Scandals emerging from the financial services industry on an almost daily basis point to the ongoing criminal practices of British banks. They expose the complicity of the regulators—the Financial Services Authority (FSA) and the Bank of England (BoE), who famously practice “light touch” regulation—and successive governments that function as the advocates and protectors of these financial gangsters.
The Royal Bank of Scotland (RBS) has announced half-year losses of £1.5 billion—double that of the same period last year. It cited the cost of charges for the “mis-selling of financial products.” This loss is before any charge for RBS’s role in rigging the interbank lending rate, Libor.
RBS and other high street banks mis-sold expensive and useless payment protection insurance to more than 3 million people who did not need it. Now RBS is setting aside £850 million to compensate people who bought the payment protection insurance, taking the total charge over the last 18 months to £1.3 billion. Even this pales into insignificance besides Lloyds Banking Group, which has set aside another £700 million, bringing its total to £4.3 billion over the last 18 months. The total compensation across the banks could top £10 billion.
RBS is making a provision of £50 million for compensation to small businesses to which it mis-sold interest rate insurance. It is also setting aside £125 million to compensate its 13 million customers who were locked out of their accounts for at least 10 days when its computer crashed in June—a cost that could rise further.
RBS is one of 18 giant banks at the heart of the rigging of the Libor rate, the interbank lending rate linked to $800 trillion in financial transactions. Barclays has already been fined £290 million and RBS expects to be fined hundreds of millions of pounds and has sacked four people involved in the manipulation.
Between 2005 and 2009, the banks manipulated the rate upwards, robbing millions of people of billions of pounds in inflated loan costs, and downwards, depriving states, cities, pension funds and pensioners with fixed investments of billions in lost income from bond holdings. Documents that have been released implicate the Bank of England and show that neither the bank nor the government did anything to stop it. In its latter stages this was because reducing Libor after 2007 helped to conceal the depth and scale of the banking crisis and thus facilitated the bailout of the kleptocracy.
Stephen Hester, the chief executive of RBS, made it clear that this was not all, saying that there could be further problems as it turned over the “rocks” left by the previous CEO Fred Goodwin. It means that RBS will post its fifth year of losses since the bank’s bailout in 2008. It made losses of £2 billion in 2011, up from a loss of £1.1 billion in 2010.
When RBS, along with Lloyds Bank and HBOS, faced bankruptcy in October 2008, Alistair Darling, then Labour chancellor, organised a massive rescue. It came after secret talks over a weekend, with no strings attached, no discussion in Parliament, much less any public consultation, and was announced to the stock markets early on the Monday morning.
Despite this, there has been no proper examination of the banks’ activities in Britain. The one “report” into the collapse of RBS, which at first the FSA refused to publish, turned out to be just a series of memos and statements, concluding that no rules or statutes had been breached. This was despite cables released by WikiLeaks revealing that Lord Turner, the FSA chair, had been concerned about the directors’ mistakes. According to the cables, Turner had said, “Negligent boards of directors bore much of the responsibility for the crisis,” by “failing to provide oversight or check risky activity,” something that publicly he denied in the context of RBS. The cables show that no less a person than RBS’s new chairman, Sir Philip Hampton, flatly contradicted the FSA’s line, telling visiting congressmen that the former directors were in breach of their fiduciary responsibilities.
Later Mervyn King, the governor of the Bank of England, revealed that the BoE had provided £36.6 billion in secret loans to RBS and the government had agreed to underwrite RBS’s debts should it default on its loans. This was in addition to the £45 billion the government paid the shareholders to acquire an 82 percent stake in the failed bank. As well as providing the ultimate backstop for the banks, the government is currently providing £512 billion of explicit public support, and hundreds of billions in guarantees.
Furthermore, with its “quantitative easing” (QE) programme—essentially printing money—the BoE has provided the banks with a further £375 billion of cash by buying up the banks’ assets—typically financial assets such as government and corporate bonds. While the declared aim was that the banks would to lend to businesses and thus boost the economy, business lending has fallen sharply.
A BoE report claims that the first round of QE had helped to increase gross domestic product by between 1.5 and 2 percent, which if true means that without it, GDP would have fallen by a catastrophic 6 percent since the financial crash.
Less has been said about the losers. RBS laid off 5,700 workers in the past year, bring the total since 2008 to 36,000. HBOS, another government-owned bank, has shed 45,000 jobs in the same period.
QE has led to a massive increase in company pension scheme deficits—to a record £312 billion. This is because the cost of paying pensions on final-salary schemes is based on the yield from government bonds, which have fallen, necessitating an increase in assets to generate the same level of pension income. At the same time, the fall in bond yields has driven down the annual income from any annuity bought with savings in the last two years, leading to a loss in income that will never be recouped.
