Should financial advisers put us before them? Debate is back on the table

Trump’s pledge to undo reforms that discourage excessive risk-taking has thrown a spotlight on whether regulation helps or hinders growth

Shouldn’t our financial advisers be legally required to put our interests before their own? It’s a question raised by two very different people this week: Johnny Depp and Donald Trump. Unsurprisingly they have arrived at very different answers.

President Trump’s mission to deregulate the financial services industry got underway Friday with an executive order pledging to undo reforms designed to discourage excessive risk-taking in the banking and financial services.

White House press secretary Sean Spicer said the president had also ordered the Department of Labor (DOL) to review the so-called “fiduciary rule”, saying the department had “exceeded its authority”.

The rule, which is due to come into effect on 10 April, is an Obama administration measure intended to protect Americans’ retirement money from conflicted advice from financial advisers.

“The rule’s intent may be to have provided retirees and others with better financial advice, but in reality its effect has been to limit the financial services that are available to them,” White House press secretary Sean Spicer said.

“This is exactly the kind of government regulatory overreach the president was put in office to stop.”

But opponents of the Trump plan warned the roll-back of the still-unimplemented reforms would put investors at risk.

“There will be a shift backwards in terms of responsibility,” says Linda Rittenhouse of the CFA Institute. “It restores a lower standard. We will go back to the suitability rule that does not require advisors to put the client’s interests first.”

The fiduciary rule, which requires financial advisers to act in their client’s best interest with respect to retirement accounts such as IRAs and 401(k)s, has been publicly opposed Anthony Scaramucci, nominated to become Trump’s small business adviser.

Legals experts say the administration may be waiting for a ruling in the major lawsuit against the rule in a Texas district court.

In the Trump administration’s view the DOL’s fiduciary rule will cut independent broker-dealers and financial advisers out of the business of serving older investors by cutting out their ability to charge commission revenue and by raising the cost of compliance.

Anthony Scaramucci, nominated as Trump’s small business adviser, has called the fiduciary rule ‘an attempt to put financial advisers out of work’. Photograph: Laurent Gillieron/EPA

Scaramucci, who stepped down as co-managing partner of the $12bn SkyBridge Capital fund management company to be the Trump administration’s small-business adviser, has described the measure as an example of government overreach.

He accused the DOL “of judging what should happen in a free market and attempting to put financial advisers out of work”.

The new rules were introduced after a 2015 executive brand report found that conflicted advice leads to lower investment returns. Savers receiving conflicted advice earned roughly one percentage point lower each year, or an estimated annual cost of $17bn.

The likely delay in implementation comes against a backdrop of financial de-regulation the Trump administration has promised to implement.

Changes to the DOL’s fiduciary rule are seen as harbinger for further de-regulations, including Dodd-Frank.

Trump has said he believes Dodd-Frank has made it “impossible for bankers to function”. He told Reuters last May: “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”

Scaramucci echoed that position during a panel at the World Economic Forum in Davos last month. “At the end of the day, Wall Street is a circulatory system of capital,” “If you’re constraining it through this excess regulation, you’re just going to get less growth.”

The question of fiduciary duty received new attention last week when Depp’s former business manager’s counter-sued him, alleging that his extravagant spending led to his recent financial problems.

The Management Group refuted claims they had mismanaged Depp’s affairs, and claimed Depp had created his own financial problems by purchasing 14 homes, a 150ft yacht and other indulgences, including spending more than $3m to blast the ashes of author Hunter S Thompson into the atmosphere from a cannon.

Depp had earlier accused the company of failing to file or pay his taxes on time, resulting in more than $5.6m in penalties and interest, allowing his properties to fall into foreclosure, and paying itself $28m in contigency fees outside of any formal agreement.

The disagreement has drawn attention to the issue of financial advisors that are not under a fiduciary oath or listed with the Financial Industry Regulatory Authority. Typically, the rules do not apply to taxable brokerage accounts and other kinds of investment advice, making it hard for Depp to make the claim that he was poorly advised.

While Depp’s travails serve to spotlight the larger issues of financial responsibility, the DOL fiduciary rules, had they been in effect during Depp’s spending spree, would not have affected that situation.

Currently, the financial services industry can do little but wait. It has spent months putting in place policies, procedures and technology in anticipation of the new DOL rules. Last week, Morgan Stanley told advisers it’s still enacting many pricing and product changes, including lowering stock commissions and reducing potential conflicts of interest.

“It’s a confusing picture. We’re in such a state of flux. We don’t know what were going to see, and we don’t have a preview because this administration is given to taking unexpected actions,” says Rittenhouse.

“So we’re just waiting to see what happens with the fiduciary rule and to see the legislation that’s going to be introduced to replace Dodd-Frank. Will we go back to a state that was so lacking in regulation that we left gaps for mis-selling and abuse? It’s hard to know.”

Trump orders Dodd-Frank review in effort to roll back financial regulation

President says bill meant to prevent another financial crisis is crippling the economy as critics charge that Trump is caving in to Wall Street

Donald Trump moved to roll back the financial regulations brought in after the last financial crisis on Friday, directing a review of the Dodd-Frank Act, which was enacted to ensure there would never be another 2008-style meltdown.

The US president said his latest executive order was necessary because the regulations were too onerous on business and hurting the economy. But the move was largely symbolic – only Congress can rewrite the legislation.

A second directive is expected to halt the implementation of an Obama-era rule that would have required brokers to act in a client’s best interest when providing retirement advice, rather than seek the highest profits for themselves.

“We desperately need to overhaul how we approach financial regulation,” said the White House press secretary, Sean Spicer. He said Dodd-Frank was a “disastrous policy” that was “crippling” the US economy.

The treasury secretary has 120 days to consult with the Financial Stability Oversight Council, established by the Dodd-Frank Act to look out for excessive risks to the US financial system, and report back on whether it was meeting Trump’s “core principles” for financial regulation. These include preventing taxpayer-funded bailouts; fostering economic growth; enabling US companies to be competitive with foreign firms in domestic and foreign markets; and advancing American interests in international financial regulatory negotiations and meetings.

Opponents of reform immediately accused Trump of caving in to Wall Street after a campaign pledge to hold banks accountable.

“Donald Trump talked a big game about Wall Street during his campaign – but as president, we’re finding out whose side he’s really on,” said Senator Elizabeth Warren, one of Trump’s fiercest critics.

“The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis – and they will not forget what happened today.”

Before signing the order, Trump met with his business advisory panel, which includes 18 executives from large US companies including GE, Citigroup, General Motors, Tesla and Disney.

“We expect to be cutting a lot out of Dodd-Frank, because frankly I have so many people, friends of mine, that have nice businesses and they can’t borrow money … They just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd-Frank. So we’ll be talking about that in terms of the banking industry,” Trump said.

The president was backed by Gary Cohn, director of the national economic council and a former Goldman Sachs banker. “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” Cohn said in an interview with the Wall Street Journal.

Cohn, formerly the chief operating officer at Goldman, said the executive order was “a table-setter for a bunch of stuff that is coming”.

On the campaign trail, Trump accused Hillary Clinton and his Republican rival Ted Cruz of being “in bed” with Goldman Sachs. He also said hedge funds were “getting away with murder”.

Trump needles Cruz over citizenship and Goldman Sachs loan

The Dodd-Frank Act was a sweeping, bipartisan plan to overhaul the financial regulatory system after the worst crisis since the Great Depression.

The 2010 reform bill aimed to prevent the failure of a big bank from triggering a meltdown in the financial system as the collapse of Lehman Brothers in 2008 did, setting off a wave of corporate crises that led to a global recession. The aim was to more closely monitor big institutions that are “too big to fail”, and to limit the types of risks they can take.

Trump had promised to dismantle Dodd-Frank, claiming it was holding back lending and tying up business in red tape. Among the most vulnerable areas of the act is the so-called Volcker rule, first proposed by Paul Volcker, the former Federal Reserve chairman.

The rule seeks to put a firewall between a bank’s consumer operations and its risky trading activities, and to ensure that the bank is not making bets against the interests of its customers, as many did by betting on a housing collapse while selling mortgage-backed bonds. Cohn is a critic of the Volcker rule, as is Trump’s treasury secretary nominee, Steven Mnuchin, another former Goldman partner.

Another target will be the Consumer Financial Protection Bureau, a Dodd-Frank creation originally proposed by Senator Warren. The CFPB has proved an effective consumer watchdog and has returned over $11bn to the victims of payday lenders, loan sharks and those charged excessive overdraft fees since its creation.

But the dismantling of Dodd-Frank will be met with strong opposition from Democrats, consumers and activist groups. Lisa Donner, executive director of lobby group Americans for Financial Reform, said: “What they are trying to do is make it easier for big banks to steal from people.”

