Osborne’s Mansion House hot topics: rigging, ringfences and RBS

An elite crop of black tie-wearing bankers will head to Mansion House, the grand official residence of the Lord Mayor of London, on Wednesday night, to hearGeorge Osborne and Mark Carney deliver their annual address to the City at what is officially the “Bankers and Merchants Dinner”.

The speeches by the chancellor and the Bank of England governor at the annual Mansion House dinner, as it is better known, almost always make their audience of 400 or so City workers sit up and take note.

Osborne used his first Mansion House speech, in 2010, to confirm his plan to disband the Financial Services Authority and name the five members of his independent commission on banking, which was chaired by Sir John Vickers. This was also the moment he first mentioned the bank levy, now the source of so much controversy.

The sale of bailed-out Northern Rock and the government’s stake in Lloyds Banking Group were both announced in Mansion House speeches – in 2011 and 2013 respectively – while last year he unveiled plans to let the Bank of Englandcap risky mortgage loans and announced the launch of a “fair and effective markets review”, to look at the new sanctions needed to clean up finance.

This year, Carney is expected to announce the outcome of that review into City practices, and Osborne could unveil the next phase in his bid to sell the government’s remaining stakes in the banks. Among the issues expected to be on agenda on Wednesday are:

Stakes in Lloyds and RBS

Last week, Osborne set out his plans to further reduce the government stake in Lloyds from 19% – it was 43% in 2008 – by drip-feeding shares into the public market. He is preparing an offering to retail investors (an idea he also mooted in a Mansion House address two years ago). He has been less clear about RBS since returning to No 11, apart from signalling in the runup to the election that it would be his priority to sell off the shares if he was returned to his old job.

At the very least, Osborne could launch a review of the options for returning RBS to the private sector, including what price the Treasury would be willing to accept. The average price at which the 79% stake in the bank was bought in 2008 and 2009 was 502p, although the shares are valued in the country’s books at 407p (the average price at which the shares were trading on the day the taxpayer stepped in).

The shares ended the week well below that price, at 357p: hence the dilemma the chancellor faces. Ian Gordon, banks analyst at Investec, says: “Many argue that Osborne should ‘launch’ a disposal of the UK government’s 79% stake at the Mansion House next week; but why sell now, at approximately 350p, when he didn’t at 404p in February 2015?”

Regulatory reform

The day before Osborne gets on his feet, Stuart Gulliver, chief executive of HSBC, is expected to set out the criteria the bank will use to decide whether to remain headquartered in London or move back to Hong Kong.

The rules surrounding ringfencing – recommended by the Vickers commission, and requiring the separation of high street and investment banking operations – have already been cited by Gulliver as a potential factor on his list.

The bank levy – which cost HSBC £700m last year, more than any other bank – is another of Gulliver’s gripes.

The Conservative manifesto set out a commitment to keeping the bank levy and pressing ahead with ringfencing. Even so, bankers will be watching to see whether Osborne launches a review into the levy, which he has increased nine times since 2010, or shows any sign of relaxing the rules on ringfencing. The British Bankers’ Association wrote to the Treasury last week calling for a formal review of the way the banking sector is taxed.

Tougher punishment for bankers

The fair and efficient markets review announced in last year’s Mansion House speech is expected to completed by the time Osborne and Carney speak on Wednesday. Bankers expect a tougher set of rules to clamp down on market manipulation in the light of record fines imposed recently for rigging foreign exchange markets, and more emphasis on individual responsibility.

Source: http://www.theguardian.com/business/2015/jun/06/mansion-house-speech-osborne-banks-reform-rigging