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City regulator must find a faster and simpler way of redress

RBS
The Financial Conduct Authority has published an interim summary of its review into RBS’ alleged mistreatment of small businesses between 2008 and 2013. Photograph: Neil Hall/Reuters

It’s the banking investigation that seemingly has no end. In 2014, the Financial Conduct Authority commissioned a review of Royal Bank of Scotland’s alleged mistreatment of small business customers in the period 2008-2013. That inquiry was disgracefully late in arriving and only happened because an independent adviser to Sir Vince Cable, then the business secretary, made a series of explosive allegations about RBS’s behaviour.

Now, with three more years having passed, it is still not possible to say when the final chapter will be written. The regulator, under political pressure, has published what it calls an “interim summary” of the independent review. The FCA will now go away and examine if there is “any basis for further action within our powers.” By the time it has finished pondering, it is a safe bet that some of the events will be a decade old. No wonder everybody, from the mistreated customers to RBS chief executive Ross McEwan, seems weary.

The only (not very) satisfactory part of Monday’s summary is that the findings do not differ materially from what the FCA said a year ago. RBS was still found not guilty of the most serious charge of deliberately tipping companies into default to profit from their demise. But the so-called “skilled person’s” report found “widespread inappropriate treatment” of small businesses. Actually, calling the misbehaviour widespread is putting it mildly. Some 92% of viable firms handled by RBS’ Global Restructuring Group suffered “inappropriate action”, such as unnecessary fees being added or a simple failure to consider alternative turnaround options.

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Yet the doubly frustrating aspect is that the clean-up, like the investigation, also seems to be advancing at snail’s pace. RBS has made refund offers totalling £115m but the actual complaints process – the other undertaking given a year ago – is merely described as “underway.” Some 939 complaints have been received.

Nobody would pretend this ground is easy to cover – the FCA notes that a typical case in its sample filled 10 A4 binders. But when this process eventually ends, the regulator’s first job is to find a faster and simpler system of redress. This saga has gone on too long.

The deceleration of the UK car market

We already knew the UK car market was weak: September’s figures for new registrations, showing a 9.3% decline, made it odds-on that sales of new cars will fall in the UK for the first time this year since 2011. Now, after the heavy profits warning from big dealer Pendragon, we can see that the demand is even weaker than the official statistics suggest.

The mini-revelation in the Pendragon numbers is that overall registration numbers have been distorted by the practice of dealers “pre-registering” cars before a sale to a customer has been made. From the dealers’ point of view, this technique is entirely logical: they need to hit manufacturers’ incentive targets. But the effect is to overstate the true level of demand for new cars. Registrations are weak, but real sales to real customers are even weaker.

A drop in demand at the top has a cascade effect, which is why Pendragon’s profits warning was so severe. Those “pre-registered” cars might need a price reduction of £500 beause they no longer count as brand new. Then the demonstration vehicles need an accompanying cut. So do three-month old cars coming from rental firms, and so on. At the beginning of August, Pendragon, which operates the Evans Halshaw and Stratstone brands, was confident of making £75m of profit this year; now it is expecting £60m. That change in direction has been sudden.

The only good news – from its point of view – is that it is easy to see how the position could reverse. The car manufacturers just need to produce fewer vehicles. They have every incentive to do so, of course, since falling prices don’t suit their purposes. The open question, however, is how quickly they will react. Long supply chains do not make the process simple.

Pendragon expects its own profits to start growing again next year. Perhaps they will, but you understand why its shares fell 18%. The car industry has enjoyed five years of acceleration, and got used to turbo-charging growth with leasing contracts. Expect the change of gears to be clunky.

Mediclinic’s bid for Spire is below fair value

Here’s one definition of an opportunistic bid: make your move one month after your target issued a profits warning and two weeks before its new chief executive arrives. The bidder is Mediclinic, a FTSE 100 operator of private hospitals in South Africa, the United Arab Emirates and Switzerland. It wants to pay 300p-ish in cash and shares for Spire Healthcare, which works the same field in the UK.

Since Mediclinic already owns 29.9% of Spire it presumably thinks it can intimidate other shareholders with its lowball offer. Those investors should stand their ground. The bid looks about 15% below fair value and Mediclinic’s own shares are hardly a picture of health. A fund managed by the ubiquitous Neil Woodford owns 15% of Spire. For all his current troubles, one assumes Woodford will demand more – a lot more.