Liborgate

Liborgate, despite the brief interlude provided by the chaff from the DFS over Standard Chartered, rumbles on.

The BBC reports that seven banks (HSBC, Royal Bank of Scotland Barclays, Citigroup, Deutsche Bank, JPMorgan and UBS), are to be questioned in the US for alleged Libor manipulation.

The US authorities will look to see if there is sufficient evidence to support a criminal prosecution.

The coming weeks will see much behind the scenes haggling between the banks, the regulatory authorities and governments, in order to avoid this going to court.

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Secret Bankers' Meeting

Apparently, last Tuesday, there was a secret meeting of the CEO's and Chairmen of some the UK's leading banks.

The purpose of the meeting was to address the reputational damage from the industry's ongoing spate of scandals.

Mark Kleinman of Sky News reports that the meeting at HSBC's head office discussed Liborgate, as well as the payment protection insurance and interest rate swaps mis-selling.

It is regrettable that it has taken the banks so long to start to try to address issues that have been in the public domain, and the source of much public contempt, for such a long period of time.

The meeting also discussed the appointment of a successor (an outsider) to Marcus Agius as chairman of the British Bankers' Association (BBA).

Given the BBA's dismal reputation it would be better that they simply shut it down and set a new organisation up.

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HSBC Fined £10M

The UK financial services industry has yet again blotted its copybook. This time HSBC's name has been added to the "wall of shame".

The Financial Services Authority (FSA) have fined HSBC £10.5M, and ordered it to pay £30M in compensation, for mis-selling investment products to elderly customers needing long term care.

The FSA said that between 2005 and 2010, a subsidiary of HSBC, NHFA (previously known as the Nursing Home Fees Agency) advised 2,485 customers to invest in investment bonds, and other asset-based products, to fund long-term care costs.

The average age of these customers was 83, a sample review suggested that almost 90% of these cases were mis-sold.

The average amount invested per customer was about £115K.

The FSA ruled that this advice was unsuitable, because these products were designed to be held for a minimum of five years. However, many of these customers were not expected to live this long!

Coupled with the disgraceful mis-sale of this unsuitable product was the fact that the product had charges.

The Telegraph quotes Tracey McDermott, acting director of enforcement and financial crime said:

"NHFA was trusted by its vulnerable and elderly customers, It breached that trust to sell the unsuitable products. This type of behaviour undermines confidence in the financial services sector.

This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost."

Well done HSBC for "enhancing" the reputation of Britain's financial services industry!

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Went The Week Well?

It seems that this week is ending with shares around the world falling off the edge of a cliff, as investors panic and turn to gold.



Shares in banks such as Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland (RBS) have taken a hammering and are now approaching levels last seen since 2009.



The rout of bank shares has been prompted by fears of a funding crisis in the European banking system, as European banks (instead of lending to each other overnight) are electing to deposit more overnight money with the ECB.



There is a genuine, and soundly based, fear that several European banks may have insufficient funds to continue operating.



In the absence of any decent political leadership on either side of the Atlantic, and unified global action to staunch the collapse, we are in danger of the fear of collapse becoming a self fulfilling prophecy.

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Trade Minister Role Finally Confirmed

The government has finally filled the role of Trade Minister (unpaid) that has lain vacant for for months since the formation of the new government.

The role will be taken by the current chairman of HSBC, Stephen Green, who will step down from HSBC before the end of the year in order to take up the position.

Several other leading business figures had turned down the role; aside from working for free, Mr Green will have to put his assets into a "blind trust" during the period of tenure.

Mr Green will report to the Business Secretary Vince Cable and to the Foreign Secretary William Hague.

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"Secret" Meeting

Hush whisper it softly, The Times reports that Alistair Darling will meet the heads of top British and American banks (including HSBC, Barclays, Standard Chartered, JP Morgan and Morgan Stanley) at a secret meeting in Davos tomorrow.

How can this meeting be described as "secret", if it is publicised a day in advance in a national newspaper?

The purpose of the "secret" meeting is for the bankers to express their feelings to Darling about the possibility of new sanctions against the banking sector.