Donner said the move was “a stunning betrayal of what Trump promised on his campaign trail, and that was to protect us by standing up to Wall Street. That is what the people who voted for him supported.”

But Donner said dismantling Dodd Frank would not be easy. “This is a law that was passed by Congress and needs to be changed by Congress. It can’t be done by fiat.”

The Co-op Bank is the new Bradford & Bingley

The proposed sale means the prospect of an independent, ethically based challenger bank to the major high street player is dead

Co-op Bank, now that it has announced its sale, is going the way of the Bradford & Bingley – to be broken up, run off and the name consigned to history. The good bits – its 1.4 million current account holders, and a now half-decent mortgage book – have value. The bad bits – the remaining toxic loans (much of them acquired from the disastrous merger with Britannia building society) – will have to be run off. But make no bones about what is happening here. The Co-op Bank as an independent, ethically based challenger to the major banks is dead.

The co-operative title, in any case a misnomer under hedge fund ownership, must surely die once Co-operative Group abandons its remaining 20% parcel of shares. Its already much slimmed-down branch network will (bar perhaps a bid from Virgin Money) close its doors. And its fabled ethical policy? Expect to hear much noise (to keep hold of customers) but little in the way of substance from whoever buys it.

In some ways it is a miracle that Co-op Bank survived after the £1.5bn black hole was discovered in 2013, irrespective of the antics of its “crystal methodist” chairman exposed in the tabloids. Never forget that it was not bailed out by taxpayers like its bigger brothers. It has slashed its way back to a semblance of profitability, if one examines its underlying on-going operations (the “core bank” made a profit of £17m in the first half of 2016) and it now gets by with a total of only 4,000 staff and 105 branches. It has, remarkably, even won new customers, and its mortgage book is mostly on LTVs (loan-to-value ratios) of 60-65%, which is a comfortable cushion of equity.

But the continued low-interest-rate environment is a painful cap on its ability to generate income. Co-op is a bank that has a fundamentally weak capital base, and few obvious ways to rebuild it organically. In the new world of app and online banking, where customers rarely visit branches, Co-op just can’t be an independent “challenger” either to its big ugly sisters in banking, or the nimble upstarts. That’s why a takeover is inevitable.

If you apply the Martin Lewis test to its products, there is little to captivate you. To be fair, there’s little to deter you either – what you find is a bank whose product line is boringly average. On moneysavingexpert.com’s best bank accounts list, you’ll see Nationwide, TSB, HSBC, First Direct, Santander and NatWest but no Co-op. It only gets a look-in for “best for ethical” and even then Nationwide ranks alongside.

TSB and Virgin Money look the most likely buyers, and if they have any sense they will seek to maintain some sort of ethical stance to retain the customer base. Meanwhile, the proposed sale leaves Nationwide as the only true challenger bank to the stockmarket-based banks we rescued from the mess of the 2007-08 global financial crisis.

Champagne prices lose fizz

Champagne, according to the Wine and Spirit Trade Association, is about to jump in price, a victim of Brexit and UK duties. But is that true? Pop into Lidl and you can find champagne for £7.99 a bottle, while in Asda, Aldi and Tesco it’s £9.99. Maybe what we are really seeing is a crack in the extraordinary price premium that vineyards in an area of north-eastern France have historically charged for their output.

Wine snobs will sneer at the cheap supermarket fizz. But to carry the protected champagne name it has to be from the region, and made using traditional methods. Which? named Aldi’s £10 Veuve Monsigny as one of its best buys, coming ahead of Laurent-Perrier and Moet & Chandon in blind tasting.

A hectare of land in the champagne region will change hands for more than €1m, compared with about €140,000 for a standard French-protected “appellation”. It is one reason why champagne is so pricey. Whether it’s a good buy is another matter: a fraction of that price will buy land in Britain with similar soil characteristics producing sparkling wine sometimes to a better quality.

Prosecco long overtook champagne by volume (it outsells by four bottles to one) and by total sales in Britain. There is some talk of “prosecco fatigue”, although Lidl disagrees, saying it sold 79% more in January 2017 compared with January 2016. And if prosecco’s sweet charms fade in the British palette, Spanish cava is the likely alternative. Whisper it, even lambrusco is making a comeback, returning to the menu at Carluccio’s for the first time in a decade.

This is a problem for champagne. Half of the roughly 300m bottles of champagne produced a year are quaffed by the French, but after that the biggest market is the Brits, drinking about 35m-40m bottles.

The reason champagne has sold for such a premium is not so much quality but branding. Ask the general public for a specific cava or prosecco brand name and they will struggle to name one – not least because the major supermarkets own-brand much of what they sell. But with Moët, Veuve, Tattinger, Krug and others, the French have superbly branded their output and priced it accordingly.

Will this branding predominance survive? English producers are snapping away; Chapel Down sponsors the Oxford/Cambridge boat race, while Bolney has Wimbledon. Camel Valley and Nyetimber will no doubt enjoy a good Valentine’s Day, and it can’t be long before the Spanish sharpen their game. The French may talk about pushing up champagne prices, but whether they achieve it will be another matter.

The truth is stranger than fiction. Rising out of the chaos of the Brexit vote stand two opposing visions of Britain’s future. There is Britain as the 19th-century free-trade, low-tax warrior, the world’s banker, insurer, and lawyer.

Facts get in the way of visions. In the 19th-century free trade was about strong countries undermining the sovereignty of others. Not the best model for Britain today. Britannia no longer has the world’s most powerful navy to blockade Latin American ports until the locals pay City of London bondholders or push opium onto the Chinese.

Opposite this free trade myth is ... nothing. “Remainers” are so pinning their hopes on the cavalry arriving at the last minute to rescue them that they have invested little thought on a post-Brexit future.

There is a progressive alternative that is not all aspiration. There are practical policy measures, for instance, that would help to transform our financial sector into one focused on financing the long-term investments necessary to build an economically efficient and socially just alternative to Victoriana. One of these is a regulatory change made possible by Brexit. Another is the modernisation of an old English tax on the churning of assets.

When our entrepreneurs look at a car manufacturer or clothes chain, they see a real estate or pension play. Our business elites live for the clever flip that allows them to buy the superyacht. A certain amount of trading and speculation in the background is useful. It helps us to value things. But when the background becomes the foreground we end up with illusions of value. Our financial markets are bigger in turnover than before, but under stress, they are proving thinner and more vulnerable to flash crashes.

Today’s economic model mirrors the banking model. Bankers view loans as opportunities to earn fees for originating, securitising, trading, settling and clearing. They have shifted the risk of holding the loan to others. They boast that accelerating the speed through which securities circulate reduces costs to consumers and is a measure of their immense contribution to the economy which, they argue, must be preserved post-Brexit, at all costs. But when Thomas Philippon added up the fees paid by the non-financial sector to the financial sector, he found that at 2.0% of finance raised, costs had in recent decades returned to where they were in 1880.

All of the efficiency gains since the steam age, as a result of new technologies, innovation and globalisation have recently been captured by those who run the industry and not shared with consumers. It is one of the largest contributors to worsening income inequality over the past 30 years. Equally important, when the financial sector makes more money from churning than investing, they will do less investing, contributing to a secular stagnation.

The current economic and banking model is vulnerable to two policy changes. We can amend European regulation (Solvency II) that through capital adequacy requirements not commensurate with the risks faced by long-term savers, incentivises them to invest in short-term government bonds and not make long-term investments. We can modernise and extend the UK’s existing tax on churning – the stamp tax on share transactions. The industry repeats the false idea that the tax doesn’t work so many times that people have stopped seeing what is in front of them. This tax currently raises £3bn a year primarily from foreign owners of UK shares who have not found a way of avoiding it after 322 years of its existence. According to an IMF report, similar taxes collect billions or more from 30 countries.

This is not a tax on where a trade takes place, as an unsuccessful Swedish tax in the 1980s, but on the transfer of the ownership of the security. New tax information agreements and disclosure requirements on beneficial ownership following the global financial crisis make it possible to extend this tax for the first time to derivatives and other securities without fear of relocation of trades. Instead, the UK finance industry has chipped away at this tax over the years to the point where the government loses £1bn a year of potential revenues through exemptions that cover high-frequency traders and hedge funds. In a new Intelligence Capital Paper, I set out the case for extensions and the closing of loopholes that would raise £25bn over the life of a parliament. The money will come in handy. The big prize is the transformation of the economy to where investing trumps trading and finance is the servant of industry, not its master.

Avinash Persaud is chairman of Intelligence Capital

The Co-operative Group chief executive, Richard Pennycook, who rebuilt the company after its banking crisis, is to step down.

Steve Murrells, the chief executive of the Co-op’s food division, will replace him.

Pennycook was a key figure in saving the Manchester institution from collapse after the dire financial problems of the Co-operative Bank were compounded by a 2013 tabloid sting that revealed drug use by the bank’s former chairman Paul Flowers.

