What is wrong with our banks? How many “surprises” can there be?

It was only a week ago on the 15 th of this month that I analysed the state of play in some of our banks and highlighted the clear and present danger of them being as the Cranberries put it “Zombie, zombie, zombie”. One of the features of this situation is that official reports tell us that the banking sector has made vast strides forwards with higher capital levels and better standards for lending and staff. This is from a speech this month by Andrew Hauser an Executive Director of the Bank of England. In the likely event you have not heard of him either well there are so many of that sort of rank at the Bank of England these days as Mark Carney builds an empire and inflates its upper echelons.

Post-crisis reforms have changed this situation significantly.  Banks are now subject to heightened liquidity and capital regulation, and annual stress testing.  And the UK has a statutory resolution regime.

So Mr. Hauser’s porridge is just the right temperature although one has to take note of the reality in which he lives. The concerns about the scale of central banking activity these days seem to have passed him by!

In recent years, reforms to the Bank of England have focused on minimising the risk that it might lend ‘too little’….

Surprise! Surprise!

The problem for views of that kind are that contrary to the sort of world described above what is reported by Bloomberg below keeps happening and we have seen it on not a few occasions in 2016 already. The emphasis is mine.

Standard Chartered Plc dropped the most in more than three years after reporting a surprise full-year loss, as revenue missed estimates and loan impairments almost doubled to the highest in the bank’s history.

I thought that we were supposed to be in an economic recovery where the banks would thrive? It is amazing how quickly that theme fades to grey isn’t it? If we look at the details we see a double-whammy as described below.

the London-based bank said its pretax loss was $1.5 billion in 2015, down from profit of $4.2 billion a year earlier. Excluding some one-time items, pretax profit was $834 million

Have you noticed how the losses are always “one-time items” and yet as I pointed out when I covered Royal Bank of Scotland on the 27th of January.

That is the annual event where the figures of Royal Bank of Scotland are produced and they are again bad. We are seven years or so into the credit crunch but the promised recovery here appears to be like the “train in the distance” sung about by Paul Simon.

Let me introduce a note of gallows humour by showing you what all the highly paid banking analysts were expecting from Standard Chartered.

That fell short of the average estimate for a profit $1.37 billion from 20 analysts surveyed by Bloomberg.

It sure did! I do hope that the Bank of England does not recruit from these people who always miss downturns.

Also the second part of the double whammy is this bit.

Loan impairments almost double to $4 billion, highest ever

The new Chief Executive blames his predecessor in a familiar same as it ever was routine as tells us it was not him.

Chief Executive Officer Bill Winters, 54, is attempting to unwind the damage caused by predecessor Peter Sands’ revenue-led expansion across emerging markets, which left the bank riddled with bad loans when the commodity market crashed and growth stalled from China to India.

In the new highly regulated arena how is it that nobody spotted that lending as much as you can into a boom was always likely to come a cropper when there was even a minor bust? I note that prospects for 2016 are not the brightest either.

We expect the financial performance of the group to remain subdued during 2016.

If we look back for some perspective then the share price which today has been bouncing around £4 peaked at over £15 some three years ago.


We only have to go back to yesterday to find yet another “surprise”. From Bloomberg.

Europe’s largest bank reported an unexpected pretax loss of $858 million, driven by a drop in revenue and an increase in impairment charges that was fueled by loans to oil and gas companies.

Those who have read my analysis on China will be expecting news like this.

Loan impairment costs jumped 26 percent in the region.

However it would appear that the highly paid Chief Executive Stuart Gulliver did not.

Slower growth in the world’s second-largest economy may hamper the strategy, unveiled in June, to redeploy $100 billion of risk-weighted assets in Asia,

The dash to Asia has a little of the style of General Custer about it and we have the issue of motivation for bank bosses. If things go wrong they are extremely well paid and if they go right they get paid even more than footballers so why not gamble? However shareholders keep getting nasty surprises of which a dividend nudged higher may be a future one as we wonder if it can be maintained?

How is banking reform going?

U.S. authorities are examining whether the bank hired relatives of well-connected politicians or employees of state-owned businesses in the Asia-Pacific region, HSBC disclosed Monday.

From the Guardian

HSBC has admitted that an official monitor installed at the bank after a money-laundering scandal four years ago has raised “significant concerns” about the slow pace of change to its procedures to combat crime.

A shift in the United States?

A week ago the head of the Minneapolis Fed Neel Kashkari gave a speech which included this.

I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy……Large banks must similarly be able to make mistakes—even very big mistakes—without requiring taxpayer bailouts and without triggering widespread economic damage. That must be our goal.

Also he was willing to point out one of the themes of this blog.

A second lesson for me from the 2008 crisis is that almost by definition, we won’t see the next crisis coming, and it won’t look like what we might be expecting.

His thoughts acquire more relevance when we note this.

In 2008, he was confirmed as assistant secretary of the Treasury. In this role, he oversaw the Troubled Assets Relief Program (TARP) during the financial crisis.

A poacher turned gamekeeper may prove to be very valuable. I note that he has already been under attack.

CNBC: Why Kashkari’s crackdown on big banks is dangerous.

