BEWARE! THE BANKS ARE OUT TO GET YOU!

[Stanley]

There was an interesting exchange of views in evidence given yesterday by Digby Jones and Alastair Darling. (LINK) Whilst I hold no brief for Fred Goodwin and what he did as CEO at RBS I have sympathy with the views expressed by Jones and Darling. I think it was right that he was stripped of his knighthood but also believe that there were others equally culpable who escaped censure. Indeed some of them have been co-opted onto the various committees who are supposed to be guiding our investments in the banks which saved them and also in deciding what changes in regulations are needed. Anyone who reads Private Eye will be aware of who they are.
Private Eye scores again in that one of the subjects they have been banging away at for months, the relationship between Hartnett at HMRC and large firms like Vodafone and Glaxo Smith Kline who have avoided enormous amounts of tax by sophisticated 'financial engineering' guided by large accountancy firms like Price, Waterhouse Cooper. It looks as though this has now broken out of the PE pages into general public perception and is being openly discussed. About time too!

[Stanley]

Warning signs this morning that as the banks come under pressure from the Euro economy one way they could increase their profits is to raise mortgage interest further.

[Tardis]

Reports to the government suggest that they should veto the pay awards of RBS, and also vote to kick out the account auditors as one of the major watch dogs has suggested that the current accounts are unsafe legally, yet have been signed off

Lots of people running around suggesting that Santander UK is separate to Santander Espana. Sounds like BoE just before Northern Rock.

Apparently the sale of Northern Rock has wiped its face, the £2 billion loss is only a paper one, based on the fact that the country could have done something else with the £37 billion it lent to the struggling organisation

[Stanley]

I think we can take any statements about NR affair having 'wiped its face' with a pinch of salt. I'm afraid that £2billion repaid and the proceeds of a knock down sale of assets to Virgin doesn't look like a brilliant result to me. But what the hell do I know about such matters except that the best gloss possible will be put on any statements to show how well our masters have managed it.

[Tardis]

Well, Northern Rock was one of those banks that went bust, and yet wasn't doing any of the casino type banking

Just lending money on property

Admittedly, renowned for the 125% mortgage, but no casino's in sight

[Stanley]

Lending money on property to dodgy customers was the basis for the casino bank's trading in derivatives so Northern Rock and similar lenders are just as culpable.

[Tizer]

When the Credit Crunch began we were told in the newspapers that Spain was not as badly hit as the UK because they didn't have such a large consumer debt problem. Now it turns out that the reason they are in a pickle is that their banks were instead lending massively and foolhardily to property developers.

[Stanley]

I don't know whether anyone can remember but one of the TV investigative programmes did an episode based on the lenders who were allowing borrowers to self-certificate and not checking up on them so as to maximise the number of mortgages/commissions they could process. I think it was about 2005. Of course the lenders denied this but it was the start of the dodgy mortgage crisis. Makes you wonder whether it was simply the commissions paid to get more throughput that was the base reason for the bad loans. In other words greed and making a fast buck. Same applied to insurance/assurance market as well. The higher the turnover, the more commission and profit and you could manage the risk by selling the loans on via derivatives. The old banks and lenders worked on the basis that what was good for the customer was good for them as well so they used due diligence and real customer care as they knew they held the debts till they were extinguished. Selling a debt on to another party was seen as an admission of failure to do their job properly rather than a normal business strategy. Classic example was Fred the Shred who jacked up his company turnover and his bonus take using this ploy.
Why is this so clear to non-experts like us and not to the banks. Are we totally mistaken? Where were the regulators?

[Tardis]

I believe that RBS went bust because it bought a bad bank without doing any due diligence.

Once the credit crunch hit, it couldn't maintain liquidity.

As far as I'm aware the bit that ran the 'markets' has always turned a profit, which is why it was sold off to reduce RBS debt

[Stanley]

So they didn't take dodgy loan business and sell it off as derivatives? If not, how did they grow turnover so fast? This happened before the takeover of the other bank.
Surprise surprise, Face Book shares drop to $33 from $38 issue price. Nice for those who got in first. The markets are looking at the company and wondering how it can make a profit.

[Tardis]

I believe RBS has grown it's balance sheet through normal fractioning banking

Except the levels of capital within the bank were set at such a level that it only took 2% of those loans to go bad before they had liquidity issues. Once you add in that bank acquisition it isn't much of a surprise that it went belly up. Remember Darling stating that he was "flabbergasted" when he went into the bank that day.

