NEWS: City of London & GCC Conference brings together key players in international financial markets

The Middle East Association (MEA) in partnership with the City of London Corporation will be staging the third annual City and Gulf Co-operation Council Countries (GCC) Conference at the Merchant Taylor’s Hall in London on Thursday 19 June 2008.

For the third year running, this premier event will bring together key players from within the financial communities of the City of London and the GCC countries.

Lead sponsors this year include Bahrain Economic Development Board, Qatar Financial Centre Authority and National Bank of Dubai.

This year the keynote address will be delivered by The Rt Hon The Lord Mayor of The City of London Alderman David Lewis, with other high profile government and financial sector representatives from the UK and GCC addressing the Conference.

The main areas of focus at this year’s Conference include:

• Regulation and risk-based supervision in the context of the global credit crunch: GCC and London perspectives
• Building strong foundations for GCC growth: the financing and skills challenge
• Growing global impact of Islamic finance and insurance: UK and GCC synergies
• GCC investment flows to third markets and role of sovereign wealth funds

Jason Peers, Chairman of the MEA GCC region, commented:

“The City and GCC Countries Conference has established itself as a key element in the flourishing relationship between the City of London and the markets of the GCC. Discussions at the Conference will be even more relevant this year, given the rapidly changing relationship between the major global economies and financial institutions, and the increasingly powerful and self confident economies and institutions in the Gulf.”

He added: “With Western economies experiencing a financial correction and an increasing volume of capital coming from emerging markets, global interdependence is becoming even more important. This Conference allows senior finance professionals to look to the Gulf economic markets for long-term stability and growth.”

“The Conference will bring together the dynamism of the Gulf within the maturity of the City of London,” said Michael Thomas, Director General of the Middle East Association. “It will be an excellent and high-level networking opportunity.”

ENDS

Notes to Editors :

1. The Middle East Association (MEA) is the UK’s premier organisation for promoting trade and relations with the Middle East, North Africa, Turkey and Iran. Its members cover all sectors of industry and commerce including: Banking, Financial, Law, Consultancy, Manufacturing, Retail, Education and Training, and are responsible for the vast majority of all UK investment and trade with the region.

2. Conference Lead Sponsor - Bahrain Economic Development Board:

The Bahrain Economic Development Board is a dynamic public agency with overall responsibility for formulating and overseeing the economic development strategy of Bahrain, and for creating the right climate to attract direct investment into the Kingdom. Bahrain Financial Services is a department of the Economic Development Board that is uniquely dedicated to the needs of the financial services industry. Its role is to increase the international profile of Bahrain as a leading financial and business destination and to provide a single point of contact for international financial services firms looking to build a base in the Kingdom.

3. Conference Lead Sponsor - Qatar Financial Centre (QFC) Authority:

The QFC Authority is the commercial, administrative and legislative body of the QFC which is responsible for driving its commercial strategy, developing its commercial laws and forging relationships with the global corporate community and other key institutions both within and outside of Qatar. The QFC is a financial and business centre established by the Government of Qatar and located in Doha. It has been designed to attract international financial services institutions and major multi-national corporations and to encourage participation in the growing market for financial services in Qatar and elsewhere in the region.. The QFC was created by Qatar Law No.(7) and has been open for business since 1 May 2005.

4. Confirmed speakers include:

• The Right Honourable The Lord Mayor of The City of London Alderman David Lewis
• Sir David Walker, Senior Adviser, Morgan Stanley
• Baroness Symons of Vernham Dean, Special Representative on Saudi Arabia to the Prime Minister and Vice President, Middle East Association
• Richard Thomas, Managing Director, Global Securities House & Chair, UK Advisory Sub-Committee on Islamic Finance
• Michael Ainley, Foreign Banks Regulator, UK Financial Services Authority
• Stuart Pearce, CEO & Director General, Qatar Financial Centre Authority
• Robert Ainey, Chief Executive, Bankers Society of Bahrain

[Pendry White, subsidiary of TPPR, is acting as media relations adviser to the Conference through the Middle East Association]

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The Bank of England made an 'almost unlimited' offer to acquire the banking sector’s mortgage-backed securities for up to three years in return for Treasury bills – apparently, a massive strike at the liquidity problem.

Or at least it was claimed to be 'almost unlimited' - the initial £50bn facility opened on Monday is widely regarded in the City as relatively small beer in the context of the crisis as a whole.

