EFTA Document EFTA01794140

From: Peter Mendelson Sent: Sunday, August 12, 2012 8:18 AM To: Jeffrey Epstein Subject: FW: CityUk and the future of the UK finance sector Below is s=mething I have sent to the incoming chairman of CityUK at his request and =hich is useful for you to read. It reflects my view of what every bank CEO needs to focus on. Peter<=span> From: Peter Mandelson Date: Sun, 5 Aug 2012 22:50:04 +=0100 To: 'Gerry Grimstone Cc: Benjamin Wegg-Prosse , Geoffrey Norris Subject: CityUk and the future of t=e UK finance sector Dear Gerry Stephen Adams It was go=d to see you on Friday. It hardly needs saying that you are taking over th= chairmanship of CityUK at a difficult but crucial time for the sector given the huge political and public pressu=es, the new regulatory demands and the changes in governance and business =odels required to recover from the mistakes of the past. You suggested we =ight offer some preliminary thoughts on the nature of the challenge and we are happy to do so as we all realise=the vital need to secure the UK financial sector and London's pre-eminence= The basic problem is self-evident. T=e LIBOR-rigging scandal has set back whatever incremental gains the bankin= sector had made over the last three years in re-establishing public trust and political patronage. It has ceme=ted a perception of investment banking, and securities trading in particul=r, as inherently risky and culturally unacceptable. The PPI and interest r=te swap mis-selling problems compound the perception of an industry whose view of its customers and cli=nts needs fundamental reshaping. Although these are not new problems in fi=ancial services, in the public mind they are indelibly associated with 200= and the banking sector's culpability for the current economic crisis. If anything, European continental feeling= are even stronger and this will be reflected in fresh regulatory pressure= from Brussels, whatever the conflicting interests apparent in Paris and B=rlin. EFTA_R1_00128019 EFTA01794140 For understandable reasons the recto= has had difficulty since 2008 with the notion of collective responsibilit= for conduct before the banking crisis. There is a palpable impatience at all levels of the industry with continue= public antagonism and criticism. Yet the political and public desire for =ccountability is instinctive and strong, and is being actively reinforced =y competing electoral trends and strategies. This is of course why the subject of pay is so combustible. Sectoral leaders who are not sensiti=e to this, or who try to suggest that problems are isolated to a few uneth=cal individuals or failed institutions, are likely to trip up, not least because the steady flow of the Tyrie Comm=ssion's work and LIBOR-related sanctions and prosecutions will send the =pposite signal. It will fall in part to CityU= to bring home this reality to its members and to lead with a strategy tha= balances a clear defence of the sector's value with a realistic underst=nding of just how far its credibility has been damaged. This is a difficult path to tread. Nonetheless, if CityUK does not navi=ate this course and insist on the positive value of the sector to the UK e=onomy, few others will. One of the problems is finding articulate and courageous exponents from amongst banking's lead=rs who are prepared to speak up in a balanced and persuasive way. The trad=tional trade association approach of pointing to jobs created and taxes pa=d risks looking irrelevant if it does not register a debate that is shifting onto the ground of culture and=ethics. The questions put implicitly to the sector will increasingly focus=on what these jobs involve, how their profits are made and in what spirit the taxes are paid.<=o:p> One of the temptations of banks is l=kely to be to throw money at high profile CSR work, which risks being sing=larly counterproductive in dealing with a critique of their business models. For managers accustomed to being meas=red by returns on equity, these more qualitative benchmarks may be difficu=t. It seems to us that part of C=tyUK's work is in challenging the way its members approach this changed =andscape. One of the marked tendencies of City=K's membership has always been to try to outsource the sector's image =o the organisation. Although visible CityUK leaders are vital, CityUK should chiefly be a facilitator for bringing sta=eholders and City practitioners together and encouraging a common cause to=emerge. Indeed, one of CityUK's key roles should be identifying and cult=vating a new generation of sectoral leaders comfortable and credible on this ground and encouraging them as sp=kespeople for the sector. The sector's past narrative became all togethe= too self-satisfied. It should start with a sense of humility, acknowledgi=g its massive responsibility for economic growth and stewardship of our assets and savings. These things ar= genuine and durable comparative advantages but only with the highest ethi=al standards and quality of governance. Aside from thesequestions of culture=change, it seems to us that the European issues loom very large for Britai=. Financial regulation has already been moved to the European level, with bodies like the PRA and the FCA largely =upervising the application of European rules. The coming year will see the=outlines of a banking union negotiated for the Eurozone. If the UK is to r=main outside this union then it needs to do so with a clear understanding of the consequences. The City'= often aggressive posture on regulation 'from Brussels' has sometimes =eemed indistinguishable from euroscepticism and has often been interpreted=as such by politicians and by Brussels. In reality the City's interests in a single market for financial service= in which Britian exercises genuine influence are much more complex than t=is and have not been well communicated to politicians. This needs to be a =riority. Finally, as you noted, we have to be=pragmatic about the diversity of interests represented by CityUK. The insu=ance and fund management industries rightly resent the fact that they are often bracketed with the banks. Moreover, th= 'independent' global banks resent being bracketed with the banks that req=ired direct support from the UK taxpayer. Even, the investment banking div=sions of global banks resent the image created by the supposed values of their institutional trading floors= Speaking for this group of sub-sectors is not easy, especially as members=are instinctively distrustful of each other and competitive as a matter of=course. It is not realistic to expect the in=urance or accounting industries to sign up to a narrative of culture chang= to the same degree as the banks, but this should not become an argument for trying to circumvent the tough ques=ions concerning 2 EFTA_R1_001 28020 EFTA01794141 behaviour. 'The City' is a single ecosystem and this i= how the general public instinctively understand it. Trust matters profoun=ly to every part of the system, even if they have forfeited it in radically different degrees. At the end of the day, politicians are looking for a vision of a financial sector and bankingsystem that fits w=th their instinctive desire for an economy that is more sustainable, less short-termist, less leveraged and more focu=ed on productive investment. CityUK's challenge is addressing this appet=te for change and renewal without accepting the simplistic view of finance=held bysome in politics and the media. This is actually a fascinating challenge, probably the most important faci=g the UK and our future economic strength. I look fo=ward to continuing this conversation with you and your colleagues after th= holiday period. Very best=/span> Peter&nbs=; =0:p> Chairman</=> 1 Knightsbridge Green, London SW1X 7NW<=b> www.global-counsel.co.uk <http://www.global-counsel.co.uk/> Disclaimer This email and any attachments to it may be confidential and are intended s=lely for the use of the individual to whom it is addressed. Any views or o=inions expressed are solely those of the author and do not necessarily rep=esent those of Global Counsel LLP. If you are not the intended recipient of this email, you must neither take=any action based upon its contents, nor copy or show it to anyone. Please =ontact the sender if you believe you have received this email in error. Gl=bal Counsel LLP is a limited liability partnership registered in England with number OC359787, registered office =7 Farm Street, London WU SRJ. 3 EFTA_R1_00128021 EFTA01794142 4 EFTA_R1_00128022 EFTA01794143