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.


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?