It was truly hilarious to watch CNN’s anchorman Richard Quest entirely lost for words when, in response to the question directed to the managing director of the Bank of China who was visiting London – “Now that Prime Minister David Cameron has been re-elected what is your opinion of London as the banking capital of the world?” – the response he received was, “Fine. Fine and more fines.”
It turned out that much to the bemusement of Richard, the Chinese gentleman was referring not to the business environment in London but to a report issued by Standard and Poor’s, the credit rating agency:
“The UK’s four biggest banks – Royal Bank of Scotland; Lloyds; HSBC; and Barclays – will have to pay more fines for miss-selling and market manipulations in 2015 than in any year to date. Their bill for misconduct fines and compensation for Income Protection Insurance [IPI] and interest rate product miss-selling will hit almost £14 billion this year.
“Rather than trickling away, bank fines are now a way of life. This reflects the intrusive nature of regulation to the benefit of customers rather than the banks, strong media attention and the proactive role of claims management companies.
“On the litigation front, we note an increased propensity of regulators to bring cases against banks, particularly the multiple US regulators to which some banks are subject. We predict a record combined payout from Royal Bank of Scotland [RBS]; Barclays; HSBC and Lloyds. The four banks have borne £42 billion in conduct and litigation charges in the past five years but can expect £19 billion more in the next two.
“We assume that material foreign exchange and US residential mortgage security charges will arise for some banks either this year or next. We conservatively factor these potential charges into the next two years, even though they may arise in subsequent years.”
Matters were further compounded with the “Breaking News” on CNN shortly afterwards: “Mr. Martin Wheatley, the Chief Executive Officer of the UK financial regulator [The Financial Conduct Authority] who led a post-crisis crackdown on errant banks has resigned after being informed by the Chancellor of the Exchequer, Mr. George Osborne, that his contract would not be renewed when it expires in March 2016.”
Martin Wheatley, who had previously served as head of Hong Kong’s Securities and Futures Commission, pursued a very aggressive consumer-champion agenda with which the Chancellor of the Exchequer was not entirely comfortable. He was appointed in April 2013 as the pioneer chief executive officer of the Financial Conduct Authority.
However, Osborne, who is still basking in the afterglow of his recent budget which he presented to Parliament on 8th July, 2015, has been discretely pursuing a “new settlement” with the City (especially bankers) which would signal a shift from tough regulation of financial services.
Martin Wheatley was clearly not the darling of the bankers as was evident by the leaked e-mail from one senior banker to the chairman of the Bank of China: “The problem with Martin was that he made many enemies, partly for good reason, because banks did need firm treatment after the crisis. But he seemed to have a mindset that all bankers are evil.”
From the advance publicity given to the speech delivered by Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House on June 10, 2015, it was a powerful signal that reckless conduct and impunity by bankers would no longer be tolerated. Carney was threatening brimstone and fire.
Indeed, the opening paragraph was as follows: “Almost 350 years ago, the Great Fire destroyed the City of London and rendered 100,000 people homeless. It took a century to rebuild. The legacy of the Great Fire endures, including such Wren’s Masterpieces as St Paul’s and his twenty-five other steeples that survive within the City’s precincts.”
Other snippets and vignettes from the speech are as follows: Most fundamentally, our markets serve our real economy. By financing firms to hire, invest and expand, our markets help drive UK growth. By opening up cross-border trade and investment, our markets create new opportunities for UK businesses and savers. By transferring risks to those most willing and able to bear them, our markets help UK households and businesses insure against the unexpected.
Much of this activity depends on fixed income, currency and commodity markets. These FICC markets establish the borrowing costs of households, companies and governments. They set the exchange rates we use when we travel or buy goods from abroad. They determine the costs of our food and raw materials. And they help our companies manage the financial risks they incur when investing, producing and trading.
Markets have become ever more important to people as they bear increasing responsibility for financing their retirements and insuring against risks. The suitability of those decisions will depend heavily on FICC markets. It is therefore vital that they work well. And are seen to do so.
It is of no consequence that Mark Carney is a Canadian while his wife Diana is English. From Greece comes “Breaking News” by Zain Asher: headline: “Greece Battles To Save Its Banks”. “Live from Athens (K Loizou): Greece was fighting to keep open a financial lifeline for its banks last night after Eurozone finance ministers rejected pleas for a one-month bailout extension. Panicked savers queued at cash machines and banks shut some branches, as fears rose that the government would be forced to impose capital controls – limits on how much money can be withdrawn.”
The anchor lady added wryly: “That is not such a fine idea.”
J.K Randle
