Will we always be second fiddle to the banks?

The situation regarding the banks is one that has dominated the credit crunch era as we started with some spectacular failures combined with spectacular bailouts. Yet even a decade or so later we are still in a spider’s web that if we look at say Deutsche Bank or many of the Italian banks still looks like a trap. Economic life has been twisted to suit the banks such that these days a new Coolio would be likely to replace gangsta with bankster.

Keep spending most our lives, living in the gangsta’s paradise
Keep spending most our lives, living in the gangsta’s paradise

Power and the money, money and the power
Minute after minute, hour after hour

Although upon reflection with all the financial crime that the banks have intermediated perhaps he was right all along with Gangsta. This morning has brought more news on this front as we note this from Sky News about HSBC.

HSBC has agreed to pay $765m (£588m) to the US Department of Justice (DoJ) to settle a probe into the sale of mortgage-backed securities in the run-up to the financial crisis.

It is the latest bank to settle claims of mis-selling toxic debt before the financial crisis.

HSBC has paid a lot less than the  Royal Bank of Scotlandwhich agreed to pay $4.9bn in May and Barclays’ $2bn settlement with the DoJ in March.

This is just one example of the many criminal episodes emanating from the banks and if we stay with HSBC there was also this reported by The New Yorker.

 In 2012, a U.S. Senate investigation concluded that H.S.B.C. had worked with rogue regimes, terrorist financiers, and narco-traffickers. The bank eventually acknowledged having laundered more than eight hundred million dollars in drug proceeds for Mexican and Colombian cartels. Carl Levin, of Michigan, who chaired the Senate investigation, said that H.S.B.C. had a “pervasively polluted” culture that placed profit ahead of due diligence. In December, 2012, H.S.B.C. avoided criminal charges by agreeing to pay a $1.9-billion penalty.

The tale of what happened next is also familiar.

The company’s C.E.O., Stuart Gulliver, said that he was “profoundly sorry” for the bank’s transgressions. No executives faced penalties.

Yet in spite of all the evidence of tax evasion and money laundering in the banking sector the establishment bring forwards people like Kenneth Rogoff to try to deflect the blame elsewhere. First blame cash.

Of course, as I note in my recent book on past, present, and future currencies, governments that issue large-denomination bills also risk aiding tax evasion and crime. ( The Guardian )

Then should anything look like being some sort of competition raise fears about it too.

But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity.

Does he mean like the banks do?

Competition seems to get blocked

This morning has seen this reported by the Financial Times.

Britain’s peer-to-peer lending industry fears being stripped of one of its key advantages after the UK regulator proposed to block the access of many retail investors, alarming some senior executives in the nascent sector. “This is a moment,” said Rhydian Lewis, chief executive of RateSetter, one of the UK’s biggest peer-to-peer lending platforms. “They are looking to restrict this new industry and it is wrong. This is how things get stymied.”

Still in some ways it is a relief to see the Financial Conduct Authority or FCA actually have some powers as after all it was only last week they were telling us they were short of them.

Given the serious concerns that were identified in the independent review it was only right that we launched a comprehensive and forensic investigation to see if there was any action that could be taken against senior management or RBS. It is important to recognise that the business of GRG was largely unregulated and the FCA’s powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited.

It is important to recall that this was a very serious business involving miss selling and then quite a cover up which the ordinary person would regard as at the upper end of serious crime. Businesses were heavily affected and some were forced into bankruptcy. Yet apparently there were no powers to do anything about what is one of the largest financial scandals of this era in the UK. It is hard not to mull on the fact that a few years ago the FCA was able to ban someone for life from working in the City of London because of evading rail fares.

However if you are a competitor to the banking sector you find that inquiries and regulation do apply to you. However what was the selling of derivative style products to small businesses somehow escapes the net.

It is not the banks fault

A very familiar theme has been played out since the Bank of England announced a rise in UK interest-rates at midday on Thursday. The reality is that many mortgage rate rises were announced immediately but as social media was quick to point out there was something of a shortage of increases in savings rates. Here is one way this was reported by the BBC over the weekend.

Millions of people could get a better return on savings by switching deals rather than waiting for banks to increase rates, experts say.

A huge number of savers leave money languishing in old accounts with poor rates of interest, often with the same provider as their current account.

The City regulator says they are missing out on up to £480m in interest.

So it’s our own fault and we need to sharpen up! As us amateurs limber up the professionals seem to be playing a sort of get out of jail free card that in spite of being well-thumbed still works.

Following the previous Bank rate rise in March, interest paid on half of all savings accounts failed to rise at all. Of those that did, the average rise did not match the Bank of England’s increase.Since Thursday’s rise there has been very little movement in rates,………..

Oh and March seems to be the new November at least at the BBC.

We also got a hint as to why the environment might be getting tougher for peer-to-peer lenders.

Bank of England governor Mark Carney suggests new entrants are increasing competition, creating better deals.


There is quite a bit to consider here as we look around UK banking. Looking at RBS there is the problem that the UK is invested at much higher levels. The 251 pence of this morning is around half the level that the UK government paid back in the day. Perhaps that explains at least some of the lack of enthusiasm for prosecuting it for past misdemeanours. Especially as the sale of 7.7% of its shares back in June illustrated a wish to get it off the books of the UK public-sector which still holds around 62%.

I note over the weekend the social media output of HSBC finds itself under fire reminding us of an ongoing issue..

Planning your next trip? Get cash before you go, to make the most of your holiday time.

The response is from Paul Lewis who presents Radio 4’s MoneyBox.

Dreadful advice. (a) HSBC rates not great (b) using a HSBC card abroad is subject to a hefty surcharge but using a Halifax Clarity card is not. This is why never go to a bank for advice it’ll only give you sales.

The old sales/advice issue rears its ugly head again as we note that the advice will of course be rather good for the profits of HSBC.

Moving onto the FCA and the Bank of England it is hard to see a clearer case of regulatory capture or as Juvenal put it so aptly back in the day.

Quis custodiet ipsos custodes?

Or who regulates the regulators?




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”.