Murrells joined the Co-op in 2012 and has led a successful turnaround of its once ailing grocery chain. The former Tesco executive will replace the outgoing chief executive on the group board on 1 March.

Pennycook will then leave the business at the end of March, after the company agreed to forego his six-month notice period, leading to speculation that he has another role lined up.

“Richard Pennycook saved our Co-op,” said the Co-op chairman, Allan Leighton. “In three short years he has rescued and rebuilt our business, and restored pride to our 70,000 colleagues and 4.5 million members. We owe Richard a huge debt of gratitude and his place in Co-op history is secured.”

Pennycook will remain on the payroll, however, as he is being retained as an adviser for a fee of £20,000 a month. The role will be focused on the fate of the mutual’s 20% stake in the loss-making Co-op bank. Concerns about the bank’s future have intensified in recent days after it announced that its capital ratio, a key measure of financial strength, would fall below 10%. Leighton said the group was open-minded about the future of the bank stake and did not rule out being part of a plan to inject more capital into the beleaguered lender.

Leighton described the handover to Murrells, who previously ran Tesco’s One Stop convenience chain, as a “classic piece of succession”. Pennycook said his next career step would involve “going plural” – a phrase popularised by Leighton in the 2000s, which refers to building a career out of multiple directorships.

Pennycook first signalled plans to build a portfolio career when he resigned from Morrisons in 2012. He joined the Co-op as interim finance director in the summer of 2013, but stepped up in 2014 to lead the group after Euan Sutherland quit, following the leaking of details of his £6.6m two-year pay package to the Observer.

“This time I mean it,” joked Pennycook, 52. “If I had 10 years of executive life ahead of me, I would want to do that with the Co-op. This is the Co-op’s time, but it is not the time for me to do another long stint as an executive.”

The Co-op said Murrells’ pay package would remain the same despite the promotion. He earns a salary of £750,000 a year, but also participates in annual and long-term incentive plans that can each pay out up to 100% of his salary.

Co-op members used a 2015 executive meeting to protest against high executive pay, and last year, Pennycook won plaudits for asking for a 60% cut in his multimillion-pound pay package. He agreed to cut his basic salary from £1.25m to £750,000, which kicked in last summer, but he will no longer be around to work for the lowered bonus thresholds that came into effect in 2017.

Pennycook is leaving as the Co-op looks to move on from its troubled financial past. Murrells is tasked with shaping the group’s next steps as it looks to return to its roots by “championing causes” and “trading with an ethical heart and a social conscience”.

When Murrells took charge of the Co-op’s food business, it was struggling following the £1.57bn acquisition of Somerfield in 2008 and he set about reinventing it as a convenience chain, shedding many of the supermarkets it had acquired, a shift that paid off.

However, discount rival Aldi overtook the Co-op to become the UK’s fifth-largest grocer on Tuesday. Despite this, Co-op sales have risen by 2%, well ahead of its larger rivals, continuing a run of growth stretching back to July 2015, helping it maintain a 6% market share.

Murrells said he was not concerned about supermarket league tables. “That’s not what we do,” he said. The Co-op had been closing more stores than it was opening in a drive to become more efficient, he added.

Leighton said: “Steve has transformed our food business and put it back at the heart of communities across the country. His leadership has seen the Co-op consistently outperform the market in food and he is the right and unanimous choice to now take the whole group forward for the next phase of our transformation.”

How Donald Trump became Deutsche Bank's biggest headache

It’s no surprise the bank that likes to say yes to Trump is reviewing its arrangements with him now he is president

The language was scathing, the tone sarcastic. “[Donald] Trump proclaims himself the archetypal businessman, a deal-maker without peer,” the memo said.

It mentioned Trump’s boast that he was worth “billions of dollars”. And it listed his interests in “numerous extraordinary properties” across the world, from New York to Panama, not to mention his latest golf course in Scotland.

Another document noted: “Trump is no stranger to overdue debt.”

The angry memos were written by lawyers acting on behalf of Deutsche Bank, Germany’s biggest lender, which was suing the billionaire.

It was November 2008. Three-and-a-half years earlier the bank had loaned Trump the cash to build one of his grandest projects yet: a hotel and mega-tower in Chicago.

Trump had given his personal guarantee he would repay the $640m. As per agreement, he was now due to hand over a large chunk, $40m.

There was only one problem: the future 45th president of the United States was refusing to pay up. Deutsche initiated legal action. Trump responded with a blistering, scarcely credible writ of his own, a 10-count complaint in New York’s supreme court, in the county of Queens.

In it, Trump adopted a highly unusual defence, known as “force majeure”. He claimed that the 2008 economic crisis was a “once-in-a-century credit tsunami”, an act of God that was equivalent to an earthquake.

Since it couldn’t have been anticipated, and it wasn’t his fault, he wasn’t obliged to pay Deutsche anything. It wouldn’t get the $40m or the outstanding $330m, his writ said.

He went further. Trump claimed Deutsche Bank had actually helped cause the crunch. Therefore it owed him. Trump demanded $3bn from Deutsche in compensation.

Its New York property division first loaned money to him in 1998 at a time when the bank was attempting to expand its commercial real estate portfolio. By that stage, other major banks were becoming cautious about Trump, in part, the Wall Street Journal has said, because of frustration with his business practices.

A decade later, Deutsche was to find out for itself quite how capricious and unpredictable he could be.

In the 2008 suit the bank’s unhappy lawyers quote from Trump’s book Think Big and Kick Ass in Business and in Life. On his struggle with banks in the 1990s, Trump writes: “I figured it was the banks’ problem, not mine. What the hell did I care? I actually told one bank, ‘I told you you shouldn’t have loaned me that money’.”

At the same moment Trump was suing Deutsche he was telling the Scotsman newspaper he was a very rich individual, with a “billion in cash”. He was willing to spend it on his latest project: a golf course and hotel near Balmedie in Aberdeenshire. Controversially approved by then first minister Alex Salmond and the Scottish government, it would be the “world’s greatest golf course”, Trump said.

It was what happened next that strikes many in the banking world as unusual – bizarre, even. In 2005 Trump had borrowed money from Deutsche’s commercial real estate division. In 2010 the parties settled their legal differences.

But rather than walking away, the bank’s private wealth division then resumed lending to Trump, the troublesome four-times bankrupt client who had defaulted on a major loan.

Why? It’s unclear what assurances Trump offered. He had given his word before, only to break it.

Trump at his golf course in Balmedie in 2011. Photograph: Murdo MacLeod for the Guardian

Deutsche has refused to discuss its lending arrangements to the first family. Its clients also include Trump’s daughter Ivanka, her husband, Jared Kushner, and Kushner’s mother, Seryl Stadtmauer.

Kushner is a senior White House adviser. Just before the US election Deutsche refinanced $370m he owes against commercial property in Manhattan belonging to Kushner’s company.

Sources inside Deutsche say the investment banking side of the business is entirely separate from the private bank that handles the Trumps. Personal relationships also play an important role in private banking.

Even so, banking experts have told the Guardian it is unusual for a private bank to take on such loans, and unbelievable that a bank would continue to deal with a man who had refused to pay his debt, and then countersued using force majeure.

One former Deutsche employee, based in New York, said: “Real estate refused to deal with him [Trump]. Only the private bank is willing to accept personal guarantees.”

In the years since then, Deutsche Bank has been hit by scandal after scandal. It was fined more than $630m for failing to prevent $10bn of Russian money laundering – and has paid $7.2bn to settle a decade-old bond mis-selling scandal.

No wonder, then, that the bank that likes to say yes to Donald Trump thought it best to have a proper review of its arrangements with him following his unexpected win in the US presidential election.

Deutsche has carried out a close internal examination into its lending to the president. The aim: to see if there were suspicious and potentially embarrassing connections to Vladimir Putin’s Russia.

The review began last year, when Trump became a politically exposed person (PEP). In recent weeks Deutsche has fielded numerous calls from the media on a possible financial trail to Moscow.

The examination failed to find any evidence of this, according to a person familiar with the matter. Deutsche’s links to Russia have been under the spotlight since a money laundering scheme was exposed last summer by the New Yorker magazine.

The “mirror trades” scandal saw Deutsche brokers in Moscow buy stocks in roubles on behalf of a Russian company. Simultaneously another firm, registered offshore, would sell the same amount of stock in dollars, pounds or euros. The scam allowed the bank’s Russian clients to turn money in roubles, much of it dubious, into dollars abroad.

The scheme’s alleged mastermind was Tim Wiswell, an American trader subsequently fired by Deutsche. According to an FCA report Wiswell, who was head of the Russian equities desk in Moscow, received about $3.8m in bribes via his girlfriend. These were paid into offshore accounts in Cyprus and the British Virgin Islands.

