The “naughty corner” for miscreant banks and other wealth management institutions is getting crowded. Charges of interbank rate fixing, lax anti-money laundering controls and questionable pricing policies have been leveled at firms, and in some cases, punished heavily. Besides misbehavior, there have also been some losses – such as at JP Morgan – which embarrassed the firms concerned.
And we are only just more than halfway through the year.
Some of the failings that have been punished, such as Barclays’ misbehavior over the interbank interest rate rigging affair, go back several years and as of the time of writing, firms have moved, or say they have done so, to clean up their act. But what must clients, such as those of wealth managers with ties to some of these banks, think? In almost every case, there is a variation on the line of “never again” and “we have turned over a new leaf”, until, almost inevitably, some other firm is punished for an offence. Would-be private clients must wonder where they can find an unblemished bank. (This is a fact likely to be seized upon by smaller firms.)
Having said all of which, I don’t doubt that the firms making the headlines recently, most obviously HSBC (anti-money laundering) and Barclays (LIBOR rigging) are aware of the work they must embark upon to improve their reputation. These firms must engage as openly as they can with clients (and for that matter, constructive critics such as this publication).
By way of a guide to some of the problems that have hit these firms, here is a summary of the main institutions. Not all of the cases mentioned are complete and could be subject to further action. In the case of JP Morgan, the loss is not necessarily the result of any wrongdoing. The summary here is in no way a comment by this publication as to the specific responsibility of the firms concerned.
UK-listed Barclays has incurred penalties from US and UK authorities totaling £290 million (around $455 million) for misconduct relating to the inter-bank interest rate market. Chief executive Bob Diamond, a high-profile character renowned for his large bonuses and hard-charging style in running the bank, has resigned. Lord Adair Turner, chairman of the Financial Services Authority, the national regulator, branded the LIBOR-rigging as a huge blow to London’s reputation as a financial capital. The FSA is probing other banks; a letter sent to the New York Federal Reserve, and recently published, mentioned Lloyds Banking Group as a firm that is possibly implicated. The US Justice Department is carrying out a criminal investigation into the rate-rigging affair. Lloyds has declined to comment on the claims that it was involved.
The UK/Hong Kong-listed HSBC created dramatic headlines when its global compliance boss, David Bagley, resigned in front of a US Senate Committee that was grilling HSBC executives and other persons about a report claiming widespread shortcomings in how HSBC operated anti-money laundering controls. It was said that money laundering failings facilitated monies for drug gangs, rogue states such as Iran, and terrorists. Media reports – not yet confirmed – pegged a possible fine on HSBC as high as $1 billion.