Conservative Economic Management

The purpose of the exercise for the Bank of England (although the Chancellor is sending precisely the opposite signal for political reasons) was not to encourage a revival in house prices but simply to stabilize the system.

Privately, City figures have been critical of the slow motion approach of the Bank of England which appears not to have adopted the Federal Reserve's determination to break any rule that gets in the way of keeping the system afloat.

What now seems to be emerging is a clash between the politically independent Bank and the Government over emphasis and, until this is resolved, the City is likely to be disappointed by the Bank's caution.

The Bank of England is essentially pressuring the banking system to get its own house in order and will permit the necessary correction in the housing market in order to restore confidence. It is buying time for the market to work, that is all.

Where the City is nervous is that management decision-making that proved flawed in the past cannot be guaranteed to be any better in the future - and all the num-nuts who were in place before the crisis are making decisions during it. Not good!

The Government, under enormous political pressure, is desperate to see the Bank’s funds work through the system and reduce the financial pain on hard-pressed working class and middle class families.

And so the Government talked direct to the mortgage lenders who have minimal incentive to do anything other than follow the Bank’s lead and hope for more later. They gave him little reason for optimism. 

The Great Correction

Low income and buy-to-let lending were central to the Government's project to solve the housing crisis through 'market solutions' rather than raise taxes for direct social housing investment. This project is now in tatters.

Worse, high growth in the UK was largely led by public spending (but tax will fall with writedowns, falls in corporate profits, lower sales and possible job losses), property (and now housebuilding has shuddered to a halt and there is oversupply of dinky, dodgy flats) and financial services ('nuff said).

Property and finance may be around 25% or more of national employment and over 30% of corporate profits. In other words, the 'correction' that is coming is potentially equivalent in these sectors to what 1929 was to coal, iron and steel and shipbuilding.

Within Europe, the UK is peculiarly vulnerable - a services rust-belt, a 'wastepaper basket' belt - with only London as Global City looking to the East, the lean and mean specialist industrials sector and the creative industries offering something to look forward to as they globalise.

In this context, there will be no politically necessary passing of taxpayer-underwritten credit to the banks back to the taxpayers themselves and repossessions will rise. 

The financial services sector simply needs the cash to survive. Indeed, small lender mortgage rates actually increased on the day of the announcement of the Bank of England facility.

It looks as if the bankers, whose collective managerial incompetence is second only to that of the Government and regulators, are going to get away with it at the expense of not only taxpayers but possibly shareholders and certainly those who were inveigled into credit out of financial ignorance or desperation.

Crunch Time For Politicians

Having removed those levers of power that were once available to the strong social democratic state, all the politicians can do is be a redistributive mechanism from the poor to the arrogant and incompetent 'rich'. Or so it will seem. They are left with no alternative.

In the end, Chancellor Darling and Housing Minister Flint were reduced to 'urging' lenders to review initiatives to help homeowners in difficulty (which rather shows where power actually lies).

If there is one thing that New Labour Ministers are habituated to it is 'spin' and the attempt to seize the headlines after the meeting was no exception. 

BBC Online told us in headline terms that homeowners would get mortgage help - "Homeowners will have enough support to ensure that their homes are not repossessed, the government says."

Two paragraphs down the reliable Beeb reports "But ministers did not outline how they would stop people losing their homes." In other words, they haven't a clue!

Failure to support the banks means a 'crash' and it may take a generation to put in the regulatory controls to stop a repetition - assuming, that is, that the ideologist of market solutions to social problems who dominate the political class even have the will to do so.

So, given a thirty year project to detach the State from the economy and then distort the market for social engineering purposes as compensation to the electorate, the bottom line is that we are stuffed. The Government has not got the tools to help even if it had the will.

The words 'pear-shaped' and 'swanee' spring to mind.

What We Have To Look Forward To

The scale of the problem in the transatlantic banking sector beggars belief according to our sources who are too professional to get depressed. 

