Media Clips

Financial Times

Not too late to clean up the mortgage market
By Andrew Hill

Say what you like about the US Department of Justice and the Federal Bureau of Investigation, they don’t muck around with their codenames. Their “Operation Malicious Mortgage” does exactly what it says on the tin: 144 mortgage fraud cases and charges against 406 defendants, including 60 arrests in a single day.

The Financial Services Authority is taking similar, though so far less spectacular action. On Monday, it banned a mortgage broker, Sadia Nasir, and fined her £129,000 for involvement in “numerous fraudulent mortgage applications”. As a result of information gathered by the clunkily named “mortgages quality of advice process” project, another broker, Robin Knox, on Wednesday received a ban and fine. Mr Knox was not engaged in fraudulent activity but, according to the FSA, failed to put in place proper systems and controls, exposing 500 customers “to the risk of receiving unsuitable advice”.
Mortgage lending is emerging from a bubble, in which incompetence and criminal activity can go unnoticed. Both the US and the UK are on the trail of organised rings of mortgage fraudsters. But when legitimate borrowers can’t get mortgages, surely only a disorganised organised-crime boss would try to tap the parched home loans market? The FSA says not. “Thinner fees and tighter margins . . . present a renewed temptation” to indulge in criminal behaviour.
Alas, some of the cases punished by the FSA are not new. In fact, they’ve been sitting under the watchdog’s nose for years. Both Ms Nasir and Mr Knox’s firms were authorised on the same date – October 31, 2004. That was “M-Day”, when the FSA took responsibility for regulating more than 7,000 firms conducting mortgage business and promised a “rigorous authorisation process”.

Should these cases be filed under Operation Stable Door, then – too little, too late? The FSA should certainly have acted faster to clean the bad apples from the M-Day barrel. But struggling mortgage brokers are wrong to whine now about the potential bad publicity from a crackdown, even if it comes at a terrible time for their industry. It would be illogical for the authorities to ease up now, just as the most flagrant mortgage-lending abuses are likely to be exposed.
Rocky path for directors

Ira Millstein, senior associate dean for corporate governance at Yale School of Management, wants the world to map out the “new territory” of relations between shareholders and companies. It is not an easy road. With characteristic vim, he pointed out in a lecture on Wednesday night at the Mansion House that boards are struggling to reconcile the widely varying interests of a “zoo” of owners, from hedge funds to sovereign wealth funds. Combine that challenge with the proliferation of complex investment techniques – which mean “a large owner [of shares] may only be a renter, with a different agenda” – and it is hard for directors to fulfil their obligation to be “fair” to all shareholders.
With that, Mr Millstein simultaneously gave a timely smack to the City’s financial engineers and put his finger on the frustration many directors of public companies feel. They seem nostalgic for the 1980s and 1990s, when modern corporate governance principles were built (by Mr Millstein, among others) on the idea of a dialogue of common interest between boards and identifiable institutions.

That message – that “productive corporations must no longer be the tail on the dog of the capital market” – must have been music to the ears of captains of industry in his audience. But that was only half of it. The clock cannot be turned back. Rather, companies have to find board members who can execute these “new concepts of fiduciary duty and good faith” to myriad investors. That ought to discomfit those directors whose concept of ideal investor relations dates back to a golden age that can never return.
M&S’s revolting investors

In the end, it was almost embarrassing. There was the armour-plated Sir Stuart Rose, suited up, fending off gentle lobs from investors who, if not positively fawning, were mostly exercised about the “wrong” things: plastic bags, plunging necklines and shoe sizes. You half-expected him to cut the flatterers short and invite only insults, so he and Sir David Michels, deputy chairman, could wheel out the smooth defence they’d prepared. Believe me, I wouldn’t want to deprive M&S shareholders of their opportunity to air whatever they want with the board once a year. But on the basis of Wednesday’s show – a damp squib, as predicted – I have a sneaking feeling Sir Stuart has done corporate Britain a favour. By becoming executive chairman, he has freed other potential candidates for the chair to do a more productive job elsewhere while he moderates the annual meeting. Now back to work.