The ongoing saga over accusations that Standard Chartered hid illegal Iran-linked transactions is beyond the scope of this article. But it should be noted that last month, HSBC, the world’s second largest banking group, was found by a senior US Senate Committee to have laundered billions of dollars in Mexican drug cartel money. This and other legal claims against HSBC could lead to fines of $1 billion.
HSBC is not alone. Six years ago, Barclays Private Bank, a subsidiary of Barclays, laundered drug money from Colombia through five accounts linked to the infamous Medellin cartel.
In March, Coutts, part of RBS, was issued with a final notice from the FSA to pay a penalty of £8.75 million for breach of its money-laundering code. This followed a review of 103 “high-risk customer files” and “deficiencies in 73 files” that showed a “failure to conduct appropriate ongoing monitoring” over three years.
Despite this record of illegality, recklessness and mismanagement, not a single top executive of a major UK bank has been charged with criminal wrongdoing. Neither has there been any substantive change in the regulation of the banking and financial services sector. The fines, so much loose change for the banks, have become part of the cost of the banking business and are simply passed on to customers in innumerable charges while the top executives walk away with massive bonuses.
Successive governments are linked by countless connections to the financial elite, from whom they recruit their advisors, regulators and even ministers. The present minister of state for trade and investment is Lord Green, a former HSBC chairman. Their record confirms that they are merely the puppets of criminals in London’s Square Mile.
Source: World Socialist Web Site
Showing posts with label Mervyn King. Show all posts
Showing posts with label Mervyn King. Show all posts
Wednesday, August 15, 2012
Thursday, September 9, 2010
An audience with the GRI's Mervyn King
Interview with the author of South Africa’s King reports, chair of the GRI and Nelson Mandela’s favorite judge
In 1992, as South Africa was embarking on the path to real democracy, the private sector saw that it, too, needed a new system of governance. Mervyn King, a veteran corporate lawyer and a former Supreme Court judge (he resigned after a row with then prime minister PW Botha in 1980), was tapped for the job.
King was chairman of the Frame Group, a textile giant, and executive chairman of First National Bank’s corporate and investment banking group, as well as being involved in a range of charitable endeavors.
‘I’m too busy,’ he demurred – but then the phone rang and he heard Nelson Mandela’s gruff voice: ‘How’s my favorite judge?’ That was when King knew he would help remake South Africa’s corporate governance. He formed what duly became the King Committee, authoring the King I report (1994), King II (2002) and King III (2009).
Earlier this year, as chairman of the Global Reporting Initiative (GRI), King visited New York, where he sat down with IR magazine’s Neil Stewart.
I remember landing in South Africa on April 27, 2004 and hearing on the radio the celebrations of ten years of democracy. Your country had become an example to the world. As for corporate governance, this small economy was punching way above its weight. How did South Africa go from pariah to a model of best practice?
I formed the King Committee just when the majority of our citizens needed guidance on how to operate in the economy because they’d never been in the economy. We couldn’t just cookie-cut what the UK or America had done. Instead we developed an inclusive approach to governance, taking account of the legitimate interests and expectations of the stakeholders in the decision-making process. That was the basis of King I in 1994, and the concept went around the world like wildfire.
Since then the corporate world has joined the sustainability movement, and so have you. Is Mervyn King the personification of the convergence of environmental, social and governance factors?
Going back to the Earth Summit in Rio de Janeiro in 1992, we realized the planet was going into crisis. The penny dropped and I suddenly saw that corporations had a huge role to play in making life on earth sustainable. I became passionate about it, and by 2002, when the Earth Summit took place in Johannesburg, we knew we had to rewrite the King Code. However, we made a mistake: we wrote a separate chapter on sustainability reporting and in consequence, companies started reporting on sustainability in a silo, rather than integrating it.
In King III, we corrected that mistake. I directed my committee on the basis that the cornerstone has got to be that governance, strategy and sustainability are inseparable; companies have to integrate them into the very fabric, the very rhythm or DNA of their business.
Did the financial crisis set back or advance the sustainability movement?
The financial crisis absolutely brought sustainability forward. It reinforced the idea that corporations are the greatest pool of human and monetary capital, and when a corporation fails, there’s a huge impact on society. On the other side of the coin, when you have a great corporate success, it impacts positively on society.
Look at the Coca-Cola Company, which operates in more than 150 countries. Around 10 years ago, when it opened a new bottling plant in the Indian state of Kerala, the water ran dry and Kerala sued Coke. Back in the boardroom in Atlanta, Coke’s directors realized that water was a risk factor in their business. To their credit, they started a long-term strategic plan summarized by the three Rs: reuse, replenish and recycle water. Now Coke recycles millions of liters of water around the world. Not only does it show that Coke is a good corporate citizen, so we keep drinking the product because of the company’s brand and reputation, but it also shows Warren Buffett and other investors that Coke has a long-term, sustainable business.
