets. Iran threatened a blockade of the Strait of Hormuz after the EU agreed to a stronger sanctions regime on Iranian oil as a result of Tehran’s failure to comply with UN resolutions regarding its nuclear programme. While the West’s relationship with Iran has been nothing other than fractured since the 1979 Green Revolution, this isn’t the first time that Iran has felt the effects of an oil embargo.

During the rule of Shah Reza Khan and his son Mohammad Reza Pahlavi, the vast majority of Iran’s oil resources were controlled by the Anglo-Iranian Oil Company (AIOC – later to become BP). In 1951, the parliament voted to nationalise the AIOC, incensing the British, who lobbied to impose sanctionson the Iranians.

By 1952, the sanctions were beginning to bite and, more importantly, the United States was becoming concerned with the influence of the communist Tudeh party in the country. The British government had been toying with the idea of unseating the leadership and the election of Dwight Eisenhower allowed them to lobby successfully for CIA involvement. A coup ensued, followed by the lifting of the blockade, the AIOC back in British hands, and an authoritarian crackdown on dissent for the next 25 years.

The 1953 coup has often been cited as one of the crucial events which led to the rise of political Islam in Iran and eventual revolution of 1979. Whether the fresh round of international oil sanctions destabilises Ahmadinejad in the same way remains to be seen. However, one thing is for certain: the relationship of mistrust, animosity, and anger between Iran and the West goes a lot deeper than many people realise.

GOOD WEEK/BAD WEEK…..Counter-intuitively it’s been a good week for share dividends (and indeed a good start to the year generally) according to Anthony Hilton. As he notes, dividend payments increasingly make up the lion’s share of equity gains in pension fund tracker portfolios these days, so this is definitely good news for all of us saving for retirement. What’s less good news is the delays announced to the pensions auto-enrolment project by Steve Webb MP this week. This means employees in SMEs will face a longer wait before being made to save for retirement. While you can understand the argument that the additional cost is another burden during difficult times, that shouldn’t detract from the longer term problem this project is trying to solve – we’re not saving enough for retirement and the state faces a large bill in 30 years time unless we do.

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