The chairman of Barclays has hit out against the £20bn in fines and taxes imposed on the bank in recent years as it chopped its dividend and announced it was scaling back in Africa to focus on the UK and US.
As Barclays reported an 8% fall in profits to £2.1bn in 2015, John McFarlane warned about the “societal costs” of multibilllion pound taxes and finesand complained that last year’s £1.5bn fine for foreign exchange rigging was one of the highest imposed, even though Barclays’ offences were the same as rivals.
“A £50m fine or penalty is the equivalent of employing 1,000 fewer employees, closing 100 small regional branches, or forgoing the capacity to lend over £500m to small businesses or consumers,” McFarlane wrote in the bank’s annual report. “The charges are not proportionate to our smaller size and ability to pay relative to many of our peers.”
The bank is to cut its dividend payout to shareholders by more than 50% for the coming two years. However it has cut its bonus pool by only 10% to £1.6bn and paid 323 staff more than £1m. The highest paid director, whose identity is not revealed, received £9.5m.
A world where a fine is seen as a cost rather than er encouragement to actually obey the law.
Fleischmann is the central witness in one of the biggest cases of white-collar crime in American history, possessing secrets that JPMorgan Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion as regularly reported – more on that later) to keep the public from hearing.
Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as “massive criminal securities fraud” in the bank’s mortgage operations.
Thanks to a confidentiality agreement, she’s kept her mouth shut since then. “My closest family and friends don’t know what I’ve been living with,” she says. “Even my brother will only find out for the first time when he sees this interview.”
Six years after the crisis that cratered the global economy, it’s not exactly news that the country’s biggest banks stole on a grand scale. That’s why the more important part of Fleischmann’s story is in the pains Chase and the Justice Department took to silence her.
She was blocked at every turn: by asleep-on-the-job regulators like the Securities and Exchange Commission, by a court system that allowed Chase to use its billions to bury her evidence, and, finally, by officials like outgoing Attorney General Eric Holder, the chief architect of the crazily elaborate government policy of surrender, secrecy and cover-up. “Every time I had a chance to talk, something always got in the way,” Fleischmann says.
This past year she watched as Holder’s Justice Department struck a series of historic settlement deals with Chase, Citigroup and Bank of America. The root bargain in these deals was cash for secrecy. The banks paid big fines, without trials or even judges – only secret negotiations that typically ended with the public shown nothing but vague, quasi-official papers called “statements of facts,” which were conveniently devoid of anything like actual facts.
Fascinating article. Just the kind of thing the FT should cover.
The Tea Party regards Barack Obama as a kind of devil figure, but when it comes to hunting down the fraudsters responsible for the economic disaster of the last six years, his administration has stuck pretty close to the Tea Party script. The initial conservative reaction to the disaster, you will recall, was to blame the crisis on the people at the bottom, on minorities and proletarians lost in an orgy of financial misbehavior. Sure enough, when taking on ordinary people who got loans during the real-estate bubble, the president’s Department of Justice has shown admirable devotion to duty, filing hundreds of mortgage-fraud cases against small-timers.
But high-ranking financiers? Obama’s Department of Justice has thus far shown virtually no interest in holding leading bankers criminally accountable for what went on in the last decade. That is ruled out not only by the Too Big to Jail doctrine that top-ranking Obama officials have hinted at, but also by the same logic that inspires certain conservative thinkers—that financiers simply could not have committed fraud, since you would expect fraud to result in riches and instead so many banks went out of business.
“Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent,” reported a now-famous 2010 story in the Huffington Post. “But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.”
So forget those thousands of hours of Congressional investigation and those thousands of pages of journalism on the crisis. It doesn’t make any sense to the man in charge. No jury would be convinced. Case closed.
As it happens, a trial just ended in Sacramento in which a jury was convinced that “executives intended to make fraudulent loans.” Here’s the thing, though: It wasn’t the government that made the case against the financiers; it was the defendants.
Perversely, while banks are wards of the state and get more support and subsidies than any other type of business (for instance, ZIRP and quantitative easing are massive transfers from savers to financial players), the authorities have lacked the will to discipline them effectively.