RBS is still heavily exposed to commercial property, through Nat West being the UK no1 Business bank. When someone suddenly decides that property prices are too much and won't lend in a market because some people operated fraudulently (US) then you have freefall.

Property prices in the UK are still not back to pre 2007 levels

Remember all these speculations over derivatives were all backed by insurance, and the ratings agencies. If they go bad, you will eventually get your money back, but the trick is to be able to survive for long enough until that insurance pays out. Hence why RBS has paid back all that loan money - about £160 billion - which it needed to maintain liquidity.

I see that someone has finally asked for an enquiry into the derivatives, and obviously why no one spotted the bad stuff.

In other news, some economists still think it might take another 8-10 years to actually grind through the recovery simply because of the energy price volatility, the uneven growth in economies across the world, the major disaster that is the Eurozone, and the increase in food and commodity prices hitting all those economies who rely upon importing what they don't produce.

[Stanley]

I see one of the bankers at BofE has popped his head above the parapet and announced that the days of 'free' current accounts is over. Funnily enough I thought I was paying for mine by the fact that they paid no interest on my deposit. I must have missed something....
I look back at the days when Lloyd's Bank was in a black and white timbered building in Underbank in Stockport and going in there was like going into a church. Conservatively run for stability, not flash profits and they were solid institutions that commended complete trust. After deregulation they became money making machines and eventually the systems they used became so complicated that the bankers didn't understand the dangers. Then came the crash. I will take a lot of convincing that this simple explanation based on greed and incompetence is incorrect.

[Tizer]

I thought the same...when charges on personal bank accounts were dropped decades ago the bankers explained it by saying that they had the use of our money and that was all they needed in exchange!

[Tardis]

Lloyds was one of those stable banks until Brown foisted HBOS onto it. It always under performed all the other UK banks on the FTSE, and had a lower dividend yield.

Now it has to deal with the unravelling off all Halifax's speculative property deals that have gone south, particularly in Ireland

[Stanley]

News item this morning about discrepancies in Euro exchange rates in different areas. 'Competition' can vary the return on £500 of Euros by up to €30 in different locations. Sheffield looks like a good bet! The message is shop around for the best rate. Makes official exchange rates look superfluous if supply and demand rules the price. Not surprisingly, the worst rates are at airports where people are under pressure.

[Tardis]

News today that the Bank of England has agreed to an inquiry into it's role in the boom and bust of 2003-2009

I'd be interested to discover the parameters, but it already looks like quite a few folk are gearing up to make it very uncomfortable for the governor

[Tardis]

Ultimate irony?

Bank chief at Lloyds in charge of security and fraudulent activity is today charged with a multi million pound fraud

[Tizer]

Yes, I've just seen it too on the BBC web site. And the banks have been trying to tell us that their staff never commit fraud!

Former Lloyds worker Jessica Harper in £2.5m fraud charge (BBC News, 25/05/12)
A former head of security at Lloyds Bank has been charged in connection with an alleged £2.5m fraud. Jessica Harper, 50, of Croydon, south London, is accused of submitting false invoices to claim payments, between September 2008 and December 2011. At the time she was working as head of fraud and security for digital banking and allegedly made false claims totalling £2,463,750. Ms Harper will appear at Westminster Magistrates' Court on 31 May. She has been charged with one count of fraud by abuse of position.

The bank, which is now 39.7% state-owned after being bailed out by the government during the financial crisis, refused to comment on the charging of Ms Harper. A Metropolitan Police spokesman said she was arrested on 21 December 2011 by officers from its fraud squad.

Andrew Penhale, from the Crown Prosecution Service's Central Fraud Group, said: "The charge relates to an allegation that between 1 September 2008 and 21 December 2011, Jessica Harper dishonestly and with the intention of making a gain for herself, abused her position as an employee of Lloyds Banking Group, in which she was expected to safeguard the financial interests of Lloyds Banking Group, by submitting false invoices to claim payments totalling £2,463,750.88, to which she was not entitled.

"This decision to prosecute was taken in accordance with the Code for Crown Prosecutors. "We have determined that there is a realistic prospect of conviction and a prosecution is in the public interest."
http://m.bbc.co.uk/news/uk-england-london-18204188

[Stanley]

Face Book shares have lost 25% and analysts expect them to go lower. Bad news all round because the lawyers are in the action now alleging that a bad financial report was delayed so as to not hold the share offer back.
Michael Woodward has settled with Olympus out of court, no sums mentioned. They evidently decided they had no case after he sued them for wrongful dismissal when they sacked him as CEO after he blew the whistle on their illegal activities.

