Bailey Faces BOE Frontrunner’s Curse in Race to Succeed Carney

(Bloomberg) -- Andrew Bailey should be the perfect candidate to lead the Bank of England. But some of the very qualities that have marked him as a frontrunner to replace Mark Carney as governor may trip him up before he reaches the finish line.

One year ago, Bailey was so hotly tipped to take the helm of the central bank that online oddsmaker Betway stopped accepting bets on his appointment. Yet like Paul Tucker, the former BOE deputy who was in line to replace Mervyn King in 2013, Bailey risks being passed over by a new government that wants to shake things up.

The Financial Conduct Authority under his leadership also has some blemishes. He’s been criticized for problems at Neil Woodford’s equity fund and other hiccups in oversight.

The ultimate insider, Bailey served three decades at the BOE, culminating as Deputy Governor and Chief Executive of the Prudential Regulation Authority. Before that he was Chief Cashier, responsible for issuing banknotes.

He was viewed as a safe pair of hands, highly regarded for his work on Northern Rock, the bailed-out mortgage lender that experienced the first run on a British bank in more than century.

Even prior to that he was in roles seen as a launchpad for leaders, including that of private secretary to BOE head Eddie George. He remains on two of the central bank’s decision-making committees, giving him a level of insight that’s hard for any external candidate to beat.

Bailey’s suitability goes beyond his CV. The 60-year-old has managed to keep his views on politics and Brexit uncontroversial enough to be acceptable to most future governments. Any policy tilt he may have is also unclear, making him harder to categorize than many of his competitors, according to Royal Bank of Canada economists Cathal Kennedy and Vatsala Datta.

“He’s very well qualified, highly respected and he clearly knows the bank and broader institutions inside out,” said Victoria Clarke, an economist at Investec and a former Treasury analyst. “But there is a broader question as to whether the new chancellor is looking for that or for something perhaps a bit fresher.”

Though Bailey’s time at the FCA could be seen as the perfect preparation for taking on the role of governor, some argue he has proven too light a touch in his dealings with the banks regulates.

The FCA’s handling of failings in Royal Bank of Scotland Group Plc’s small-business lending unit from 2008-2013 drew intense political criticism. Though the incidents happened before Bailey joined, the investigation on his watch was described as a “complete whitewash” by one lawmaker. Meanwhile the collapse of mini-bond lender London Capital & Finance has prompted more than a dozen lawmakers to demand his resignation.

Most recently the FCA’s oversight of Woodford Investment Management has come under question after its flagship fund froze withdrawals following months of poor returns. While the regulator has announced that it’s reviewing the fund’s strategies, Bailey’s suggestion that the besieged money manager stop charging fees to investors was firmly rebuffed, raising concerns about his ability to act tough.

High Standards

“You can’t have 100% of your organizations that you notionally oversee never ever doing anything wrong,” said Tony Yates, a former BOE official who worked with Bailey. “A zero-failure regime would seem to me an implausibly high standard to set.”

Another hurdle in the path of Bailey’s ascent to become the BOE’s 121st governor is the appetite to find the first woman for the role. The Parliament committee that scrutinizes the Treasury and BOE said it may not approve any appointment where it felt insufficient effort had been made to find a more diverse candidate, while Prime Minister Theresa May encouraged more female applicants.

Bailey, educated at Cambridge like three of the past five governors, could find that even his BOE pedigree stands against him. The central bank has long been accused of groupthink.

Other Criteria

Current Chancellor Philip Hammond -- who probably won’t still be in the job when the decision is made -- has highlighted the need for a replacement with international stature, while the opposition finance spokesman John McDonnell has called for “someone who is willing to be radical.”

Being considered the favorite has hurt contenders for the governorship before -- especially for those whose oversight roles risk associating them with scandals. As King approached the end of his tenure in 2013, then-Deputy Governor Tucker had been widely seen as the natural successor, before his links with the Libor-rigging controversy knocked him out of the running.

Bailey may yet overcome the frontrunner’s curse, especially if the political chaos around Brexit puts off other high-profile candidates. And he’s not trying to win a popularity contest. When asked by the Treasury Committee on Tuesday if he’d rather be feared or admired, he said:

“I don’t get up in the morning hoping that people will love me. Don’t become chief executive of the FCA if you want to be loved.”

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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