Deutsche has not identified the Russian customers who used the scheme. Wiswell’s lawyer, Ekaterina Dukhina, refused to comment.
Under its former CEO, Josef Ackermann, Deutsche Bank developed close connections with the Russian state. In 2006 Deutsche’s Moscow branch hired Andrei Kostyn, the son of Andrey Kostyn, the head of VTB, Russia’s state bank. Kostyn Jr generated much of the bank’s Moscow profits until his death in 2011 in a snowmobile crash. Deutsche carried out an internal investigation into the “mirror trades” scandal codenamed Project Square. The bank scaled down its Moscow activities and transferred some clients to VTB.

To what extent – if any – was Deutsche’s Moscow operation compromised? Did the clients have Kremlin connections? We don’t know.

Meanwhile, Democrats are piling on the pressure.

Joe Crowley, chair of the House Democratic Caucus, said: “President Trump’s web of global financial entanglements are of serious concern. When a foreign-owned bank that is under investigation by the Department of Justice holds hundreds of millions in personally-guaranteed debt for the president, that is problematic for ethical, diplomatic, and judicial reasons. This is why we must know more about all of Donald Trump’s business ties.”

Crowley also said he wanted the president to release his elusive tax returns.

Deutsche has not explained why it continued to bankroll Trump and his real estate deals. Even before the 2008 legal dispute, Trump’s chequered business record was infamous. Other financial houses in New York refused to give him credit, following a string of failed ventures including an airline and a casino empire in Atlantic City.

Bloomberg reported that Deutsche was now trying to restructure Trump’s $300m debt, which is guaranteed by four of his properties. The difficulty is obvious: conflict of interest. The president owes the bank money. At the same time the Trump administration and its Department of Justice is investigating Deutsche over its Russian money laundering scheme.

Trump remains the bank’s most high-profile client. He is also, increasingly, its biggest PR headache.

Additional reporting by David Pegg

Nationwide should swallow Co-op Bank

Nationwide should swallow Co-op Bank

Patrick Collinson’s account of the coming demise of the Co-operative Bank (‘Ethical’ bank is history, 14 February) names Nationwide as the only remaining true “challenger” bank but not as a possible purchaser of the Co-op Bank. Why not? When, 50 years ago in my student days, I opened a Co-op Bank account I went next door to the Co-operative Permanent Building Society branch to start saving. That building society is now Nationwide. It’s still a mutual. Why can’t it go back to its co-operative roots? Failing that, Triodos Bank is small and undoubtedly ethical, but has no current account. Buying the Co-operative Bank would get it a lot of happy customers very quickly. I can’t see many of us staying if the bank is run from Spain or the British Virgin Islands.
Dr David Corke
Wimbish, Essex

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Trump's bonfire of banking rules could burn us all

The ECB’s Mario Draghi is right to warn against relaxing rules such as Dodd-Frank aimed at preventing another financial crisis

“The last thing we want at this point in time is a relaxation of regulation,” said Mario Draghi, president of the European Central Bank on Monday. He is right to worry. Relaxation of financial regulation is exactly what Donald Trump has in mind and the effects could be felt around the world.

The US president seems to have accepted the half-baked idea that US banks are somehow so tied down by international regulations that they are obliged to hoard capital that could be used for lending to the American economy. “I have so many people, friends of mine, who have nice businesses who can’t borrow money,” said Trump when he signed an executive order last week.

There is little evidence that banks are refusing to lend to creditworthy borrowers in the US. In fact, the reverse seems more likely: credit availability in the US is strong, which is exactly what you’d expect given the healthy returns being reported by US banks. But that hasn’t stopped the new administration from trying to blame the Dodd-Frank regulations, the country’s response to the financial crisis of 2008-09, for all manner of ills.

Others have gone further. Republican congressman Patrick McHenry, vice-chairman of the financial services committee, last week suggested that the US should pull out of international bodies such as the Financial Stability Board (FSB) and the Basel committee that agrees standards for banks’ capital and supervision. McHenry’s argument is that US banks have been “unfairly penalised” by these “secretive” international forums.

It’s astonishing that a legislator from the country that inflicted Lehman Brothers on the world could be so critical of international efforts, with the US in the vanguard, to improve banking safety. But, even in its own terms, his argument is nonsense. US banks have been relative winners from reform. Their dominance of international financial markets is greater even than it was in 2008-09 and the explanation, in part, is surely that they were faster and more determined in raising the extra capital that the FSB and Basel committees requested. JP Morgan, Morgan Stanley, Goldman Sachs et al got back to the races years ago. By contrast, too many big European banks – think Deutsche Bank and Italy’s Unicredit – remain mired in crisis.

The alarming part of McHenry-style complaints is that they are a direct attack on the one part of the international reform agenda that appeared to have been settled – bank capital rules. Work in other areas, covering financial derivatives and central counterparties, is less advanced but also critical. “The ongoing support of G20 leaders is required to implement reforms fully, consistently and promptly,” FSB chair Mark Carney, our own governor of the Bank of England, reminded everyone last August. He was merely spelling out the facts. The FSB, formed in 2009, has few formal powers and instead relies on national regulations to implement standards all its members agree. Without the US, work would grind to a halt.

Draghi’s concern about timing is also powerful. The world is digesting eight years of near-zero interest rates and quantitative easing and the after-effects are unknown. But a combination of loose monetary policy and financial deregulation has been a disaster in the past, with 2008-09 being only the most recent spectacular example.

No doubt there are parts of Dodd-Frank that would benefit from a minor tweak or two – even former congressman Barney Frank, one of the architects of the legislation, accepts that small US banks spend too much time complying with rules that weren’t designed for them. But a major bonfire of capital rules and regulations, under a Trumpist “America first” banner, would be an appalling prospect. Even many senior UK bankers are astonished by the apparent power of Wall Street’s lobbying machine.

Ryanair hits turbulence but stays on course

Michael O’Leary at Ryanair has a characteristically long list of complaints about current market conditions: the fall in sterling; Brexit-inspired uncertainty over the UK’s future in the European open-skies system; over-capacity; charter rivals switching capacity from Turkey, Egypt and North Africa into Spain and Portugal; and various supposed German stitch-ups including a “monopoly” at Berlin airport and a “duopoly” between Lufthansa and Air Berlin.

A casual listener might think Ryanair was struggling to cope with so many dastardly developments. Not at all. Average fares fell by 17% to €33 in the third quarter but it is clear that Ryanair is inflicting more pain on the competition than it is suffering itself. It is the lowest cost operator by some distance, traffic was up 16% and full-year profit guidance was maintained at €1.30bn (£1.1bn) to €1.35bn barring “unforeseen security events.” The share price fell by 4% but, unlike easyJet’s, it has had an excellent run.

Next year will bring €65m of savings from hedging on fuel prices and, one suspects, more gains in market share, especially in Germany where O’Leary sounds like a man who will enjoy milking his allegation of cartel behaviour for all it is worth.

The Bank of England has appointed Charlotte Hogg as its second most powerful executive, in a role that hands the former financier the task of keeping a check on Britain’s financial sector.

Hogg has been appointed deputy governor for markets and banking, while consolidating her position at Threadneedle Street by retaining her current role as the central bank’s chief operating officer. She replaces Minouche Shafik, who is becoming director of the London School of Economics.

Chancellor Philip Hammond said: “I’m confident that her exceptional leadership skills and wide-ranging experience make her the right person to take on the position. Charlotte has done an excellent job as the Bank’s first chief operating officer. She will take over this new role at a key time for the City.”

Hogg, 46, was brought into the bank in 2013 from the banking group Santander by governor Mark Carney to shake up the organisation, which he said needed to be more transparent and communicate its policies more clearly. Carney also wanted Hogg, who had previously spent 10 years at the US investment bank Morgan Stanley, to help him promote diversity in an organisation many believe had changed little in its 323-year history.

Carney said: “Many of the top priorities in markets and banking currently coincide with those of the Bank’s central operational areas, meaning Charlotte is the ideal person to lead these efforts … her breadth of financial sector and operational experience will contribute valuable, broader perspectives to the Bank’s policy committees”.

Although Hogg lacks Shafik’s international connections at organisations such as the International Monetary Fund, the privately-educated, Oxford graduate will wield considerable experience of the domestic financial sector when she takes up her new position at the end of the month. She will sit on the monetary policy committee, the financial policy committee, the Bank’s court of directors and the board of the main City regulator, the Prudential Regulation Authority.

Among her tasks will be to manage the Bank’s strategy during the Brexit negotiations, which could prove to have serious consequences for the City and the banking sector. Several banks have criticised regulators for tightening rules and issuing large fines for bad behaviour. The chairman of Barclays, John McFarlane, hit out last year against the £20bn in fines and taxes imposed on the Bank, forcing it to cut its dividend.

In an intervention that flagged the lobbying power of the City, the chair of the Treasury select committee, Andrew Tyrie, warned in 2015 against bending to “special pleading” by banks after the Treasury moved to dilute measures to make top bank bosses more accountable.