The banks, quite rightly, are concerned that attempts to curtail their activities may well negatively impact the global economy.

However, be that as it may, the bankers need to recognise that on some occasions politics (even if it is emotionally charged) outweighs economics. Were Darling, and indeed any other politician, to ignore the wave of public hostility and revulsion towards bankers they would be signing their own political death warrants.

Like it or not we live in a democracy and, on occasions, the will of the people (no matter how misguided that may be) has to count more than the will of the "Master of The Universe".

That being said the near failure of the banking system took place on Darling's watch, under the tripartite system created by Brown. Blaming the bankers has provided useful cover for Brown and Darling.

True political leaders would step forward and highlight the failures of both the banks and regulations, and come up with a route map for the future whilst explaining to the electorate that the bankers were not entirely to blame.

We await the coming of these "true political leaders" with baited breath.

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President Obama's $10BN Banking Bill

Royal Bank of Scotland (RBS), Barclay's and HSBC may find their US operations having to pay up around $10BN to US authorities, as they fall under the net of President Obama's proposed tax on financial institutions bailed out by taxpayers.

The tax ("financial crisis responsibility fee") needs to be approved by Congress, if approved it will net the US administration $90BN over 10 years.

The British banks may also find themselves facing extra taxes, as The White House will lobby G20 nations to introduce their own version of the tax.

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Lloyds Job Cuts

Lloyds Bank, the 43% taxpayer rescued wreck of a once proud bank, has announced that it will cut a further 5,000 jobs by the end of next year.

Lloyds, at the behest of Gordon Brown, rescued HBOS last year at the height of the banking crisis; it now faces having to "eliminate" a total of 12,500 jobs from a total of 129,000 staff employed in Britain.

Meanwhile HSBC and Barclays both issued positive trading statements, in which they claimed the rise in bad debts has peaked and profits are sustainable.

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Shutting Stable Doors

Listen very carefully and you will hear the sound of a stable door being slammed shut by Darling and Mandelson.

Ahead of Alistair Darling's Labour conference speech outlining new rules to curb bankers' bonuses, Lord Mandelson spoke on BBC's Radio 4 programme.

He noted that Gordon Brown, as Chancellor, had introduced new legislation that "sorted out a ragbag of different regulatory processes" in financial services to make them "much leaner, meaner and more efficient".

Aside from the obvious point that the Tripartite system was hardly "leaner, meaner and more efficient", it is clear that if Darling is now having to introduce further regulations, it is clear that Brown's regulations weren't up to the job.

Mandelson will say later today that we rely too much on the financial services industry.

Fair comment, except this has been known for many years.

What exactly will he replace it with?

Later today Darling will outline plans to:

-End automatic bank bonuses year after year.
-End immediate payouts for top management.
-Defer any bonuses over time so they can be clawed back if they are not warranted by long term performance.

All very well.

However, as can be seen with the change of HQ for the CEO of HSBC, bankers will simply up sticks and leave.

The stable door may now be slammed, regrettably the horses have long since bolted!

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HSBC Moves CEO

HSBC is relocating Michael Geoghegan, its chief executive, from London to Hong Kong as from February next year.

HSBC state that there are no plans to move the company's domicile from the UK.

However, as the G20 ponder what they intend to do to punish bankers for their hand in the economic mess and as the UK 50% tax rate kicks in, doubtless the fact that Hong Kong has a 16% tax rate may well have a bearing on future plans for the location of HSBC.

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Named and Shamed

The Financial Ombudsman Service (FOS) has finally had the guts to name and shame the worst offending financial services companies in the UK, being those companies that have logged the highest number of customer complaints.

Congratulations to the five major high street banks, which account for the majority of the complaints.

The big five have managed to notch up a staggering 38,286 complaints, out of a total of nearly 70,000 received by the ombudsman in the six months to 30 June 2009.

- Lloyds (which includes HBOS) came top to the league of shame with 15,233 complaints.

- The Royal Bank of Scotland group scored 5,533 of the complaints received by the ombudsman.

