Inside The World Of Business
Regling and Watson cop out in the blame game
THE REFUSAL by former IMF officials Klaus Regling and Max Watson to assign a weighting to the reasons that were most to blame for the banking crisis in their report is a bit of a cop-out.
Road traffic investigators may consider a variety of factors in assessing the cause of an accident, but they would hardly attribute blame equally to the fact that the one-armed driver was drunk, the brakes were faulty, it was a dangerous bend, there were no roadside lights that night and torrential rain made conditions hazardous.
Regling and Watson said it was a combination of both domestic and international factors which caused the crisis but would not be drawn on whether “home-made” factors outweighed global reasons, given that our banking crisis was the worst in the developed world.
Their report rankles with the findings of the Central Bank governor Patrick Honohan who concluded that Anglo Irish Bank and Irish Nationwide were well on the road to insolvency before the international crisis hit and budgetary policies added to failures at the Financial Regulator, Central Bank and the financial institutions.
Watson said theirs was a “top-down” approach assessing global and euro area factors, while Honohan’s was a “bottom up” view, and the conclusions of both reports met somewhere in the middle.
On a separate issue, John Hurley’s defence of his position last summer before he stepped down as Central Bank governor was sharply undermined by Honohan. Hurley said the Central Bank’s warnings about the economy did not change behaviour, hinting that he had somehow been unable to act. On page 37 of his report, Honohan said the governor had powers to authorise an employee of the regulator to investigate or carry out inspections of regulated businesses.
The governor could also issue guidelines to the regulator about the policies and principles that it was required to implement in its performance of Central Bank and Financial Regulator functions. “These powers were not, however, used,” said Dr Honohan.
Bookies ready for kickoff
Nobody has been looking forward to the World Cup more than the bookies. Not only is it this year’s biggest sporting event, it also promises to be the biggest betting event in history.
The tournament comes at a time when betting markets are bigger, more technology-driven and competitive than ever before. It is estimated that Irish and British punters alone will wager about €1 billion through the month-long competition.
Investors should note that it comes just on time to contribute to the half-year accounts of listed operators such as Paddy Power and Ladbrokes, which will have already been boosted by a remarkably bookie-friendly Cheltenham National Hunt racing festival.
They should also pay close attention to England’s fortunes. The country’s national team is always well backed and the further it goes, the more it is likely to drive turnover.
Paddy Power of Paddy Power estimates that if England were to reach the final, this would add about €250 million to the projected €1 billion turnover boost.
Bookmakers like soccer, as they can offer up 50 different betting markets on a single match, allowing people to bet on everything from which team will win, through to the score, goal-scorers and even the number of penalties that will be awarded against one side or the other. This not only boosts turnover, but it also spreads their risks and allows them to limit their exposure to losing on any well backed team.
They also target it as a means of recruiting new on-line clients and betting shop customers. A generous-sounding special on the opening race at Cheltenham last March netted 60,000 new online customers for Paddy Power, according to some estimates, many of them in Britain, where the company’s internet brand is strong. Expect it to use similar tactics during the World Cup.
BP shareholders cry foul
The BP Gulf of Mexico catastrophe has given rise to much “US versus UK” politicking over the past week, but the furore is perhaps a distraction from the usual sinister undercurrents that emanate whenever powerful institutions see their wealth threatened.
In a manner that will be familiar to the “heads we win, tails you lose” philosophy of the financial crisis, BP shareholders are crying foul at the British oil giant’s tanking share price. All of this tough talk from Barack Obama is unfair, they say.
The standard tactic employed by private investment institutions to bully people into their way of thinking is to play the "pension funds" card. The Daily Expressduly obliged, with yesterday's headline reading "Obama is killing all our pensions".
There’s no mention of the fact that perhaps such pension fund managers miscalculated the risks of investing in BP.
A phone call is expected to take place between Obama and newbie British prime minister David Cameron this afternoon.
Despite calls by the Daily Mailfor Cameron to "stand up for your country", this is not really a political version of the England versus US World Cup match this evening. Rather, it is a simple battle between the interests of wealthy shareholders and the interests of taxpaying citizens, with Cameron being employed to defend the former and the White House making sure it is seen to represent the latter.
Next week will certainly be interesting. No decision has yet been made on whether BP will cut or defer its second-quarter dividend. But his summons to appear before a Washington committee next Wednesday certainly won’t be a fun experience for BP chairman Carl-Henric Svanberg if the dividend does go ahead.
Podcast
This week John Collins hosts a Current Account special on the reports into the banking crisis with finance correspondent Simon Carswell and business journalist Barry O’Halloran. www.irishtimes.com/ business/podcast
This week
On Monday the Governor of the Central Bank of Ireland, Prof Patrick Honohan, will deliver the opening address at the 8th Infiniti Conference on International Finance at Trinity College Dublin.
The two-day conference will feature 140 international finance experts discussing issues including the global economic crisis, the emergence of government bond markets and property finance.
Online
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