A bad look for a regulator is to appear afraid of the people it is regulating. That is where the Financial Conduct Authority, fairly or not, now finds itself. It chose not to publish the high-profile report into Royal Bank of Scotland’s handling of 6,000 small and medium-sized businesses because it feared being sued.
The FCA had other reasons, but the legal worry is the one that will fuel the suspicion that the full horrors of what went on within RBS’ now-disbanded Global Restructuring Group (GRG) are being kept from public view.
“Publication of the final report would expose the FCA to an unacceptable risk of successful legal action by current/former RBS managers for unfair treatment,” say FCA minutes from 2016, first reported by the Times.
A timid watchdog, then? In defence of the FCA, one could make four points. First, the regulator can’t simply wish away the legal risks. Second, if it published the report after Maxwellisation – the process by which those criticised are allowed to respond – the resulting document might be full of redactions. Third, the FCA is still investigating events and does not want to jeopardise that effort.
Fourth, the recent public summary of the report was judged to be mostly “fair and balanced” by the QC appointed by the Treasury select committee to give an opinion. That was the report that revealed that 92% of sampled businesses within GRG suffered some form or “inappropriate treatment”.
Those factors, however, will not clear the air. The FCA minutes acknowledge that full publication would “increase transparency and minimise any perception that we have tried to fetter the report in some way”.
Then there is the extremely awkward fact that Promontory, the consultancy that compiled the so-called skilled person’s report for the FCA, thought it “was written in a way that meant it could be published”.
Nicky Morgan, chair of the Treasury committee, should keep pressing. It was only political pressure that forced the FCA to publish a summary of findings in the first place. It falls to her committee to tell us whether the FCA is still dragging its feet or making excuses. A definitive answer is needed.
‘So many flashing red lights’
“There are so many lights flashing red that I am losing count,” the fund manager Neil Woodford declared the other day. He was talking about stock markets in general but one could say the same about one of his pet stocks, the money-lender Provident Financial.
The latest warning concerns Moneybarn, the division that lends to people with poor credit records who want to buy secondhand cars. It was previously regarded as the one part of Provident Financial that was vaguely stable. No longer. The FCA is investigating the unit “in relation to the processes applied to affordability assessments for vehicle finance and the treatment of customers in financial difficulties”.
The bland wording offers few clues about the seriousness of the investigation, but the timing could hardly be worse. In August, Provident ousted chief executive Peter Crook, issued a calamitous profits warning and cancelled its dividend after a botched rejig of its core doorstep lending business. It also confessed that credit card operation, Vanquis, its most profitable division, is under investigation by the FCA for issues that sound similar to those that have cropped up with Moneybarn – the fair treatment of customers, in that case relating to a product that allowed borrowers to freeze their debts.
To compound the difficulties, chair Manjit Wolstenholme, who was filling the executive vacuum, died suddenly last month. The net result is that Provident is looking to hire both a chairman and a chief executive at a moment of corporate crisis.
The share price has collapsed from £32 in April to 790p, so it’s a bit late for Woodford, who has stuck with his 21% stake, to have any regrets. To almost everybody else, however, Provident will surely look uninvestable in its current state.
Betting against Netflix
Netflix is turning us all into stay-at-home couch potatoes, or so it is said, so here’s a brave bet: Cineworld, the UK-listed cinema group that also runs the Picturehouse chain, is paying $5.8bn (£4.3bn) to buy the much bigger US operator Regal Entertainment Group. In the process, Cineworld, which also operates in central and eastern Europe, will become the second largest cinema owner in the world with 9,500 screens.
When this deal leaked last week, Cineworld gave its investors a heart attack – the shares fell by almost a fifth. One can understand why. Depending on your point of view, the financial firepower needed to pull off this takeover is impressive or frightening. Cineworld, currently worth £1.5bn, will raise £1.7bn via a rights issue and take on borrowing facilities of £3bn. On day one, the enlarged business will have net debt four times the size of its top-line profits.
Mooky and Israel Greidinger, the brothers whose family fund owns 28% of Cineworld, have managed to pay down debt quickly after previous takeovers, so they know the territory. They’re also taking up the rights to the new shares in full, which will cost them £475m, so they’re also definitely committed. Good luck: not many other people are betting against the Netflix effect.