Our interpretation of a private briefing at City Private Bank (historically conservative) established the following to our satisfaction:-

• There are problems in Europe but they are localized and Europe itself looks set to weather the storm
• The crisis in the US and the UK is systemic based on ideological and political conditions that led to the unsustainable credit boom
• The UK economy is in an utter mess but no-one outside the City has noticed the full scale of it yet – things will get worse and the adjustment could take from eighteen to thirty six months
• The Government finances are in meltdown and one factor not widely appreciated is that bank write downs are pulling very significant corporate tax revenue out of the system which is then having to be clawed back by such politically contentious measures as the withdrawal of the 10p tax rate
• Eventually, this implies a fire sale of assets like British Energy and, assuming no spread of the crisis to the East, the best national assets will be ready-made for SWF and other non-Western takeover as the crisis hits its peak

The possibility that, despite intense political resistance in the US (less so in the UK), major national assets in the FTSE-100 are going to get taken over by foreigners now needs to be faced.  Does this matter?

Many leftwingers and nationalists, grasping at straws, are probably going to be stupid and try to stop or slow this process. The time is long past for trying to protect 'national champions' - those who lived by globalisation are now going to have to die by globalisation.

Truly global players will rise above the melee while companies that are still on the way up and those in innovation sectors will become the new economic leaders.

It is the companies that the British most identify as theirs by right of brand, mostly in the services sector, that are going to be cherry-picked in a bout of healthy creative destruction.

An End to Gloom - The Good News

In fact, for all the job losses and asset-stripping, this creative destruction is probably a good thing, part of the wider global correction in which the UK is enabled to move forward into new sectors through the input of new capital.

The new overseas centres of capital accumulation and those who can exploit the new EU single market will acquire our services sector brands and do what we cannot - globalise them. Some, a few, British brands will be at the top alongside them - Vodafone for example.

In the end, there will be a recovery although Britain's relative importance as an economy will probably never be the same again even as prosperity returns.

The world will have changed forever and the only time British troops will yomp across faraway deserts by then will be under UN or EU orders. Since yomping around the world is one of the reasons we have failed to attend to domestic problems, the less yomping the better.

So not all is gloom. This is going to get very nasty economically and politically and the current Government really does not deserve to survive but innovation continues, London remains a world city and the City of London itself continues to progress in other areas.

A Success Story

Just to take one success story for which Gordon Brown can justly take credit - Islamic finance. A licence has been awarded to a fifth Islamic Bank, Gatehouse Bank. London’s leading role in Islamic finance in the West seems to be developing regardless of the credit crisis elsewhere.

The other four licensed banks are Islamic Bank of Britain (2004), European Islamic Investment Bank (2005), Bank of London and the Middle East (2007) and European Finance House (2008). No other EU country has yet licensed an Islamic bank and New York is now way behind.

Similarly, those London investors, always adaptable, who are nervous of the Atlantic economy are likely to be offered new opportunities to invest in stable (Bush Administration permitting) plays in the Gulf.

The Financial Times reports today [23 April] that Global Investment House, listed in Kuwait, Bahrain and Dubai, is said to be planning to raise $1bn in London.

GIH operates in sixteen countries, precisely in those Middle Eastern, African and Asian markets that underpin the more favourable attitudes in the market to global giant HSBC and niche player Standard Chartered.

What Scares Us

The scariest thing we heard in the last few days was not our Wall Street friend's fears for meltdown or the horrible details of banking ineptitude, but Hilary Clinton threatening to 'obliterate' Iran if it attacked Israel with nuclear weapons (a needless threat at this time as anyone who knows the region will tell you).

It is scary not because we believe she intends to do any such thing but that she felt it politically useful to get herself a decisive victory in the Pennsylvania primary. Private-mails from America have also showed a growing xenophobia against China - not criticism, downright xenophobia. 

All in all, the country that could not cope with the aftermath of Katrina and which is about to see a wave of repossessions and bankruptcies and has never dared to point the finger inwardly at itself (this is called 'optimism') is ripe for populist excesses externally.

In many ways, the economy is not what we should be worried about at all, but the political consequences (as in 1929). Let this correction take its course and we will come out of the end of the tunnel with a changed but rebalanced world that may serve us for another thirty years.

But what if the 'losers' get really scared and try to claw back respect and power through superior force? And what if the rising powers get greedy and try to capture resources through subversion? 

Then we are in truly serious doo-doo hoping, at best, for full employment in wartime economies and trusting in our ability to dodge missiles.

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According to polling, the British public started to get seriously gloomy about the economy last September. They have not got much cheerier since.

What The Bank of England Is Doing

The Bank of England cut its rate by a rather derisory quarter point to 5% yesterday, citing continued inflationary concerns.

