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Osborne Faces Shrinking BOE Pool as O’Neill Withdraws: Economy

October 08, 2012

U.K. Chancellor of the Exchequer George Osborne

George Osborne, U.K. chancellor of the exchequer. Photographer: Simon Dawson/Bloomberg

George Osborne is about to find out just how many people think they are clever enough to be governor of the Bank of England.

The chancellor of the exchequer will discover today the full list of applicants to replace Mervyn King at the helm of the U.K. central bank, managing monetary policy and banking regulation for a single eight-year term. Candidates had until 8.30 a.m. to express their interest to the Treasury in London.

Bank of England Deputy Governor Paul Tucker’s odds on getting the job narrowed today. Three possible candidates, Jim O’Neill, Gus O’Donnell and DeAnne Julius, said they didn’t apply, leaving Financial Services Authority Chairman Adair Turner and Independent Commission on Banking Chairman John Vickers among the main potential challengers to Tucker’s claim for the post when King steps down in June.

“It’s going to be a difficult choice to make,” said Grant Lewis, head of research at Daiwa Capital Markets Europe and a former Treasury official. “Every one of the main candidates is adequately qualified. In these circles, it’s a small world. The panel and the candidates know each other. It makes the task of interviewing them harder.”

O’Neill, chairman of Goldman Sachs Asset Management, said in an e-mail to Bloomberg News today that he has an “important job” and had not applied. Former Bank of England policy maker DeAnne Julius also hasn’t applied, according to an e-mail from her office. O’Donnell, previously head of the U.K. civil service, said in an interview with the Financial Times that he was also not seeking the post.

Even Money

William Hill narrowed its odds on Tucker to even money from 6-4, meaning a winning 1-pound ($1.60) bet would yield a 1-pound profit. Bank of Canada Governor Mark Carney is 9-4, Turner is 5-2 and Vickers is 9-1. Julius was at odds of 12-1.

A U.K. Treasury official declined to say how many people had applied for the Bank of England position. He reiterated that the government plans to announce King’s successor by the end of the year.

Bank of Canada spokesman Jeremy Harrison said that Carney was unavailable to comment because today is a holiday in Canada. Reserve Bank of Australia Governor Glenn Stevens hasn’t been approached about the Bank of England role, a spokeswoman said after the Sunday Times reported yesterday that he is among the contenders.

Interview Process

Candidates were asked to send a resume, a cover letter and a questionnaire disclosing prior political activity and potential conflicts of interest. A panel of officials will draw up a shortlist and notify those who haven’t made it. They will then conduct interviews and make a recommendation to Osborne, with his Liberal Democrat coalition partners also having a say. The decision will be announced by the end of 2012.

The selection panel comprises Treasury Permanent Secretary Nicholas Macpherson, Second Permanent Secretary Tom Scholar and David Lees, chairman of the bank’s court of directors. Lawmakers will also question the new governor before the job commences.

“Since London is the world’s financial centre, this is a job for a diplomat,” Anthony Browne, chief executive officer of the British Bankers Association, said in a statement. “Somebody who can manage a busy inbox, who can balance the demands of an extraordinary array of special interests and –- crucially -– who has that rare gift not only of saying exactly what they mean but also of being clearly understood.”

Recent probes over rigging of the London Interbank Offered Rate, which led in June to Barclays Plc being fined a record 290 million pounds ($466 million), have harmed chances of former bankers from applying. John Gieve, a former Bank of England deputy governor, said last month it would be “very difficult” for anyone who has recently worked in banking to get the job.

Tucker’s Chances

Tucker, who has spent more than three decades at the central bank, remains the favorite to succeed King even after his questioning by lawmakers in July over his knowledge of Libor rate-rigging raised concerns about his suitability for the job.

Business Secretary Vince Cable, a Liberal Democrat, said in an interview on Sept. 24 that Tucker’s chances hadn’t been hurt by the Libor probe and that the governor needs to be someone who “understands banking but who isn’t captured by banking.”

“Tucker is the best qualified,” said Shamik Dhar, a former Bank of England economist and head of investment strategy at Aviva Investors, which oversees $409 billion in London. “If this wasn’t a quasi-political appointment, he’d get it.”

The government’s desire to appear committed to reforming the banking industry may favor a candidate with experience of financial regulation, such as Vickers, said Dhar.

Scare Banks

Vickers, a professor at Oxford University and a former Bank of England chief economist, was appointed by the government in June 2010 to lead the Independent Commission on Banking, an inquiry designed to promote stability and competition in the U.K. banking industry. The government has pledged to take action on the commission’s findings by 2015.

Appointing Vickers “would scare the banks sufficiently, a way for the government of saying ‘we’re serious about banking reform, but we’re not downright out to get you,’” said Dhar, who worked at the central bank when Vickers was chief economist. “From that perspective, Vickers fits the bill. The question is, does he have the authority to run a large institution?”

Turner, who steps down as FSA chairman next year when the regulator is split into two agencies, has been the most outspoken critic of banks among the candidates, saying in 2009 that many of the activities carried out by financial-services companies were “socially useless.” In July, he signaled his interest in the job, saying in an interview that he would “obviously not rule myself out.”

O’Donnell had previously indicated he might apply.

“When they do advertise it, I’ll make up my mind whether I want to apply or not,” he said in an interview after he joined Toronto-Dominion Bank (TD) as an adviser in June.

Bigger Role

Whoever is appointed will take over a beefed-up institution with new powers over financial regulation to add to its role setting monetary policy. The job of the next governor is “near impossible” and “only superhumans need apply,” Ed Balls, economics spokesman for the opposition Labour Party, has said.

“The new job is a much bigger role,” said Steven Bell, a former Treasury official who is now chief economist at hedge fund GLC Ltd. in London. “It requires someone who has the authority to walk the corridors of government.”

The International Monetary Fund is set to reduce its global forecast for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis.

U.K. industrial production fell 0.5 percent in August, economists said in a Bloomberg News survey before a report tomorrow. The National Institute of Economic and Social Research will publish its estimate for third-quarter gross domestic product after the production numbers are released.

Industrial Data

In Germany, industrial output fell 0.5 percent in August from July, when it gained 1.2 percent, the Economy Ministry said today. Economists had forecast a drop of 0.6 percent. A separate report showed exports unexpectedly rose for a second month.

Separately, the World Bank said policy makers in Asia’s emerging economies have room to provide more fiscal stimulus as China’s slowdown drags the region’s growth to an estimated 11- year low in 2012. Growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2 percent from 8.3 percent in 2011, it said. That is the slowest pace since 2001, according to World Bank data.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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