Sunday, June 07, 2015

Why George Osborne must not kow-tow to the Banks over regulatory requirements!



The Sunday Business supplements are all carrying stories about George Osborne’s plans to offer an olive branch to HSBC in the form of a levy retreat.

The Sunday Times reports that Osborne is expected to use the opportunity of his forthcoming Mansion House speech on Wednesday to lay the ground for a review of the bank levy, in an attempt to head off a threat that HSBC and Standard Chartered Banks may leave the UK and relocate their HQ’s elsewhere.

Osborne is expected to offer a typical platitude of saying that the Conservative Government is committed to maintaining the ‘competitiveness of banks’, whatever that means!

The levy is a global charge on bank assets and it was introduced by the last Coalition Government as a means of helping to raise money to counter the appalling damage caused to the country and its economy by the criminal rapaciousness of the banks in the run-up to the financial crisis. 

We must never forget that it was the criminal irresponsibility of the banks, exacerbated by the greed and dishonesty of the banking sector employees which predicated the collapse in banking values and which identified the creation of a mountain of debt, supported by little more than hot air, and lies.

The Government was forced to extend multi-billions of tax-payers’ funds to shore up criminal institutions which were in severe danger of collapsing due to mis-management, hubris, incompetence, and downright fraud,  but no-one within the banking sector was brought to justice or sent to gaol for their dishonesty.

Imposing a levy on bank assets was nothing more than a legitimate and much-needed requirement to begin to redress the balance sheet and make the banks realise just how irresponsible they had been. Nothing hurts banks more than Government imposing a tax on their assets. Fines don’t hurt because they are paid by the shareholders.

And the banks’ response?

Well, they have huffed and puffed, and postured and threatened, in fact behaved exactly like the bullies they are. They have reached out to their friends in the media and in the PR business, and encouraged them to peddle soft-soap stories about the damage that might be caused if they ‘are forced’ to leave the UK.

Excuse me, what ‘damage’ which might be caused! Haven’t they caused enough damage already with their criminal actions and dishonest business methods. Haven’t they brought the name of the British banking sector into disrepute everywhere in the world by their refusal to comply with the simplest regulations, designed to protect the integrity of business and protect client’s funds?

Instead of acknowledging their disreputable tactics and dishonest methods, and invested enough time and energy into developing a new climate of best practice and compliance, they have moaned and whined, bleated about the unfairness of being accused of wrong-doing, and then, when the Americans started to dish out some really serious penalties, and started kicking some well-tailored butts properly, they complained at the unfairness of the fact that a foreign regulator was hitting them harder than their own people.

Having been dealt with for laundering vast sums of money for foreign organised criminal entities, and breaking international sanctions on an institutionalised scale, one might have thought that these egregious crooks would shut up and stay quiet, but instead, they have begun to posture and preen and contest the legitimacy of the plans that the Government has to try and introduce a better regime of control and client protection into their banking sector.

One unnamed banker (how typical, these creatures never want their name to be known in public) has said that a mere change to the banking levy might not be enough to keep HSBC in Britain. “...’It’s not just the levy’, he said, ‘it’s the ring fence (the forced separation of retail and investment banking), coupled with the new regulations for senior managers, (the regime which applies special responsibilities to senior bankers which could make them liable to go to gaol in the event of the collapse of their bank), ‘it’s everything...”

When the proverbial brown stuff was hitting the air conditioning about banking fraud, the constant complaint was that no-one could be prosecuted because no-one was to blame. When proposals were laid for a new regime of responsibilities, identifying senior bankers as those who must, in return for their ludicrous salaries, perks, benefits and bonuses, be considered to be responsible for the control of banks, they suddenly all jumped up in panic and denied ever wanting to be considered to be a responsible person.

I don’t know about you, but this says everything to me about what the insiders know about the level of criminality inherent in the banking sector.

They have been doing what they always do in these circumstances, and have spent a lot of time and money, lobbying H.M.Treasury over the quality and content of what they consider to be Draconian regulations.