It was a stark reminder that the Bank’s purpose is not to sort out relations between an almost ridiculously mismanaged banking sector and a disappointed and anxious populace but to keep the numbers straight.

Lurking behind this is the fact that, in order to reassure precisely those capital markets that now seem to have failed the nation, the Chancellor gave the Bank its independence a decade ago. He has no room for manoeuvre if he now regrets the decision.

In essence, the Bank is saying that a slowdown in business activity is a ‘good thing’ if it helps to bring down inflation.

So, if you are a small business dependent on credit, be warned – you are secondary to the maintenance of macro-economic stability in a world where growth rates well above 6% in the East are pushing up prices regardless of anything that might be done or not done by Her Majest's Government.

For example, OPEC continues to reject US and European calls for more production – the oil price was at $112 around about the time the rate cut was announced and there is no sign that it will fall much below that level this year. Staple food prices are also rising fast. Global gas is going in the same direction.

What HMG Says - Regardless of the IMF

The UK Government is claiming that the IMF's growth estimates for the UK [1.6% in 2008 and 2009] are too low and is sticking with its original estimates [av. 2.0% in 2008 and av. 2.5% in 2009].

Although history will tell who is right and who is wrong, the instincts of the population are probably with the IMF even if old Labour hands remember how the IMF screwed up Labour in the 1970s with incorrect assessments.

This difference of opinion with the IMF is important because it seems that it is the IMF that is sending signals about the need to reduce interest rates in the West while the UK authorities do not seem to have the same sense of urgency.

Things are getting scary out there as the crisis in the financial system leaches into the housing market and will soon cause problems in the so-called ‘real’ economy. So why are the Bank and the Government being so cautious?

Some economists certainly think that the Bank is getting it wrong. They think that it has underestimated the British economy's close link to the US economy.

The US is clearly slowing down. The argument is that its very aggressive rate cuts make the need for pre-emptive action within the UK far more important than caution.

The Bloody Banks Again!

The proof of this particular economic pudding lies in what is actually happening in the UK banking sector.

The markets scarcely noticed the Bank's interest rate move. The public and the media are getting dismayed that any changes made by the authorities seem to be designed to get the banks off the credit hook of their own making and that interest rate improvements are not being passed on to hard pressed mortgage payers.

Without getting conspiratorial, we must have the suspicion that the Bank is holding its fire because it thinks it may need to respond much more vigorously and dramatically later and that it needs to hold back as much as possible in order to give what it can when it really needs to.

As we write, there are widespread fears that British banking is entering into a new and more serious phase. The 'real' economy is going to be hit in any case but a major meltdown in the City would push the UK from the European (moderate growth) to the American (minimal growth) side of the equation.

The banks began this week to increase their borrowing facilities with the Bank of England in anticipation of another lending panic. Somewhere there may be a bank on the edge and the sector as a whole is trying to build up reserves at the Bank to deal with any consequent panic-driven cash calls.

We should be careful not to promote a scare. It is far too easy for outsiders to comment without those facts that cannot be provided precisely because, out of context, these facts may cause the very panic we all fear.

We seem to have no alternative but to give the Bank the benefit of the doubt for a while longer.

Looking To Save Their Skins

But this is now not only about the crisis but what happens after the crisis. The banks are acutely aware that a) their herd-like stupidity has created the crisis and b) many political interests will emerge to demand differing levels of control and regulation depending on ideology.

Already the banking sector is tentatively trying to manage the reaction by simultaneously apologizing (now de rigeur advice from PR consultants in order to take the heat off a client) and preparing the ground for resistance to the regulatory lobby.

Economists committed to the free market are already saying that, whatever errors took place, the banking system has (in effect) to be forgiven and saved because there is no alternative in a free market society. Some comfort for the poor, the jobless, the bankrupt and the repossessed!

The instincts of the New Labour Government are so embedded in the free market system inherited from the Thatcher Revolution that it would find it exceptionally difficult to do more than collaborate in international efforts to manage the globalization of capital.

In practice, international regulation is now going to be a process conducted at the grace and favour of the East. Non-Western sovereign wealth funds have not kow-towed to the regulatory impulse of the West but are beginning to demand equal treatment.

There are two ideological alternatives to the free market preferences of the leading political parties in the country and, until now, of Middle England – democratic socialism or social democracy on the one hand and, to the right, national populism.