- Barclays scored 8,283.

- Abbey scored 2,493 complaints.

- HSBC group scored 2,363 complaints.

- Alliance & Leicester scored 1,786.

The chairman of the FOS, Sir Christopher Kelly, was more than unimpressed. He is quoted:

"I will now be writing to the chairmen of the financial businesses that generate the largest proportion of our complaints workload, to ask them to consider very carefully both their own complaints performance – as reflected in the data we are publishing today – and the complaints performance of their competitors."

As I have noted many times before, the financial services sector in the UK treats its customers appallingly.

Why does it use the word "services" in its moniker, given that "service" is the one thing that it doesn't provide?

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Welcome To Boom Times

It would seem that the financial crisis is over, that at least is the conclusion one might be tempted to draw from the fact that both HSBC and Barclays (not government owned) posted multi-billion pound profits today for the first six months of the year.

Barclays and HSBC both posted pre-tax first half profits of £2.98BN.

As a result, Barclays Capital's 23,000 staff will see their average pay and bonuses double to almost £200K for the full year, if results remain on track.

The Centre for Economic and Business Research, predicts that bonus payments by all banks could rise to £4BN this year, up from £3.3BN last year.

Whilst the government and others may moan about the banks that are state controlled increasing their bonuses, they have no right to comment on HSBC or Barclays; as these two banks did not go cap in hand the to the taxpayer asking to be bailed out.

Good management deserves good rewards!

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Grill Party

Alistair Darling will be holding a "grill party" today, to which the CEOs of Britain's leading banks are invited.

Darling will use the "grill party" as an opportunity to express government "concerns" over the lamentable level of bank lending that is holding back the possibility of pulling out of the recession.

Lloyds Banking, RBS, HSBC and Barclays will all attend the meeting.

Darling is quoted:

"That is why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up?

We're playing our part, the banks have got to understand that the public will not understand it if they do not play their part to the full."

Quite what Darling thinks he will be able to do to persuade the banks to lend more is not clear.

Additionally, as Vince Cable notes, why has it taken Darling this long to realise that there is still a problem wrt bank lending?

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Careless HSBC

HSBC has been fined over £3M by the FSA, for the "careless" handling of confidential details of tens of thousands of its customers.

HSBC's data security failed, causing the bank to send "large" quantities of unencrypted private details via courier to third parties and leave information lying on open shelves and in unlocked cabinets where it could have been lost or stolen.

In two episodes, similar to the datagate fiasco at HMRC,
unencrytped CDs holding thousands of private customers details were lost in the post.

Ironically, one of the lapses occurred after HSBC had received a warning about its security procedures.

The FSA stated that it was shocked that HSBC had acted so carelessly despite warnings.

HSBC, having been hit where it hurts (in the pocket), said that it has taken a "number of remedial actions" including contacting the customers involved, improving staff training and demanding that all electronic data in transit is encrypted.

Stable doors and bolting horses spring to mind!

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HSBC Cash Call Drags Market Down

HSBC's record cash call of £12.5BN, aside from causing the collapse of its own shares by 9% today (down by 46p to 445.25p), also dragged the FTSE down by 3% to a six year low of 3700.

Meanwhile, doing the rounds, is this rather amusing take on the banking bailout:

Bailout

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Banks Refuse To Pass on Rate Cut

Unsurprisingly many banks have refused to pass on yesterday's interest rate cut of 1%. The Times reports:

"Hundreds of thousands of borrowers will be denied the full benefit of yesterday’s cut in interest rates because many banks are refusing to pass on the whole one-point cut to all mortgage customers.

Britain's biggest mortgage bank, which received billions of pounds in taxpayers' money, failed to respond in full to the latest move by the Bank of England. Halifax cut its standard variable rate (SVR) by only 0.25 percentage points, while Nationwide will trim its rate by 0.69 points.

A borrower with a £150,000 loan paying Halifax’s SVR will see payments drop by only £25 a month.

Only Lloyds TSB, HSBC and Woolwich said that they would cut their SVR by one percentage point. However, HSBC and Woolwich failed to pass on last month’s 1.5 percentage point cut."