One wonderful UK based fund manager (how these people always fail to appreciate the stupidity of their public utterances)  has been quoted as saying;

“...HSBC could free up about £1 billion of cash to share out with shareholders if it didn’t have to pay the levy...I hope it leaves, it would teach the Government a lesson...”

This person has clearly forgotten the level of fines and costs and lawyer’s fees HSBC has had to pay out to regulators for committing global criminal offences. I imagine the share out for the shareholders would be significantly more if HSBC had decided to obey the law instead, and not got caught committing minor peccadilloes such as laundering billions of dollars for the Mexican mafia drug cartels, among some more of its esoteric acrivities!

It is this kind of rank hypocrisy that always makes me laugh when I hear the moans of some of these bloated plutocrats who think that the City of London is their personal private playground and none of the UK’s laws should apply there!

Even members of the ‘Great and Good’ are lining up to tell Osborne what to do about the issue of financial ring-fencing.

Sir David Walker, who once headed up the now deeply discredited regulatory body, the Securities and Investments Board, has said there was ‘an urgent and compelling need’ to review the ring fence scheme. 

Just in case you are not fully au-fait with this esoteric piece of banking practice, the ring-fence requirement is one which makes it imperative for big banks to put their retail arms into stand-alone companies by 2019. 

I know, it’s a truly shocking requirement, and one which should make any self-respecting banker puce with anger! After all, it means that the funds of depositors will be sacrosanct, protected, ring-fenced from the capital availability of the wholesale arm of the bank, and not available to be used to underpin any dodgy financing ploy or scheme which the financiers and the investment bankers might be wanting to hatch.

It means that in the event of the wholesale arm of the bank going belly-up through some wild frolic of its managers, the funds of the clients of the bank will not be put at risk (which will of course limit the amount of compensation which depositors would need to claim from the Depositors Protection Scheme). The effect of this requirement would therefore be to encourage depositor confidence and to limit the damage that might be caused to their savings that could be caused by the banks engaging in a similar kind of wild speculation they were indulging in, prior to the financial crisis!

No wonder the bankers don’t want this requirement to stand, and it is a red line which Osborne must not cross.

No, all this talk of leaving the UK and relocating to other countries is a lot of hot air.
It is the usual kind of gamesmanship that these rank bullies indulge in when they cannot immediately get their way when they demand it.

Why am I so positive?

Right now, the City of London is the head of the global banking world and they are safer here than they would be elsewhere. HSBC is still under fire from the fall-out from its Swiss arm’s, tax-evasion scandals, and there are no doubt a number of US citizens whose funds may have been embroiled in this fiasco. The US authorities will take a very dim view of any such actions and will be looking for investigatory cooperation. There is also the small matter of the handling of the FIFA bribes cash. The deferred prosecution agreements still extant in the US mean that the American arm of HSBC is still needing to stump up singularly large sums of capital adequacy.

Moving back to Hong Kong will also have a reputational risk issue as well. Many investment professional are eyeing such a possible move with positive approval, believing, most probably quite accurately, that operating in a less well-regulated environment will mean that HSBC can earn bigger profits and thus pay bigger dividends. But there is a downside!

Most investors couldn’t give a flying fig for the reputation of the environment within which the money that pays their returns on investment is made, they just want to be paid as much as possible.

So although a move back to Hong Kong would mean happier shareholders, it would also be another dodgy reputational move. Based in Hong Kong, the Americans would look upon HSBC with positive distaste and be most unwilling to give them the benefit of the regulatory doubt, next time they get into trouble. And get into trouble they will, it’s in their DNA!

All in all, I do not believe that all the wives of the HSBC directors fancy too long an extended stay in Hong Kong. Nice for a visit, but a bit too claustrophobic for any great length of time.
My money is on them staying in the City for the foreseeable future, because that is where the centre of financial power lies. 

Speaking entirely for myself, I would love to see the back of them, but I don’t think it’s likely to happen. If they do stay, they must be made to comply with the regulatory standards that the FCA demands, and if they fail, then they must be made to pay commensurately.

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