Even though the BNP Paribas fine exceeded a year of earnings, the bank’s stock rose 3.6% when the deal was announced, saying that investors though BNP Paribas had done well. The conundrum is indicting a bank at the parent level is widely perceived to be a potential death blow, since many counterparties would have to stop doing business with it immediately.
Removing the US banking licenses of a serial fraudster, another possible remedy, would similarly put a US firm out of business and would inflict severe, permanent damage on a big foreign bank. Hence the tendency of officials to rely on big, or at least big-sounding, fines.
But it is bankers, not banks, that commit crimes.
Here, the BNP Paribas deal falls short. True, 13 officers were forced to resign, including one of its chief operating officers. But he was on the verge of retirement, and more important, no one was charged criminally or fined.
By contrast, in 1991, when Salomon Brothers failed to curb a trader that was repeatedly gaming government bond auctions, Salomon’s CEO, vice chairman, and president departed abruptly.
We’ve seen nothing like that punishment meted out to top executives in the post-crisis wave of investigations. And until that happens, banks will continue to behave as if they have the upper hand.
A senior City regulator has come under sustained pressure from MPs to explain why he did not order a full-blown investigation into the sell-off of Royal Mail after the shares rose by 38% on the first day.
Martin Wheatley, chief executive of the Financial Conduct Authority(FCA), repeatedly told the public accounts committee that he had not seen any evidence to warrant an investigation by his regulator into the sale of the postal operator last year.
Royal Mail shares have risen as much as 87% since their flotation in October, although they have now fallen back from their highs to close last night at 511.5p. They were initially priced at 330p.
During often hostile questioning, Wheatley said the regulator would launch enquiries into unexplained share movements but that Royal Mail did not fall into this category.
“What’s an unusual share price movement if it’s not 38%?” said Margaret Hodge, the Labour MP who chairs the committee.
Wheatley said: “Most IPOs are priced to see some jump on the first day, and around the world that’s a familiar model. Maybe this was a bigger increase than most, but typically they are priced to go.”
Wheatley was giving evidence at the start of a week in which parliamentarians are putting the focus back on the sale of Royal Mail after the National Audit Office (NAO) concluded the government had cost taxpayers £750m in a single day by selling the shares too cheaply.
… Wheatley elicited cries of incredulity when he said, sitting alongside his colleague William Amos, that he could not name any fines handed out by the FCA for conflicts of interest within investment banks between advisors handling share sales and the fund management arm which would buy the shares.
There is supposed to be a “Chinese wall” between the two, and Wheatley said a threshold for an investigation had not been passed by either the share price move or the large number of banks involved.
Another regulator who is just a placeholder for appearance and has no interest in holding the industry to account.
Mark Carney has been forced to admit that allegations of rigging in foreign exchange markets could prove be a bigger scandal than the manipulation of Libor as he sought to rebuff criticism that the Bank of England had been slow to react.
The committee’s Andrea Leadsom repeated several times a question to Paul Fisher, the Bank’s executive director for markets over why Threadneedle Street did not once deign to follow up the committee’s queries in the wake of the Libor scandal over whether other prices may have been rigged.
She quoted from minutes from 2006 meetings between the Bank and its chief dealers subgroup, which noted “evidence of attempts to move the market” at certain times and said that should have set bells ringing. “It goes back to this complacency that all will be fine,” Leadsom said to Fisher.
But Fisher said: “Those minutes did not convey to me that markets were being rigged.”
On the question of being spurred into further investigations, Fisher said: “It isn’t our job to go out hunting for rigging of markets.”
If it isn’t the the Bank of England’s executive director for markets job to go hunting for rigged markets, who, exactly, is responsible? And given such a supine regulatory approach, how can one have faith in any of the global benchmarks for e.g. commodities trading?
Andrew Smithers in the Financial Times:
QE consists of the US Federal Reserve buying assets, which expands the monetary base. The chart shows that the expansion of the Fed’s balance sheet has moved with the US stock market. This is not just an accident. When the Fed buys assets the sellers have money and, unless they wish to increase their cash holdings, they will attempt to spend the money on other assets. Unless there is a rise in liquidity preference, which is when investors want to hold more cash, this will push up asset prices.
