Millionaire Mandelson picks Tory banker to oversee Royal Mail sell-off

Solomon Hughes reports in the Morning Star:

PETER Mandelson has picked a new post boss. His choice of Donald Brydon as new chairman of Royal Mail shows that, when in doubt, Labour reaches for a banker.

Brydon will get £200,000 a year for his two days a week at Royal Mail. This might seem like a lot to you or me, but he has become used to big money from his long banking career.

Brydon started off with a 14-year stint at Barclays, followed by a job as chief executive of Axa Investment. He still sits on Axa’s board, although he stepped down as CEO in 2002.

He has always been an outspoken banker, but unfortunately spent a lot of time getting it wrong in a loud voice.

In 2003, leading investor Warren Buffet was predicting that complex financial derivatives were “financial weapons of mass destruction.” Buffet is not a radical – he is one of the world’s richest men, equally happy helping Arnold Schwarzenegger or Barack Obama.

But when Brydon heard Buffet’s warnings, he felt the urge to speak out. He seems to have been particularly worried that criticism of the financial system had come from within, from a businessman like Buffet.

Brydon chose to respond at a joint conference of British and US bankers. “We all need to be on guard lest regulations stifle initiatives in the retail application of derivatives,” he warned.

With his help, the meeting turned out to be something of an anti-Buffet rally, with other speakers denouncing Buffet as “frustrated.” As it turned out, Buffet was right and Brydon was wrong.

Brydon also felt the need to stand with then US Federal Reserve chairman Alan Greenspan against the critics of derivatives.

In 2003, Brydon claimed that, “as investor confidence has been rocked so the importance of risk mitigation instruments such as derivatives has increased.”

But derivatives actually added to the instability of the system – had they been properly regulated in 2003, we might not be in the mess we are in now.

Brydon’s worries that derivatives might be reined in stemmed from his general broad dislike of regulation.

He was also head of the Financial Services Authority “practitioner panel,” a group of bankers brought in to advise Britain’s financial regulator.

Unfortunately, their voices were heard all too well. The FSA remained deferential to the bankers and failed to stop the financial recklessness that caused the current crisis.

Brydon used his place on the panel as a pulpit from which to attack the “regulatory burden” and argue for the “need to remain vigilant that, in developing regulation, a point of no return is avoided where innovation, flexibility and competition are threatened.”

His own firm Axa showed why tighter regulation should have been imposed. In 2003, Axa Investment boss Brydon argued for less FSA regulation. In 2004, the FSA hit sister firm Axa Sun Life with a record £500,000 fine for misleading customers.

Mandelson described Brydon as “a proven business leader and successful chairman.”

Brydon’s experience certainly extends beyond banking. Unfortunately, he seems to have brought a banker’s mind to his industrial jobs.

He became chairman of high-tech medical firm Amersham and sold the company to US giant GE. He then became chairman of engineering firm Smiths Industries and promptly sold off its aerospace arm, again to GE.

The Independent was driven to say: “The former fund manager seems to be developing something of a knack for selling British publicly quoted assets at supercharged prices to overseas concerns.”

Subpostmasters and posties will not be reassured by a new boss who loves to flog things off.

Like many new Labour appointments, Brydon is also a longstanding Tory. As a student, he was president of the Edinburgh University Conservatives, befriending fellow Tories such as Malcolm Rifkind.

In 2001, he signed a letter to the press describing Ken Clarke as “the best hope to lead the Conservative Party back to government and create the social and economic climate necessary for business to flourish.”

Obviously this is handy, because Ken Clarke is likely to be his boss after the next election.

Unless of course the plans to sell-off our postal service, and other unpopular ideas, are dumped along with slimeballs like Mandelson.

What more evidence do you need? Does this sound like a Labour man to you… the man is a millionaire who helps out his fellow millionaires – to hell with the rest of us. Get this:

The Business Secretary has refused to reveal detailed information about his financial affairs despite the possibility that they could directly influence his ministerial decisions.

Instead, he has declared only that his “financial interests have been transferred into a blind trust”. The contents of the blind trust – which may include shares, properties and other investments – remain secret.

The existence of Lord Mandelson’s blind trust came after the Cabinet Office released a list of minister’s financial interests. The interests are those declared by ministers to Whitehall officials.

It is the first time that the list has been released and only interests “which are, or could reasonably be perceived to be, directly relevant to Ministers’ public duties” have been publicly disclosed.

