JPMorgan Chase’s likely CEOs-in-waiting come from the part of the bank that makes regulators and investors most nervous.
See the rest here: Jamie Dimon’s likely successor will not impress critics
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JPMorgan Chase’s likely CEOs-in-waiting come from the part of the bank that makes regulators and investors most nervous.
See the rest here: Jamie Dimon’s likely successor will not impress critics
It’s not clear regulators are taking their own worst-case scenarios list seriously.
See the original post: What will cause the next financial crisis? Don’t ask regulators.
US regulators have issued a formal “air worthiness” directive allowing revamped Boeing 787 Dreamliners to fly again, after a three-month grounding.
See the article here: US lifts Boeing Dreamliner ban
US regulators approve a revamped battery design for Boeing’s 787 Dreamliner, paving the way for flights to resume, after problems grounded planes for months.
Read more from the original source: US approves Dreamliner battery fix
Andrew Bailey, head of Prudential Regulation Authority, says it’s odd action taken only against people lower down in failed banks
Britain’s most senior banking regulator has questioned why none of the bosses of the country’s failed banks have been formally charged over their roles in the financial crisis. Andrew Bailey, head of the new banking regulator, the Prudential Regulation Authority, said: “It is more than odd that action has been taken against people lower down in institutions, but no action has been taken at the top.”
At a conference debating how to rebuild trust in Britain’s scandal-hit banks, Bailey said it was a “source of surprise” that no senior bank directors have been disqualified. He pointed out that the secretary of state sought the disqualification of Barings Bank for their roles in failing to adequately supervise Nick Leeson.
Chuka Umunna, the shadow business secretary, said bankers caught trying to play the system in order to line their own pockets should be “thrown into jail”.
He said it “cannot be right” that benefit cheats who fiddle the system for a couple of hundred pounds are thrown into jail while “those who seek to rig the financial system and receive hundreds of thousands of pounds as a result never seem to suffer the same fate”.
In an impassioned speech at the Future of Financial Services summit in Canary Wharf on Monday, Umunna said the City would not be able to rebuild trust with society “until custodial sentences are imposed on those guilty of criminal wrongdoing in your sector”.
He said the “prospect of jail for gross wrongdoing” was one of the best ways to affect cultural change in Britain’s scandal-hit banks.
No bankers have been jailed in connection with the Libor rate-fixing scandal, but the Serious Fraud Office (SFO) has launched a criminal investigation and arrested three men. In the US, two former UBS employees have been charged.
Umunna acknowledged that politicians were hardly in the best position to lecture others on trust and morals. “We are less popular than you and we learned the hard way after the expenses scandal, when we had to get our house in order,” he said. “But at least the people saw politicians brought to book – with some of our number serving jail time for their wrongdoing.”
He also attacked Barclays for trying to sneak out news that it paid its bosses bonuses of £39.5m on budget day. Umunna said it “sent all the wrong messages”.
Ashok Vaswani, boss of retail and business banking at Barclays, who was also at the debate, admitted that the timing of the release was “a mistake”.
Labour will on Tuesday resume its push for changes to banking reforms going through parliament, calling for stronger immunities for whistleblowers.
In Tuesday’s parliamentary debate, Labour will table amendments to the bill to protect whistlebowers as well bolster protection for customers of savings schemes such as Farepak, which collapsed in 2006.
Labour will also produced figures showing that the government’s levy on balance sheets has brought in £2bn of revenue less than originally forecast.
Chris Leslie, a shadow Treasury minister, also intends to call for a full licensing review of bankers. “If a GP or a barrister was involved in serious misconduct, they would have to answer to the BMA or Bar Council ethical practice committees and could lose their licence – and so we also need similar processes for those who break financial regulations too,” Leslie said.
Former senior partner Scott London charged by US authorities with insider dealing
US authorities have charged a former KPMG partner with insider dealing after he admitted giving his golfing buddy share tips in exchange for cash, jewellery and $25,000 worth of concert tickets.
Scott London, a senior KPMG partner in southern California, was charged with conspiracy to commit fraud and for leaking non-public information about companies he audited, including diet supplement firm Herbalife and shoe company Skechers.
The complaint filed by the securities and exchange commission (SEC) said London’s stock tip leaks had made his golf partner Bryan Shaw, a Californian jeweller, more than $1m (£650,000).
In exchange for the tips, Shaw gave London roughly 10% of the profits he made in the form of bags stuffed with up to $50,000 cash in $100 bills, a $12,000 Rolex watch, other jewellery and concert tickets, according to the filing.
