Sunday, September 09, 2012

Why the revolving door for all the executive jobs means we will never get any real change at the top of the banking manure heap!

I have been reviewing the way in which UK banking and those who regulate it all seem to be members of a private cosy private club, who are always available to be called upon to step up and take another lucrative role on each other's Boards when something nasty hits the air-conditioning! My friend Ian Fraser has commented on this phenomenon before and better than I can, but I think it is still worth repeating.

One of the most obvious and shameful outcomes of the Financial crisis has been the way the regulatory agencies have failed to deal with the evidence of greed, perfidy, and wholesale criminality which has marked out the conduct of business in our major financial institutions. It is only when we come to deconstruct the structure of these organised criminal enterprises, and they are very much a group of mafias, we can begin to understand the way in which they rely on each other for  support in times of adversity.

What we can begin to glimpse is the level of 'regulatory capture' which exists in this unholy alliance, a phenomenon defined as the process by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. Regulatory capture happens when a regulatory agency, formed to act in the public's interest, eventually either acts in ways that benefit the industry it is supposed to be regulating, or it fails to act in order to protect the public.

Regulators when they step down from their roles, can virtually always rely on a soft landing and a lucrative sinecure waiting for them among either the institutions they have formerly been supervising, or within the Big 4 audit firms whose actions in so many cases have contributed to the wrong-doing of which their financial clients have later been accused.

With the Retail Distribution Review (RDR) and break-up of the Lead Regulator going on in the background, some big names decided it was the best time to move on, in most cases to more lucrative opportunities.

Peter Smith the Financial Services Authority’s (FSA) head of investment policy left his position at the FSA in June to take up a position with Dubai’s regulator, Dubai Financial Services Authority.

Dan Waters, the former director of conduct risk and asset management sector leader, announced his departure towards the end of 2010 after he decided he could not make the necessary long-term commitment through the set-up of the new regulatory regime. He had previously been head of retail policy and was therefore one of the masterminds of the RDR. He is now Managing Director of ICI Global, a trade body set up last year focusing on the Global Fund Industry

Jon Pain left as head of supervision in 2011 after he decided there would not be a suitable role for him in the restructured organisation. Having joined in September 2008, he was responsible for developing the new regulatory approach after the financial crisis. He moved on to KPMG in July as head of financial services within the risk consulting division.

Sally Dewar the former managing director of risk and board member left the FSA after three years in the role, having originally joined in 2002. Dewar had been responsible for all regulated markets, including the regulation of firms ranging from banks to asset managers, and she moved on to JPMorgan Chase as a managing director.

Katharine Leaman, was formerly the manager of the FSA's professional standards policy team, and left the regulator after more than a decade at the organisation. She became part of the 20-strong professionalism and RDR team in Canary Wharf in her last two years. A former Gerald Edelman director, a firm of chartered accountants,  she is now a senior manager at the Royal Bank of Scotland.

Margaret Cole, left at the end of March after almost seven years with the FSA, most recently as managing director. She had originally joined as director of enforcement in July 2005 and had led the move to a more aggressive approach, heralding a period of record fines and activity. As the first managing director within the financial conduct unit, she was already shaping the future regulation of financial advisers. She will join PwC in the autumn as an executive board member.

See what I mean! But the revolving door moves in both directions.

Take the appointment of KPMG chairman John Griffith-Jones who has been appointed non-executive chair designate of the Financial Conduct Authority (FCA), the body that will replace the Financial Services Authority (FSA).

Griffith-Jones joined the FSA board on 1 September as a non-executive director and deputy chair. He will work with FCA chief executive-designate Martin Wheatley to oversee the creation of the new regulator. Adair (Lord) Turner will remain FSA executive chairman until the move to the new regulatory structure has been completed.

