Tuesday, December 18, 2012

Why Hector Sants' appointment at Barclays is a classically cynical move from a bank in trouble!

However you view the activities of the UK banking sector in the last few years, one thing has become transparently clear, a significant number of major banks in the UK have become synonymous with organised criminal enterprises.

They have indulged in an orgy of unrestrained fraud, market manipulation, money laundering and tax evasion, and hardly a day goes past without some new evidence of criminal wrong-doing emerging, leading to the announcement of vast fines and penalties, all of which are simply devaluing any form of shareholder benefit these institutions were supposed to offer.
The world's media has finally woken up to the fact that banks are criminal enterprises, and they are beginning to say so, publicly.

The website http://neweconomicperspectives.org/2012/12/the-second-great-betrayal-obama-and-cameron-decide-that-banks-are-above-the-law.html  makes a startling point to which many bankers in the UK, and Hector Sants in particular will take exception. Written by Professor William K.Black, the article outlines the level of fraud to which the City of London had become exposed, through regulatory failure, among other reasons.

"...The title of the article in The Daily Telegraph says it all:  “Banks are ‘too big to prosecute’, says FSA’s Andrew Bailey.

The FSA was the U.K.’s faux financial regulator during the run-up to the crisis.  The U.K. “won” the regulatory “race to the bottom” that destroyed effective regulation and supervision in the U.K. and Europe and helped degrade to near impotence in the U.S.  The FSA’s goal was to attract the world largest financial firms to relocate much of their operations to the City of London.  The FSA offered “light touch” (non) regulation and (non) supervision to firms operating in the City of London.  The results were the typical result – the City of London attracted the worst of the worst.  The “control frauds” produced a “Gresham’s” dynamic (Akerlof 1970) because the frauds gained a crippling competitive advantage over honest competitors and dishonest and unethical officers became wealthy through fraud and modern executive compensation’s perverse incentives.  “Control fraud” refers to criminal enterprises in which the people that control a seemingly legitimate enterprise use it as a “weapon” to defraud.  Control frauds can create a Gresham’s dynamic causes markets to become so perverse that bad ethics drive good ethics out of the marketplace.  The result was that the City of London became an intensely criminogenic environment and many of the largest financial firms in the world became criminal enterprises.

Whether you agree or disagree with Professor Black's assessment, this is how London is seen through the eyes of others, and it is a picture of the UK financial market, under the control of Hector Sants.

Sants has now been given a new top compliance job at Barclays bank, at an undisclosed salary, to improve the bank's reputation with governments and regulators internationally. He will not be a board director.

You may think, as I do, that this is a most peculiar appointment, bringing together the bank with the most criminogenic profile, which should have been already broken up into a series of its component parts and the retail and wholesale sides ring-fenced from each other with bands of chromium steel; with the man whose regulatory reputation is undeniably tainted by the number of serious banking scandals which were allowed to take place on his watch. It seems to be a marriage of inconvenience born out of a triumph of hope over experience.

Damien Reece in the Daily Telegraph puts it thus.

"... How the mighty fall. From Bank of England Deputy Governor-designate and chief executive of the Financial Services Authority to head of compliance at Barclays. Hector Sants’ appointment to the lender just doesn’t stack up..."

British banks are the most predictable of institutions, whenever they feel the hot breath of public opprobrium falling on the back of their neck, their traditional response has been to reach out to the great and good to shore up their crumbling reputation. They have already dragged Sir David Walker, former Chairman of the Securities and Investments Board, general jolly good chap, sound pair of hands, one of us, all round good egg, into the Chairman's new seat, in the hope that his name will be seen to give them greater gravitas. Now, with breathtaking cynicism, they have recruited Sants.

Clearly, such an appointment is meant to send a message about the seriousness with which Barclays views regulation and how times have changed at the bank. Barclays chief executive Antony Jenkins has already said that Sants would ensure that all staff met the spirit and letter of the law and regulators' expectations.

"Relationships with our regulators and governments around the world are obviously also of critical importance to us," Mr Jenkins said. "With a huge wealth of private and public sector experience, and having most recently led one of the world's pre-eminent regulatory authorities, I can think of no more suitably qualified person than Hector Sants to take on these challenges."
Well, he would say that, wouldn't he! When you have just succeeded in finding someone daft enough to grasp the biggest poisoned chalice in the compliance industry, you have got to make it look as good as you can!

Damien Reece sees it in a different light.

