Why we must never trust the banks again!

The BBC2 program, 'Bankers' aired its 3rd edition last night.

It demonstrated most clearly and succinctly the levels of criminality that the British retail banking sector had sunk to during the era of the great PPI fraud, and it posed the question "...Can anyone ever trust the banks again..?"

It followed the timeline of corruption which gripped the banks after Big Bang, and demonstrated how the traditional role of relationship banking had been replaced by the urgent need to provide the highest possible returns to shareholders.

It demonstrated how in the aftermath of Big Bang, so many traditional savings institutions had changed their status to become banks in order to get in to the great big free-for-all promised by the changes in the City's structure. We should have read the writing on the wall, even then.

Bankers talked glibly in those days of wanting to get hold of the largest possible share of the client's wallet, as they changed their culture from being relationship managers to sales machines.

This ruthless pursuit of profit at all costs, the PPI fraud alone is estimated to have raised in excess of £25 billion in revenues, enabled the banks to exhibit their Janus face, looking in both directions at the same time, and demonstrating their wholly duplicitous nature.

Of all the issues raised by the programme, the most poignant was that of the way in which banks had ceased to be the providers of honest and careful advice to their customers, and had instead become competitors for the largest share of the client's wealth. One client wept while she described the way that her bank had defrauded her husband and herself by bombarding them with telephone calls aimed at getting them to sign up to a vastly onerous interest rate swap contract, after having borrowed money to help to develop a hotel business.

She talked hopelessly of how she had once trusted her bank to give her 'best advice', and demonstrated how, like so many other thousands of clients, her bank had become an aggressive competitor, seeing her as someone whom they could mislead and defraud, secure in the knowledge that they would be protected from any action for fraud!

One former bank employee, when talking about his part in the sale of interest-rate swap contracts, talked about how he and his colleagues would swap successful client sale stories, saying how they had 'raped' the client. The use of this aggressive, domineering, sexual imagery is regularly used by bankers in discussions with contemporaries to describe their conquests in the market.

What was instructive was how the programme demonstrated so well the way in which the financial sector managed to hoodwink and bamboozle the politicians, in this case, Gordon Brown, when he was Chancellor of the Exchequer. 

Along the way, as Alastair Darling explained that at this time, the City was contributing about 10% of UK GDP, and when talking about the failure of the regulators to deal with the PPI scandal effectively, he admitted that in view of the amount of money being contributed by the City, there would have been no real political support for any regulator who had started to bring interventionist action against a regulated member, so nothing was done.

So besotted was Brown by the money being handed over by the City that he regularly accepted invitations to go down to the Square Mile and address the assembled usurers, "...hosing the oligarchs of financial services with sycophantic flattery..." as Andrew Rawnsley so succinctly observes.

When the bubble eventually burst, it was discovered that so misleading were the terms under which these contracts had been fraudulently created, that 85% of PPI applications were turned down, when hapless clients came to need their dubious benefits.

As usual, the FSA was very slow off the mark to deal with this. They had enjoyed responsibility for insurance products since 2005, but it took them another 6 years before they started to look at the PPI issue. Adair Turner was filmed making yet another of his alarming confessions, agreeing that the regulator was slow to act, but saying that of course, it wasn't the role of the FSA to deal with PPI matters.

He conveniently forgets that the FSA had a residual role to deal with City fraud, and that they could have stepped in and investigated the criminal fraud that was taking place under their noses, and had they done so, neither Gordon Brown nor Alastair Darling could have tried to prevent these criminal investigations.   

This was a powerful article and deserves re-viewing because what it demonstrates is the sheer wanton slippery slope, down which so many city practitioners slid into criminal activity.

It also demonstrates so well just how ill-prepared the regulators were to deal with the change in culture which was enveloping the banking business.

The way in which the City and its habitués were so willing to embrace the tactics of criminals, is worthy of consideration. What became clear is that the sales of these dubious products were being driven by an industry which sought short-term profits at all costs, and had come to look upon its natural clients as sacrificial victims.

Of course, the usual suspects were paraded to both admit that what had happened was wrong, and that everything in the garden was now rosy, and the banks were going to be your friend again in the future.

This is all very well, but it deserves to be remembered that these men, these 'reformed' characters have all benefited very nicely from the criminal years. They had still received their salaries, the funding for their pension funds, and more disgracefully, their vast bonuses, most of the money to pay for these excesses coming from the proceeds of crime, the wholesale defrauding of their client base. Believe me, they wouldn't be paying back this money at the rate they are being required to, if they felt they had any chance of arguing that is was straight money!

So, these old wolves in their new sheep's clothes, want us to believe that it is now safe to go back into the water again.

Well, Alastair Darling put it quite succinctly at the end of the programme. To paraphrase him he said, that "...in time, a new product will become available and people will be required to sell it, and that will lead to yet another scandal for which the regulator is not equipped to deal..!"

I go back to what I have been saying before.

The City of London and its banking component is an entity to itself. These men belong to a powerful private club that exists to serve the interests of its shareholders, not the British people at large.

At the moment they are smarting because the spotlight of publicity has been shone on their activities, and the resultant bad publicity has hurt them. But not enough to make any great difference. They will soft pedal for a while, but like the scorpion, they cannot help themselves, it's in their nature to sting, and their ugly face will be revealed again ere too long when it comes time to top up the coffers, or their shareholders demand greater value from their investments!

Earlier, I mentioned how many institutions changed their status in order to become banks, in the aftermath of Big Bang.

One such was The Abbey National Building Society which back in 1989, persuaded its mutual members to vote in favour of conversion into a bank. I wrote an article about the risks that Abbey clients would face when this happened, and drew parallels between this process and the Savings and Loans scandals in the USA. My article, needless to say, pissed off quite a few people down at the Abbey conversion centre! 

Imagine my surprise when, after the conversion had successfully been negotiated, the Building Societies Commission published its findings on the way in which the conversion had been achieved and the way in which its clients had been influenced by the glossy PR work done on behalf of the new bank!

Phrases such as "...A biased view of the conversion from mutual society to a public limited company..." or a "...significant deficiency in information..." gave the reader a clue! Other paragraphs read; "...Misleading, biased, inconsistent, partial and facile..."

It got worse. The report continued to state that the Abbey National had made "...Misstatements which repeatedly failed to give its saving and borrowing members a fair and balanced assessment of the consequences of the proposals..."  The Transfer document was said to "...fall far short of the balanced assessment of the consequences of conversion which members of a society can reasonably expect from a board..."

Of course, nothing was done, and the Abbey National went on to become, well it has now been taken over by Santander.

This report should have struck a huge chord in the mind of the regulators at the SIB, as the lead regulator was then, but as with its successor, the FSA, they did nothing about what was clearly a shoddy and botched-up conversion, because it was all happening at the time that the whole financial sector was reinventing itself.

Then, as now, there was going to be no political support for any regulator who got in the way of that process, and the same will be true again, in the future!