Financial secretary to the Treasury Mark Hoban said Griffith-Jones would play a key role in financial services regulation. 'He understands the challenges facing the financial services sector and this, together with his experience in both chairman and CEO roles, will be very valuable as we move towards the creation of the FCA.'
Griffith-Jones said he wanted to help rebuild consumers' trust in financial services in his new role. 'Having worked in the financial world throughout my professional career, I know how important it is that consumers, investors and businesses have trust in the integrity of the UK's financial services industry and markets,' he said.
He should know, having been in an executive position at KPMG for many years. Just look at the first page of any search engine using the search terms '...KPMG and Scandal...' and see what comes up. Among the entries I found were the following;
'...KPMG accounting scandal...Corporate scandals exposed...'
'...KPMG tax shelter fraud...'
'...K{MG charged with fraud...'
'...KPMG obstructed US tax enquiry...'
You get the gist. Many of the scandals took place in the US and he well may say quite reasonably he was not directly involved. but he was still part of an executive power within the world-wide entity, and these scandals took place on his watch! No doubt his Eton and Cambridge education will have given him a wide insight into the views and concerns of the ordinary man in the street. still smarting from being mis-sold a PPI insurance contract, or having had his private pension scheme raped by his provider!
We should be grateful perhaps that he will be joined by Martin Wheatley. Head of the Financial Conduct Authority, Martin Wheatley has every reason to be committed to the regulator’s more intensive style of supervision.
Wheatley worked for the London Stock Exchange for 18 years, including six years on its board. He rose to the position of deputy chief executive, and was closely involved with the failed merger with Deutsche Borse.. 
Later, Wheatley's tenure at the helm of Hong Kong’s financial regulator the Hong Kong Securities and Futures Commission saw thousands of investors take to the streets in protest, brandishing pictures of Wheatley with devil horns and burning effigies of him outside his office after they were mis-sold complex structured products linked to Lehman Brothers.
Wheatley was later criticised by the Hong Kong legislative council in summer 2012 for not having demonstrated sufficient sensitivity to the needs and perceptions of general investors. The report went on, '...the Committee is greatly disappointed that Mr Wheatley had not secured the enactment of the relevant amendment legislation in a timely manner...'
Sounds like he is ideal for the new regulator, of which Adair (Lord) Turner is still at the helm, of course. Now this man is a real revolving door product!

In a hard-hitting article in the Daily Telegraph in August 2012, Damian Reece declared; 

'...It’s not just the bankers that need changing but the regulators too...' 

In reviewing the findings of the Tyrie Committee he pointed out that '...what we’re also left with, yet again, is a story of regulatory failure. Since 1997 the UK has been plagued by porous rules that have allowed unalloyed avarice to seep into every nook and cranny of City life.

The Tyrie committee's investigation has quite rightly used its findings into the Libor scandal as ammunition in its attempts to get urgent changes made to the legislation passing through Parliament that will merge two failing institutions (the Financial Services Authority and the Bank of England) into one, even larger, failing institution. If we don’t get the future of regulation right, we’ll never get the future of banking right.

Tyrie’s report also reveals how Lord Turner and his counterpart at the Bank of England, Sir Mervyn King, were unable to exercise judgment-based regulation properly when it came to the removal of Bob Diamond. The fact that Lord Turner tried and failed to secure Diamond’s resignation and subsequently had to get Sir Mervyn involved also exposes him as a weak operator. Put this together with the fact that the FSA, along with the Bank, failed to spot Libor manipulation in the first place and that “doesn’t look good” to quote Tyrie once again. It doesn’t look good for the FSA but neither does it look good for Lord Turner’s candidacy to be the next Governor of the Bank of England, with supreme power over all financial regulation.

On 8th September 2012, Lord Turner authored an article in the Daily Telegraph entitled '... Regulators must shine a light on 'shadow banking... in which he is quoted as saying '... Shadow banking thus played a crucial role in the 2008 crisis in both the US and Europe. We need to ensure it cannot do so in future...'

