Mark Kleinman: Thames needs to clear murky waters to restore credibility
Mark Kleinman is Sky News’ City Editor and is the man who gets the Square Mile talking in his weekly City AM column. This week he tackles resetting Reeves, Thames Water and challenges for challenger banks
Reeves’s post-reset reset may need new faces at City regulators
How about a post-reset reset? Such has been the turbulence of Labour’s first four months in power, culminating in last month’s controversial Budget, that question is hardly invalid.
Tonight [Thursday], Rachel Reeves has the chance to show in front of a prominent City audience that the Treasury on her watch won’t be all stick and no carrot.
In her speech at the annual Mansion House dinner, the chancellor will trumpet plans to force the consolidation of local authority pension schemes, set out a government vision for overhauling Britain’s payments infrastructure and reassessing the role of the Financial Ombudsman Service in delivering consumer redress.
One of her other priorities is likely to be the sharpening of financial watchdogs’ focus on their secondary competitiveness objectives. That’s logical, given the prime minister’s attempt to tackle the subject in his speech at the International Investment Summit last month, when he pledged to align the Competition and Markets Authority and other regulators with the government’s growth agenda.
So – as I reported earlier this week for Sky News – expect the sidelines of tonight’s dinner to be filled with chatter about the future leadership of the Financial Conduct Authority and the Prudential Regulation Authority.
The first five-year term of Nikhil Rathi, chief executive of the FCA, expires in the early autumn of next year, and there’s not a senior figure anywhere in the City who expects him to seek, or be offered, a second term. Rathi has had a chequered time in Stratford, with the row over naming and shaming those subjected to enforcement investigations causing significant tensions with both industry and government.
Assuming he doesn’t stay beyond September 2025, one obvious successor is his PRA counterpart, Sam Woods, whose second term runs out in June 2026. He is ineligible to serve for a third, so if he fancies a crack at replacing Andrew Bailey as Bank of England governor in 2028, he might be best-placed to do it from an existing regulatory job.
The Treasury, understandably, won’t comment, but these critical personnel matters will occupy a lot of brainpower in the next, crucial, 12 months. The identity of the regulators’ next bosses matters.
Thames needs to clear murky waters to restore credibility
Every penny counts: that’s the phrase which should be uppermost in the minds of Thames Water directors as they contemplate the narrow path to a solvent rescue of Britain’s biggest water utility.
In one corner, a group of class A bondholders, including Elliott Advisers and Silver Point, speaking for roughly £12bn of Thames Water debt; in the other, a much smaller (by value) syndicate of B bondholders, including BlackRock (which is also represented in the A group) and Polus Capital.
Both have tabled proposals to the company to provide £3bn of emergency liquidity, but half of the A group’s money is highly conditional, and is significantly more expensive. Indeed, sources say that its original proposal, since revised, would have effectively barred Thames Water from paying fines levied by Ofwat, the industry regulator, without creditor approval.
The precise difference between the two lender group’s bills is hazy, but most agree that it would be in the hundreds of millions of pounds. Nevertheless, the A group has a point when it argues that its deal is easier to get over the line, particularly after yesterday’s announcement that it had secured the necessary 75 per cent backing.
The company has yet to respond meaningfully to the B group’s proposal, but one wonders what it’s waiting for, given that the utility’s own board said it did not have the time to hang around waiting for a fully financed rival offer to emerge.
Might it have something to do with the fact that the A group has paved the way for a new management incentive plan as part of its recapitalisation blueprint? Probably not, because the B debtholders are said to have included similar leeway in their own documents. Nevertheless, the one-sided engagement of Thames Water is curious. More transparency – or to put it another way, less murky water – is needed, fast.
Challenger banks prove a challenge in Tandem
Britain’s challenger banks have certainly proved challenging – mainly for their investors. As NatWest Group follows the path laid by Lloyds Banking Group back into full private sector ownership, some of the lenders created out of the wreckage of the 2008 banking crisis are still struggling for meaningful scale.
At least, many of them would argue, they are profitable – among them Tandem Bank, which has had a rocky journey to its current, benign situation, acquiring Harrods Bank along the way.
I understand that David McCarthy, is chief financial officer for just two years after joining from fellow challenger Atom Bank, is on his way through the exit door.
Last week, Tandem Bank informed staff in an internal memo that McCarthy will be replaced in January by Matt Dobson, subject to regulatory approval.
Among his likely responsibilities: getting the green consumer finance-focused company ready for a sale or stock market listing in the coming years. Monzo, Oaknorth and Revolut are the biggest of the challengers that will want to try to go public if markets are conducive, but the next rung down, which includes Tandem Bank, features Allica Bank, Monument Bank and Atom.
There’s unlikely to be room in the London market for all of them, but don’t be surprised to see them try.