Between these extremes are various mildly populist fixes and regulatory approaches that will irritate and discomfit the banks, but will not change the system by much and will certainly not turn the UK into a European corporatist state.

Housing & British Politics

Euro-corporatism is the fall-back position only in the event of the most obvious failure. The driver of British politics is, of course, the housing market.

Although not strictly comparable, analytical attention is turning to comparison with the 1992 recession – even the Prime Minister has used the ‘R’ word – that undermined the Thatcher revolution and led to a New Labour landslide in 1997.

In March, house prices fell by 2.5% nationwide (although they are still marginally rising in London). The political consequences will soon become ever more interesting.

Whether there will be a lurch to the left or the right ideologically will depend on how much Middle England fears repossession (not as a reality but as a lurking anxiety as inflation eats away at salaries that are not being increased), how much their children are forced to stay at home because they cannot get on the housing ladder, and how much those in their 50s and in work fear that the rest of their lives are going to be pauperized because their prime asset cannot be realized at the level they had expected.

Even the record lows of the sterling against the Euro have their effects. We should not worry too much about the tabloid headline stories about holidays costing 20% more than in 2007, but many middle class retirees expected to live better by moving overseas. Their disappointment will be of greater importance to their voting intentions than futile wars overseas.

First time house buyers without cash deposits or parental guarantee are now completely excluded from the British mortgage market. The next stage seems to be a limitation on the size of individual mortgages with Nationwide already capping at £1m.

These measures will tend to drive down starter flat and top-end middle class housing prices. However, a correction to the correction has already started – HSBC decided to match existing fixed rate deals for a period in order to increase its own 3% market share (low considering that it is the UK’s largest bank).

The political effects of problems in this market should not be underestimated. We are even seeing the first signs of some serious ‘red lining’ with credit agencies identifying those areas most at risk of negative equity.

What seems to be happening is that the entire country is being quietly zoned in ways that will work against future attempts to sustain social cohesion. This is a worrying development for a government already fighting a battle against organized crime.

Where Next?

Another major shift in politics (from New Labour to Conservatives) is, perhaps prematurely, postulated even if this may be just a case of rearranging the deckchairs on the Titanic.

Opinion polling shows a major collapse in confidence in the Brown Administration. There are also serious difficulties in the administration of the New Labour Party which may be placing it on the brink of a serious financial crisis. There are strong rumours of (admittedly early stage) splits within the Party.

Unless there is a meltdown of exceptional proportions (although we think that this is very unlikely), the political game for the next few years is one of shuffling the cards in order to make the system work despite public irritation and, in some sectors, anger.

Forcing through changes may result from competing factors that work against each other as much as they work against the current establishment consensus in favour of full globalization and the free market.

Within the establishment, there will be a powerful lobby for the intensification of financial regulation, if possible as a joint Western effort.

This is likely to be the mood of New Labour's establishment and be associated with a growing commitment to Europe, but it is likely to be resisted by the City and by the Tories. Only a very limited regulatory framework could achieve full bipartisan consensus.

New Labour is thus working against some powerful interests as it attempt to shuts the stable door after the horse has bolted. Its problems do not end there.

With little credibility in the street, it now faces a growing ideological revolt from its own Left, too weak to capture the Party or the nation but strong and angry enough to force the Government into half-baked populist measures and to threaten a split.

The trades unions (who are loyal to the Government) are said to be very worried by the intensification of moves to create what are, in effect, parties within the Party that may eventually split off and compete with New Labour in 2009. This is, after all, what has happened in Germany.

This only leaves the national populism of the extremist BNP. The BNP undermines New Labour working class votes more than it does those of the Tories and it potentially provides a menu of one-off ideas for a cynical Tory establishment to plunder as we near the election.

National populism against the banks is not a credible option in a country that remains a service economy dependent on the effective functioning of capitalism and on international trade, but it is not a negligible force in creating uncomfortable headlines in the right-wing tabloids as we get closer to a General Election.

And To Conclude ...

All in all, this is a time of considerable uncertainty.

We are still seeing aftershocks from the original credit earthquake. The management of the crisis means that the capitalist system can only be saved by privileging the fools over the victims – this is not justice but it is reality.

Once it is all over, there may be a lot of angry victims of banking greed, selfishness and stupidity. The British political establishment may soon descend into a period of vicious infighting designed to capture this anger for this or that faction.

It is inconceivable to believe that the credit crisis will not affect the outcome of the next Election.

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