Frankly, the problem for Lord Turner is that he is far too clever for his own good, and his articles read like some detailed briefings prepared for an IMF summit meeting of Central Bank Heads.  At one stage he posits: 

'...Maturity transformation is also a key driver of banking system risk: but at least when it is performed within bank balance sheets it is reasonably well measured and liquidity regulation can constrain it. Equivalent maturity transformation achieved via a multi-step chain of intermediation is equally risky, but more difficult to spot and it escapes liquidity regulation...' 

Of course, how silly of me not to have appreciated that, and I imagine that when small investors meet to wonder why their returns are so pathetic, they talk of little else!

These Telegraph articles invite readers to respond with comments. One reader posted as follows:

'... What he's trying to say, but has failed miserably by dressing it up in incomprehensible long-winded gobbledegook, is the too big to fail, (and soon too big to bail), [ I would have added too big to jail ] banks, aided and abetted by insurance dealers like AIG, have fucked up big time by overleveraging themselves in the totally unregulated OTC derivatives market and are relying on taxpayers to fund their very real potential losses should the tangible asset prices bubble be allowed to burst and find its true level. 

The Bank for International Settlements estimates this underworld derivative market to be in the order $600 trillion - others estimate $1.4 quadrillion.  Nobody knows because it is not regulated.  I would have expected this Turner fellow to know this much at least. 

In essence what the taxpayer is being asked to do is to live with artificially high house prices and negative interest rates in order to prevent the triggering of credit default insurance which would almost certainly bring the entire edifice of crap down around their ankles.  Don't even ask about Interest Rate Swaps...'

Well, I think you can see his point, now why couldn't Lord Turner have put it like that?
Another pointed up Turner's revolving door credentials;

'... Pity really that Turner did not know about all this before the event and warn us of the dangers. He was in a position to know and could have warned us, as he worked for Chase Bank (now part of J P Morgan), Mc Kinsey and Merrill Lynch, all involved in setting up and running vital parts of the shadow banking food chain.  

Maybe he was too busy when the threats became obvious to say anything - by then he was involved in helping to rob £ billions from people who were promised state pension benefits which will not now be paid.  This despite them paying contributions into the system for decades. Would you trust a person like this... ?'

And finally, what about Barclays, the leading organised mafia enterprise for banking criminality. Well, the bank has surpassed itself by appointing two insiders to the most important roles to clean up after the passing of the Diamond geezer!

