Bob Crew’s take on the epic transition of the British banking system
What is not generally understood and reported in the media about the recent financial scandal at Britain’s Barclays Bank, for which its highly-esteemed chairman, Marcus Agius, has had to resign earlier this month – for the bank’s behind the scenes attempts to manipulate and rig the LIBOR rate at which all the banks lend to each other – is that there was a time in recent banking history in the UK when this kind of “cheating” could and would have been avoided.
Today’s misconduct is conduct unbecoming indeed and not at all what one would have expected from Barclays, of all banks.
Marcus Agius has also had to resign as chairman of the British Bankers Association, of course, and his group chief executive, Bob Diamond, has gone from the bank with him, as has Jerry del Missier, Barclays’ chief operating officer who came up through the investment banking arm of the bank (at the time of going to press, these are the first heads to roll).
Barclays has been fined heavily for its sins – $360m reportedly for Libor manipulation, false reporting and misconduct by the Department of Justice and also the Futures Trading Commission in the US, and £59.5m by the Financial Services Authority in the UK for Libor and Euribor misconduct, and for sure other Barclays’ heads will roll before long.
Reports have suggested that Barclays’ rogue traders covertly manipulated the inter-bank lending rate – so that they could all come to a cosy little arrangement with which to secretly make trillions at the expense of the rest of us (who must pay more for our mortgages and loans in consequence, as well as being robbed of our interest rates on deposits, and also our pensions) – is mind boggling and previously unheard of.
The City of London is predictably gob-smacked (but not the general British public that thinks that most bankers are big cheats and crooks of one kind or another, so what else is new?).
But the checks and balances were in place once upon a recent time to have prevented these underhand and perfectly avoidable and predictable malpractises from happening.
A former Barclays’ main board director has emailed me to say that ‘alley cats and morals come to mind’ in the light of this odious scandal, not only at Barclays, but also at a goodly number of other banks, about which we shall no doubt hear before long.
No historical knowledge or perspective
But unless we understand from recent banking history that these alley cat morals could and should have been avoided, and learn the lessons to which the recent history gives rise, these malpractises can be and very probably will be repeated in one form or another. Similar things may happen yet. We and the financial journalists and commentators who report these matters need to get it into our heads that there was a time in living memory when Barclays and other banks could not have engineered such an incestuous and outrageous scam as the one for which the bank has now been so heavily fined and rightly so. Bank boardroom and senior managements need to get this into their heads.
But there is an absence of historical knowledge and historical perspective therefore in banking today – business and banking schools take note – so many of us seem to think that there is nothing that can be done about the financial alley cats in this wicked world, other than bolting the stable door after the horse has bolted.
But if we go back to pre-deregulation, pre 1990s times, when Barclays and the other clearing banks in the UK were operated chiefly as retail clearing banks, rather than being run by commercial bankers chiefly for commercial banking, fast-buck, purposes, as they usually are today, we can see that things were very different back then.
This was when retail banks and their bankers were held responsible daily for their funding books – yes, daily, not once in a blue moon, or not at all – at a time when the Bank of England was in charge, instead of the accident-prone FSA, and this is by far the most important and telling point to arise from this unsavoury scandal today, the stench of which is gathering by the day.
Agius has gone – he who is married to a daughter of the old Jewish Rothschild’s banking family and closely associated with the Rothschild estate in the UK – but who will be next, additional to Bob Diamond his group chief executive?
And what happened?
Did these two fiddle while Rome burned, or was it worse than that?
And how can such cheating in high financial places be avoided in future?
Robbing present and future generations
In view of all this, let us all repeat one more time, that once upon a time there was a vital and time-honoured discipline in British banking that prevented such things from happening, but today it has been wantonly removed in favour of reckless commercialisation.
In those good old days – when bankers were certainly more responsible and cautious with regard to what they could and could not get away with – the clearing bank treasurers ran their funding books with daily calls in person at the Bank of England, so that everybody was personally on the hook for what they said and did, including the almighty central bank.
The buck could not be passed. It stopped here – at the Bank of England.
In those days, everybody in banking management was looking over everybody else’s shoulder, spying on one another and reporting to teacher about one another, and wanting to know what was going on and what people were up to.
Unsurprisingly this was a powerful deterrent to alley cat morals.
One of the things that went wrong was not just handing the clearing bank keys to the alley cat commercial bankers. It was also the BoE being cut loose.
But now we have a cabal of bankers all trying to save their jobs and fool the world by keeping key central-base interest rates below par – sounds exactly what Britain’s HM Treasury and BoE are also up to these days – keeping bank rates artificially low so that governments can fund themselves cheaper and rob a nation of savers as well as all present and future pensioners.