As well as her financial experience, the Oxford economics graduate is steeped in British politics through her family. Both Hogg’s parents had leading roles in Sir John Major’s government and her grandfather, Quintin Hogg, was a prominent Tory who almost won the Conservative party leadership following the resignation of Harold Macmillan.

Her father, the Tory MP Douglas Hogg, served in the cabinet from 1995 to 1997. He stepped down in 2010 after more than 30 years in the Commons and now sits in the Lords as the 3rd Viscount Hailsham. Her mother, Sarah Hogg, is a crossbench peer. Charlotte Hogg was a economics journalist and TV presenter before heading John Major’s policy unit in the mid-1990s.

The appointment comes as the Bank faces the loss of another prominent woman following Kristin Forbes’s decision on Thursday to turn down a second term as a member of the MPC and return to her native US.

Forbes has built a reputation as a tough operator who believes that the Bank should begin to withdraw its economic stimulus before the end of the year to combat rising inflation. This view contrasts with the majority of MPC members who are expected to support historically low interest rates well into 2018.

Carney is expected to search for a replacement for Forbes that maintains the gender balance to keep on track his campaign to widen access beyond an old boys’ club of senior officials.

In a speech on Thursday, he said he not only wanted to meet targets for more women and black and minority ethnic staff at the bank, but recruit graduates from outside Oxford and Cambridge and from poorer backgrounds.

He said: “Homogenous groups that pay insufficient attention to minority views are vulnerable to biases, groupthink and overoptimism. They are more likely to be influenced by the way information is presented; and to stick with underperforming projects because of prior investments.

“Diverse groups can overcome these ills as they are more inclined to consider novel ideas and challenge each other, enabling them to infer cause and effect and to solve problems better.”

• This article was amended on 13 February 2017. An earlier version said Douglas Hogg stepped down as an MP in 2010 to become the Viscount Hailsham. He succeeded to the viscountcy in 2001, and joined the House of Lords in 2015 after being given a life peerage.

British Gas price freeze is unlikely to impress customers

The energy firm’s gained notoriety over incorrect bills, excessive profits and high tariffs. A price pledge won’t deflect criticism

Energy companies are hardly popular at the best of times, but British Gas must have hoped for some praise when it said it was freezing energy prices until August, a timely announcement made on the same day Scottish Power unveiled a 7.8% increase.

However, the move – which is being funded by cost cutting – could prove to be a temporary respite for consumers, given wholesale prices are still rising. Barclays analysts said: “We expect [British Gas owner] Centrica will have to raise tariffs in August, or face a retail ... margin collapse from 2015’s 7% to less than 3.7% over the next 12 months.”

In any case, the freeze is unikely to deflect the usual criticism about British Gas’s excessive profits when Centrica reports its results on Friday. The UK energy business is expected to see full-year earnings rise from £891m to £950m, with the group’s total profits – including its exploration and US operations – up from £1.11bn to £1.17bn.

There is also the prospect of the government introducing a price cap, given the outrage over energy price rises. Ofcom is already set to introduce a price cap for prepayment customers in April, which analysts say could knock £80m off British Gas earnings.

And despite its consumer-friendly price move, British Gas is never far from controversy. Last month, it had to pay £9.5m for IT failures that meant business customers received incorrect and late bills.

National Express gets off the last train

Another area which regularly attracts more than its share of complaints is the rail industry, with delays, cancellations, overcrowding and constant fare increases guaranteed to raise the ire of passengers.

But one company set to avoid this in future is National Express. Once the UK’s biggest train operator, it sold its last franchise, the London-to-Essex route c2c, to Italy’s Trenitalia for nearly £73m this month. Operators have become less enamoured of the rail sector, with profits squeezed and tougher franchise terms imposed.

National Express will now concentrate on its coach and bus businesses, and chief executive Dean Finch says the sale provides “the opportunity to invest further in our strong pipeline of growth opportunities in markets where we consistently receive strong returns”.

It has not ruled out returning to UK rail with new franchise bids, but it seems unlikely this will happen in the near future.

The company has promised more details of its future strategy and the implications of the sale of the rail franchise when it reports full-year results on Thursday.

Banks buoyed by Trump bump

Hints from Federal Reserve chair Janet Yellen last week that US interest rates may soon rise came at the right time for the UK financial sector. In advance of the bank reporting season, share prices have been boosted by hopes that higher rates will boost margins, while the prospect of Trump-inspired economic growth and a relaxation of regulations has also given support to the sector.

HSBC is the first UK bank to report its 2016 figures, and with much of its business overseas it has been helped by the slide in sterling since the Brexit vote. But investors will be keen to know more about its performance in emerging markets, its cost-cutting, including closing UK branches, and any further regulatory issues.

Lloyds Banking Group, Barclays and Royal Bank of Scotland follow in quick succession, and all but the latter are expected to show solid numbers. RBS, however, is set to report a £6bn plunge into the red after provisions for possible fines – its ninth consecutive year of losses. Lloyds is forecast to report a £4bn profit, up from £1.6bn, but some of the shine will be taken off by the £245m fraud at HBOS, which has left it having to compensate victims. Meanwhile, Barclays could beat consensus forecasts due to foreign exchange movements, according to analysts at Investec.

It’s all talk at Santander as voice recognition banking begins

It’s all talk at Santander as voice recognition banking begins

Santander customers can make payments to friends by simply asking their iPhone to do it for them after the Spanish bank became the first provider to launch voice activated payments in the UK. The bank’s smartphone app also allows customers to see their recent transactions and report a lost card, just by talking to their phone.

Unlike HSBC and Barclays, which use voice biometrics to establish the identity of customers calling customer services, Santander users will still have to log in to the app using their passwords, but once they have done so they can start barking out transactions over their phone. Customers can instruct the bank to pay someone – by saying something such as “Pay Julia £30 tomorrow” – but can only use it to make payments to people on their existing payee list. Transactions appear in real time once payments are made, as if they were being done manually.

Ed Metzger, head of technology innovation at Santander, says: “The appetite for simple, intuitive banking has grown significantly in recent years. This pioneering technology has huge potential to become an integral part of the future banking experience, playing a transformational role in the industry and redefining how customers manage their money.” The bank also says the technology will help people who find typing difficult due to disability or other reasons. Although it is only initially available on iPhone, an Android version is being worked on.

HSBC/First Direct and Barclays, meanwhile, already have voice-recognition technology that identifies customers contacting telephone banking by the tone of their voice, thereby removing the need for security questions or passwords. Since last summer customers of both banks have been able to use it to identify themselves to the bank, although not to make transactions. Once the bank has built up a sufficiently broad voice profile for a customer, they can choose to use voice recognition rather than a password. The banks claim the systems are more secure than passwords as they monitor more than 100 voice characteristics and, unlike passwords, can’t be lost or accessed by fraudsters.

But is it secure? Will you be able to shout into a friend’s phone and send money to another account? Banking technology expert Cliff Moyce, at consultants DataArt, says it is secure – provided the latest technology is used. “It isn’t just the voice being analysed by many new technologies, it is also the physical features of the head producing the sound – larynx type, nasal passages etc. Keep in mind that ‘voice recognition’ is so much more sophisticated these days, being able to match the typical background noise expected of the caller, for example. People should have no fear of impersonation if anything more than the most basic technologies are being used.”

However, critics say such technologies are sold on the basis that customers demand it, but they fear it is mostly being introduced to cut costs by allowing banks to cut staff and close branches.

15 Business Ideas Poised for Success

15 Business Ideas Poised for Success

Thanks for the Memories: 6 Businesses to Mend Your Broken Heart

Thanks for the Memories: 6 Businesses to Mend Your Broken Heart

Breakups are terrible. There's no way around how painful it can be; it can commandeer your life until you've found a way to move past it. Learning to cope is part of the process, and sometimes your favorite ice cream or sad mixtape aren't enough.

These businesses understand how you're feeling and are here to help you get back on the up-and-up. Here are six breakup inspired businesses to help you learn to love again.

Mend

Breakups are a special class of unkind. It disrupts your life and often can derail your every day. Mend aims to help the recently single with a heartbreak cleanse.

According to the site, they believe that you can not only mend, but thrive, after a breakup. "We believe an end, in whatever form it takes, is just the beginning of rebuilding the life and love you want."

Mend comes with a blog with advice on how to move on, a newsletter, an app that acts as your "personal trainer" for heartbreak. The site offers a heartbreak assessment to better understand your level of heartbreak and the type of healing you need.

Museum of Broken Relationships

Breakups are rough. Someone is hurting from the events that transpired and often, items tied to the relationship are mementos of pain. If you're in the Los Angeles area, the Museum of Broken Relationships may be a great place to visit to commiserate with the jilted.