Anthony Jenkins, who ran Barclays Retail and Business Banking and has been a member of the group's executive committee since 2009 has been given the top job as CEO. The announcement came a day after Barclays said the Serious Fraud Office was investigating the bank regarding certain payments between the bank and Qatar Holding, during an exercise to raise more investment capital. The inquiry relates to events in 2008, when Barclays was raising money from Middle East investors during the banking crisis.
In June, it was fined £290m by UK and US regulators for manipulating Libor, an interbank lending rate which affects mortgages and loans.
Jenkins said he was "very proud to have been asked to lead Barclays", where he began his career nearly 30 years ago, but he admitted: "...We have made serious mistakes in recent years and clearly failed to keep pace with our stakeholders' expectations..."
Well, again, he should know. It was on his watch that Barclays was fined £7.7 million for failures in relation to the sale of two funds.
Between July 2006 and November 2008 Barclays sold Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 people with investments totalling £692 million. Barclays promised to contact customers and pay redress where appropriate.
They were also required to repay thousands of customers who had been damaged in the PPI mis-selling scandal, and have been under investigation for the mis-selling of swap derivative products to hapless customers. So no doubt Mr Jenkins will know where the other bodies are buried.
But he will be helped by a man who has undertaken more turns of the revolving door than most, as it was announced that Barclays chairman Marcus Agius would be be replaced by Sir David Walker. Among some of the earlier roles, Sir David has been engaged in are;
 HM Treasury, 1961;
Private Secretary to Joint Permanent Secretary, 1964–66;
Staff of International Monetary Fund, Washington, 1970–73;
Asst Secretary, HM Treasury, 1973–77;
Bank of England as Chief Adviser, then Chief of Economic Intelligence Dept, 1977; a Director, 1981–93 (non-executive, 1988–93);
Chairman: Johnson Matthey Bankers, later Minories Finance, 1985–88;
SIB, 1988–92;
Deputy Chairman, Lloyds Bank plc, 1992–94;
Director, Morgan Stanley Inc., 1994–97;
Executive Chairman, Morgan Stanley Group (Europe) plc, subsequently Morgan Stanley Dean Witter (Europe) Ltd, 1994–2000;
Chairman, Morgan Stanley International Inc., 1995–2000;
Member, Management Board, Morgan Stanley Dean Witter, 1997–2000. 
None of this permits me to hope that there will be any realistic review of the British banking sector. The Great and Good have been drafted in to try and patch up the leaking hulk that is Barclays bank, while other former regulators who were in post at the time of the 'light touch approach' to banking regulation have scuttled off the sinking ship to find themselves lucrative sinecures.
I do not believe that any of these reforms and putative changes will ever have any realistic effect on cementing belief in the banking system any more. We have all been screwed royally and the guilty are now sunning themselves and enjoying their vast pension funds, given to them as a bribe to keep their mouths very tightly shut about what really went on.
But that is always the way with the British, nothing will or must change! The bank and finance sector exists to serve the interests of a very special few insiders, it does not and never has existed to really serve the interests of GB plc, that is just a convenient fiction they put about to stop Government enquiring too closely into what really goes on inside the Square Mile or up in Edinburgh.  
But in order for the money-go-round to keep on producing the goods for the insiders, they have to keep a lid on the rotten edifice, so that no-one can really tell what is going on and that is where the revolving door comes in. And as long as the revolving door continues to turn, spinning out the good chaps with the safe pairs of hands to fill the important posts when they are most needed, then those on the inside track will always get the plum jobs and fill the juicy posts, secure in the knowledge that they will do the job they are called upon to perform which is to maintain the status quo, while all the rest of us can merely do is to lick our wounds, and wait humbly until it is our turn to get fucked over again!


Johnson said...

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AbogadoNZ said...

OMG! I was aware of the revolving door policy, just not quite how overtly 'conspiratorial' it was. However having just read Shaxson's Treasure islands, Ratigan's Greedy Bastards, O'Toole's Ship of Fools and Lewis' The Meltdown Tour it is hardly surprising. All 4 are well researched and highly readable. It is enough to make me revolutionary - now there's an idea... see you on the barricades.

lifeafterdebt said...

Another great piece Rowan.
Can't help but agree with you over the Brits inability to change not helped by the view of most people that it can't possibly be as bad as we who are writing about it say it is. Lambs to the slaughter comes to mind and not sure how to change this either.

David Jackson said...

Thank you sir for you honesty and bravery, you are what I thought Briton stood for, Please make yourself available to the many people who are not yet aware of the gravity of the situation we are facing should things just stay the same.

Reason's to be Concerned said...

Just seen you on The Keyser Report where Max just gets so worked up about the Fraud going on in London.
I hadn't heard of you before now, so will set aside time to read your blog now.

Please watch it and don't get yourself killed by a passing umbrella tip or something...


576924 said...

Rowan was 100% the police DO NOT investigate fraud by bankers, insurers, lawyers, and other financial institutions. It's a disgrace, and just goes to show how corrupt the UK has become. I lost thousands to a crooked/corrupt solicitor, who spent it on exotics holidays etc. Provided hard evidence to the police, but they said it was a matter for the Law Society. The Law Society said it was a matter for the police. Pushed from pillar to post all the time.
Now having to survive on benefits, so the taxpayer is paying twice over. Once to pay for police who are supposed to arrest ANYONE committing fraud, and secondly to fund my benefits etc, because the police took no action on the solicitor concerned. The whole judiciary, and legal system stinks rotten to the core with corruption.

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