What is it about RBS and the banks?

A major feature of the credit crunch was the collapse of more than a few banks as a combination of miss pricing, bullish expansionism and arrogance all collided. This led to the economic world-changing as for example the way we now have extremely low ( ZIRP) and in more than a few places negative interest-rates and of course all the QE bond purchases which are ongoing in both the Euro area and Japan. So lower short and long-term interest-rates and that is before we get to the cost of the bailouts themselves. The US and UK acted early but others took longer as my updates on Italy for example explain and describe. It’s Finance Minister ( Padoan ) even had the cheek to boast about not helping its banks which then created ever larger bad loans.

The essential problem is that this is still ongoing as the news from Royal Bank of Scotland overnight tells us.

Royal Bank of Scotland on Tuesday agreed a $500m settlement with New York State over mis-selling residential mortgage-backed securities in the run-up to the financial crisis………..The agreement requires the bank to pay $100m in cash and to provide $400m of consumer relief in New York. It is the latest in a series of settlements with US authorities that has resulted in banks handing over $150bn in payments and fines since the crisis.

This is yet another in a series that feels like rinse and repeat but we are now a decade on from things heading south for RBS as on the 22nd of 2008 what was the largest rights issue ever in the UK took place. The £12 billion cash from that did not even last 6 months as on the 13th of October the UK government stepped in. In other words the documents from that rights issue look to have been about a misleading as they could be along the lines of Sir Desmond Glazebrook in Yes Prime Minister who when asked about the rules replied “They didn’t seem quite appropriate”.

So we have ended up with something that looks like a bottomless pit although as ever it is put PR style.

Ross McEwan, chief executive, said: “We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy.”

Legacy issues indeed and of course a much larger one is on its way.

RBS, part-owned by the UK government, has set aside $4.4bn to deal with residential mortgage-backed security claims in the US and recently revealed its first annual profit in nine years.

This poses its own question as we mull the latest development which is for only one state.

Ian Gordon, an analyst at Investec, said the deal with New York was “a disturbingly large single-state settlement ahead of the main event”.

Any new settlement would add to this.

 

RBS has been trying to close the door on misconduct issues from the crisis and in 2017 agreed to pay £4.2bn to the US Federal Housing Finance Agency in relation to mortgage-backed securities.

What about the law?

This seems to have been missing from the banking sector and especially in the case of the 2008 rights issue of RBS. However this morning has brought news that you can be jailed for financial crimes. From the BBC.

A group of fraudsters who conned UK consumers out of £37m by selling passports and driving licences through copycat websites have been sentenced to more than 35 years in jail.

The six people, led by Peter Hall and including his wife Claire, operated websites that impersonated official government services.

Perhaps the establishment was upset by the way they were impersonated but we are left with the thought that as the crime was compared to the banks small-scale it could be punished. Along the way something seemed rather familiar though.

 “This was a crime motivated by greed. This group defrauded people so they could enjoy a luxury lifestyle.”

If we actually move to banking crime a somewhat different set of rules seem to apply. Yesterday the Financial Conduct Authority finally banned the man called the Crystal Methodist due to his drug taking proclivities but of course Chair of the Co-op Bank which nearly collapsed.

Mr Flowers was Chair of Co-op Bank between 15 April 2010 and 5 June 2013. The FCA found that Mr Flowers’ conduct demonstrated a lack of fitness and propriety required to work in financial services.

So our first thought is to sing along with the Doobie Brothers.

Gotta keep on pushin’ Mama
‘Cause you know they’re runnin’ late

After all most of us knew there was “trouble,trouble,trouble” as Taylor Swift would out it in June 2013. However when you see what he was banned for it is hard not to let off some steam.

The FCA found that while Chair Mr Flowers:

 

used his work mobile telephone to make a number of inappropriate telephone calls to a premium rate chat line in breach of Co-op Group and Co-op Bank policies;

and used his work email account to send and receive sexually explicit and otherwise inappropriate messages, and to discuss illegal drugs, in breach of Co-op Group and Co-op Bank policies despite having been previously warned about his earlier misconduct.

In addition, after stepping down as Chair, Mr Flowers was convicted for possession of illegal drugs.

As you can see destroying a bank and causing losses in some cases substantial to a large number of people does not appear on the charge sheet whilst calling a premium rate chat line does.