According to the museum's website, the exhibits reflect the full range of human emotions.  Some are sad; but many are amusing and hopeful and remind us that people change, grow and recover. Love relationships may end; relationships with family members, business partners, cities, religions and even with our former selves may end. But we learn and move on. 

Though the museum's location is on the west coast, anyone can donate an object anonymously. The dislocation of a broken relationship may be isolating, but the experience is universal.  No one is alone in this, the site says.

Anger Room

The end of a relationship can be infuriating and sometimes, unfair. If you don't have a healthy outlet to channel that anger, consider visiting the Anger Room in Dallas, Texas, could be a good alternative for you – especially if thinking about your ex makes you want to break things.

Sign up to reserve a room and choose a package that meets your stress level. Options include "I need a break," which lasts for five minutes, "Lash Out," at 15 minutes, and "Demolition" mode, lasting 25 minutes. Head over 10 minutes early to get suited up in protective gear and goggles, and prepare to break things.

If you want to help others experience such smashing satisfaction, Anger Room accepts donations of items like old computers, mirrors, tables, chairs, vases and more.

Killswitch

When you've finally passed the breakup rage stage, it's time to start ridding yourself of everything ex-related. It's bad enough that you're newly single and not so happy about it, but social media makes getting over it that much more painful.

Every time you sign online, you're forced to look at Facebook posts and all the photos you're tagged in together.

Luckily, there's an app for that. Killswitch gives you the power to set and identify your target (your ex) and what kinds of posts you want to hide, like photos and status updates, then the app goes through your account to hide everything.

Killswitch also saves all of those old photos in a hidden album on your Facebook page. So if you and your old flame rekindle your relationship (or you just want to laugh at them later when you're finally over it), they're not gone for good.

The app is available free in the App Store and in the Google Play store. The company also donates a portion of its proceeds to the American Heart Association "so broken hearts can help broken hearts."

Never Liked It Anyway

Never Liked It Anyway is the website you can turn to when you realize you really never did like that necklace those poorly-chosen gifts from your ex.

With Never Liked It Anyway, you can sell all the gifts your old partner gave you and buy new items to treat yourself.

The best part? Each item displays the original cost of the item and the new "break up price" so you can see what kind of deal you're getting. You may not be able to put a price on love, but with Never Liked It Anyway you can put a price on getting over it.

I Do Now I Don't

I Do Now I Don't is the more serious version of Never Liked It Anyway. Instead of selling your old unwanted gifts, I Do Now I Don't is there for you when your wedding gets called off or you get divorced and you need to sell your engagement ring, wedding band and other expensive pieces of jewelry.

The business operates on the concept that jewelers often markup diamonds by 200 to 300 percent, and when you try to sell your pieces back they offer you much less than what you paid. Another alternative, pawn shops, will probably offer you only 10 percent of what your items are worth, according to the I Do Now I Don't website.

The company boasts that sellers can earn up to two times more for their diamond jewelry using their marketplace. And while nobody wants to be left at the altar, getting more of your money back does soften the blow a little.

15 Great Small Business Ideas

15 Great Small Business Ideas

Smart Business Opportunities in the Emerging Legal Cannabis Industry

Smart Business Opportunities in the Emerging Legal Cannabis Industry

The cannabis industry has exploded in size and scope as more states moved to legalize medicinal and recreational cannabis last year. In 2016 alone, the industry brought in $6.9 billion, which represented a 30 percent increase over the previous year, according to Arcview Market Research. That number is projected to increase to $21.6 billion by 2021.

So, is 2017 the year that you should get involved in the cannabis industry? Here's a quick overview of the current market, along with tips and ideas from industry professionals to help get you started.

The state of the industry

The cannabis industry seems unstoppably ascendant at the moment. Medicinal marijuana is now legal in 28 states plus D.C., while recreational marijuana is legal in nine states plus D.C., which opens the doors for a lot of new business opportunities.

"There is a lot more to happen as far as development in industry," Ben Larson, co-founder of cannabis-focused accelerator Gateway, told Business News Daily. "Now is the time to get in." [See Related Story: 4 Cannabis Entrepreneurs Leading the Industry's Evolution]

However, there are some question marks around regulation and enforcement. Federally, cannabis remains an illegal, Schedule 1 substance and enforcement practices are ultimately subject to the whims of the presiding administration.

Federal prohibition also presents some issues when it comes to banking, leading major institutions to often hesitate when cannabis businesses apply to open an account or seek financing. Moreover, Sen. Jeff Sessions (R-AL) would be attorney general (if confirmed by his colleagues), and he has historically expressed hostility to legalized cannabis. That means there is some uncertainty on the horizon that should be considered before you commit to any large investments.

Currently, the Department of Justice's Cole Memorandum is the guiding enforcement document, which essentially states that the federal government will defer to state law except in specific cases, such as selling cannabis to children or dealing with organized crime. Many within the industry believe that this will continue to be the standard by which federal prohibition is enforced.

"There's been no action against folks since [the Cole Memorandum was issued]," David Feldman, partner at law firm DuaneMorris, said. "Congress has since added to the annual appropriations bill amendments directing no federal dollars be used to interfere with people complying with their state laws."

And if the cannabis industry is allowed to grow unabated, there will be billions more up for grabs in the coming years. As the industry matures, getting started will become increasingly more difficult and cost prohibitive. A gamble now could potentially pay off later.

"I still believe the industry is going to continue to be one of the largest growth markets in the nation," Matt Hawkins, founder and managing principal at private equity firm Adjacent Capital, said. "We'll probably see some surprise states open up in the southeast, and in the next two or three years, we'll see upwards of 40 plus states with some type of medicinal law in place."

What opportunities are there?

Launching a company that cultivates or sells cannabis can be quite expensive after navigating the licensing and regulatory landscapes, which can be discouraging to entrepreneurs wanting to enter the industry. However, like any other industry, there are plenty of ancillary businesses in the cannabis space that are essential to maintaining and improving the current industry standards.

Larson's startup accelerator Gateway works mostly with these companies. Instead of working with "traditional" cannabis businesses like growers or dispensaries, Gateway works with companies like GrowX, an ag-tech company focused on delivering a high-efficiency, artificial intelligence-controlled aeroponics system.

J.P. Martin, co-founder and CEO of GrowX, believes that, long-term, the cannabis industry will be "a race to the bottom, where companies focused on efficiencies and margins will survive." The endgame, Martin said, is to reduce waste in the growing process and monitor conditions with AI, enabling cultivators to deliver precisely the level of care needed at precisely the right time.

Not every business emerging in the space is so high-tech, though. Gateway also works with a company called Good Co-op, which is focused on delivering high-quality edible treats infused with cannabis.

Good Co-op sources the best ingredients they can find, just as if they were creating any other gourmet treat. The result is a low-dosage cannabis brownie treat that tastes like dessert and accommodates even the most tepid first-time user.

"In 2017, we expect 14 million people to try cannabis for the first time," Peter Cervantes, co-founder and R&D chef, said. "All those individuals will want a low dose, because they aren't sure what their tolerance is. We want something that is easily accessible, and not confusing or intimidating."

GrowX and Good Co-op are both different degrees removed from the plant itself; Good Co-op uses cannabis directly in its product, while GrowX is entirely on the periphery, but neither actually grows or sells the plant itself. There's a huge sea of possible businesses that occupy this arm's-length space in the cannabis industry. Whether its software solutions, like "the Yelp of cannabis" Weedmaps, or something more simple like contracting or distribution companies specializing in the cannabis industry, there are still plenty of opportunities to get involved.

Beyond growing: Gaps in the cannabis market

According to Hawkins, who manages a cannabis fund invested in a dozen diverse companies, some sectors of the industry are lacking and ripe for newcomers to step in. One such area, he said, is distribution.

"One of the major opportunities in the space … is a pure distribution model," Hawkins said. "Right now there's really just wholesale and retail, without much in between."

Larson agreed: "A company we've not yet been able to work with is someone actually doing the physical distribution; something like the FedEx of the industry."

Another area that's lacking in the industry at large is education. Whether its training employees on the proper protocols and the regulatory environment or educating consumers on cannabis itself, there is currently a void that needs filling.

"We'll need something similar to the educational messaging you see for alcohol and tobacco," Hawkins said.

For Feldman, there's still plenty of time for aspirational startups in every sector to get in the game. The industry is still young and growing, meaning opportunities still exist and new ones will appear as it matures.

"We're about two years away from being too late to get in early," Feldman said. "It's not too late to be a newcomer to this industry. What you want to do is, like in any other new business, learn about the industry as much as possible first."

As time moves on, Larson said expect some consolidation in the industry. However, that shouldn't discourage startups with innovative ideas in sectors like software, biotech and even hardware solutions like lighting or climate control systems.

