Caption: Justin Urquhart Stewart of Seven Investment Management
Justin Urquhart Stewart shares his views on the latest Libor scandal...
"Well what else can we say that has not already been said and written about the bursting LIBOR scandal? Probably nothing but I need to vent some frustration. The surprise shown by some in the banking world, frankly I regard as being just as scandalous; we have known that there have been 'issues' surrounding the system of setting the LIBOR rates for many months.
The polite mechanism of phoning around for rates is delightfully archaic, but perfectly workable in a rather bumbling British way so long as we all had 'jolly good responsible chaps' playing by the rules. This pleasantly simplistic attitude is of course somewhat naive, especially when responsible participants are replaced by rapacious dealers ready to rig the market for their own ends. Combine this with either ignorant or ineffective management and you have the makings of a perfect financial fiasco. I may hark back to a seemingly golden gleaming, albeit illusory, era of "Dictum Meum Pactum" (My word is my bond) in comparison to where we are now, when some people's word is about as reliable as a sub-prime bond.
The memories of halcyon days improve with age, and sepia photographs of men behaving well hide the significant shortcomings of that time, but that is no excuse for the lack of maintenance of the most important word in business and especially in the world of finance, banking and investment - integrity.
There is a right way to behave, and all of us excepting sociopaths, have the judgement to know what that is. This situation has arisen not just because of the behaviour of certain traders and dealers whose animal instincts will take over unless restrained; it is down to ineffective and unintelligent management.
I have met some who have shrugged their shoulders and feel that this sort of thing is inevitable. Well it is not. Those involved can stand up and say no, and those with the courage of their convictions will get up and go and find a better and right way of doing business.
My main fear is not the reputation of a single bank or banker, or even the rest of them as this tawdry tale is told over the forthcoming months, it is rather the reputation of the United Kingdom as a professional and reliable financial services centre. This industry is a vital component of the UK economy and needs to be treasured, cherished and developed, and not left to be abused by greedy short-termists with no view to their place in society and the impact on the economy.
LIBOR is not an esoteric financial construction, but a fundamental building block of the financial system and impacts on private lives just as much as corporate ones. Everything from personal loans to mortgages can be affected, time then for the serious redesigning of the LIBOR structure. Now we need to see a well structured process of interest rate formation which is reliable, viable and can rebuild sound confidence in the operations and functions of the UK banking and financing system.
So when does a chief executive resign? When you have trashed the share price, the dividends and the brand? What is the responsible thing to do? Not hard I think."
Justin A. Urquart Stewart
Seven Investment Management Limited
This article represents a personal and light-hearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.