SKETCH: The Financial (Mis)Conduct Authority

Goldman Sachs despise JP Morgan who despise Morgan Stanley, they collectively despise every other professional in their essential, unlovely industry.

But all of them, high low, bust or booming, reserve their special contumely for their overseers, their authorities.

What unique quality of loser would leave a working bank and become a regulator?

The Financial Conduct Authority turned up at Margaret Hodge’s committee to show us. Even in regulatory circles these are thought to set entirely new standards of uselessness.

They make Donovan look like Herman Goering.

Mrs Hodge opened up by asking about the “unbelievable jump” in the share value of Royal Mail immediately after launch. CEO Martin Wheatley (salary package £650,000) told us blandly that IPOs are typically priced to go and that we usually see some increase in the price, but yes, the the Royal Mail hike was certainly at the top end of that sort of increase.

Mrs Hodge read out figures from the NAO report. IPO premiums were generally of the order of 16 or 17 per cent – half, or as it might be said, “HALF!” the Royal Mail increase.

This wasn’t “at the top end” of a scale it was a different scale altogether.

However, Wheatley averred, it wasn’t evidence of the sort of financial conduct the Financial Conduct Authority would investigate.

So, what would arouse his investigatory instincts? “Unexplained share movements,” he said. But clearly not a share movement twice the IPO average. So, what level of share movement would it require? He wouldn’t put a figure on it. The context was important. And in explaining the context he said that it wasn’t about share price movement.

“You said it was,” Mrs Hodge said.

“No, I didn’t,” he replied.

That was below his standard. When Richard Bacon said, “You have an obligation to monitor,” he shot it back down the tramlines, “We have an obligation to review.” That’s the £650,000 mind at work.

In any event, whether monitoring or reviewing, did the Financial Conduct Authority look at whether the advisers on the price of the offering gave a large number of shares to their colleagues in the same company?

“We do supervise flows of information between the arms of the bank,” he said.

What balderdash. He can’t believe it.

Why hadn’t he investigated? There was no evidence of a regulatory breach.

“But to make that judgement, you’d have to know who made the killing on Day 1,” Mrs Hodge said. She might have nailed him at any point in her interrogation. I’m starting to have doubts about Mrs Hodge. She may lack sadism.

On we went. There was the fact that the advisers knew the sale was massively oversubscribed (£33bn of orders for £2bn of shares) and yet they told the Department a week before the offering they should by no means raise the price. It would spoil the momentum, they said. It would create uncertainty.

And so, massive allocations went to the advisers’ firms who had given “firm but non-binding undertakings” to hold onto the shares for the medium term. Half the asset managers sold everything in weeks as the price soared.

It wasn’t financial conduct worthy of investigation.

And because there was no investigation, there was no evidence, he said again.

Anne Macguire put it neatly: “You don’t know what you don’t know because you don’t want to know it.”

It must be said though, the committee didn’t really nail the charges into the hide of these fellows. They need much more money, to hire researchers and analysts, and a QC to conduct certain questioning.

If these quango costs are ever to come down, the cost of politics is going to have to go up.



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