Earlier this week, global financial services Morgan Stanley published a report arguing that UK opposition leader, Jeremy Corbyn becoming Prime Minister, was a bigger threat to UK asset markets than Brexit.
MS saw a two thirds chance of a snap UK election in the second half of 2018 when UK can’t secure a satisfactory Brexit deal and the ruling Conservative party fractures. This could lead to a sharp swing in political support towards the far left, Corbyn’s ascension, a 32% crash in the Footsie 100 index, another big fall in Sterling, nationalizations and irreparable damage to free markets…basically heaps of bad stuff. The Guardian quoted from the MS report.
“From a UK investor perspective, we believe that the domestic political situation is at least as significant as Brexit, given the fragile state of the current government and the perceived risks of an incoming Labour administration that could potentially embark on a radical change in policy direction. “Against this backdrop, even if we see good progress in the Brexit negotiations, the scope for UK sensitive assets to rally may be muted, unless we also see an improvement in the government’s position in opinion polls.”
MS equity strategist, Graham Secker, handed out a warning for UK investors, which was reported by Bloomberg.
“If I am a U.K. equities fund manager, I am more concerned about a potential change in the domestic political government than I am about Brexit,” Secker said at a briefing Monday. “You need to think about tax rates going up, about nationalization, about an economic system which has favored capital over labor for last 10 to 20 years shifting to favor labor over capital.”
The MS comments received considerably media coverage and obviously raised the ire of Jeremy Corbyn, who responded in a video released on social media. Corbyn begins his video message with.
“Bankers like Morgan Stanley should not run our country, but they think they do, because the party they fund, and protects their interests, is in Downing Street.
Corbyn vowed that his Labour Party would soon be publishing policies on the financial sector and its plans for the UK economy. According to Bloomberg:
Jeremy Corbyn, leader of the U.K.’s opposition Labour Party, lashed out at Morgan Stanley on Thursday after the bank warned of the risk to investors of him winning power. Graham Secker, an equity strategist at the bank, said Monday that the possibility of a Labour government should concern equity investors more than Britain’s departure from the European Union, scheduled for March 2019.
“When they say we’re a threat, they’re right. We’re a threat to a damaging and failing system that’s rigged for the few,” Corbyn said in a video message released on social media. “These are the same speculators and gamblers who crashed our economy in 2008 and then we had to bail them out. Their greed plunged the world into crisis and we’re still paying the price.” Corbyn has pledged to renationalize Britain’s railways as well as water and energy companies to reverse the privatizations started under Conservative Prime Minister Margaret Thatcher.
Corbyn accused Theresa’s May’s government of allowing Morgan Stanley to become too close to senior policymakers. He highlighted four meetings between Chancellor of the Exchequer, Philip Hammond, with the bank during the last year and how some large Conservative party donors (who’ve given £350,000) have links to the bank. As Bloomberg notes, Corbyn singled out MS’s CEO for criticism.
“The Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity. That’s meant a crisis in our public services, falling wages and the longest decline in living standards for over 60 years,” Corbyn said. “Nurses, teachers, shopworkers, builders, just about everyone is finding it harder to get by, while Morgan Stanley’s CEO paid himself 21.5 million pounds ($29 million) last year and U.K. banks paid out 15 billion pounds in bonuses.”
As the FT highlighted, however, it’s not just the Conservative party which has high-level links to Morgan Stanley. The Labour party has two also.
The bank has strong ties to both political parties, however. Alistair Darling, who was a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007.
The FT notes that Corbyn’s comments represent a reversal of recent Labour attempts to court the business sector.
The attack comes despite recent attempts by John McDonnell, the shadow chancellor, to build bridges with the City and the business world through a series of meetings.
McDonnell is much in demand, according to Bloomberg, although our suspicion is that City and industry figures are merely trying to ascertain just “how Marxist” a Labour government would be.
Even economy spokesman John McDonnell, who was criticized by some in his own party for saying “there was a lot to learn” from Karl Marx’s “Das Kapital,” is being courted by big business. Some lobbyists say access to McDonnell has become the top demand from their clients.
BlueBay Asset Management LLP, which manages $57 billion of assets and is among investors that are speaking to the opposition party, was scheduled to meet McDonnell this week. “It’s not a surprise there is a swing toward redistributionist policy” because living standards in the U.K. have fallen, Mark Bathgate, a portfolio manager at BlueBay said last week. “Whether it’s good or bad is not for us to decide. We’re making sure we engage with a prospective government.”