One of London’s tips was that Herbalife was about to become a private company. “That is going to be where you make a ton of money,” London said, according to the criminal filing, “Because, you know, we’ll know that.”
US attorney André Birotte said London “chose to betray the trust placed in him as a financial auditor and to tip the trading scales for the benefit of insiders like himself”.
“The public has every right to fully expect a level playing field in our financial markets” he added.
London, who was fired by KPMG immediately when it discovered he had passed on the information, said the tips began in 2010 in casual conversations with “someone I’d known from the golf club”.
In an interview with the Wall Street Journal he said he didn’t realise Shaw was trading on the information he was leaking. “Once he told me he had traded, that’s when my heart sank,” London said. “We had discussions, this wasn’t right – I knew it was wrong – but it just happened.”
However, London admitted he continued to provide Shaw with information about Herbalife, Skechers and Deckers Outdoors.
In a statement London said: “I regret my actions in leaking non-public data to a third party regarding the clients I served for KPMG. Most importantly, and I cannot emphasise this enough, is that KPMG had nothing to do with what I did.”
KPMG has resigned as the auditor for Herbalife and Skechers after warning “that the firm’s independence has been impacted”.
London’s lawyer Harland Braun has admitted that his client knew he was breaking the law. “But he just can’t understand why he did it, and it’s hard to understand why he did it,” Braun told business news channel CNBC on Wednesday.
“It makes no sense. He’s looking back on the years that he did it. It made no sense from a dollar-and-cents point of view; it made no sense in terms of his ethics. He’s not trying to justify it in the slightest.”
Braun said London’s prospects were “pretty grim”. “His life is ruined. He’s 50 years old, he’s lost his career, he’ll probably lose his licence, he’s been disgraced, and he may have to do some jail time. That’s the best case scenario. It’s a very grim reminder of the consequences for anyone who wants to leak any insider information.”
London was due to appear in a federal court in Los Angeles late on Thursday. Shaw has also been charged.
Shaw has admitted he “profited substantially from stock trades” on a number of companies on which London provided “non-public information”.
He said he had been incredibly stupid, and was co-operating with the FBI, SEC and US Department of Justice.
“I expect that my actions will result in significant civil and criminal consequences, but I realise that this is the painful price I will pay for my transgressions,” he said in a statement before the charges were filed.
When Shaw’s brokerage firm, Fidelity, noticed his unusual trading patterns, it cut him off and Shaw and London agreed to end their arrangement. But when US authorities later approached Shaw about his trading, he agreed to cooperate, restarted his tip-sharing relationship with London and recorded him passing on information in a branch of Starbucks.
The chancellor is correct that the light-touch system of regulation overseen by the Financial Services Authority has been discredited (Report, 2 April). Last year we exposed the extent of corporate capture at the FSA and the way in which the supposed watchdog acted as a lobbying arm for the sector it was supposed to regulate. However, this week’s shift of powers to the Bank of England and new institutions is not the “fundamental change” in the regulation of the City that George Osborne claims. It is window dressing to disguise business as usual. In a meeting last week, officials at the new Financial Conduct Authority complained about a “burden of regulation” being brought in following the financial crisis, apparently oblivious to the contribution of years of self-regulation to the global financial meltdown. The repercussions of this approach are still being borne by citizens in the UK and globally. To ensure a genuinely secure financial system, we need a regulatory body that is entirely independent of the industry it is supposed to police. What we have is another lapdog.
World Development Movement
Separate reports into the crises at two of Britain’s largest lenders revealed a common cause of their problems, but widely varying careers in the aftermath of the crash
In the early hours of 15 September 2008, as the US bank Lehman Brothers was collapsing, many feared the worst, and they were proved correct: markets crumbled and, in the coming days and weeks, so did some 30 banks around the world. But few would have guessed that, five years on, the fallout from that crisis would still be front-page news.
Last week, two reports into two banks that fared very differently after the crisis – Barclays and HBOS – were published, shedding light once more on a furious fight for survival in the dark days of 2008. Barclays succeeded and HBOS failed spectacularly.
What both banks had in common was that their problems were rooted in the phenomenal race for growth during the go-go years of the early 2000s. The traditional caution of bankers was thrown aside and a dash for expansion, fuelled by lending and financial engineering, took hold. Barclays moved into tax avoidance – its structured capital markets division generated more than £1bn in revenue in the four years to 2010 – and failed to stop its traders rigging the Libor interest rate, which eventually resulted in a £290m fine.
