Barclays' creek proves deeper, longer and browner than first thought

The Guardian had another set of articles on Barclays' tax structuring group yesterday. The point is not whether the practices of this group are legal. Some may be; some are borderline; some may not be. The point is the continuing reputational damage being done to the Bank as these articles continue.

Any firm with a tax structuring activity must be asking themselves how this group's transactions would be taken by their clients, regulators, tax authorities, and other stake holders were they to be made public. If, as I suspect, the answer in most cases is `rather badly', then perhaps the practice of structuring transactions simply to avoid paying tax will be moderated. I think that this business is immoral and damaging to the reputation of honest bankers, and I know a lot of people do too. Do you really want to live in a world where banks have large groups of smart and well paid people just to ensure that there are fewer schools and hospitals?

Of course, the real answer is tax modernisation. Barclays and the rest can only play their games because tax codes are so complex and international tax treaties can be arbitraged. While we might deplore the practice of tax arbitrage, at least some of the blame must go to the government for not closing the loopholes.

Barclays. Tax. Chortle.

Oh dear me. The biggest tax arb house on the street is being investigated by the Inland Revenue. The Guardian has the details. But clearly anyone structuring transactions whose main aim is to reduce tax (an international avoidance factory perhaps?) has reputational risk. That risk appears to be biting. If a senior politican says that you look like the spider at the centre of a highly artificial web of non-transparent transactions through tax havens, then you have a problem.

Gordon tells the truth

I don't usually link to videos, but...

A warning from Bishopsgate

More solid, responsible journalism from the Daily Mash:

The Royal Bank of Scotland is just days away from imploding like that house in Poltergeist, it was claimed said last night.

As the bank's share price plummeted, experts said it was now time to bring in a scary-voiced midget to expel the remaining demons before the entire structure is then devoured by a tiny black hole.

Economist Tom Logan said: "In Poltergeist terms, the chairs have been stacked, the little girl has been sucked into the TV and the Beast has been exorcised without his annual bonus."

He added: "This once again demonstrates the folly of building a major financial institution on top of an old Indian burial ground."

Quite right too: I just wish Robert Peston could be this sensible. Now if only we can get extensive exorcism into the FED's armoury of facilities, perhaps we can beat this thing. All together now: Exorcizamus te, omnis immundus decoctor, ...

Update. While we are talking about RBS, I must mention Simon Hattenstone's wonderful and entirely appropriate attempts to get Fred the Red to say sorry, detailed in the Guardian. It harms all of us in finance that `managers' like Goodwin (I use the term broadly) are not willing to admit their mistakes and say a simple `I'm sorry'. It's not just that he screwed up. It's that he screwed up so royally that it is detracting from the public opinion of my business. And that annoys me.

Holding The Wrong-doers to Account

On a day when piffle seems to be widespread, Bloomberg reminds us that there may well be a case to answer in some quarters:

Frank Raiter says his former employer, Standard & Poor's, placed a ``For Sale'' sign on its reputation on March 20, 2001. That day, a member of an S&P executive committee ordered him, the company's top mortgage official, to grade a real estate investment he'd never reviewed.

Understandably, reform of the ratings agencies has taken a back seat to the Paulson bailout. But it does need to be done. Furthermore we do need to look back in anger at the doings of the Greenspan boom and, where there is good evidence of malfeasance, hold the perpetrators accountable. If Raiter is correct in his account, the case against S&P appears to be strong.

Update. The second part of the Bloomberg series is also interesting (if marred by the most annoying pop-up I have come across in a while). A highlight:

An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the ``threat of losing deals.''

A modern day version of the Pecora Commission is clearly required.

Fitch got there in the end

From Bloomberg:

Fitch Ratings cut MBIA Inc.'s insurance unit to AA from AAA, saying the bond insurer no longer has enough capital to warrant the top ranking.

MBIA, the world's largest financial guarantor, would need as much as $3.8 billion more in capital to deserve an AAA, New York-based Fitch said today in a report. The outlook is negative, Fitch said.

Fitch issued the new, lower rating even though Armonk, New York-based MBIA asked the ratings company last month to stop assessing its credit worthiness.

My guess would be that Moody's and S&P won't crack under this news despite the evident fillip to Fitch's reputation. Which is a shame.

Reputation risk and SIV sponsors

This bridge is well known: it's in Newcastle, and if it fell down, it would have a reputational impact on the city. What you build reflects on you: well, if it's beautiful; badly if it's ugly and it fails.

This brings us nicely to structured investment vehicles or SIVs. (This or this are not too bad if you're not up on SIVs and SIV-lites, although take them with a pinch of salt: by 'highly rated' they do not of course mean 'highly likely to return principal'.) Barclays is in the spotlight again after restructuring a number of SIVs it was involved with. While some of the comment has been positive, one cannot help but wondering if what they have build is reflecting entirely positively on them.