For hundreds of years, we had a ‘take, make and waste’ economy based on two false assumptions: that the planet has infinite resources, and that it has an infinite capacity to absorb waste. Wrong!
Another example: Procter & Gamble. There are 800 mn to 900 mn babies in the world, each using six to eight disposable diapers a day. Diapers covered in a chemical that’s toxic to water are going into landfills. So P&G – whose tagline is that they touch the lives of people around the world, 3 bn times a day – is spending millions on R&D to make a disposable diaper with less harmful chemicals. If that moves to the biodegradable disposable diaper, they’ll knock their competitors right out of the market.
What are investors doing to help shoulder these responsibilities?
Capital markets today are electronic and borderless. With the click of a mouse capital flows in, or it flows out. Institutional investors can make or destroy a market. Today major shareholders have more obligations than rights. A pension fund has to think about its beneficiaries and its responsibility to them when they retire in 25 or 30 years. They have to look at every company they invest in and ask, ‘Is this business sustainable?’
It’s a whole new way of thinking. Around the world, stewardship codes are being developed to guide the way financial institutions should act. Look at the UK, where stewardship is being incorporated into the Combined Code, or South Africa, which has just finalized the latest draft of a responsible investing code.
Can South Africa teach the rest of the world a lesson in corporate citizenship?
I’ll say this not as chairman of the King Committee, but rather repeating the words of Adrian Cadbury: King III is at the forefront of governance. In fact, King III is being referred to in reformulating the Combined Code in the UK.
South Africa may have a current account deficit, but capital keeps flowing into the country. Every working day the JSE securities exchange does about $2.5 bn in equity trades. A large part of that is foreign institutional money coming in. Why? CalPERS, Hermes, Templeton – they all say they invest in South African firms because they regard our listed companies as among the best governed in the world. And they are.
One last thing I have to know: how did you come to be Mandela’s favorite judge?
I think he used that phrase as a motivational tool! In the late 50s and early 60s, when I was a clerk and a young attorney, Mandela and Oliver Tambo practiced as attorneys in a little building opposite our lower court in Johannesburg. In the courts in those days, whites and blacks were separated by a divider. We were ‘learned friends’, but as a young white attorney, I could not have practiced in the same place as Mandela. This wicked absurdity amused him.
Later, after Mandela went to jail, I became chairman of Operation Hunger. The foreign press was reporting on what was happening because of apartheid in the urban areas, but the real suffering was in the rural areas, where children were starving. Through a businessmen’s ‘executive club’, we raised R10 mn ($1.4 mn) a year and fed 2.5 mn children every day for years. Mandela’s daughter Zindzi worked with me in Operation Hunger, so he knew of our work through his family. To this day we have a great relationship.
Over the last several months King has addressed the European parliament on the possibility of one set of integrated reporting across Europe; he is also one of the World Bank’s private sector advisers on corporate governance and chairman of the committee reviewing the UN’s governance after the food for oil scandal. He is the author of Transient Caretakers (with Teodorina Lessidrenska) and The Corporate Citizen.
Source: IR Magazine
In 1992, as South Africa was embarking on the path to real democracy, the private sector saw that it, too, needed a new system of governance. Mervyn King, a veteran corporate lawyer and a former Supreme Court judge (he resigned after a row with then prime minister PW Botha in 1980), was tapped for the job.
King was chairman of the Frame Group, a textile giant, and executive chairman of First National Bank’s corporate and investment banking group, as well as being involved in a range of charitable endeavors.
‘I’m too busy,’ he demurred – but then the phone rang and he heard Nelson Mandela’s gruff voice: ‘How’s my favorite judge?’ That was when King knew he would help remake South Africa’s corporate governance. He formed what duly became the King Committee, authoring the King I report (1994), King II (2002) and King III (2009).
Earlier this year, as chairman of the Global Reporting Initiative (GRI), King visited New York, where he sat down with IR magazine’s Neil Stewart.
I remember landing in South Africa on April 27, 2004 and hearing on the radio the celebrations of ten years of democracy. Your country had become an example to the world. As for corporate governance, this small economy was punching way above its weight. How did South Africa go from pariah to a model of best practice?
I formed the King Committee just when the majority of our citizens needed guidance on how to operate in the economy because they’d never been in the economy. We couldn’t just cookie-cut what the UK or America had done. Instead we developed an inclusive approach to governance, taking account of the legitimate interests and expectations of the stakeholders in the decision-making process. That was the basis of King I in 1994, and the concept went around the world like wildfire.