New York Post: There’s no point to breaking up banks

Whilst I do not agree with everything that he says I completely agree that we need bold ch-ch-changes.


The Bank of England Underground Blog looked at the situation a week ago and it is revealing that it felt the need to look back to 1890 and the (first) Barings Crisis as an example.  Even so it gets itself into a mess.

While one may object that recent crises erupted because of system-wide incentives to take risk (Too Big To Fail, deposit insurance and flawed governance), these two episodes should be thought of as identifying appropriate policies to manage individual troubled SIFIs if the system-wide incentives can be brought under control.

The replies contain a message with which I heartily concur.

Good Discussion but, Banks and Financial Institutions have not learned the lessons of the past, as long as they feel they will be bailed out they will continue to take excessive risks. (John H Mesrobian)

This is far from just a UK problem. Rather amusingly for everyone except the Italian taxpayer Wikileaks tells us that the US NSA listened in when French President Sarkozy told Silvio Berlusconi that Italian banks would “pop like a cork!” . Food for thought when we are still being told by Mario Draghi that they are “resilient”.


13 thoughts on “What is wrong with our banks? How many “surprises” can there be?

  1. Hi Shaun.

    You pose the question “How is Banking reform going?”.

    Perhaps we could ask that nice Mr Sands whose wiki page informs me that, despite having apparently destroyed Standard Chartered’s economic viability through his imprudent actions, “Sands is a member of the Board of Directors of the Institute of International Finance, the global association of financial institutions, and chairman of their Special Committee on Effective Regulation.”

    At this point I am unsure as to whether Mr Sands and his well-remunerated ilk are poachers, gamekeepers or globally corrupt policemen. I am quite sure, however, that they are well-remunerated.

    Old boss, new boss etc.

    Bah humbug! /rant.

    • Hi Jim M

      You highlight a big issue which is something we have discussed on here before which is the “institutional takeover” of regulatory bodies and organisations they listen to. Less than a month ago I pointed this out about the board of the Financial Conduct Authority.

      “Ruth Kelly, former global head of client strategy at HSBC Global Asset Management, as non-executive board members from 1 April.”

      When she was in power she was one of those boasting about all the houses that will be built in Ebbsfleet. All these years later the most recent increase left us with another lower number. Rinse and repeat, rinse and repeat….

  2. Hello Shaun ,

    Nothing will change

    they rule us !

    Glass-steagal is not wanted or allowed , these clever corrupted vikings are not stupid

    and they make a lot of money breaking things


    • Hi Forbin

      At some point the wider population will realise that this is a repeating game. Actually I may be unfair as I am sure that many have spotted this but it will require them to be angry enough to put pressure on their MPs to do something about it.

      As to your question about an edit function I do not think so but will take a look as why not? I have left a question about Simple Press on the support forums today already hoping that someone knows more than me about it.

  3. In other news, and very much in the spirit of Bismark/Cockburn/Yes Minister, we can now put behind us any silly talk about negative interest rates here in the UK because it has been officially denied by none other than the Governor of the Bank of England himself.


    So that’s definitely not going to happen. No sirree, No chance at all.

    • you really have to laff , because

      “The aim of negative interest rates, which effectively puts a charge on savers depositing funds, is to discourage commercial banks from leaving cash on deposit with the central bank and lend it to businesses and consumers instead. ”

      And what scrutiny did this statement get ?

      none at all !

      oh well, off the bank before to get my money out in £20 as the £50 will be made illegal soon …..


  4. Hi Shaun
    The now long running saga is
    laughable, but why is there not widespread
    For as long as the masses are
    unaware of the situation TPTB will be in
    control, but how can this happen when there
    is no mainstream information. Where are the
    documentaries relating to the last eight years
    and where are the mainstream satirists at a
    time when they have so much ammo?

    Thankyou for including VAT details on your
    Friday blog, I hope the link above might be of interest, a
    range of 4% for sub post offices to an average of 11%
    for others including a large number of contract workers.
    The scheme seems to be a benefit for low turnover
    companies but is a big advantage for contractors,
    It reminds me of one of the pension industries favourite
    words”Smoothing” and although Vat returns are low it
    follows that income tax and corporation tax takes will be
    higher. Does this scheme make the government
    stats out of synch?

    When wil they ever learn
    When will they eeever learn!


    • Hi JRH

      Thanks for the link which I recommend that others read. It poses a few questions as I can understand why you might have lower rates for farming and food manufacturers but there are many others. It seems ripe for abuse to me…

  5. Hi Shaun,
    Thanks for another great piece on the banks.
    How many more do you think you’ll need to write?
    After so long there seems little hope of any changes which really means it’s going to be a long, very slow climb out of the banking hole – if the the last 8 years are any indication of progress.

    At this rate it could take 30 years or more – and what does that mean for interest rates, growth, inflation and so on; and what about the next generation of pensioners? Gee what mess.
    It’s utterly depressing, especially as TPTB continue to rake it in while presiding over failure after failure to resolve anything.

    • Hi Eric and thank you

      Well there is the one next year for the release of the RBS figures :). Actually we may well find that 2016 is the year of problems for banks – the JP Morgan figures had a warning about energy losses today- and maybe a few blinkers will fall from people’s eyes. Sadly it is all rather lost decade like…

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