The two reports could not be more different. The 244 pages detailing the cultural crisis inside Barclays were commissioned by the bank itself, as a demonstration of its determination to clean up its act. It employed a lawyer – City grandee Anthony Salz, a director of the Scott Trust, which owns the Observer – to investigate how and why standards had hit rock bottom. Salz interviewed 600 individuals in nine months, although none is quoted even anonymously in the analysis.
On its way to making 34 recommendations, the report concludes that the bank overpaid its staff, chased an ambition to become a top five player at all cost and failed to make its 140,000 staff understand they worked for the same organisation. Barclays’ new chairman, Sir David Walker, who is writing a cheque for £17m to cover the costs of the review, described its contents as “uncomfortable reading at times”.
In contrast, the 96 pages on HBOS produced by the parliamentary commission on banking standards, whose members include MPs and peers and the new archbishop of Canterbury, was an excoriating attack on the incompetence of the three men at the bank’s helm. It pulled no punches and called for City regulators to conduct an investigation into whether the three – long-standing chairman Lord Stevenson, and chief executives Sir James Crosby and Andy Hornby – should be banned from the City for life. None has commented on the scathing attack on their “toxic” mistakes. Just how much the HBOS report has cost the taxpayer is unclear, but it will be a fraction of the Barclays bill.
HBOS did not survive the Lehman fallout: within three days it had been rescued by Lloyds TSB. A month later, it was bailed out with £20bn of taxpayers’ cash. Barclays did scrape through, but only by going cap in hand to Middle Eastern investors; the circumstances of that venture are now being investigated by the Serious Fraud Office. Salz describes this desperate battle to avoid a bailout as making Barclays look “too clever by half”, damaging its relationship with overstretched regulators and its own investors.
While HBOS was being rescued, Barclays was still chasing growth, snapping up the Wall Street operations of the collapsed Lehman Brothers – a move that Salz said added to the management challenges facing a bank that was already stretched.
Stories had circulated for years about splits inside Barclays. The high street tellers felt no link to Bob Diamond’s casino operations, which the report said had a win-at-all-costs attitude that came to dominate the organisation. Diamond’s chief operating officer, Paul Idzik, was infamous for his behaviour, which included cutting off people’s ties and snapping pens that did not bear the company logo.
But the Salz report shows the retail bank was not blameless either. Salz details a culture of fear that pervaded the division when it was run by the Dutchman Frits Seegers, who left suddenly in 2009. Sales targets were tough, and staff incentivised to push loans with profitable payment protection insurance (PPI) attached.
Diamond and Seegers were put in charge of the two big businesses inside Barclays by the then chief executive John Varley, who failed to prevent them running the two divisions as separate silos. Salz said that while this was not Varley’s intention, he had failed to create a “cohesive” top team.
Barclays’s new boss, Antony Jenkins, who is trying to reinvent the bank, is not entirely spared criticism either. It is not levelled directly at him, but Jenkins ran the Barclaycard operation that sold millions of pounds of useless PPI to cardholders.
At HBOS, there was no hope of surviving the Lehman fallout. In fact, the parliamentary report makes it clear that it would have gone bust even if there had been no financial crisis because of the £47bn of losses racked up in just three of its divisions.
Only one person – Peter Cummings, who ran the HBOS corporate lending arm – has so far faced any official sanction. At Barclays, the SFO continues to investigate former and current executives. But at HBOS, the chances of action seem slim. Crosby quit as an adviser to private equity group Bridgepoint after the report was published and is under pressure to relinquish his seat on the board at caterer Compass. Hornby has a top job at bookmaker Coral and Stevenson continues to hold directorships at the Tate and Glyndebourne. A three-year rule makes it difficult for City regulators to take any action against the trio.
In addition, the Financial Services Authority closed its enforcement investigation last year when Cummings was fined – even though it is yet to publish its own report into the catastrophe.
Financial regulators should consider banning three top HBOS bankers from future roles in the financial sector, the Banking Standards Committee has said.
Read the original: City ban urged for ex-HBOS bosses
Overhaul of the FSA will put Britain’s central bank back in charge of financial stability, according to Paul Tucker
The radical shakeup of Britain’s banking watchdog, which takes effect this weekend, is essential is to avoid another financial crisis, according to a top Bank of England official involved in implementing the new regime.
Four years on from the crisis that threatened to bring down the UK’s financial system, the coalition’s dramatic overhaul of the City regulator will put Britain’s central bank back in charge of financial stability.
Paul Tucker, deputy governor of the Bank, said Threadneedle Street had a “historic mission” to prevent another collapse. Labour’s creation in 1997 of the Financial Services Authority (FSA) stripped it of that responsibility – but its return was a very good thing, he said.
