Blood Diamond - Barclays Bank and LIBOR
I am a total political banking geek. As all decisions in banking are ultimately political and I quite like politics and money - in reverse order and how they relate. Understanding banking is one of the reasons I follow politics. Interest rates make people happy or sad, richer or poorer. Control an interest lending or borrowing rate and you control a government, its policy and with it the voters. Conflicts between borrowers mortgage rates and lenders savings rates, old and young(er) are fascinating in any economy.
I deal with banks every day in my job for some ten years often at a Senior level and to this day have never met anyone from a Compliance division despite even taunts worldwide in every meeting internationally when it gets sticky and oblique that I attend that banks don't even have people in the Compliance division, just computer based algorithms and tick boxes. For research purposes and out of desperation in dealing with the invisible "men" I popped a few calming Panadol and even applied for a rather Senior job in the Compliance division of an international bank here a few years ago just to see whom I would physically meet. It was a remarkable experience. I had three very formal interviews really about nothing and still then never met anyone I would have theoretically worked with. It remains one of life's mysteries who mans the Compliance divisions of banks.
Generally I have no sympathy for borrowers as they borrow in a competitive market and contractually accept floating or fixed interest rates. Usually to buy an over leveraged house most cannot really afford which pushes up housing prices for genuine borrowers with C.harlie Ash whom have to bid not against another person, but their credit line. Yes, I am a devout saver. Most of my clients are savers or investors and if a borrower then business not of the bog standard residential property type.
My opinions are pro-saver and I believe a large amount of lending should never be made as the borrowers are not worthy of having the money and are a contingent disaster on a bank's balance sheet.
Like a good politico-banking geek tonight I rushed home 100m from the bar from the fabulous State of Origin match to watch Bob Diamond's testimony on CNN and sat still through the whole thing until the three hour coverage was over on the news channels I subscribe to. It was a fabulously solid performance and I often wondered why Diamond quit, although questioning would be even more rigorous and snarky if he hadn't resigned and deemed the events "reprehensible". Diamond answered all relevant questions from academically capable MPs, sidestepped whining irrelevance from stupid, emotional MPs and took responsibility where he had to with comprehensive dialect with the more intelligent M's. The MPs in general were tossers reading from cheat sheets.
The funniest but most pertinent moment for me was when Diamond was accused by Scottish MP John Thurso of being like loathsome English Cricketer Geoff Boycott, two and a half hours at the crease and not a lot of movement. That in itself was a compliment. Diamond then kept his innings going til the Umpire pulled stumps.
Remember these are MPs who ultimately rely on happiness and sadness of savers and lenders to make them feel wealthier or poorer at election time to vote for them. Think along those lines and politicians and bankers become totally reliant beasts. Property being the largest asset and expenditure of most constituents. In some electorates it is SME - small and medium sized businesses but they are few and far between. Banking is therefore crucial to their re-election chances. MPs walk a thin line criticizing bankers as they rely on them and influence their profits through confidence in the credit markets.
Diamond is right, Barclays is just the tip of the iceberg. In a "competitive" market for lending there must be collusion by definition for the allegations he quit over to ring true over LIBOR. Consumers have a choice and can go somewhere else.
Compliance in a bank is a moving often impossible target. It is very well in hindsight to say they "should" have found the LIBOR behaviour. Some of it may be group bloke think, well hidden and ultimately criminal. Authorities will now investigate that. Diamond took the stick up his bum as any head of such a large institution should on that salary and bonus. Middle Managers and a "Gang of 14" appear to have hidden the problems from Upper Management. Diamond seems to have sacked the 14 before he quit.
The easy target and cheap MP pop is bitching out about Diamond's salary and bonus. Barclays is a huge multi-national organization that not many people worldwide are remotely qualified to run. I have dealt with them on a Middle Management level and they are no less or more competent than any other bank, nor their fees or rates from what I have seen higher or lower. Diamond was paid a fortune to take this three hour utter buggering from MPs, many whom don't even understand the banking industry so I did not feel sorry for him. He was accused of being incompetent by MPs who claimed constituents have asked if they should get their money out of Barclays. Then MPs whom whinged Diamond should donate his money to charity so people would like him more.
MPs scrutinizing the "culture" of banks makes me laugh. Are they kidding? What about their culture as law makers? A banker bonus and profit culture is no more or less worthy or cretinous than an MP or Political Party who takes taxpayers' money and buys an election with outrageous and poorly costed spending promises they may or may not keep. They call that "sensible" in politics and all entirely moral and legal. It is a shame Diamond as a banker didn't round out on some of the UK MPs dodgy Parliamentary cultural practices in this session.
Remind us not, nothing will make the world love bankers more. It is a stupid proposition. If I was a banker I would take all the money and run. Giving it to starving African orphans will not redeem you. Why bother?
Bankers will never get any love. Until normal Joe Bloggs' out there require a mortgage for a house they cannot really afford. Then banks are marvelous and the bank manager is your best mate. Until again the interest rates increase. Again, why? Political. Banks are in essence simple beasts. Risk, rates and lending drive the bank profit, dividends, salaries and bonuses. If people and corporates do not pay them back, the banks fail.
The entire community therefore is responsible for banking failure. Although no one wants to ever admit that. MPs trade off bashing banks and bankers.
If people pay back their contractual obligations then there is not a problem as borrowers and investors get their money back and the bank makes a profit. The GFC underlying was caused by a domino effect of people who did not pay back their mortgages and other obligations wrapped up in more complex products. The basics were easy - mortgage default.
But enough of that. Diamond is the first of many I think who will face the grill. Barclays will be the first in a long line of alleged banks. A geek during the commentary suggested their exposure in civil action would be £5-6 billion, then in the next breath said it would be hard to prove. Barclays and bank shareholders can breathe a bit easier. If anything the courageous savers should get the payout, one assumes their interest rates have been lower than they should have been on margin.
Of more interest to New Zealand in following the tweet feed I saw one from chatty National MP Melissa Lee. After further interrogation of where she was situated Lee told me to look three rows back from Diamond so I did and found her on CNN - the participants from Lockwood's Speaker tours. Here they are in the Daily Mail. Making news this week along with hipster Laura McQuillan's now famous disco pants.
Good to see our left wing anti-business MPs behaved themselves accordingly refraining from protest. I don't know how Parliamentary it is to tweet from the room (but witnessed UK stiffs doing it) but it was yet another example of how global social media really is. I doubt Fenton will worry but watch the loathsome Hughes go back to Parliament and whinge about banks, corruption and interest rates when Parliament resumes. I am surprised he hasn't already asked for an inquiry from this seating position.
After hours of interrogation by UK MPs on Diamond, I may ask, are New Zealand MPs up to the task of being televised and monitored on their performance vs a trained, intelligent CEO of the quality of Diamond? These UK MPs weren't that great and did not ask all the "right" questions. How would our lot go? .
Cathy Odgers is a lawyer based in Hong Kong. She blogs as Cactus Kate.