Cablegate: City of London Lord Mayor Defends Uk Financial
PP RUEHAG RUEHROV RUEHSL RUEHSR
DE RUEHLO #2650/01 3291735
ZNY CCCCC ZZH
P 251735Z NOV 09
FM AMEMBASSY LONDON
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 4086
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 LONDON 002650
E.O. 12958: DECL: 11/24/2019
TAGS: ECON PGOV EFIN UK
SUBJECT: CITY OF LONDON LORD MAYOR DEFENDS UK FINANCIAL
Classified By: Economic Minister Counselor Richard Albright for reasons 1.4 b and d
1. (C) Summary. At his inaugural banquet on November 16, Nick Anstee, incoming Lord Mayor of London and official representative of London's financial services industry, urged businesses to learn from their mistakes, but also emphasized that the UK government needs to support London's financial firms, which provide eight percent of the UK's national output and 14 percent of total tax revenues. In a subsequent meeting with EMIN and ECONOFF, the Lord Mayor criticized Prime Minister Brown for contradictory messages to the industry. Privately, to the industry, the PM expresses strong support and underscores its importance to the UK economy; publicly, he expresses a desire to punish financial firms, a strategy designed to score points with voters. Anstee also expressed concern about the direction of financial services regulation in the EU and urged the U.S. to make greater efforts to influence Europe. End Summary.
Bonuses Not the Root Cause ---------------------------
2. (C) While public anger in the UK in recent months has focused on bonus pay at leading financial firms, Anstee said in his speech that bonuses were not the root cause of the crisis; failed capital adequacy and liquidity regulations were more to blame. Privately to EMIN, he expressed annoyance that PM Brown had told him at the banquet that his speech was right on the mark, but then proceeded during the week to bash the banks over bonuses and pay packages. Commenting on the FSA's compensation principles, which will be codified in the new Financial Services Bill submitted by HM Treasury to Parliament on November 19, Sheriff David Wootton a lawyer and advisor to the Lord Mayor, expected the whole of the legislation to pass except for a controversial measure that would allow the FSA to void employment contracts if bonuses were deemed to be excessive. He predicted this measure would pose huge legal enforcement challenges.
Election Politics Harming Financial Services Industry --------------------------------------------- --------
3. (C) Anstee said he hoped elections would be called as soon as possible (general elections must take place no later than June 3, 2010). The lead-up to the election, he expected, would be filled with populist measures that would benefit neither the U.S. nor the UK industry, and could instead drive business to other financial centers. He called the Prime Minister's support of a tax on global financial transactions just another way to punish the financial services industry and extract "a pound of flesh." He said the "Tobin Tax" was a "cynical" tax, no different than the stamp duty that already applied to land and property transactions and that the City had been trying to abolish for years. Anstee felt that a further tax on financial transactions would slow down economic recovery and reduce inward investment, maybe not immediately but overtime. He preferred a windfall earnings tax as a much more targeted and practical approach. David Wootton referenced a November 20 Martin Wolf op-ed in the Financial Times urging the Government to consider a levy on bank bonus pools if they exceeded an appropriate level. Such a measure would encourage banks to build capital reserves or pay dividends to shareholders rather than pay excessive bonuses. Anstee cited the PM's recent Tobin Tax proposal, next year's planned increase in personal income tax from 40 to 50 percent for taxable income above GBP 150,000, and last year's tax of GBP 30,000 on foreign UK residents, who are legally domiciled outside the UK, as a series of business unfriendly measures. (Note: Because of the "non-dom" tax, foreign residents who have spent seven of the last nine years in the UK and who have brought in over GBP 2,000 of their annual income into the UK must pay the tax. They could subsequently apply in their home country for a tax credit, if national legislation permits this. U.S. citizens have expressed serious concerns over the possibility of double taxation if regulations do not come into force allowing them to claim the tax on their U.S. returns.)
4. (C) The Lord Mayor said the Conservative Party, if elected, would be justifiably worried about the level of debt it would inherit, and was aware that the past government could only be blamed for a limited period. He said that the Conservative Party was still largely in listening mode since releasing its July White Paper on financial services reforms. Regarding the euro-skepticism among Conservative Party members, Anstee did not expect this to last post-election, but he said it catered to a segment of voters. He thought that Conservative Party leader David Cameron would take a largely practical approach to the EU. Anstee in his November LONDON 00002650 002 OF 003 16 speech urged much greater engagement with the European Commission and Parliament and international cooperation on a global regulatory framework with transparent, high, and mutually recognized standards. He told us the City would arrange briefings for Conservative MP Mark Hoban and economic advisor James Sassoon in the coming months.