Since then the corporate world has joined the sustainability movement, and so have you. Is Mervyn King the personification of the convergence of environmental, social and governance factors?
Going back to the Earth Summit in Rio de Janeiro in 1992, we realized the planet was going into crisis. The penny dropped and I suddenly saw that corporations had a huge role to play in making life on earth sustainable. I became passionate about it, and by 2002, when the Earth Summit took place in Johannesburg, we knew we had to rewrite the King Code. However, we made a mistake: we wrote a separate chapter on sustainability reporting and in consequence, companies started reporting on sustainability in a silo, rather than integrating it.
In King III, we corrected that mistake. I directed my committee on the basis that the cornerstone has got to be that governance, strategy and sustainability are inseparable; companies have to integrate them into the very fabric, the very rhythm or DNA of their business.
Did the financial crisis set back or advance the sustainability movement?
The financial crisis absolutely brought sustainability forward. It reinforced the idea that corporations are the greatest pool of human and monetary capital, and when a corporation fails, there’s a huge impact on society. On the other side of the coin, when you have a great corporate success, it impacts positively on society.
Look at the Coca-Cola Company, which operates in more than 150 countries. Around 10 years ago, when it opened a new bottling plant in the Indian state of Kerala, the water ran dry and Kerala sued Coke. Back in the boardroom in Atlanta, Coke’s directors realized that water was a risk factor in their business. To their credit, they started a long-term strategic plan summarized by the three Rs: reuse, replenish and recycle water. Now Coke recycles millions of liters of water around the world. Not only does it show that Coke is a good corporate citizen, so we keep drinking the product because of the company’s brand and reputation, but it also shows Warren Buffett and other investors that Coke has a long-term, sustainable business.
For hundreds of years, we had a ‘take, make and waste’ economy based on two false assumptions: that the planet has infinite resources, and that it has an infinite capacity to absorb waste. Wrong!
Another example: Procter & Gamble. There are 800 mn to 900 mn babies in the world, each using six to eight disposable diapers a day. Diapers covered in a chemical that’s toxic to water are going into landfills. So P&G – whose tagline is that they touch the lives of people around the world, 3 bn times a day – is spending millions on R&D to make a disposable diaper with less harmful chemicals. If that moves to the biodegradable disposable diaper, they’ll knock their competitors right out of the market.
What are investors doing to help shoulder these responsibilities?
Capital markets today are electronic and borderless. With the click of a mouse capital flows in, or it flows out. Institutional investors can make or destroy a market. Today major shareholders have more obligations than rights. A pension fund has to think about its beneficiaries and its responsibility to them when they retire in 25 or 30 years. They have to look at every company they invest in and ask, ‘Is this business sustainable?’
It’s a whole new way of thinking. Around the world, stewardship codes are being developed to guide the way financial institutions should act. Look at the UK, where stewardship is being incorporated into the Combined Code, or South Africa, which has just finalized the latest draft of a responsible investing code.
Can South Africa teach the rest of the world a lesson in corporate citizenship?
I’ll say this not as chairman of the King Committee, but rather repeating the words of Adrian Cadbury: King III is at the forefront of governance. In fact, King III is being referred to in reformulating the Combined Code in the UK.
South Africa may have a current account deficit, but capital keeps flowing into the country. Every working day the JSE securities exchange does about $2.5 bn in equity trades. A large part of that is foreign institutional money coming in. Why? CalPERS, Hermes, Templeton – they all say they invest in South African firms because they regard our listed companies as among the best governed in the world. And they are.
One last thing I have to know: how did you come to be Mandela’s favorite judge?
I think he used that phrase as a motivational tool! In the late 50s and early 60s, when I was a clerk and a young attorney, Mandela and Oliver Tambo practiced as attorneys in a little building opposite our lower court in Johannesburg. In the courts in those days, whites and blacks were separated by a divider. We were ‘learned friends’, but as a young white attorney, I could not have practiced in the same place as Mandela. This wicked absurdity amused him.
Later, after Mandela went to jail, I became chairman of Operation Hunger. The foreign press was reporting on what was happening because of apartheid in the urban areas, but the real suffering was in the rural areas, where children were starving. Through a businessmen’s ‘executive club’, we raised R10 mn ($1.4 mn) a year and fed 2.5 mn children every day for years. Mandela’s daughter Zindzi worked with me in Operation Hunger, so he knew of our work through his family. To this day we have a great relationship.
Over the last several months King has addressed the European parliament on the possibility of one set of integrated reporting across Europe; he is also one of the World Bank’s private sector advisers on corporate governance and chairman of the committee reviewing the UN’s governance after the food for oil scandal. He is the author of Transient Caretakers (with Teodorina Lessidrenska) and The Corporate Citizen.
Source: IR Magazine
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