“For the good of his own reputation as well as that of his institution and British banking, Mr Flint should go.”
So wrote Robert Jenkins, a former member of the Bank of England’s financial policy committee in the FT on Wednesday, calling for Douglas Flint, chairman of HSBC, to resign.
Jenkins was considered something of a maverick during his time at Bank (he wasn’t invited to serve a second term) but his intervention is significant. He asks an important question about HSBC’s real commitment to the principle of accountability.
HSBC is dismantling a “federated” corporate structure that it blames, in part, for its failings in Switzerland and Mexico. Yet Flint was a member of the board that maintained that structure even after HSBC bought Republic and Safra banks (in 1999) to form its Swiss private bank and then purchased the Mexican bank (in 2002). He was finance director at the time.
Of course, an entire board sanctions purchases but, as Jenkins says, “it would be an odd board that made such acquisitions without the specific blessing of its finance director”. Indeed. And Flint was a member of a board that thought the old structure could handle the obvious risks.
Flint, as chairman, is in the strange position of overseeing the clean-up of a mess created by a board of which he was a member. Is that really credible? “Restoring accountability at every level of the organisation will be crucial to success,” says Jenkins, inviting Flint to go.
There is no sign whatsoever that HSBC’s board will issue its own invitation. But there remain questions to be answered about how much due diligence was conducted on the Safra purchase, and what safeguards were installed.
These subjects were skirted over in the Treasury select committee’s hearing, which was (understandably) mostly forward looking. And the public accounts committee concentrated its fire on non-executive director Rona Fairhead, former head of the audit committee.
But the sheer number of tax cases arising from HSBC in Switzerland mean MPs will surely return to the subject, albeit probably in the next parliament. Nobody should doubt Flint’s commitment to reform or the sincerity of his apologies of behalf of the bank. But he is in an uncomfortable position. Jenkins has put the accountability question on the agenda and it won’t go away easily.
Well played, Domino
Another fine old piece of UK industrial infrastructure being flogged off unnecessarily? Not exactly. Domino Printing was founded only in 1978. It came to the stock market in 1985 and has given its shareholders an excellent run with 25 years of unbroken dividend growth. It also has sound reasons for agreeing to be taken over Japanese group Brother Industries for £1bn.
In short, the competition is getting tougher in the specialised world of digital barcode printing. As chairman Peter Byrom puts it, the market is attracting “a new breed of competitor with significantly greater scale and financial firepower than Domino”.
Against that backdrop, selling out at an all-time high for the shares represents a decent result. Brother seems as good a buyer as any, and certainly doesn’t want Domino merely to eliminate a competitor. The Japanese group is valued at £2.8bn so a £1bn cash purchase represents a serious commitment.
Purists might quibble that the takeover premium – just under 30% – is not as fat as in some deals. True, but a take-out price of 23 times last year’s earnings is not a snip and there’s a chance that a US competitor will make a counter-offer. Domino’s management seem to have handled this sale well.
Cairn has Indian tax fight on its hands
India, under business-friendly prime minister Narendra Modi, doesn’t want to pick fights with foreign companies over tax, right? Only up to a point. Cairn Energy has just been slapped with a $1.6bn demand, roughly its entire market capitalisation.
Cairn chairman Ian Tyler had been chatting only this week about how Modi’s BJP government saw retrospective tax legislation as sending a “negative signal” to international investors. So the escalation of his row, which started a year ago, is a surprise.
One possible explanation is the Indian government and its tax officials don’t see eye-to-eye. Another is that the Indian authorities think they have a solid case.
The Scottish company disagrees strongly and will fight its corner. It has operated in India for 20 years, invested $5bn in the country, and thinks it has been scrupulous in observing the rules. Whatever the cause of the dispute, the 15% fall in Cairn’s share price reflects one unarguable fact: these things are rarely resolved quickly.
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