U.S. Must Step Up Direct Influence in Brussels --------------------------------------------- -
5. (C) Anstee urged that the U.S. needs to push its interests more effectively in Europe. He said that in many cases, the U.S. could be more persuasive if the UK stayed silent, since some quarters in Brussels seemed opposed to proposals from London. Anstee agreed with EMIN that it was not in Europe's interest to drive the financial services industry out of the UK or Europe with excessive regulation, but Anstee thought the U.S. could be more effective in delivering that message. Regarding the pending EU directive on alternative investments, AIFM, Anstee expressed concern that the proposed regulation would drive hedge fund business from London. He and others in the industry have consistently questioned the motivations of the French and other proponents of AIFM, noting that hedge funds and private equity firms had not been the problem in the financial crisis. (Comment: The proposed AIFM Directive would require hedgefund and private equity managers to register, meet additional reporting requirements and hold greater capital. The UK hosts the vast majority of the EU's hedgefund business. Although it is unclear that the AIFM Directive would bring more business to France, UK business leaders frequently voice their view that French politicians have put their weight behind the directive to deliver a blow to the UK's dominant position.)
6. (C) Asked about the appointment of EU Trade Commissioner Baroness Catherine Ashton as EU High Representative for Foreign Affairs and Security Policy, Neil Chrimes, Head of Programs for the Lord Mayor, commented that she is sharp on market access issues, though she has had little experience with financial markets. Some Conservatives have complained that PM Brown gained a foreign policy position for the UK, but lost its chance for a much more important economic seat in the EU, such as the position of the EU's Internal Markets Commissioner. Chrimes noted that Baroness Ashton in her new role would also be vice-president of the European Commission and in that capacity still have an influence on EU economic affairs.
Promoting the City of London ----------------------------
7. (SBU) During his year in office, Anstee will act as "global ambassador" for the UK-based financial services industry, typically spending three months a year leading City business delegations overseas and also meeting leading overseas politicians and business leaders visiting London's financial community. In January, Anstee will visit Miami, Charlotte, Dallas and Houston, promoting the City and discussing a variety of topics, including Islamic finance and carbon finance business opportunities in the UK. In his November 16 remarks, Anstee announced the planned creation of TheCityUK, a new, independent, not-for-profit, limited company to promote and represent the UK's financial services industry domestically and overseas. Due to be formally launched in Spring 2010, TheCityUK was designed based on recommendations set out in the Wigley Report, commissioned by Boris Johnson, Mayor of London, and the Bischoff Report, commissioned by HM Treasury that the UK financial services industry needed a strong, unified voice to rebuild its reputation and help shape future EU and global regulation. TheCityUK has a new website: www.thecityuk.com/thecityuk/. It will integrate with International Financial Services London, a private sector organization already promoting UK financial services. By April 2011, the two organizations will form a unified corporate structure. Initial funding will be provided by The City of London Corporation, but by 2011, TheCityUK will become a membership organization, funded largely by the financial services industry.
8. (C) Comment: Although he principally holds a ceremonial position with heavy representational duties, the Lord Mayor's views reflect the strong frustration of the UK financial services industry that the current government and PM Brown have failed to engage adequately with rule-makers in Brussels and are willing to punish banks to gain popularity with the ordinary voter, even while knowing that in the long term this could harm UK industry.
OFFICIAL BIO: Meet the New Lord Mayor ----------------- ------------------- LONDON 00002650 003 OF 003
9. (U) The Lord Mayor is the head of the City of London Corporation, a unique entity which provides business and local government services to London's Square Mile -- the heart of the UK's financial services industry. The Lord Mayor is elected for a one year term by the Court of Aldermen, each of whom represents a ward of the City of London. The position is unpaid and apolitical. He actively supports the work of the City of London Corporation, promoting the City's financial services industry at home and abroad and is treated overseas as a Cabinet level official. He also presides over the City of London's governing bodies, supporting their work of providing services to the local community. Nick Anstee, senior director at the international law firm SJ Berwin LLP, started his term as Lord Mayor of the City of London on November 13. He is the 682nd Lord Mayor. Anstee is a chartered accountant who qualified in 1982 and became a partner first at Andersen and then at Deloitte. He has spent most of his career advising large domestic and international companies on private equity transactions, mergers and acquisitions and stock market offerings. Anstee has served the City of London for 22 years, first as a Councilman in 1987, then as Alderman for the Ward of Aldersgate in 1996, then for three years as Chairman of the Corporation's Central Markets Committee, and as Sheriff of the City of London in 2003-2004. Visit London's Classified Website: XXXXXXXXXXXX