Helping the economy

We were told the economy would not be able to survive without the banks yet as time has gone on they are still deleveraging. From Which.

In December last year, RBS/Natwest announced that it was closing a staggering 259 bank branches in 2018 – a quarter of its branch network. That included 62 RBS and 197 NatWest branches, plus 11 Ulster Bank branches which were previously announced.

The UK taxpayer will also be grimly observing this as the share price falls another 5 pence at the time of typing this to £2.59 as opposed to the £5.02 paid for its holding.

Comment

There are various problems with the state of play. The first is the way that the law pretty much only applies one way regarding the banks. If we misbehave we can expect to be punished sometimes severely. I have no axe to grind with that until we note that it at best intermittently applies to the banks themselves and even less to those at the top of the food chain. For example whilst Santander is perfectly at liberty to pay bonuses which Nathan Bostock would have received at RBS this raises hackles to say the least when it was from the GRG section which wrecked havoc amongst so many small businesses. It seems that bank directors are even more an example of the “precious” than the banks themselves. If we do not make changes how can we expect matters to improve?

When a bank is bailed out we are never told the full truth as this emerges later and sometimes much later as the news today is around a decade after the event. When the truth requires drip feeding well that speaks for itself. Also I note that in the intervening decade this issue goes on and on. From the Financial Stability Board.

The activity-based, narrow measure of shadow banking grew by 7.6% in 2016, to $45.2 trillion for the 29 jurisdictions……..Monitoring Universe of Non-bank Financial Intermediation (MUNFI) – This measure of
all non-bank financial intermediation grew in 2016 at a slightly faster rate than in 2015 to an aggregate $160 trillion.

We need to take care as one day that will rise to a lot of money! Also wasn’t this supposed to have been a problem pre credit crunch?

 

 

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19 thoughts on “What is it about RBS and the banks?

  1. When you factor in direct subsidies, implicit subsidies and the destruction of the value of the small persons savings via interest rates, just how much Western personal wealth has been DELIBERATELY destroyed?
    So what happens when the housing markets crash?
    It’s all part of the same game, you know.
    Agenda 21.

    • certainly we can crash the housing market and that will make us all poor

      can’t see yet how that translates to the 3rd world getting richer ( well part from off shoring jobs .)

      then again cane we really say China is still 3rd world ? sure many peasants are dirt poor there but there’s an awful lots of rich Chinese around .

      Anyway I think we’re in hoc to the Banks , still , and will be for a very ,very long time.

      As Kevin posted below – any other business would have been let go , but not the TBTF Banks…..

      Forbin

      • The two main problems with wealth as far as Agenda 21 is concerned, is that it affords (unless, of course, it is in land) freedom of both choice & movement.

        In order to see the big picture, it is necessary to take a few steps backwards from individual issues.

        https://sustainabledevelopment.un.org/content/documents/Agenda21.pdf

        Section 3.5

        c. Contain a long-term strategy aimed at establishing the best possible conditions for sustainable
        local, regional and national development that would eliminate poverty and REDUCE THE INEQUALITIES BETWEEN VARIOUS POPULATION GROUPS. It should assist the most disadvantaged
        groups – in particular, women, children and youth within those groups – and refugees. The
        groups will include poor smallholders, pastoralists, artisans, fishing communities, landless
        people, indigenous communities, migrants and the urban informal sector.

  2. The fact that UK bank share prices are so far below their pre-GFC levles shows the extent and size of the losses they made from speculating on credit derivitives. The losses are just unimaginable, and are obviously being kept off balance sheet to disguise the fact they are all completley insolvent, add in the fact that RBS computer systems are archaic and liable to crash at any moment(not having the money to upgrade them obviously)and the only wonder is, after nearly ten years of subsidies, bailouts and zero rates, how can they not be fully recovered?

    If any other company were in such straits, it would have been shut down and de-listed by the authorities years ago,but the farce continues, the government are in far too deep now, they cannot let them fail, amazingly they are paying out dividends!!!, but this only helps to serve the illusion they are solvent.

  3. Hi Shaun
    A sorry tale that I fear will go on for much longer
    than some think.
    As you imply New York’s fine is the first.only 49
    to go! Presumably other states will agree to delay any
    action for some time, otherwise BOOM. What is it about us
    that allows TPTB to get away this,as Private Fraser puts it
    we’re doomed.