The Business Secretary is one of five Government ministers to have set up blind trusts. The others are Ben Bradshaw, a health minister; Lord Myners, the City minister; Lord Davies, the trade minister; and Lord Darzi, a health minister.

A further nine ministers, including five members of the Cabinet, also disclosed that their spouses or close relatives are “consultants”. Few details about who they work for are revealed, raising questions about potential conflicts of interests.

Blind trusts have traditionally been set up to allow ministers to put their financial interests at arm’s length. Trustees are appointed to manage the trust and ministers are not supposed to have any role in deciding whether and when investments are bought and sold.

However, the arrangements have been criticised in the past. Tony Blair set up a blind trust after becoming Prime Minister. However, it later emerged that Mr Blair’s wife, Cherie, had directed the trustees to use the trust to buy two flats in Bristol.

Lord Sainsbury, the former science minister, also set up a trust to hold his multi-billion pound stake in Sainsbury’s supermarkets. The shares were not sold while he was a minister.

Officials have conceded that ministers will be aware of the investments held in the trust and that such an arrangement may present a “conflict of interest”.

Last night, it emerged that Gordon Brown revised the ministerial code to remove specific guidance to ministers on blind trusts. The official code of conduct previously warned that ministers with trusts may have to step aside from decisions related to their financial affairs.

The previous code stated: “It should also be remembered that even with a trust the minister could be assumed to know the contents of the portfolio for at least a period after its creation, so the protection a trust offers against a conflict of interest is not complete…In some cases, it may not be possible to devise such a mechanism to avoid actual or perceived conflict of interest.”

All references to blind trusts have been removed from the revised code of conduct drawn up by Mr Brown after becoming Prime Minister.

Westminster insiders have expressed surprise that the Business Secretary, a career politician, is wealthy enough to justify establishing a trust.

Accountants believe that Lord Mandelson must have assets worth at least £500,000 and probably more than £1 million to make it worthwhile setting up a complicated trust. Annual fees must be paid to accountants and lawyers running the trusts.

Mike Warburton, an accountant who runs trusts at Grant Thornton, said: “I suspect the trust is going to be in excess of £1 million or why bother. The concept of a blind trust has always struck me as a bit dubious as you are only going to appoint a trustee who is someone you know pretty well and trust.”

How to get credit flowing? Nationalise the banking sector, say Tories

(Only kidding about the Tories bit! The rest of it is true, but please, stay with me…)

Wonko, for one, is not happy. No wonder: Paul Mason noted that on Friday

Wrekin Construction – a business with £50m of orders reportedly on its books – went into administration. It told the press that RBS had refused to extend an overdraft: it needed £3m. Now 600 civil engineering and railway construction jobs are at risk – and we’re supposed to be in the middle of a government-driven civil engineering boom.

It was partly Paul Mason’s insightful post that made me pen the following comment atDuncan’s Economic blog

Arguably the best way to get credit flowing again is for the banks to be nationalised. I think this worked in Sweden quite well and here’s why:

Commercial decisions will still be made on who to lend to and at what cost to the lender – but public ownership will get around the one big obstacle, which is that the people running banks are looking to provide returns to the owners and so make decisions on lending in a different way. Instead of being cautious about lending because they are mindful that their job is to give a return to investors, they will be more eager to lend, but nonetheless mindful of risks, etc. We can see the government has reversed its previous policy with Northern Rock.

With public ownership it’s not about the sectional interest of shareholders (or even, the government as shareholder) but about the interest of the whole of our economy in the long term – ensuring that productive enterprises get the financing they need.

The big problem with all of this will be the EU’s rules on these matters. Sweden’s banking crisis and it’s recovery happened prior to the country becoming a member of the European Union. The political right likes to paint the EU as some kind of warmed-up Soviet Union, but in fact EU institutions would probably oppose nationalisation of the private banking sector on several grounds (competition rules, the rights of shareholders, etc.).

Now, it’s the kind of measure that might need EU approval, and might take a damaging length of time (look at the govt assistance to our car manufacturers – it was held up while the European Commission vetted it). But the government will have to be tough and say it will take the consequences from the Commission.

As to the future ownership in the banking sector, I think we would be wise to learn the lessons of this crisis: the shareholder-as-owner has proven dangerous.

