After the US bank he leads was fined $185m and his excoriation in a Senate hearing this week, the chief executive ought to realise the buck stops with him
When Barclays in 2012 became the first big bank to be fined for trying to rig the Libor interbank rate, its chief executive lost his job within days. He was bundled out of the door with a shove from the governor of the Bank of England.
Other banks’ Libor sins subsequently turned out to be equally grave, but few would argue that Bob Diamond was treated harshly, even if it was traders who were to blame. The buck had to stop at the top. Barclays’ clean-up operation would not have been credible otherwise.
Now consider the tricks played by Wells Fargo, the US bank where John Stumpf somehow survives as chairman and chief executive. Wells Fargo, which used to be America’s most admired lender, created 2m accounts and credit cards for customers who had requested no such thing. The customers only noticed when the fees started to appear. And the deep cause of the scandal was a sales culture that imposed impossible-to-meet targets on branch staff who feared for their jobs.
Wells Fargo has been fined $185m by regulators but Stumpf is still in office, singing the standard refrain that he didn’t know what was happening in the bank he was paid $19.5m (£15m) last year to manage. Senator Elizabeth Warren gave her assessment in an admirable eight-minute onslaught on Tuesday. A stupefied Stumpf was told his leadership was “gutless”, that he should return pay, that he was pushing blame on to junior employees (5,300 were sacked) and that he should be criminally investigated. The encounter is worth viewing.
The boss of a big UK bank would not survive in similar circumstances. Our regulators may sometimes be tame, but a swift Diamond-style exit would surely be arranged if the non-executives proved spineless. What are the American authorities playing at? Trust in banks has barely improved since the bust and it’s hard to imagine a case more likely to enrage customers. Don’t they know there’s an election on?
Chancellor Philip Hammond should flash the cash
The medium and long-term economic consequences of Brexit remain cloudy but the short-term picture is becoming clearer. The UK has not fallen into a funk. This paper’s analysis of the post-referendum economic data shows as much, and now even the Organisation for Economic Cooperation and Development is sounding more measured. The OECD has pencilled in growth of 1.8% in the UK this year, a 0.1 percentage point improvement from its last guess.
The OECD is still predicting a slowdown to 1% in 2017, it should be said, which makes sense. Large economies do not turn on a sixpence but lower business investment, flowing from nervousness about access to the single market, is inevitable.
Yet the OECD’s policy prescriptions are always more interesting than its growth forecasts. On that score, the thinktank advises chancellor Philip Hammond to pull out his chequebook. The UK, like many countries, has room to pursue “a growth-friendly mix by increasing hard and soft infrastructure spending”.
That is a welcome change of heart from the OECD, previously an austerity purist. Conditions for higher spending are excellent in the UK, even if the level of public debt is not. The government can borrow at next to nothing for 30 years and inflation is low. Even if the fall in sterling causes inflation to reach 3% in 2018, that wouldn’t be a catastrophe. It is a good moment to address the historic underspending on infrastructure (as long as it’s not HS2).
Hammond should draw a simple conclusion: if he is timid, he is inviting growth to fall to 1%, or worse, next year; if he is brave, he has a reasonable chance of doing better.
The ugly face of Big Pharma in the US
At almost $10,000 per small tube, Aloquin acne cream must be a new wonder-cure. It’s not, of course: it’s just another example, uncovered by the FT, of gouging in the US pharmaceuticals market. A Chicago-based outfit called Novum Pharma bought the old treatment last year and started imposing massive price hikes. It can hope to gain from such ugly tactics because the bizarre US healthcare system has no effective body to police prices.
Hillary Clinton wants to legislate if she gets in, and you might expect Big Pharma to be supportive, if only to try to avoid being caught in the backlash. But, no, Ian Read, the chief executive of Pfizer, called Clinton’s proposals “very negative” because they would cause drug “rationing”. What? If his opening position is to defend the indefensible, the pharma industry’s business model in the US must be more fragile than assumed.
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