ALEX BRUMMER: Bailey’s FCA blunders warn of zigzags to come on rates

The collapse of Blackmore Bond, gobbling up £46million of the savings of ordinary citizens, may not rank in the first division of financial scandals.

Investors, lured in by the promise of 10 per cent returns when Bank of England rates stood at 0.5 per cent, should have smelled a rat.

Nevertheless, the BBC Panorama investigation will bring back uncomfortable memories about Andrew Bailey’s stewardship of the Financial Conduct Authority (FCA).

Bailey was encouraged to leave his post as banking supremo and deputy governor at the Bank of England to take up the poisoned chalice of the FCA on an informal understanding that when governor Mark Carney left Threadneedle Street, he would have the inside track on taking the job. And so it transpired.

Bailey left behind him at the FCA a series of unexploded bombs, of which Blackmore is just the latest.

In March 2021, he ended up in an unedifying dispute with former Court of Appeal Judge Dame Elizabeth Gloster over the failure of the £237million London Capital & Finance group. 

Gloster challenged Bailey’s claim that he was not given opportunity to respond to criticism. She also revealed that he sought to have his name and that of his fellow officials expunged from her report.

The most damning of the financial blow-ups to take place on his watch was the closure of the Neil Woodford’s £3billion-plus investment empire with its hundreds of thousands of savers (including this writer). 

Some three years on, the investigation by Bailey into the events leading up to the failure, and the FCA’s role, is still to be seen.

The way in which UK regulators from the FCA and the Bank tackle risk outside the perimeter of formal responsibility is the subject of searing criticism by former-deputy governor Paul Tucker.

At a private event attended by Bailey and some of his predecessors (and reported by the FT), Tucker urged regulators to tackle issues around shadow banking, such as bond funds and crypto-currencies, as systemic rather than specific risks. 

No one should underestimate the task of regulation at the FCA, with as many as 60,000 firms under its direct or indirect supervision.

Yet there remain questions why the Treasury and Boris Johnson chose to go with Bailey as governor in December 2020. His FCA record was glossed over. The great inflation may be unavoidable. But the governor’s lack of foresight at the FCA could and should have been an early warning of zigzags to come on interest rates.

Cyber viper

The shadow of Mike Lynch and Autonomy hangs heavily over Darktrace.

Private equity princeling Orlando Bravo might well consider a conversation with Meg Whitman, former chief executive of Hewlett Packard (and now US Ambassador to Kenya), before rushing his firm Thoma Bravo into an offer.

After all, Darktrace is the product of loans from former Autonomy finance chief Sushovan Hussain who has been convicted of fraud over the sale to Hewlett Packard. Lynch (seen lunching at a fashionable London eatery yesterday) is avoiding extradition for similar alleged crimes courtesy of Priti Patel. 

Darktrace boss Poppy Gustafsson is a Lynch protege and his investment vehicle Invoke is a key stakeholder. 

The Darktrace valuation of £2.7billion, after a surge in the share price, recognises the value of its premium cyber-security software. 

But it is hard to ignore analysts’ criticism of Darktrace’s aggressive marketing, customer churn and sub-optimal R&D spend.

Hailing as he does from California, Bravo will be more than well aware of the pitfalls of buying into slick tech marketing narratives. 

This may all prove academic anyway. It is hard to think that a government headed by Liz Truss, armed with the National Security and Investments Act, will allow Darktrace to be the latest catch to get away.

Grocery bill

The £10billion Clayton, Dubilier & Rice buyout of Morrisons may prove the worst big public-to-private deal of this economic cycle. 

There are marked similarities with Guy Hands’ takeout of EMI just before the financial crisis struck. 

Year-on-year, the supermarket’s market share has plunged to 9.3 per cent, according to the latest data from Kantar, even though sales are robust.

In contrast, the German no-frills retailers Aldi and Lidl are booming and control 16.1 per cent of the market between them. That puts them ahead of Asda and Sainsbury’s.

The interlopers are rampant.