It seems that the banks have not yet learned that the rules of the game have changed. In the "good old" days they could more or less do as they pleased to their debtors/customers, safe in the knowledge that very few people "that mattered" would kick up a fuss.

However, two fundamental changes have occurred:

1 The banks, as a result of their greed, stupidity and ignorance, have jeopardised the financial system of the the Western world by unleashing a lending frenzy and by gambling trillions on complex financial instruments that they didn't understand. In the event that these deals unravel completely, as they may well do, the losses incurred will exceed the annual GDP of many middle to high ranking economies.

2 The UK government now owns shares in some of the major banks. It has been reluctant, thus far, to call the shots; but as time goes on it will become increasingly interventionist.

Like it or not, no matter how hard the banks may squeal that they are barely able to make a living in the current economic environment and that they must take account of the higher risks, the issue is not simply a matter of capital base and margin differentials between base rates and LIBOR.

The higher risks that the banks complain of are due to the fact that they all but ignored risk in the past, and went on a lending and gambling binge. All very well, but it is not right that the debtors/customers are made to pay for the greed and short termism of the banks.

The issue now is one of politics, culpability and people's livelihoods/homes. The fact that the banks have yet to grasp that point indicates that they are still in denial.

My advice to the banks is wake up now, the rules of the game have changed, or you will soon be on the receiving end of a very nasty wake up call.

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Called To See The Headmaster

As predicted, despite the 1.5% cut in rates yesterday, the high street banks have been a tad tardy in passing on the cuts to their hard pressed borrowers.

Needless to say, the government is not best pleased as it will be blamed by the voters for this (not least because it now has effective control of a number of these banks).

Alistair Darling therefore summoned the CEOs of HSBC, Barclays, Lloyds TSB, HBOS and Abbey to Downing Street this morning to demand that they immediately pass on the rate cut to their customers.

Bradford & Bingley (B&B), Lloyds TSB and Abbey have now passed on the rate reduction.

I suspect that before the day is out, we will hear from the other banks that the rate cuts will be passed on.

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Mandy Piles on The Pressure

Lord Mandelson, Business Secretary, has put pressure on the banks today, by warning them that their customers will not be best pleased if the interest rate cuts are not passed on.

This warning comes after David Hodgkinson, chief operating officer of HSBC (who travelled with Gordon Brown to the Gulf), warned consumers they might not see any benefits if the Bank of England cuts interest rates this week.

Lord Mandelson, who is also in the Gulf, is quoted in The Times:

"I have to say when official rates are being cut it's not unreasonable for the customers to expect to see some benefits.

People want to feel the benefits of that action. And if it appears the banks are standing in the way of what the government is doing then I think many banking customers are going to be asking difficult questions of the banks.

I must say one of the things that has struck me going round the Gulf is the extent to which our own British PM is now being looked to as someone who will lead the rest of the world out of this mess.

If we can't even have a response in our own country to his moves, to his decisiveness, that will come as a surprise to many."

When Libor comes down so will interest rates charged by banks to customers, that is the key.

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The Bankers Strike Back

The major high street banks, never fearful of damaging their already trashed reputations, will go to the Court of Appeal today in a bid to overturn the High Court ruling that unauthorised overdraft charges are unlawful.

The banks lodging the appeal include; Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Nationwide and the Royal Bank of Scotland.

Whatever the outcome, not expected to be decided for quite some time, the banks will ensure that they make money out of their customers one way or another. In the event they lose the appeal, they will simply abolish free current accounts.

It's as simple as that!

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HSBC 28% Profit Collapse

HSBC revealed some lousy results today, much as expected. The ongoing credit crisis (caused by the banks' irresponsible lending) has knocked £5.1BN (28%) from its first half profits to £5BN.

HSBC will not comment as to whether the losses from its toxic US loans have peaked or not. However, its provision for US consumer finance now stands at $6.8BN (85% higher than the same period last year).

HSBC chairman, Stephen Green, maintained a stiff upper lip and noted that the outlook was challenging.

Quite!

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