Davos 2017: what we learned at the WEF

Banks got a warm welcome, Britain got a cool reception and climate change fears abounded at the World Economic Forum

They’re terrified of Trump

Donald Trump has been on everyone’s mind, even though he has been on the other side of the Atlantic this week preparing for his inauguration.

Most criticism of the incoming US president was firmly off the record, showing that no one wants to be caught in the firing line of @realdonaldtrump’s Twitter feed.

One insider said some US executives are nervous of being seen posing with Chinese leaders, in case the Oval Office saw this as unpatriotic.

Banks are off the hook

Banks, particularly those stationed in the City of London, have been the unexpected beneficiaries of the new mood of populism sweeping the west.

Having been treated as pariahs for causing the global financial crisis, banks are now wooed by all and sundry. The UK government is keen to reassure Goldman Sachs, Morgan Stanley, and the other Wall Street names that they’ll still be able to operate in the London, while European leaders see the opportunity to steal jobs.

Banks are fully aware they’re no longer on the naughty step, and have been dropping hints that they’ll leave London if they don’t get the deal they want.

Predictions are out, unless you’re Soros

Sir Martin Sorrell, the boss of advertising giant WPP, said he was out of the forecasting game after confidently predicting at last year’s Davos that Hillary Clinton would be US president and Brexit would never happen.

This year, the chastened Mystic Megs of Davos were reluctant to put their credentials on the line by calling the French presidential election, for example.

But George Soros – still making headines at 86 – retains the nerve to predict that markets will soon fall, Theresa May won’t last long, and that US checks and balances will stop Trump being a dictator. We wouldn’t put much money on another Soros idea – that Britain might quit the EU on a Friday and rejoin on a Monday.

Britain gets a cool reception

Theresa May and Philip Hammond had the unenviable task of explaining to the overwhelmingly pro-remain crowd at Davos what the government was up to now that the decision had gone the other way.

Perhaps understandably, May’s reception was cool rather than rapturous – even though she sought to reassure her audience that her vision was a global Britain rather than a siege economy. Hammond didn’t help the mood by repeatedly hinting that Britain could slash taxes and burn regulations if it doesn’t get what it wants.

Martin Wolf of the FT got a laugh by calling this the “Singapore-on-Thames” option – but Europe doesn’t get the joke.

Yesterday’s men flock to Davos

Enoch Powell was wrong when he said every political career ends in failure. For some washed-up politicians, it ends in Davos.

George Osborne, a WEF darling only 12 months ago, has gone from debating the global economy with Christine Lagarde to posing with the Clooneys at a swanky drinks reception. Davos’s nightlife is a great chance to relive Oxford student days, and Osborne was seen enjoying a scotch at PR magnate Matthew Freud’s bash at a private chalet at the Schatzalp hotel, only reachable by funicular railway.

Other one-time political heavyweights who couldn’t keep away included David Cameron, widely criticised this week for holding the EU referendum, Gordon Brown and Peter Mandelson.

Climate change fears abound

Campaigners are worried that the years of slow progress made on climate change are going to melt away once Trump is in the White House.

Norwegian prime minister Erna Solberg spoke for many when she warned that Trump might simply not implement the Paris agreement, to keep global warming “well below” 2C.

Activists at Davos told us they were keeping a very close eye on the Trump administration, fearing it will alter or make unavailable vital climate change data.

China is flexing its muscles

At Davos you know a speaker is a real draw if they manage to fill both the cavernous conference hall and also the overspill room.

That was the case for Chinese president Xi Jinping’s opening address, seen as an attempt by Beijing to seize the mantle of cheerleader for globalisation from Washington.

The word on the floor is that China isn’t ready to dislodge the US – and might not win a trade war either. But it was dominating Davos, with Alibaba’s Jack Ma signing a massive Olympic sponsorship deal and chiding America for wasting money on its military rather than spending it on infrastructure.

One spin-off for the local economy was that Xi’s 200-strong delegation required 100 drivers, which usually cost 10,000 Swiss francs for a week.

Is Sadiq the new Boris?

Sadiq Khan packed a lot into just 20 hours at Davos this year. When he wasn’t telling bank chiefs and politicians that London is open for business, he was racing from TV camera to microphone to liveblog to warn that a hard Brexit would rip Britain apart.

Labour hasn’t had a lot to cheer about recently, but winning the mayoralty was one bright spot. Judging by UK businesses’ reaction to Khan this week, London chose the right man to fight its corner through the Brexit negotiations. He wouldn’t be the first politician to use City Hall – and Davos – as a stepping stone for bigger things.

Is the City of London going to hell in a Brexit handcart?

Shifting banking jobs out of London to Frankfurt or Paris is not the pre-Brexit start of the City’s demise. But in the Trump era, any move to New York might be

Is the City of London going to hell in a Brexit handcart? If you believe so, you might point to the growls from the bankers in Davos about shifting jobs to the continent. We could move 1,000 roles, says HSBC, with Paris the main beneficiary. Same figure for us, replies UBS, but possibly Frankfurt and Madrid. Meanwhile, Goldman Sachs is stalling on its plan to expand in London.

On the other hand, here’s Jes Staley, chief executive of Barclays, breathing easily: “I don’t believe that the financial centre of Europe will leave the City of London. There are all sorts of reasons why I think the UK will continue to be the financial lungs for Europe.”

The reality, one suspects, is that these positions are not as far apart as they seem. Everybody is trying to anticipate the outcome of the Brexit negotiations but, in the absence of facts, the bankers’ statements are a cocktail of contingency planning and hazy guesswork.

What is plainly true is that, if banks and other financial firms are legally bound to conduct certain types of business in the eurozone, that is where they will shift the relevant roles. That is what HSBC and UBS are primarily talking about. Of course, the banks – like UK carmakers – have an incentive to frighten the government with large numbers to try to protect their interests during the negotiations. But a thousand jobs here, a thousand there? Yes, that seems quite possible. It’s a very big industry.

Yet the hell-in-a-handcart question is different. It’s about whether the loss of those jobs would herald the slow decline of the City, with business relentlessly leaking away over the years. That, as Staley suggests, remains hard to believe.

First, the banks would prefer to move as few posts as possible. Relocation is a hassle and UK regulators and politicians are familiar beasts. Second, the bankers probably aren’t making it up when they say the rest of the EU’s interests would not be served by upending the City. There isn’t an easy alternative financial capital and a fragmented collection of centres implies expense, to be paid in higher costs by European companies. That point, plus the risks to financial stability, may be gaining ground in the EU.

So is a third: that New York could be the biggest beneficiary of a sudden shift in the financial landscape. Returns on capital for banks are currently far fatter in the US than in the eurozone. So don’t assume US banks would rush to Frankfurt. Their US boards may prefer the Trumpist option of reinvesting at home.

To repeat, everything hinges on the new trading arrangements between the UK and the EU – and some form of standstill agreement, which allows adjustment to happen over time, could be the critical protection that the City requires. In the meantime, here’s a private pointer from one senior banker: watch the property markets. Tales of relocation become solid only when banks commit to spending serious sums on flashy new premises. And, if a large continental bank were to run against the general chatter and order a sizeable chunk of office space in London, that would be very significant.

Time for a big tobacco pay filter

It is a poor state of affairs that so many fund managers, especially in the US, can’t be bothered to think for themselves and instead rely on third parties to advise them on how to vote at companies’ annual meetings. But it is also true that few shareholder rebellions, at least on boardroom pay, gain momentum unless such proxy voting agencies back them.

That is why Imperial Brands, as Imperial Tobacco calls itself these days, will be alarmed that ISS has come out against its proposed pay policy. The fag firm had been delighted that Glass Lewis, another proxy agency, supported the proposed hike in chief executive Alison Cooper’s maximum pay package to £8.5m. Now ISS, which carries greater clout, is in the opposition camp.

ISS’s reasoning is sound. First, the agency observes that Imperial can’t seem to stop fiddling. This is the second time in three years that it wants to increase executives’ variable pay. That is not how the game is meant to be played; rather, companies are supposed to get a policy approved and then let it run for three years.

Second, ISS agrees with a point made here a couple of days ago: Imperial is playing the tired and discredited “benchmarking” card. It thinks Cooper, who earned £5.5m last year, needs a rise just because bosses of other companies with similar stock-market valuations can get even more. But if all companies take that view when their shares have outperformed (and never when they have underperformed), inflation becomes baked into the system.

Common sense ought to prevail. Cooper can earn £7.1m a year under the current policy. She owns shares in Imperial worth £6.5m and has unvested performance-related awards worth up to £12m. That ought to be sufficient motivation to try hard. Imperial’s proposal is a shabby try-on that deserves to fail, as a few fund managers who do think for themselves have been saying in private. The intervention of ISS makes the vote on 1 February interesting.