If the prefects can do it, so can the rest of the oiks in the financial playground. And we all know that it was not just the Barclays’ alley cats involved in this the latest scandal – at least 15 other banks were in on it, to judge from the emails.
Whilst Barclays’ Bob Diamond blew the whistle on his own crooks and those of all the other banks, he blew it too late, and Barclays may not survive if there is a run on its shares.
But why was the bank so vulnerable to alley cat morals?
The argument about this goes as follows. For a clearing bank to give the keys to a commercial or investment banker to run it, is arguably like giving the keys of a chicken coop to a fox, given the difference in mentality and temperament and culture between clearing and commercial bankers.
There are former Barclays bankers still around today who well remember that when they were board directors and/or in senior management they had constant attempts at home runs to take over chunks of their balance s sheet, to which their standard response was ‘which part of fuck off is it that you don’t understand?’
But things have now changed and I wouldn’t be surprised if there aren’t other horrors lurking around.
If things go on like this, perhaps we shall all have to revert to keeping what little money we have left, in a sock at the end of the bed.
Diamond has said that what has happened was ‘against bank culture,’ but there are those who beg to differ because they think that this latest kind of banking has been very much a part or variation of the bank’ buccaneering culture for a while now, with the bank being run more like a commercial bank than a retail clearing bank, and with more of the latter people in the top positions.
Those who beg to differ with Diamond think it’s time for a culture change once again, but this time in the opposite direction, back towards the old retail clearing bank culture, mentality and values.
The disgraced Marcus Agius came to Barclays in 2006, formerly of the Lazard merchant bank in London, and an old acquaintance of his tells me: ‘He was an old-school merchant banker very honourable and highly thought of by about half the top-20 companies in the UK which he helped to finance.’
One can see why Barclays wanted him, given that he was helping to finance half the top-20 companies in the UK. Yet he has had to take the unprecedented step for a bank chairman of apologising earlier this year to disgruntled Barclays’ shareholders for overpaying his top executives.
An important Barclays’ shareholder is the Qatari government and, if it were to walk away with a peg on its nose, it would leave a gaping hole in Barclays’ shares. What it will make of all this remains to be seen, and ditto the major institutional shareholders and pension funds in the UK. One wonders also what will become of the Barclays’ pension fund.
By rolling heads as swiftly as possible, Barclays is hoping to send the right message to shareholders and keep them on board. But what a way to run a bank. It was Qatar that saved Barclays’ skin during the recent recession, with its banking collapse and fall out from the sub-prime markets, when Barclays was proud to be able to report that it did not need to be bailed out by British taxpayers like other banks (thanks in no small part to Qatar). No doubt yet another grovelling charm offensive is being launched in Qatar.
What happened in British banking two decades and more years ago – applauded by New Labour, same as prime ministers John Major and Margaret Thatcher before them – was a giant culture change away from retail banking in the direction of hard-edged and hard-nosed commercial and casino banking.
For this reason, what was left of the old-school clearing bankers who were sufficiently more prudent and not quite so greedy (and certainly not greedy regardless of the reckless and immoral consequences) – were ousted by a hasty and greedy new breed of buccaneers who were gung-ho in the extreme. The former were ousted by the latter because their retail clearing bank mentality, values and management methods were no longer in fashion and thought to be too risk averse. In other words they were belts and braces bankers averse to taking too many risks.
Conspiracy of silence
The financial analysts and big institutional investors and pension funds knew all about this, as did the ratings agencies, but their lips were sealed, but the smaller investors and banks’ retail and small business customers had no clue.
If prime ministers and government ministers knew about this – and some did – they also kept their lips sealed.
The commercial banks and bankers became all-powerful as a result of a worldwide dismantling of the traditional separation of commercial and investment banks, enabling them to buy stockbrokers for their securities transactions, following on from a repeal of the international Basle regulations, and also from Big Bang during the Thatcher years in Britain and Europe, and from Milton Friedman economics and financial markets in the United States ahead of Thatcher.
This became a worldwide change that was coordinated and planned, supposedly in order to get rid of inequalities in the banking and stockbroking system, and to benefit consumers and investors with lower costs.
Well, there are no lower costs now, especially with our top bankers being vastly overpaid.
And there are precious few small business and other loans or mortgages now.
This, in brief, is the background against which there has been a tremendous shift away from the old banking culture in favour of the current commercial banking culture and its alleged alley-cat morals.