The Lex Newsletter: how Farage’s barrage routed the NatWoke Bank

Dear reader,

There is a piquant irony at the heart of the closure of Nigel Farage’s account with Coutts. The NatWest subsidiary dumped the ex-politician for holding views “at odds with our position as an inclusive organisation”.

By excluding a customer for his anti-inclusive views, Coutts also became anti-inclusive. The resulting paradox is that the bank should then have taken a principled stance and excluded itself from itself.

This might make sense to a quantum physicist. All it tells me is that the people who closed Farage’s account were not very smart.

The resulting fight has pitted one blokey ex-politician with a career as a niche broadcaster against a financial institution with 62,000 staff and more than £700bn in gross assets.

NatWest discovered it was seriously outnumbered.

Farage has forced out Alison Rose and Peter Flavel, the chief executives of NatWest and Coutts. He beat NatWest for the following reasons:

• Denying someone a bank account because they share and articulate widely held opinions is wrong.

• The vital test you should apply to anything you write about anyone in internal company documents is: “how would it look if this was published”. Officials at Coutts failed to do so.

• NatWest misled the press and was exposed. Rose evidently talked up the financial thresholds below which a client might lose their Coutts account in a conversation with a BBC reporter. It has now emerged that some Coutts customers retain their accounts anyway, which made the Farage closure a political one.

• NatWest was blinded by groupthink. Within the London bubble of executives, campaigners and journalists who attend ESG conferences, Farage is beyond the pale. But he is a hero to many Britons and the right-of-centre press for his pivotal role in removing the UK from the EU.

I do not agree with anything Nigel Farage stands for and applaud any efforts big corporations make to become fairer, kinder places. But it is clear NatWest got it badly wrong.

The Farage affair, meanwhile, shows that the backlash against corporate policies of the kind sometimes dismissed as “woke” can have serious business impacts.

In further confirmation of this, Anheuser-Busch this week announced hundreds of lay-offs. These follow a right-wing boycott of the Bud Light brand in response to a minor piece of frothy advertising featuring a transgender influencer.

None of this means corporations should row back on policies that encourage tolerance and equality. But they do need to avoid screw-ups. And they should sometimes be prepared for a fight, as Nike was when it featured civil rights activist Colin Kaepernick on its advertising.

I, meanwhile, feel slightly ashamed of how fascinated I am by the Farage affair. At a global level it is no more important than two schoolboys putting saucepans on their heads and biffing each other with wooden swords (illustrated).

It does not even matter that much financially to NatWest, which announced decent results on Friday. This is a stable, mature banking franchise. Interim boss Paul Thwaite will doubtless run it efficiently if he gets the full-time gig.

Finance director Katie Murray is impressively smart. That, however, could be one reason she might choose to stay out of the contest for the horribly politicised role of CEO.

The high life

Meanwhile, within the entirely separate category of business stories that meaningfully influence the lives of millions, US interest rates rose to their highest level in 22 years. The US Federal Reserve increased its key rate by a quarter of a percentage point to 5.25-5.5 per cent.

Pundits think the Bank of England may raise base rates by the same amount to 5.25 per cent next week. It needs to tame rampant inflation not least because this is set to push UK interest costs to the highest levels in the developed world.

The reason for this is heavy issuance of index-linked gilts by the government. It will now have to sell a lot more bonds to finance its deficit.

Lex reckons rate expectations, which are topping out, matter more to gilts prices than supply. This makes the bonds a good investment for fund managers. Private investors should also give gilts a look, as we set out in our Lex Populi column for FTMoney.

The dollar has been weakening, a cue to buy emerging market bonds. Central bankers in the beautiful south were faster to raise rates and tame inflation than the Fed’s laggardly Jay Powell. Brazil and Mexico stand out for their zeal.

Lex sees an opportunity for investors in the delinkage of the falling shares in emerging market bond fund manager Ashmore from underlying securities that are rallying.

High rates in the developed world have been good for the profits of banks. Deutsche Bank was among the gaggle of lenders to announce strong numbers this week.

Chief executive Christian Sewing has stabilised Deutsche. Shares in Germany’s banking champion nevertheless trade at a horrific 0.35 times book value. That is even worse than sometime underdog Commerzbank. Deutsche’s investment bank may be the reason.

High rates are giving a better boost to private debt businesses, winner of this newsletter’s weekly “So Hot Right Now” award.

Carlyle will earn floating rate interest starting at 15 per cent by lending to iRobot. That starts to sound like a reasonable deal for the business behind Roomba vacuum cleaners when you learn that it is struggling financially. A takeover by Amazon hangs in the regulatory balance.

We are nearing the peak of the interest rate cycle. The US is still clearing up the mess that pricier money triggered among riskily run banks. The Federal Deposit Insurance Corporation needs to recoup $15.8bn spent on containing bank runs. It aims to do so with a levy on uninsured deposits.

Some banks are trying to game the system. They are reducing their tally of uninsured deposits by excluding accounts backed by collateral. The FDIC correctly objects to this. Such sleights of hand impose higher costs on lenders that play by the rules, costs ultimately passed on to customers and shareholders.

The purchase of PacWest by Banc of California is another piece of tidying up in the wake of banking turmoil. Thankfully, the all-share deal involved neither state intervention nor lopsided economics. PacWest had been left weakened by the deposit flight that dumped lenders such as Silicon Valley Bank into the arms of the FDIC.

Credit Suisse was Europe’s single notable casualty. We had expected Julius Baer, Switzerland’s largest private bank, to reap a big dividend in new business from displaced Credit Suisse clients. Net new money of SFr9.2bn ($10.6bn) in the first half was disappointingly low in this context.

It may point to a successful effort by UBS, purchaser of Credit Suisse, to retain client assets.

St James’s Place, a prominent UK wealth manager, is meanwhile menaced by a vague new “consumer” duty that will apply in the UK from next Monday. It charges 5 per cent upfront on purchases of individual savings accounts. This is steep, though personal service levels are high.

The company has modestly reduced some long-term fees. More cuts will come, Lex reckons.

Lex writers seem to do a lot of moonlighting. Asia editor June Yoon pointed to the disconnect between the share prices of Nvidia (a previous “So Hot Right Now” title holder) and suppliers TSMC and Samsung via an Inside Business column this week.

Deputy editor Elaine Moore, meanwhile, released another episode of her Tech Tonic podcast, focusing on the future of the social media industry.

The moonlighting phenomenon seems to be management-led. The section head wrote one column this week on the squeeze on Generation Rent via higher buy-to-let mortgages. A second column, on the cognitive abilities of crows, did not even have anything to do with business or finance.

Someone should have a word with him.

Outside work, I fulfilled my contractual duty as a zeitgeist-conscious newspaper columnist to attend the movies Oppenheimer and Barbie.

This was time-consuming. It is a shame the production teams had not collaborated on a single movie in which Barbie led the Manhattan Project. I remain hopeful they may yet produce the combined sequel Ken: Father of the Hydrogen Bomb.

The Lex Newsletter will now take a brief summer break.

Enjoy your weekend,

Jonathan Guthrie
Head of Lex

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