An honest departure

“Succession processes are challenging for everyone involved and, unfortunately, it is rare that all those involved stay with the company,” says Sir Andrew Witty, chief executive of GlaxoSmithKline. At least that’s honest: Abbas Hussain, head of Global Pharmaceuticals (and brother of former England cricket captain Nasser), is departing because he lost out to Emma Walmsley in the race to succeed Witty. Hussain, 52, can be confident of landing a big job elsewhere. Top marks for sparing us the usual guff about leaving to pursue other interests.

Financial crises are a 'filtering mechanism' for startups

In the teeth of recession, a spirit of entrepreneurialism can take hold. Firms explain how they found opportunities in tough times

“The financial crisis was a great time for startups,” says Vikas Shah, a professor of entrepreneurship at the Massachusetts Institute of Technology Sloan School of Management, and adviser to the UK government.

The crash of 2007-08 created economic upheaval and political ramifications, but it also necessitated innovation. Shah adds: “Many of our brightest young people, who previously would have defaulted to highly paid corporate and banking careers, were now more open to consider options outside that, simply because of a lack of jobs.”

He calls recessions a “filtering mechanism” for startups, weeding out the weak and ensuring only the strong survive.

It would seem that post-crash more people have made the first step to starting a business. According to Companies House data, the number of new businesses in the UK has risen every year since 2008 – a record 608,110 were set up in 2015.

The link between fast growing startups and a tough economic climate is not limited to the last recession. Shah cites companies such as Microsoft, General Electric, FedEx, Revlon, Hyatt and IBM as high profile examples of businesses that were born in, or close to, an economic crash.

Indeed a number of exciting UK startups emerged in and around the 2008 crash such as Crunch Accounting (founded in 2007, in 2016 its turnover was more than £6.6m), Pure Gym (set up in 2008, in 2015 its sales reached nearly £100m) and MVF (founded in 2009, its revenues were £39m in 2016).

During and after the recession, bank funding for small businesses was tight. For some, such as Luke Lang and Darren Westlake, founders of equity crowdfunding platform Crowdcube, which went live in 2011 (although was registered in 2009), this created an opportunity. “We first began work on Crowdcube right in the middle of the crash. Many people were incredulous that we wanted to start a business that would help to finance high-risk business,” says Lang.

But Crowdcube survived: the platform has raised over £211m through 481 deals and employs 70 staff. Lang say the credit crunch made it easier. “[It] increased the challenges startups faced, making our disruptive model even more valuable, and its potential impact even greater,” says Lang.

Gideon Hyde, co-founder of Market Gravity, also took advantage of the climate, setting up the design consultancy business with Peter Sayburn in 2009. The company rapidly recruited, bringing in 15 staff in its first two years.

“A recession is a great time for finding talent,” says Hyde. “We hired people at about two thirds of the market [salary] rate but we have a profit share model among the team, which appeals to people with an ambitious mindset. There were a lot of people in their mid-twenties who had worked for some good companies but, through no fault of their own, had found themselves out of work.”

Market Gravity works with large companies such as Barclays and Boots, helping them to launch new, technology-focused products and services. Hyde says the financial crash provided an impetus for technology uptake among corporates – Market Gravity’s first client was British Gas. There was a growing understanding [due to the recession] in big companies that they needed to innovate, says Hyde. “There was a shift from using technology as a marketing tool to running your business with it.”

The crash coincided with a boom in smartphones and apps. Figures from Statista show that in 2007 the Apple Store had just 800 apps, but by 2015 there were over 1.5m with business apps the second biggest category. Many of these were created by bright young programmers at universities.

Chris Haley, head of startups and new technology research at innovation foundation and charity Nesta, says there has been a substantial increase in university startups since the financial crash. Higher Education Statistics Agency research shows that new student startups increased by 132% between 2007/08 and 2013/14.

“There’s been a big increase in student startups since the recession,” notes Haley. “Not all continue in the long term as entrepreneurs. But the benefit of this is that many take those skills and experiences into the workplace with them.”

Mark Hammond is the founder and CEO of Deep Science Ventures, a programme that specialises in very early-stage funding and coaching science-focused entrepreneurs. Previously, he worked at Imperial College, heading up the university’s entrepreneurship and incubator programmes. He witnessed a big rise in student entrepreneurship. He says the lack of government or corporate funding for scientific research after the financial crash meant that, for many science graduates, a startup was the only option.

During his time at Imperial, Hammond worked with a range of successful startups, including clinical task management company Hark, aimed at those working in the medical or clinical profession (later sold to Google), and VR company Surreal Vision (acquired by Oculus Rift).

Hammond, who worked at Imperial from 2011 to 2016, says the recession coincided with a change in attitudes. “The millennial generation wants to make a difference in the world. The economic climate meant options such as working for a bank or a corporate just weren’t there. But also, many were asking ‘does working for a bank even matter?’.”

Talia Baccino was studying marketing at John Moores University when the financial crash occurred. After graduating in 2008, she and her sister Kayleigh expected to start careers in marketing, but the economic situation led them to start their own company. “We both wanted to set up a business but, initially, it was our goal to get jobs and careers. But when the recession hit, that was really hard – there wasn’t much available at all,” Baccino says.

Instead the sisters launched Trendy Vend, an accessories vending machine business, selling items such as lip gloss and deodorant to the nightclub crowd in women’s toilets. The Trendy Vend machine also featured LED screens, providing a second revenue stream through the sale of advertising.

Initially, the business did well, gaining angel investment to roll out the concept nationally. However, the advertising side of the business ran into trouble as public sector marketing budgets were cut and clients such as the NHS stopped spending. Eventually, the sisters quit the business in 2014 and the company ceased trading. Recessions can create great businesses, but they can also break them.

However, entrepreneurs are resilient, and now the Baccinos are back in business, with Pasta Cosa, an Italian cafe in Liverpool. Talia says her experience of building a business is being brought to bear in her new company. “It gave us some great skills and experience as well as an income for several years. Hopefully, our new business will be the one to make us millions.”

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Steven Mnuchin confirmation hearing for treasury secretary: the key points

A former Goldman Sachs banker, Mnuchin served as finance chairman for Trump’s presidential campaign, helping to raise tens of millions of dollars

Background

A former Goldman Sachs banker, and the son of another Goldman Sachs banker, Steven Mnuchin may seem like an unlikely pick for Donald Trump, who campaigned against the influence of Wall Street which had “caused tremendous problems for us”.

But Trump values loyalty and the 54-year-old banker turned hedge fund manager was an early backer of the president-elect. Mnuchin (pronounced “mah nu chin”) served as finance chairman for Trump’s presidential campaign, helping to raise tens of millions of dollars.

According to Fortune, Mnuchin’s wealth is in excess of $400m. He left Goldman in 2002 and has made most of his money from his hedge fund activities, backing films including Avatar and Sully, and profiting from his mop-up operation after the housing crash.

Like his boss, he has never held public office before.

What to watch

Goldman Sachs: After an intense turn in the spotlight over its role in the financial crisis, the bank had managed to shuffle back into the wings, somewhat, until the election when Goldman, and its peers, were routinely attacked by Trump and Hillary Clinton rival Bernie Sanders as the epitome of Wall Street greed. On the campaign trail Trump repeatedly pledged to “drain the swamp” and stop the revolving door that has swept bankers and other elites into power in Washington.

Trump has since warmed to Wall Street, and Goldman in particular, appointing a boardroom of Goldman alumni to his cabinet. Goldman has faced protests as a result. Expect Mnuchin to be grilled over his ties to Wall Street but he has bigger problems.

OneWest: Mnuchin made much of his fortune by capitalising on the housing crisis. In 2008 Mnuchin and his partners took over IndyMac, a Californian bank that had been felled by its risky lending practices in the financial crisis and taken over by the government.

Mnuchin told the Wall Street Journal last year he was proud that they had “turned around a huge economic disaster”. But his critics are less impressed. OneWorld foreclosed on some 36,000 people including a 90-year-old woman who had made a 27-cent payment error. The bank was the target of government inquiries as well as consumer activists.

Senator Elizabeth Warren has called Mnuchin “the Forrest Gump of the financial crisis” and said he “managed to participate in all the worst practices on Wall Street”.

His appointment, said Warren, was proof that Trump “has no intention of draining the swamp and every intention of running Washington to benefit himself and his rich buddies”.

On Wednesday, Warren organised a press conference featuring people who were evicted from their homes by OneWorld or faced eviction while Mnuchin was in charge. Which brings us to ...

Regulation: Trump has pledged to de-fang Dodd Frank, the financial regulation brought in after the financial crisis and aimed at limiting the risky bets Wall Street took in the run up to the crisis. Trump and others argue the legislation is too onerous and has led banks to rein in lending.

Mnuchin has already told CNBC that Dodd-Frank is too complicated. That’s not likely to be a winning argument for Democrats, especially when delivered by a man who has profited so handsomely from the Wall Street-induced financial crisis.