Just back from church

Honestly. I go to Evensong once a month in our village church. Not many come. In fact, this evening 14.28714% of the congregation was the group chief executive of Barclays, who seems to come to church on the eve of the announcement of bad news, and rushes out before anyone can pin him down on the state of the financial system. It's not clear what the problem is this time, but here is an interview with the IHT from Friday.

Defending a bank's direction

Published: February 20, 2009

LONDON: As banks wrestle with the credit crisis, Barclays is also wrestling with a crisis of confidence. Despite having posted a profit of £4.38 billion for 2008, the bank is dogged by doubts about whether it will follow rivals in taking further write-downs or asking for British government help. In January, Barclays sent out an open letter asserting that it had no need for new capital and seeking to reassure investors that its assets were fairly valued.

At the eye of the storm is John Varley, group chief executive, who with Barclays's chairman, Marcus Agius, signed the letter. Varley spoke this month at the bank's headquarters in London. Following are excerpts from the interview.

For at least a year, the market has not believed that Barclays has marked down its troubled assets enough. Why do you think the market doesn't believe you?

Given the shocks that we have had in the sector over the last two years, I understand why people default to the most conservative view. The harshest test you can apply to the reality of valuations is the test of liquidation. Last year, we disposed of £9 billion of the sort of assets we're talking about at prices consistent with the valuations we had placed on them.

Why are you so intent on not taking government funds to increase capital?

When the government is committing British taxpayers' money, that creates, of necessity, a British taxpayer's agenda. Therefore, it's quite a different proposition for a bank that is British and has all of its activities in Britain to take government money. But for Barclays, 50 percent of our earnings come from outside the U.K. If we had taken capital from the government, it would have necessitated a significant change of strategy.

The French are just putting through legislation to limit bonuses for executives. Do you expect the same thing to happen in Britain?

I hope not. It is very important that banks are listening to the anger that's out there, but the idea that any industry has its compensation regulated is a distortion of the market. In France, it will influence the ability of the banks in question to run their affairs, particularly their employment affairs.

Many observers believe that lax regulation was, if not the cause of the current crisis, at least a major contributor. What is your view?

No amount of institution-specific transparency and no amount of institution-specific regulation or supervision would have prevented what happened over the past two years. The desirability of a more consistent cross-border review of systemic risk, not the construction of some super regulator, is one of the lessons we've learned.

Some see a new paradigm of financial services, where banks are essentially low-risk utilities and hedge funds and private equity, which are less regulated, take the risks. What is your view?

To me that would be a very bizarre outcome. Any material pool of money should be regulated. Banks as utilities is a sort of convenient rallying cry, but it's very superficial. Banks in the 1950s were elitist and they provided products to no more than 50 percent of the adult population in a country where they did business. The idea of the provision of steam-driven banking is a view that is completely out of date and inadequate to the needs of the world. Business customers want products to manage their risk and an aging population has investment and saving requirements.

Britain imposed a temporary ban on short-selling some financial stocks to calm the crisis. In the United States, so-called naked shorting, or selling a stock without buying the shares later, has been outlawed. Do you think the reaction against short-selling was justified?

Shorting is a desirable and natural activity in a normal market. But at a rather a sensitive moment, the maintenance of the ban in the U.K. would have been helpful.

UPDATE: It looks like it must have been the Citicorp equity injection from the US Government, either that or it could have been the announcement of a £ 3 billion government backed bond issued by Barclays and JP Morgan, 2 year paper priced at swap rate plus 35 bp.

Ah those were the days, when even a crummy aerial bus service such as the world's tawdriest airline could raise 10 year debt from banks at 27.5 bp, without any government backing, and long term gilts were 50 bp or more under theswap rate.