Overlooked for the top job at the Bank last year, Tucker also acknowledged that the new setup, which formally begins on Monday, could itself need reviewing in the future.
Tucker told the Guardian that the institution was “in the business of stability”, but also keen on recovery.
“You lose stability and the costs are enormous. This country learned the hard way about the inflationary boom and bust and now learned the hard way about banking boom and bust. It mustn’t happen again.”
Putting the Bank back at the heart of oversight should help as “separating banking supervision from the lender of last resort is hazardous unless you grow an umbilical cord that connects the two”.
While banking supervision did not always need to be inside the central bank, communication was key, he said.
“I do think it’s essential that the connection is really close, and supervision and central banking grew apart in this country and they’re now being reconnected. Given where this country finds itself, that is a very good thing. It was always the historic mission of the Bank of England to look after stability.”
If the new system had been in place in 2006 – just before complex financial products turned so toxic that they locked up financial markets in a credit crunch – Tucker thinks regulators would have been “worried by the resurgence in credit growth throughout the west from 2004″.
It would also have worried about the ballooning market in credit default swaps and the booming securitisation industry. It would have intervened in wholesale markets and banks would have been required pump up their capital to make them safer in 2005 and 2006 – even then it might not have been enough to stop the crisis.
“I wouldn’t go so far as to say it would have stopped the boom but it would have made the bust a lot less bad,” said Tucker, who acknowledged that he helped to design the new system ripping apart the FSA, which shuts down on Sunday and puts the Bank of England back at the heart of ensuring the financial system is safe from speculative bubbles and spectacular busts.
It means the blame for any future financial implosions can be placed firmly at the doors of the Bank, which during the 2008 crisis argued it had bark without bite, as blame was shuffled around between Threadneedle Street, the FSA and the Treasury – though some would argue that even the Bank’s bark had been rather quiet.
A new financial policy committee (FPC) is being formed inside the Bank – it is the body that this week caused controversy by ordering banks to plug a £25bn capital shortfall. The Bank is also creating a new subsidiary, the Prudential Regulation Authority (PRA), to regulate the big banks. Tucker sits on the FPC and the board of the PRA. Meanwhile, a new Financial Conduct Authority is being spun out of the FSA to regulate the behaviour of the City.
Already though, the FPC, which has met on an interim basis since June 2011, has had a difficult birth. A reshuffle of its external members this week led some to wonder if its most outspoken members were being neutered. The requirement for banks to raise more capital saw the business secretary, Vince Cable, express concern about the impact on lending, while the smaller than expected size of the capital shortfall sparked speculation that the FPC had been leant on. The lack of detail about the requirements for each bank frustrated the City too.
The FPC, borrowing the words of the former Federal Reserve banker William McChesney Martin, will be able to “take the punch bowl away while the party is still going”. But Tucker admits it is hard to gauge whether attempts to impose sobriety on the system will be needed within five years or 20 years.
And then, such a move might be very unpopular. “Eventually there will be a moment when the bankers and the public are on the same side, opposing measures by the Bank of England, its financial policy committee, to slow the party down,” said Tucker.
“The biggest problem with stability is people forgetting and taking stability for granted,” he said. “I think the most important thing about the FPC is an institutional structure that says these 11 men and women will not forget.”
The Bank has published 17 indicators that will be used to look for bubbles. While Tucker notes “there is no indicator that will whisper the answer in our ear”, he cites a rapid growth in credit as one factor to watch closely.
The PRA, led by Andrew Bailey, will be able to use its judgment about each individual bank, which should be “fantastically rewarding” for the regulators. Boards, too, will need to provide leadership in setting a new cultural tone.
Nine months ago, when he was the frontrunner to replace Sir Mervyn King as governor, Tucker got caught up in the Libor-rigging scandal when exchanges between him and Barclays’ then boss, Bob Diamond (who was forced to quit), became the subject of scrutiny.
The appointment of the Bank of Canada chief Mark Carney as the next governor has led to speculation about the future of Tucker – whose five-year term as deputy governor for financial stability ends a year from now.
Speaking in his parlour-like office at the Bank of England, he is keener to focus on regulation regime changes rather than discuss his past or future. Asked if he intended to stay on, Tucker replied: “I am the deputy governor for financial stability. It’s been the most extraordinary privilege being in this room while the system has been completely redesigned.
“Whether I like it or not, I’ve been one of the architects of the new system. I think it can serve this country well.
“No system is perfect and it will eventually be found wanting and we will need to keep it under review and improve it from time to time. But I think it’s fit for purpose for now.”