[Tizer]

Hedge fund boss found guilty in $600 million fraud
(Reuters, 30 May 2012) - Magnus Peterson, the boss of collapsed hedge fund business Weavering, has been found guilty of defrauding investors and ordered to pay hundreds of millions of dollars in damages. London's High Court ruled that Peterson, manager of the Weavering Macro Fixed Income fund, deceived clients and breached his duty of care to investors with a strategy that could not cope with the vagaries of markets at the height of the global credit crisis. Damages of $450 million were awarded against Peterson, seated next to a fellow defendant when the judgment was handed down on Wednesday, and three other directors including his wife, Amanda. The outcome comes a day after Britain's Financial Services Authority doled out a record fine to Italian academic-turned-fund manager Alberto Micalizzi, as authorities step up efforts to chase errant hedge fund bosses out of the Square Mile.

More here: LINK

[Stanley]

A similar but unconnected fraud trial.... PE reports that in Vienna a man called Dietmar Machold is on trial for fraud. Who he? He is the 'world's greatest authority' on Stradivarius violins and is accused of mis-attributing inferior instruments to get enormous prices. He is facing 46 charges and civil claims of €100million. When expert and dealer are the same person the temptations must be enormous.

[Stanley]

See this LINK for a timely appeal by Which to Osborne. I think if we knew the level of lobbying which is going on inside goverment fuelled by seconded 'advisers' and lobbying groups we'd be appalled. Noticeable that the banks are keeping very quiet about it, always a bad sign.

[Tardis]

Daily Telegraph today reports that UK banks are still sitting on over £40 billion of debt

That is going to take some time to write off, and in the mean time there will be no corporation tax which Gordon Brown wedded the country to for its finances

[Tizer]

Nobody, especially bankers, is going to take a government seriously when it makes so many U-turns. An essential part of leadership is being seen to make decisions then stick to them. It's the only way to get people to accept difficult, unpleasant or risky measures. But we no longer have any real leaders in the Government or even obviously on the path to a possible place in government as far as I can see. Leadership has declined in large companies too and the execs often seem to be unaware of what's going on in their organisations. One small example...Mrs Tiz has written to the boss of Marks & Spencer and complained about failures to deliver goods bought online. But she's explained that it's not simply poor courier service but a much bigger problem involving M&S staff and needs to be brought to the notice of the company's board - they are being fed incorrect information by their employees. When couriers fail to deliver goods and the customer then cancels the order to get their money back, the M&S staff record it as a `return' by the customer (i.e. customer changed their mind and returned the goods). This gives false information to other M&S staff who then aren't aware that the couriers are failing to give a proper service. This means M&S isn't properly monitoring its own performance but is living in a fairytale world. This is only one example but if this can happen then the attitude to accuracy of recording performance in M&S might be more widespread. Mrs Tiz noted in the letter that perhaps this could explain the poor financial performance of M&S recently.

She got a phone call from a smooth chappie who oozed sympathy but gave her no feeling of confidence that anything would be done to rectify the problem. The letter was probably intercepted and diverted to the Customer Mollification Team. In fact, his response makes us even more pessimistic about the future of M&S.

[Stanley]

A good point about the government's lack of authority due to perceived incompetence. I remember reading a book about the time Mark Sieff took over M&S many years ago. (LINK) The first thing he did was to order one copy of every standard form the company used to be laid out on tables in a large hall (They had difficulty finding a space large enough). He then ordered that 50% of them should be done away with. Only one of his strategies but he brought M&S beck into profit and the glory years. Perhaps the present management should read his life story and apply some of his methods. They could also read 'Brain of the Firm' by Stafford Beer, one of the best men we ever had on communications inside firms, governments and companies. I once spent a wonderful drunken night with him at Manchester Business School listening to him talking about communications. It was a master class and I never forgot it. At one point I asked him to put all he knew about communications in one aphorism. Here's what he said: " It isn't what is communicated, how it is transmitted or how it is received. It is what is understood" I think that just about covers Mrs Tiz's problem! They could also look at Howard Geneen's book, 'Managing'. Not a nice man but what a manager! One of the things he said that struck me was that he wasn't interested in employing people who came to him and told him how well everything was going, what he wanted was someone to come to him and point out what was going wrong before it happened. I think there is a clue in there to how our Coalition is working.....