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Green shoots and red faces

We all let out a huge, collective sigh of relief as we sat in the packed-out auditorium listening to the king of the FTSE addressing this year’s National Association of Pension Funds investment conference in Edinburgh yesterday.

Why? Because Anthony Bolton, the man who so often gets it right, is optimistic – he was all green shoots.

Detailing his thoughts to the 800 or so pension schemers, the Fidelity fund guru said he believes this washing machine-style turbulence in stockmarkets the world over is coming to an end and that we are at or near the bottom of the market – hallelujah, where’s the champagne?

He said, during his key note speech: “I am optimistic. I think we are at or near the lows in stockmarkets. I think there are some very tentative early signs that things are improving.”

Bolton added that supremely negative consumer sentiment generally signals a turning point and that at the moment it was the worst he had seen it since the 1970’s.

He said: “In the past, you can see that when consumers are very negative it has nearly always coincided with turning points or bottoms in the market. The consumer is very negative today and I think this will again coincide with a low. I have not seen negativeness like this since the 1970’s.”

And who would have thought he would be touting banks as a good place to get back into the market?

He said: “Financials have very much led this downturn. I think they will be very much at the heart of the upturn as well. Although banks over the years have been generally a place that I have been underweight, because I think they are very difficult to analyse and that it is very difficult for an outsider to know the true position of a bank, I actually think if you buy a basket of banks today you will do well over the next few years.”

A refreshing thought given the state the banks are in at the moment.

When quizzed by Money Marketing at the conference as to who was to blame for the financial crisis, Bolton reaffirmed his view that the FSA should take the brunt.

He said: “There are a lot of people to blame for this crisis. It is a crisis that has had many ingredients, but I have to say that when it comes to the UK banks the person who had the best information and whose job it was to regulate them was the regulator, therefore I think the most blame has to go with the regulator.”

Cue the arrival of the next speaker, who, awkwardly enough, was FSA chief executive Hector Sants. Sants focused on what more management, non-executives and shareholders could have done to head off this crisis, which somewhat angered members of the audience.

He said: “Many of you are also too reliant and unchallenging of normal channels of information, for example annual reports and company announcements. In parallel to regulators taking a more macro-prudential view, long term investors must assess all risks to a business and be challenging of the information offered by a company, and perhaps more importantly, interrogate that which is made freely available.”

When asked whether there should be a more “affirmative” obligation on the part of investors Sants said: “If there is major failure it affects us all so I think there is a collective obligation to try to intervene earlier. Whether that should lead to some fiduciary change or statutory change to facilitate that I think it is an interesting question. I would like to see that behaviour coming to the fore, if at the end of the day the feeling is that it needs some changes in the framework to facilitate it I think that is something that should seriously be thought about.”

But a disgruntled delegate hit back saying: “I find it quite staggering that the people responsible for banking regulation can stand at a podium and say that actually the shareholders of a company should be the ones that have greater responsibility to challenge management. Surely it is up to the regulator to ensure that the disclosures available to shareholders are sufficient to assess the risks? Similarly you say we were over-reliant on the credit rating agencies – shouldn’t the regulator be making sure the information coming out of the rating agencies is reliable? I find it difficult to square your remarks with the recent past.”

In response to a question about whether the FSA was best placed to regulate banks in light of recent calls for it to be split or stripped of certain powers, Sants defended the current model and blamed former Bank of England staff for the FSA’s operational failings.

He said: “You could contemplate putting the whole of the FSA with the bank of England but the idea to carve out banking regulation alone makes no sense to me, is not supported by events in the last 18 months and in any case I remind you of the fact that in the area that we had our operational failings almost all those staff were the former bank of England supervisors – that was the bank of England former supervisory division.”


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