The City and its Shameful Banksters

Posted on 22 décembre 2012 par

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Money laundering, rate fixing, embezzlement, excessive risks: convictions of Banksters have multiplied this year. A look back at the casesthat are tarnishing the City. An article by Géraldine Vessière in L’Echo, 22 December 2012.

1024px-City_Point_view_panoramaIn Great Britain, the number of convictions delivered by the Financial Services Authority, the sector regulator, between 2007 and 2012 has gone from 22 cases and a total of £5M in fines to 53 cases and to fines in excess of £312M. The FSA is not the only body to deliver convictions. Other authorities, such as the Serious Fraud Office, or the police, especially the City of London force, have also been active and have themselves initiated proceedings. According to a FSA spokesperson, this rise is explained by the increase in human and legal resources available to the FSA, decided on shortly before the start of the crisis. The media coverage of these fraud cases and the resulting public anger also seem to play a role, as suggested by the surge in anonymous tip-offs.

The recent HSBC money laundering affair was the talk of the town. The British bank was accused of allowing money from Mexican drug cartels to pass through their American accounts. It was also criticised for doing business with Iran despite international sanctions. In order to put an end to the US case, it has accepted to pay 1.9 billion dollars to the American authorities. Breaching sanctions imposed by the United States against certain countries, including Iran, also earned Standard Chartered a fine of 300 million dollars.

Libor

Bob Diamond

Bob Diamond

The prize for fraud goes not to HSBC but to the manipulation of LIBOR between 2005 and 2010. At least twelve banks are in the crosshairs of the European, American and Asian authorities. Barclays is the first to have reached an agreement with the two first one. Total fine: 450 million dollars, 59 million pounds by the British regulator, the FSA, and the rest by various American bodies. This is much less than the 1.5 billion pounds, 160 million of which imposed by the FSA, that UBS will have to pay in this affair. This is only the beginning in the series of fines and resolutions currently being negotiated. The inquiries are on-going for the other implicated institutions. An agreement is in the process of being finalised with RBS.

In this affair, heads have already rolled. First at Barclays. The head of operations, the Group Chairman of the bank, Marcus Agius and the CEO, Bob Diamond, ousted more for his arrogance than for the implication of his bank in the manipulations, have been pushed out. Arrests have also taken place in France and Great Britain and there should be more to come next year.

Traders in flames

Whilst the banks agreed to manipulate interbank interest rates, whilst British bankers committed abusive sales of insurance products (the other scandal of 2012), some traders set a blaze in the trading rooms. The “London Whale”, the nickname given to the French trader Bruno Iksil because of the financial weight of his investments, reportedly made a loss of between two and six billion dollars for JP Morgan. This father of four was used to making risky bets on derivative products. Result: the ex-star of JP Morgan’s Chief Investment Office (CIO), who thought himself capable of “walking on water” was fired in July. He is currently the target of criminal proceedings in several countries, as are three of his colleagues, Javier Martin-Artajo, Achilles Macris and Julien Grout. Neither Ina Drew, the former head of the Chief Investment Office where Iksil worked, nor the CEO of the bank, Jamie Dimon, will be investigated.

After the “London Whale”, there is the UBS “rogue trader” Kewku Adoboli, 32. He made a loss of 2.3 billion dollars for his bank through his fictional operations between 2008 and 2011. The rising star of trading, whose earnings went from 19,000 to 200,000 pounds in a few years, had a dramatic fall. Arrested in September 2011, the Kerviel of London has been sentenced to seven years in prison, with three-and-a-half suspended. During the trial, the son of a Ghanian diplomat declared tearfully that he considered his colleagues to be his family and that he had given everything to the bank. The defence also condemned his superiors for being aware of Adoboli’s operations and even for encouraging him. However, although UBS was sentenced by the FSA to pay a fine of £29.7M for lack of vigilance and although it is obliged by FINMA, the Swiss regulator, to restrict its investment banking activities, no charges have been brought against any of Adoboli’s superiors.

Superiors Spared

Peter Cummings, 57, ex-head of the Corporate division of the Bank of Scotland (HBOS), is the only big black sheep of his bank to be sent to the stake. He began working for his bank at 18, progressively rising up the ladder and reached the head of the Business department in 2006. But his over-generous loan policy, to the benefit of a small number of large borrowers, and his mismanagement of risks took his bank, in several years, to near bankruptcy. It was only saved when Lloyds bought it in 2009. The man who retired from professional life, the same year, with a pension of 352,000 pounds a year has, three years later, been banned for life from working in finance and sentenced to pay a fine of 500,000 pounds.

logo_banque_suisse_UBS-300x114This case is the only one to have a direct link to the economic crisis and involved the most senior banker to be indicted and sentenced so far. The lack of consequences for bank directors has left many observers bitter. Fred Goodwin, the former boss of the Royal Bank of Scotland who, with his excessive expansion policy, pushed RBS to the edge of bankruptcy and forced its nationalisation, has now been stripped of his knighthood. Johnny Cameron, the head of the investment bank section of RBS has decided, of his own free will, to never work in the City again. Yet there does not appear to be a single head of a big bank who has been accused or sentenced for actions committed by their bank or the people they were responsible for.

Karen Egger from Transparency International judges the convictions “tiny with regards to the sums in question”. For her, “the fines are low and there are very few cases, except against a few scapegoats. We have to hit where it hurts. Ban the banks responsible from operations in certain sectors, take away their licences. We have to also change the culture that reigns in these businesses”.

Changing mentalities

Many are asking for such a change. The question is to know how to put it into operation. “I had a meeting this morning in a bank. They asked me how to implement a new corporate culture”, confides a consultant with more than twenty years of experience. “It’s a good question”, she murmurs, perplexed. Various suggestions are evoked: playing with salaries, introducing integrity checks when hiring bankers, putting into place a better system of supervision and control, obliging traders to take two weeks of paid holidays and to disconnect from their Blackberry during this period. Would these steps bring about a significant change in the business culture, which would need more than two weeks of compulsory holidays each year, or is this simply window dressing?

rogue trader That not all

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