Lloyd’s Chairman: Limiting UK’s Financial Services is ‘Dangerous Talk’

Lloyd’s of London Chairman, Lord Peter Levene, strongly defended the important role financial services play in the UK’s economy in general and in the City of London in particular. Levene chastised policymakers, commentators, theorists and bloggers who have called for a reduction in the size of the UK’s financial services industry, calling such ideas “dangerous talk.”

Levene made his remarks at the annual Lloyd’s City Dinner, in introducing the principle speaker, former World Bank President Jim Wolfenson.

While recognizing the seriousness of the global recession, Levene was quick to point out that, while the banking sector made serious errors, which should be addressed, “it is certainly not a reason for politicians and policymakers to start undermining the UK financial sector – which is one of this country’s great national assets.” Such actions run the risk, he continued, of “doing irreparable damage to one of the strongest sectors of our economy.”

He stressed the “vitally important role that both the “The City, and financial services more generally,” play in the British economy. In total these activities “employ more than one million people – and more than two-thirds of those jobs are outside London. UK financial services account for about 8 per cent of national output and contribute some 14 per cent of total tax revenues in this country.”

Essentially Levene is worried that in the furor over the banking sector’s role in creating the current economic recession, policymakers will throw the baby out with the bathwater. In an earlier address at the Lloyd’s dinner in Paris, held at the British Ambassador’s residence, he said they need a clear vision of the future that addresses the excesses of the past. “In my mind one thing is clear: this vision must tackle irresponsible risk taking and address the excessive reward culture that lost touch with reality,” he continued..

However, in Levene’s opinion the argument over bankers’ bonuses is “essentially a side show. The crucial point is to ensure that risk taking is backed up by capital and careful analysis.” Punitive measures to punish the industry for past sins run the risk of impairing the industry’s ability to operate effectively in the future. “It is crucial, Levene stated, “that regulators remember the importance of proportionality, commerciality and workability.”

He is speaking from a position of strength. As he reminded the audience, Lloyd’s has had its own financial problems, but has managed to solve them, and, as a result of the changes Lloyd’s has weathered a series of natural and economic catastrophes rather well. Despite the economic downturn, Lloyd’s posted an overall pretax profit of £1.9 billion ($3.12 billion) and a return on investment of 2.5 percent in 2008.

Levene, who headed the development project at London’s Canary Wharf, before he became Lloyd’s Chairman in 2002, has always considered maintaining the competiveness of the City and the UK’s financial services industry to be of vital importance. He sees the current turmoil as a threat to that goal, and warned that keeping London’s place in the global financial services sector “must be our priority now. Not knee-jerk reactions, pandering to populist outrage or driven by ideological opportunism, as is the case with the proposed EU directive on alternative assets.”

Lloyd’s transformation over 15 years, starting with the introduction of corporate capital in 1994, has been profound and far reaching. Levene cited the “off-loading of toxic liabilities into a separate vehicle, Equitas – a mechanism we are now seeing repeated with banks around the world,” as one example in Lloyd’s recovery.

But the real changes were systemic, and required “improving risk management and transforming our culture, instilling new disciplines and a longer-term perspective, while nurturing our capacity for innovation and entrepreneurialism.” Those lessons could serve as a valuable model for the ills now affecting London’s and the world’s financial sector.

The UK financial services and the City of London “are battered and bruised,” Levene continued. “But their fundamental strengths, and their vital importance to our economy, remain. In the competitive world in which we all operate, it is vital we take the right steps to restore these brands to their former glory.”

Source: Lloyd’s of London – www.lloyds.com

Topics Excess Surplus Lloyd's London