    JRH

    • Hi JRH

      It is the establishment at play again as they will not let any part of their edifice fall down. Combined I think with the short-termism of politicians who want to be able to claim an instant fix.

    • Hi Jason

      I have had a look around but cannot find some clear numbers. Perhaps because it is not so easy as do you count the bank levy ( I would) and the fees charged to Lloyds and RBS for insurance on their bailouts (probably but not quite so clear cut)?

      But whilst a fair way short of the US $150 billion gained by the US it would still amount to a tidy sum.

  4. As the DW article says: “With the exception of the US, no country had recouped the full amount of taxpayers’ money, the IMF reported”. The US legal system is set up so that class actions by the terminally stupid are expensive to defend and will probably be lost by the defendant bank anyway, so they have meekly paid up. It is simply a move to recover the bailout costs by the US Government, especially if the money is extracted from foreign banks as they will be back-stopped by their own governments (please note, Brexiteers, along with the Trump tariffs).

    Back over here, little has actually changed – while the speculation in MBSs has been curtailed, there is the same old bad management, following the rules (to cover backsides) and some pretty daft decisions, driven by a knowledge that the Govt will bail them out again – Lloyds taking on a massive exposure to bad debt by buying MBNA and Barclays having a rather quaint belief that regulation will save them from a big hit when house prices fall. I have yet to fathom out whop takes the hit once the buyer’s equity has been exhausted – the mortgage lender or the Government “Help to Inflate prices” scheme, not least as my previous local authority assured me they would not make losses on a similar scheme. Even the Halifax is now admitting that prices are starting to decline and with mass failures in retail, we are likely to see the part-time women’s jobs disappearing and thus removing another support for prices.

    Recessions are designed to weed out the stupid and incompetent, the failed businesses and the outdated skills, but the failure to allow one in 2008 is why we have not really moved on.

    • Hi David

      Thanks for the reminder about the MBNA credit card purchase by Lloyds. If one or two other big banks pile into that sector we will know that the credit card sector is about to implode or explode.

  5. Shaun, I am afraid that the cultural issues at banks are even worse than you say. Having worked in an investment bank, I have to say that the real problems are that
    1. People can make ridiculous amounts of money. The wealth extracted by the lawyers, accountants, investment bankers, fund managers etc etc are comparable or greater than amounts made by successful entrepreneurs;
    2. Everyone in the City believes that these rewards are appropriate for their great skill, whereas they happen because a small percentage of a very large number is a lot of money. The thing which they all fail to acknowledge is that the underwriting of large deals is made possible by the size of the bank’s balance sheet, not their personal skill.
    3. Because there is no product of the City apart from money, the size of bonus etc becomes an obsession.
    I don’t think that, while an absurd reward system continues, we will ever have banks which actually function in the best interests of the economy. When a culture is suffused with arrogance and greed, it will self perpetuate as a parasite upon the rest of us and maintain its position by buying political influence.

    • Yes James, as our economy becomes more financialised and thus relies more and more from taxes from this monster, it becomes harder and harder to kill it or even regulate it, also add in the side effect of it creating a rentier society that most Brits think is to be lauded and is some form of “modern capitalism” that rewards and reflects their shrewdness at making money from property and renting it out, and you have the current Uk economy in a nutshell.

  6. Spot on Shaun during the riots of 2011 someone was jailed for six months for stealing a bottle of water.
    We were told we can’t bail out failing industries,coal steel shipbuilding etc at least they produced something RBS and the other criminal enterprises produce debt.
    If you or I could loan out money we don’t have then demand return of the principal plus interest and somehow make a loss that would be beyond incompetent yet these bankers have managed it.
    The situation is also the fault of Governments who were negligent incompetent or both
    We are told There is no magic money tree…but there is and the banks have got exclusive rights.

    • Hi PrivateFraser

      The law is supposed to be blind in the sense that you should get similar sentences for similar crimes but you example shows it is not. Some crimes of large size have seen our establishment “look away now” whereas as you say the rioters got some extreme sentences.

  7. Good Lord Shaun!!! If I didn’t know you better i’d say you were angry, welcome to my world. The double standards on display here are breathtaking and the impression given that some people are more equal under the law than others.

    Oh, and thanks for the Doobie Brother lyric I keep on thinking it’s by the Average White Band.

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