Which financial institutions have been responsible and have not needed public money to bail them out? The building societies, owned by their customers: no one expects from building societies anything other than boring banking – no financial wizardry. Indeed, many of the failed institutions were once owned by their customers – Bradford and Bingley, Halifax, Northern Rock, etc.

As a customer and member of a building society, I don’t ask much more than a good service, either as a lender or saver; I certainly don’t demand of the people running it that they come up with more ways of making money. Now it might be argued that this kind of old-fashioned high-street banking doesn’t apply to the financing of bigger businesses – but my question would be, why not?

John Lewis Partnership – socialism in action

As capitalist-owned enterprises lay off workers and cut wages, the worker-owned store John Lewis – consistently voted one of the best for customer service by consumers – pays out a 13% bonus to staff. Why? Because they own the business – they won’t be asking themselves to take a pay cut!

I’m not saying that John Lewis is some kind of paradise in a sea of exploitation – it isn’t, but clearly, workers owning the enterprises in which they work is no impediment to building successful businesses (sales are up!) and responding to consumer demand (Waitrose are brining out a budget range, for example) whilst at the same time “sharing the proceeds of growth”, to coin a phrase.*

From Wednesday’s Guardian:

The annual bonus paid to John Lewis’s 70,000 staff has shrunk by almost a third after profits at the partnership were hit by the recession.

But staff still cheered the news that they will receive a bonus of nearly seven weeks’ pay, down from 10 weeks’ pay a year ago.

Because John Lewis is owned by its staff, every one of them – from the boardroom to the shop floor – receives the same percentage payout. This year it is equal to 13% of basic salary for staff at the Waitrose supermarket chain and John Lewis department stores.

At the John Lewis store on Oxford Street this morning, more than 1,000 shop staff hung over the balconies to learn what their annual bonus would be.

In the well of the atrium, Noel Saunders, managing director of the store, worked the crowd like a game show host, hinting the highest partners could expect was a 12% payout.

At 9.28am, as partners counted down from 10, his assistant Paul Thomas – who has worked in the floor coverings department for 20 years and was selected for scoring excellent results from mystery shoppers – fumbled with the envelope before pulling out a giant card bearing the figure 13%.

As customers peered through the doors, partners erupted, celebrating the bonus payment after a tough year on the shop floor.

The total bonus payout for 2008 is £125.5m, down from £180m for 2007.

“The key difference is this is a genuine bonus based on profit-sharing,” said Andy Street, managing director of John Lewis. “The word ‘bonus’ has become discredited in the economy, but for us it is something to celebrate. Our partners have worked harder than ever to achieve these results.”

The feel-good atmosphere pervaded all six floors with no grumbles from partners that the bonus fell short of last year’s bumper payout.

“Last year, 20% was a fantastic result, but in the current climate we are really happy to get a bonus as we see people around us losing their jobs,” said Charlotte Deane, who will use her bonus to catch up with her sister, who is travelling in California. “However much it is, it is a bonus, not a benefit, and I feel lucky to get it.”

Most staff canvassed expect to use the extra cash on a holiday. Indira Vakeria said she was planning a trip to India to visit her parents. “We are really pleased with 13%,” she said.

The company reported that its profits fell by 26% in 2008 to £279.6m. Chairman Charlie Mayfield warned that 2009 would be “another very difficult trading year”.

“Trading conditions worsened markedly during the year as the problems in the financial sector reduced consumer confidence to a low level,” he said.

The partnership conceded it would no longer be able to hit its target of opening 10 stores in 10 years. It has already opened four, including branches in Liverpool and Cambridge, but beyond its new Cardiff store this autumn, and a shop at the Olympic site in Stratford slated for 2011, it said its aggressive growth plan would be “delayed”.

The company said it remained optimistic that two stores across the Irish Sea, one in Lisburn in Northern Ireland and one in Dublin, would open as planned but warned that other projects, including stores in Crawley and Portsmouth, might be held up. Retail schemes around the country are being mothballed as property developers grapple with funding shortfalls and collapsing asset values. Mayfield said the retailer was “working actively with developers to maintain our rate of growth” and remained committed to the expansion plan.

It is just over a year since John Lewis first admitted that its sales were being hit by the high street downturn. By the autumn, when the UK economy was contracting, the company was reporting double-digit falls in weekly sales.

* Please, don’t misunderstand me, I doubt that the Tories – expected to win the next UK election – will fulfill their promise of “sharing the proceeds” by forcing Tesco to become a cooperative. This is something the unions need to take up with New Labour, though…