I pointed out in blog two that households have been persistent sellers of shares, but their selling pressure has probably been eased in recent years by the Fed buying assets. Equally, companies have been major buyers and have issued a lot of debt to help finance these purchases and, as the Fed have been buying other forms of debt, the sellers have been eager buyers of company debt.
This provides a good explanation of how QE has pushed up the stock market. Now QE is being reduce it is likely that the push will become less strong, but I think it will continue to be a help for some months. QE is not ending, it is just slowing. There will be less support for the stock market but the monetary base will continue to rise, even if a bit more slowly, and if the pattern shown in the chart continues, then this will also be true of the stock market.
Le banquier est mort; vive le banquier. It is time to admit defeat. The bankers have got away with it. They have seen off politicians, regulators and angry citizens alike to stroll triumphant from the ruins of the great crash. Some thought the shock of 2008 might change things. We were fools. Bankers are still collecting multimillion-dollar bonuses even as they shrug off multibillion-dollar fines.
Countries and companies have gone bust, political leaders have fallen like skittles, and workers everywhere have been thrown out of jobs. We are all a lot poorer than we might have been. Yet on Wall Street and in the City of London, it is business as usual. Has the world been made safe for liberal financial capitalism? The short answer is No.
As the article concludes:
Yet it is truly extraordinary that the reign of the bankers has carried on uninterrupted. Like monarchs of old, they have accepted some constraints, but these can be worn away over time. Their power and riches are largely untouched. Whatever happened, I sometimes wonder, to Robespierre’s guillotine?
Felix Salmon of Reuters:
When JP Morgan paid its record $13 billion fine for problems with its mortgage securitizations, the bank came out of the experience surprisingly unscathed, in large part because Wall Street reckoned that the real guilt lay mainly in the actions of companies that JP Morgan had bought (Bear Stearns and WaMu) rather than in any actions undertaken on its own watch. There was a feeling that the bank was being unfairly singled out for punishment — a feeling which, at least in part, was justified.
The latest $2 billion fine, however, which also comes with a deferred prosecution agreement, is entirely on JP Morgan’s shoulders — and still, as Peter Eavis reports, it’s being “taken in stride” by the giant bank. It really seems that CNBC is right, and that profits really do cleanse all sins. How is it that a $450 million fine sufficed to defenestrate the CEO of Barclays, but that Jamie Dimon, overseeing some $20 billion of fines plus a deferred prosecution agreement just in the space of one year, seems to be made of teflon?
As Salmon concludes:
In the face of a determined regulatory onslaught over the past 18 months, from mortgage-related prosecutions to the Volcker Rule, JP Morgan’s share price has gone steadily up and to the right, almost doubling over that period. In the view of Wall Street, that share price is Dimon’s vindication, and his ultimate shield. The lesson of yesterday’s news cycle is that no one can pierce it. Not even the Justice Department.
Anyway, it’s hard to not notice the fact that crude Ponzi schemers like Madoff (150 years) and Allen Stanford (110 years) drew enormous penalties – essentially life terms for both – while no one from any major firm has drawn any penalty at all for abetting those frauds.
That’s an enormous discrepancy, life versus nothing. But it makes an awful kind of sense. Madoff and Stanford were safe prosecutorial targets. There was no political fallout to worry about for sending up two guys who mostly bilked other rich people out of money. Also, there were no “collateral consequences” in the form of major job losses that had to be considered, just a couple of obnoxious families that would lose their jets and their ski vacations.
But most importantly, Madoff and Stanford were simple scam artists who could have come from any generation. There was nothing systemic about their crimes. It was possible to throw them in jail without exposing widespread corruption in our financial system.
That’s what’s so disturbing about this latest Justice Department cave. It underscores the increasingly obvious fact that the federal government is not interested in getting to the bottom of our financial corruption problem. They seem more to be treating bank malfeasance as a PR issue for the American financial markets that has to be managed away, instead of a corruption problem to be thoroughly investigated and fixed.