could sink no lower in public regard, they’ve
done it. News that Barclays has been found guilty of repeatedly falsifying
the
– sometimes for the personal gain of traders, sometimes
to make the bank itself seem more creditworthy than it really was – tops off
another calamitous week in the seemingly never-ending litany of banking
misdemeanours.
, it is as if bankers are actively out to confirm their
reputation for recklessness, incompetence and self-enriching disregard for
the interests of customers and the wider economy.
At a time when the political and regulatory backlash against finance is
already at fever pitch, much of it ill-thought out, counterproductive and
economically harmful, there could scarcely have been a more spectacular own
goal. And it doesn’t end there. Banking faces a whole new raft of separate
regulatory strictures over the mis-selling of interest rate swaps to
business customers.
that it was time to put the crisis behind us, move on and stop apologising
for the failings of the past. He should be so lucky. Not since the Thirties
has finance been so much in the dock. On and on the combination of
retribution and regulatory crackdown will go until banking is once again
thought sufficiently imprisoned to be safe. European policymakers will
delight in the ammunition they have been given to rein in the Anglo-Saxon
bankers and make them subject to the rule of Brussels and Frankfurt.
Many have already said it, but it is one of those observations that bears
constant repetition: in all my years as a financial journalist, it’s hard to
recall a case quite as shameful as this – and I’ve certainly seen a few.
There is no industry in all commerce that relies as much on public trust and
reputation for probity as banking. We have seen what happens when trust is
lost: we get the legion of banking runs that lie at the heart of the
financial crisis; people run for the hills and the economy grinds to a halt.
To have American regulators accuse Barclays of lies, deception and
manipulation is an appalling indictment of one of the oldest and most
respected names in British banking. It is like discovering that your local
branch manager has routinely raided your hard-earned savings to finance his
champagne lifestyle.
Entrusted with the public’s money, bankers have to be seen as whiter than
white, pillars of their community and morally beyond reproach. All these
old-fashioned virtues seem to have been lost in pursuit of the easy rewards
of international finance. “My word is my bond” – once one of the sacred
principles of City finance – has become reduced to a laughable parody of
itself.
Now, it may well be unfair to single out Barclays. We already know that at
least 20 other banks are under investigation for alleged manipulation of
interbank interest rates, including most of the other
UK high street banks.
It could be that others are equally at fault. We know about Barclays only
because in a practice that City lawyers sometimes call “rowing for the
shore”, it has decided to abandon the flotilla of co-defendants and settle
with regulators.
Downside of plea bargain
In so doing, it may have succeeded in winning both a lower fine and immunity
from criminal prosecution, as a corporate entity at least, though the
individuals involved may not escape. The downside of such plea bargains is
that they involve admission of guilt. The regulator gets free rein to be as
critical as it likes, while the mitigation of any defence there might have
been is lost.
That these practices appear to have been endemic, not just at Barclays, but
across a wide range of international banks, neither excuses nor explains
what happened.
It’s interesting that when the fines were first announced on Wednesday, there
was barely a flicker of recognition in the Barclays share price. The
investigation has been known about for some time, the misdeeds complained of
date back three or more years and are therefore water under the bridge, and
many in the City judged Barclays to have got off relatively lightly.
But as the night wore on, the seriousness of the situation began to sink in.
Bob Diamond, the Barclays chief executive, long despised by regulators found
himself politically friendless, too.
As calls for his head mounted, the share price began to plunge. The key
concern about Barclays has always been that it is a “black box” operation
that only Bob himself properly understands. At a time of growing financial
chaos, Barclays could be left leaderless, with the investment banking brains
behind much of its recent profitability and successful navigation of the
banking crisis thrown to the wolves.
“Bob is mistrusted in the City,” says one seasoned fund manager, “but he’s the
glue that holds the whole thing together. Without him it might well
disintegrate.”
What went wrong?
So what really went wrong here? The
London Interbank Offered Rate, or Libor,
and its companion,
Euribor, are two of the most important benchmarks in
finance. Essentially, they are an aggregate of the rates at which banks lend
to one another. They are also used to help price a vast array of lending
decisions and derivative products, including mortgages.
Yet even in financial markets, it is not widely understood how these
benchmarks are arrived at. Unbeknown to senior managers at Barclays, some
traders, starting in around 2005 and stretching through to 2009, began
persuading those responsible for compiling Barclays’ input to distort the
rate in a manner that made their own derivative positions more profitable,
hence the excruciating series of incriminating emails cited by regulators.
This was bad enough, but if it had stopped there, the damage would probably
have been containable. Even the best of internal controls cannot prevent the
determined rotten apple. What has transformed this case into something much
more serious is that at the height of the banking crisis “senior managers”
themselves – it is still not clear exactly who – ordered that the Barclays
submission be manipulated so as to make it look as if the bank was receiving
more favourable funding terms than it was. Deceitful behaviour seemed to
have become endemic, stretching from top to bottom.
To the extent that there is a defence for such blatant deceits, it runs
something like this; everyone else was doing the same thing. Rival banks
that were plainly in even worse shape than Barclays were making Libor
submissions that appeared to show they were enjoying more favourable
wholesale funding rates than Barclays was. On the “if you cannot beat them”
principle, Barclays determined to join them.
If this version of events is correct, the whole escapade doesn’t look as bad
as it first appears. It is hard to identify who exactly lost out as a result
of these fictions. Since there was no interbank funding to speak of at the
height of the crisis, it may not in any case have mattered very much.
Even so, it’s quite damning enough. There appears to be nothing bankers will
stop at in order to feather their own nests. With tempers already at boiling
point over egregious levels of pay and aggressive tax avoidance, the whole
affair has now taken on a life of its own.
When the history books are written, this may be seen as a defining moment, the
point at which public anger with the banks bubbled over into something much
more seismic in its consequences than the general atmosphere of bank bashing
we have seen to date. Despite the crisis, there has been a sense of back to
business as normal for the City these past three years.
There have been few
signs of behavioural change. But this may be the straw that breaks the
camel’s back.
Market and regulatory pressures are already laying waste to great tracts of
previously highly lucrative banking activity. A major cull of investment
banking jobs is expected over the next year, with once bumper bonuses and
earnings much reduced on top. Retribution and punishingly restrictive levels
of regulation won’t be far behind.
Those who believe that Britain has become too dependent on finance for its own
good will no doubt welcome this humbling of an apparently out-of-control
City, but they should be careful what they wish for.
Finance’s golden age may be drawing to a close; with no new industry or
manufacturing renaissance coming up in the wings, it is not entirely clear
what’s going to take its place as a source of British wealth, jobs and tax
revenues. It is not just finance for which hard times lie ahead. - Telegraph
After Barclays, the golden age of finance is dead