"... But the public will, rightly, look askance at this appointment. Far from being a fresh departure for Barclays, it’s just more of the same people complicit in London’s failings as a banking centre shuffling seats. It’s sadly apt that the FSA’s headquarters is the shortest of strolls from both Barclays’ investment banking division and its corporate HQ down in Canary Wharf. This is revolving doors of the worst kind. Barclays has hired to run its compliance function the man who will always be remembered for being asleep at the wheel at the time of regulation’s most Titanic failings..."

It is with examples like these, that the revolving door phenomenon that exists to serve the interests of the select few at the top of the regulatory industry, allows everyone concerned to make complete fools of themselves, and to undermine any likelihood that any ordinary member of the public would have any faith in the process or the proposed outcome.

There have got to be penalties for failure, and when the wrong people are inveigled into taking on the wrong jobs in the wrong industry sector, as Sants was when he was first hired by the FSA in the first place, there has got to be some form of sanction when the appointment proves to have been misguided or just plain wrong.

Sants was a career bank man when he was brought into the FSA. He understood and subscribed to the banking culture. He appreciated its ethics and he no doubt enjoyed its benefits. He was not pre-disposed to look into the dark corners or lift up the edge of the stones and look at what was going on underneath. Coming from whence he did, all was for the best in the best of all possible worlds.

When he became Chief Executive of the FSA, he gave permission for the disastrous acquisition by RBS of ABN Amro. He had previously given Barclays the go-ahead to buy back ABN in 2008, but they were beaten to the deal by the tartan bankster, Fred Goodwin!

It must seem a bit rich if at a time that the FSA is allegedly beefing up its “approved persons” list, ensuring that banksters who were at the scenes of the crimes in 2008 are given their marching orders, that such a regime doesn't apply also to regulators, as well? Sants has got to take a significant degree of responsibility for the mess surely?

Sants would later try to obscure the FSA's role in the screw up with RBS, and it was only after a public outcry that the report outlining the problems was published in which it was noted;

 “...Ultimately, the FSA management and board were responsible for a flawed approach which relied too much on relatively high-level risk assessment of the key issues affecting a high-impact firm, and was too reactive in the absence of indicators of heightened risk.”

I cannot believe that I am alone in thinking that this appointment makes a mockery of what the regulatory sphere ought to be trying to prove.

In order to get past the by-now widely-held view in the USA that the UK is the Coleone of international organised banking crime, don't we need a complete root and branch re-appraisal of what is needed to start to bring financial compliance into a meaningful semblance of reality?

Please don't be fooled by these latest moves on the part of Barclays Bank. They are just trying to buy time to give the impression that they really intend to turn over a new leaf, and behave themselves in future.

The problem is, they cannot do so and make money. I have pointed out a number of times that the UK financial market is a magnet for every global crook's dirty money, and sadly, this Government seems to be only too keen to emulate the activities of wee 'Gordy Broon', and his Mongoose Gang, and accept as much of this criminal money as they possibly can, presumably in the belief that it will help to support our  rotting economy!

To do this, they must ignore every rule and regulation that seeks to interdict criminal money laundering, and the easiest way to do this is to quietly let the regulators know that they will not be criticised if they soft-pedal on the application of the rules, and turn a blind eye to the major banks' money laundering activities. Being seen to do a lot of thematic reviews and writing lots of learned papers will always give the impression that they are doing something, while allowing the major players to get on with business as usual.

This is how UK plc attracts the kind of foreign criticism, particularly from the USA
with which I opened this blog! The rest of the world can see we are running a cess pit of criminality, even if the bank regulators choose to ignore it, and that is why Hector Sants' appointment to Barclays compliance department is a cynical move!


EMC2 said...

Sigh. http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213

EMC2 said...

Sigh. http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213

lifeafterdebt said...

Completely agree that the criminal activities of the banks were facilitated by complicit or complacent regulators. Either way regulatory heads should roll along with the banking ones. Bizarre to simply move those responsible for these failures into an environment where they have proved their expertise has been either flawed or compromised. Would not happen if we were prosecuting these crimes rather than rewarding the criminals for their failures. http://lifeafterdebts.blogspot.co.uk/2012/12/fifth-century-teacher-buddhist-monk-and.html

AbogadoNZ said...

This would be funny if it were not so serious. I am not sure where the joke started; did Sants or Barclays start the negotiations? If this is the best they can do then heaven help the shareholders, customers and staff.
My rather uncharitable guess is that Sants' internal communications will be set up to operate one way only. Doubtless he can see everything that goes on but I'll wager there is NO way he can communicate or control anything. I wouldn't let this chap run a school crossing on a 'B' road.