Tesco and Barclays Legal Cases; Rent Controls and Telford Homes

A few events transpired last week which I missed commenting on due to spending some days in bed with a high temperature. Here’s a catch-up.

The remaining prosecutions of former Tesco (TSCO) executives for the accounting scandal in 2014 that cost the company £320 million and resulted in the company signing a Deferred Prosecution Agreement (DPA) and paying a big fine has concluded. The defendants were found not guilty. The prosecutions of other executives were previously halted by the judge on the grounds that they had no case to answer. Under the DPA, Tesco were also forced to compensate affected shareholders.

Everyone is asking why Tesco agreed to the DPA, at a cost of £130 million, when it would seem they had a credible defense as no wrongdoing by individuals has been confirmed. The defendants were also highly critical of the prosecution on flimsy evidence that destroyed their health and careers. This looks like another example of how the UK regulatory system is ineffective and too complicated. The only winners seem to be lawyers.

Another case that only got into court last week was against former Barclays (BARC) CEO John Varley and 3 colleagues. This relates to the fund raising by the company back in 2008 – another example of how slow these legal cases progress in the UK. This case is not about illegal financial assistance given to Qatari investors as one might expect, those charges were dropped, but about the failure to disclose commissions paid to those investors as part of the deal and not publicly disclosed. The defendants deny the charges.

Comment: this long-running saga seems to stem from the Government’s annoyance over Barclays avoidance of participation in the refinancing of banks at the time. Lloyds and RBS ended up part-owned by the Government, much to the disadvantage of their shareholders. Barclays shareholders (I was one at the time) were very pleased they managed to avoid the Government interference, precipitated by the Government actually changing the capital ratios required of banks. Barclays were desperate for the Qatari funds of at least one £ billion with one Barclays manager saying “They’ve got us by the balls….”.

Will this case conclude with a conviction, after a few millions of pounds spent on lawyers’ fees? I rather doubt it. And even if a guilty verdict is reached, how severe will be the likely penalty? Bearing in mind that the damage suffered by investors as a result seems minimal, i.e. it’s purely a technical breach of the regulations, it seems both pointless and excessive to pursue it after ten years have elapsed. Again the only winners seem to be lawyers.

One amusing aspect of this case was the grim “mug-shots” of 3 of the defendants attending court that appeared in the Financial Times. It was clearly a cold day and one of them was wearing a beanie hat. Is this the new sartorial style for professional gentlemen? Perhaps so as my doctor turned up wearing one to attend my sick-bed. Clearly I may need to revise by views on what hats to wear and when.

One has to ask: Are the cases of Tesco and Barclays good examples of English justice? Prosecutions after many years since the events took place while the people prosecuted have their lives put on hold, their health damaged and with potentially crippling legal costs. This is surely not the best way of achieving justice for investors. Justice needs to be swift if it is to be an effective deterrent and should enable people to move on with their lives. Complexity of the financial regulations makes high quality justice difficult to achieve. Reform is required to make them simpler, and investigations need to be completed more quickly.

Investors might not have noticed that London Mayor Sadiq Khan is going to include a policy of introducing rent controls in his 2020 election manifesto. Rent controls have never worked to control rents and in the 1950s resulted in “Rackmanism” where tenants were bullied out of controlled properties. It also led to a major decline in private rented housing as landlords’ profits disappeared so they withdrew from the market. That made the housing shortages in the 1960s and 70s much worse. The current housing shortage in London would likely be exacerbated if Sadiq Khan has his way as private landlords would withdraw from the market, leaving tenants still unable to buy although it might depress house prices somewhat.

But the real damage would be on the construction of new “buy-to-let” properties which would fall away. Institutions have been moving into this market in London and construction companies such as Telford Homes (TEF) have been growing their “build-to-rent” business in London.

Sadiq Khan is proposing a policy that he would require Government legislation to implement, which with the current Government he would not get. No doubt he is hoping for a change in that regard. Or is it simply his latest political gambit to get re-elected? In the last election he promised to freeze public transport fares as a vote winner, so he clearly has learnt from that experience. But he’s probably already damaging the private rented sector.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Barclays Stockbroking Complaints

Several newspapers and on-line news services have reported this week on the debacle at Barclays. They launched a new “Smart Investor” site to replace their Barclayshare share trading service. The complaints range from failure to advise new account log-in details, support service uncontactable, old features missing (or perhaps simply moved elsewhere and not easily found in some cases), higher charges (fees restructured), to some account types or share holdings being no longer permitted.

Barclays have integrated it with their on-line bank account service which probably makes sense, but they clearly got some basic things wrong with this kind of migration which are:

  1. Beta testing of the new software on real customers must have been limited in scope, if done at all.
  2. All clients were moved at the same time and forcibly. No parallel running, no options for clients to choose when to migrate, etc.
  3. If possible, avoid “big bangs”. Changes to systems should be done gradually and in stages to avoid massive new learning processes by clients.

When will IT teams learn that folks get “habituated” to software and get very unhappy when it’s changed, even when the new system works well and has more features (and in Barclays case, it obviously had some problems). It’s like moving the products on the shelves of supermarkets so the customers can’t find their favourite foods any more. Now Paypal did a similar migration recently, and the new menus were hopeless to begin with, but they allowed you to drop into the old menus for some time. So only some minor cursing was the result. But Barclays may lose some of their 200,000 stockbroking clients from this debacle it seems.

Stockbroking platforms are really important to get right as they involve large value transactions by often sophisticated traders but there have been several examples over the years of new platforms failing to meet the basic needs of clients.

What do you do when this happens? Move your account to someone else? If only it was that simple.

From several experiences of doing this, all I can say is that you won’t have much difficulty finding someone to take it on, but the process often takes months with endless hassles along the way.

Indeed I have complained to the Financial Conduct Authority (FCA) about this in the past – see https://www.sharesoc.org/blog/regulations-and-law/stockbroker-transfers-more-evidence-of-unreasonable-delays/

Anyone who meets this problem should also complain to the FCA and encourage them to tackle it. If you can switch a bank account in 7 days (and that’s mandated), why not a stockbroking account?

The complexity partly arises from the use of nominee accounts and the problems with funds rather than direct shareholdings, but these difficulties are surely fixable if we had a decent share and fund registration system and stockbrokers were motivated to get the issue sorted out. Needless to point out that stockbrokers don’t like to make it easy to switch so won’t do so unless pushed because they like to lock their clients in (hence the use of nominee accounts also of course).

In the meantime, if you do decide to switch you may find it easier to move all your holdings into cash first – but you need to be wary about the tax implications of doing so.

This FCA web page tells you how to complain about Barclays new service, and about delays in transfers, here: https://www.fca.org.uk/consumers/how-complain . But if you wish to complain about the general lack of action on broker transfers, you could write to David Geale, Director of Policy, FCA, 25 The North Colonnade, London, E14 5HS.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson ) 

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