Archive for LIBOR

Oil price fixing: the real story is the impact on business

Posted in business with tags , , , , on May 17, 2013 by Tom Leatherbarrow

Price at the pump

The news that both Shell and BP were raided earlier this week in a price fixing probe has been greeted with hysterical headlines about the cost to consumers. The Daily Mirror screaming “They’re bleeding us dry” probably being the best example from yesterday’s front pages.

However, the ‘price at the pump’ is something of a distraction in this case. Yes, motorists have had their pockets picked, but I doubt that price fixing has had a dramatic impact on consumer behaviour.

Ten years ago I was doing 30,000 miles a year at 80p a litre, but my behaviour has not changed now that the price has risen to £1.40 a litre. I’m still doing the same sort of mileage.

All of this could lead the oil companies to argue, if any case comes to court, that this is a victimless crime. They’d be wrong.

The real issue here is potentially the impact on business. Let’s take the road haulage industry for example. Typically, the industry operates on very slim margins, in fact I remember one former client of mine existing on an operating margin of circa 2-2.5%.

That leaves no room for error let alone coping with the potential effects of price fixing. What’s more, all too often at least a portion of any increase in fuel prices cannot be passed onto customers – it just has to be absorbed.

And that’s just one example. What about courier companies, service industries with large car fleets and even your average white van man. The damage to business if this is proven is incalculable.

Of course this absorbing of cost increases by business has a knock on effect on wages and investment. I’ve seen figures this week which suggest that new product development is at historic lows in the UK. Real incomes for employees have not risen in ten years.

I was genuinely shocked at the rigging of LIBOR in London, the benchmark interest rate from which all other interest rates, globally, are taken. I don’t know whether I’m just becoming punch drunk from all of this but the news of the oil price fixing didn’t hit me in the same way.

The truth of the matter is, the pendulum has to be swung back towards greater regulation which might help “real businesses that actually make stuff” as one former Chief Executive client of mine told me a while ago.

The best way to start is for the Serious Fraud Office to prosecute some people.

If Cameron wants a Thatcher Moment he should go after the bankers!

Posted in Banking, business with tags , , , on June 28, 2012 by Tom Leatherbarrow

A few months ago the Government saw great opportunity in the proposed tanker driver strike.  The word from Tory Central Office (we know this because it was all over the newspapers) was that the Government saw the dispute as a potential ‘Thatcher Moment’ when the Government rallied the general public around a foe that threatened the economic prosperity of the country and defeated it, just as the Lady had with the miners.  Francis Maude was duly sent out with the advice that we should all stock up on petrol by filling jerry cans, just as the Thatcher Government had stockpiled coal.  We all know how it ended.

My feeling at the time was that the Government was fighting an old battle.  Much has changed since the long summer days of 1984.  The Public & Commercial Services Union went on strike over outsourcing of jobs on Monday, did you notice?  I suspect not because three separate tranches of legislation, the Prior Act, the Tebbit Act and the Trades Union Act of 1984 have brought the unions into line, democratised them and left them needing to listen to their members before the shout goes up “everybody out.”  If they step out of line the penalties can be ferocious, as the miners found out.

So where should the Government look if it wants a ‘Thatcher Moment’?  News comes this morning of another powerful pressure group who threaten the economic prosperity of the country. In fact this pressure group has already been bailed out once by the public to the tune of hundreds of billions.

One suspects that Barclays £290 million fine levied by both the Financial Services Authority in London and the regulators in the United States for manipulation of interest rates is just the tip of the iceberg. If RBS, HSBC etal get sucked into this then the entire integrity of UK banking and LIBOR (London Interbank Offered Rate), which is used to fix mortgages amongst other financial instruments across the globe, will be called into question.

I could go over, once again, all the arguments for dealing with the bankers, including the ‘too big to fail’ argument, bonuses, lending to small businesses, the rebuilding of balance sheets with QE money, but why bother?  All you need to do is Google any of Mervyn King’s, the Governor of the Bank of England’s comments over the last few years to see how worried he still is.

I have no doubt that the bankers will want to position this as a victimless crime, but somebody, somewhere is always holding the dumb money.  If it is found that it is the general public, among others, who have been screwed over once again this story has the capacity to make the leap from the business pages to the front pages.

If Cameron wants a ‘Thatcher Moment’ which cuts through to Joe Public or Worcester Woman, this morning it is staring him right in the face!