Though it rarely rates a mention in the Australian financial press, there is a spectacle in London at the moment that rivals even the most ferocious games at the Roman Colosseum. Almost every day, a bunch of bankers (playing the Christians) are thrown into a cage with ferocious lions. The lions are the members of the UK Parliamentary Commission on Banking Standards, ably assisted by a sabre-toothed tiger (Rory Phillips, QC).
Each session, a sorry load of Lords, Knights and just plain knaves turn up to be savaged by the Committee. If animals were involved, the RSPCA would have intervened by now. But it goes on nonetheless because, although unsavoury, Schadenfreude is deliciously filling, especially if you are a British taxpayer with an empty belly.
The Commission’s remit is very wide. There are enough banking scandals to keep them busy for a very long time, including the LIBOR scandal [Barclays and RBS], money laundering [HSBC], mis-selling of Payment Protection Policies (PPI) to consumers [Lloyds], and mis-selling of interest rate hedging products (IRHP) to small businesses [all of the above]. The field is so large that the Commission has had to break itself up into smaller panels, currently running at 11 separate sub-committees — and growing.
When questioned by the Commission members, the responses of the Chairmen (all men), CEOs (again, all men) and various senior managers (almost all men) of major banks were all very similar: “Yes, we agree, what happened was awful”, followed by “Yes We were indeed in charge at the time”; then, “Yes, we are very sorry about what happened”, trumped by “But No, we didn’t see it coming”. Clearly, a case of “see no evil”.
If it were an isolated event, such a response would be hard to believe, but benefits of the doubt may have been given. When it is all banks, all boards, and all management across a series of financial scandals, the “dog ate my homework” excuse runs a little thin.
The question that jumps out is: what is the state of corporate governance in UK banks if their boards are unaware of such scandals?
Three “wise” bankers illustrate the shambles that is corporate governance in the UK banking industry.
First, Lord Stevenson of Coddenham, the hapless chairman of Halifax Bank of Scotland (HBOS) when it managed to run up debts of some ₤25 billion dabbling in commercial property before the GFC. The good Lord was not behind in pushing himself forward. “I am legally responsible for the business and, with the modesty for which I am not famous, regard myself as being knowledgeable and well briefed”, he told the Commission.
But blow me if the Baron didn’t see it coming. “Beyond peradventure, I take very seriously the fact that we failed to foresee the outcome of events. It is not missing a trick; it is missing a huge avalanche, and I deeply regret it”. (The use of the word “peradventure” is very fitting of an Oxbridge man.)
After a tussle with Commission members as to whether he was in fact in a “non-executive” or “part time” role at HBOS, Lord Stevenson insisted that “as a part-time chairman, there is no possibility that I would have known the detail of what was going on in the corporate division”. In a nutshell, Lord Stevenson’s defence was, even though he was paid some “£600,000 of basic pay a year”, he didn’t have enough time, as a part-time chairman, to do the job properly.
Baron Stevenson then threw Peter Cummings, ex-head of the HBOS corporate division (and the only person to be officially sanctioned in the UK banking fiasco) to the wolves, with faint praise: “A man of huge integrity and, despite everything that happened, of great ability, was in charge of it. I can see, given their view, why they [regulators] enforced against him”.
The next wise banker is Douglas Flint CBE, who had the good fortune to replace the accident-prone Sir Stephen Green as group chairman of HSBC. Flint is the quintessential numbers man, a grandee of accounting, and has been on the board of HSBC (mainly as chief financial officer) since 1995.
In his meeting with the Commission, he was asked: “Given that the [US] Senate reported that HSBC had ‘long-standing, severe, anti-money laundering deficiencies’, what does that failure tell you about the culture and the organisational weakness in HSBC?”
In true Yes, Minister style, Flint obfuscated. “Certain of the matters that should have been shared and escalated were not being shared and escalated as well as they should have been”. He then threw the new CEO to the wolves. “I would like to ask Mr Gulliver to comment on how we have dealt with the operational side of dealing with these issues that arose”. If Mr Flint has been on the Board for over 18 years, surely he would know more about a long-standing problem than someone who has only been on the board for four years? But obviously Flint had not been told, or did he hear no evil?
There is a cast of pantomime characters who have appeared before the Commission but one, Eric Daniels, ex-CEO of Lloyds Bank, stands out as an exemplar of bad corporate governance. As befits a native of the Wild West, Mr Daniels was suitably combative, denying everything. When asked whether he would so anything different as regards the PPI disaster that developed on his watch, Mr Daniels replied: “In those cases where there were mis-sold products — the customer did not understand what they were receiving, or it was not appropriate for them — that clearly is wrong, but that is not the majority, in my view”. In other words: I see no evil?
Given that PPI has already cost Lloyds about ₤5 billion in compensation claims, that is a hard argument to sustain. Nevertheless, Mr Daniels did his best Gladiator impression, amid outbursts of laughter from the Commission. It’s all the fault of the regulator [laughter]. “I think that by and large the British banking system is one that serves its customers well … so I believe that while the controls could continue to evolve and always should, they were certainly the best in class at the time”[more laughter].
On the other hand, one can feel a tad sorry for Mr Daniels, who “did not receive a bonus for 2011, 2012 or 2013, nor did I receive one for 2008 or 2009”. But Daniels, who resigned in 2010, had been CEO of Lloyds TSB since 2003, when selling shonky PPI policies started to grow. Save your tears.
For the real aficionados of banking regulation and blood sports, UK Chancellor of the Exchequer George Osborne was, as reporters put it, “grilled” by the Commission this week.
We await further testimony and the corrected transcript of the exchanges but, in the week that the UK lost its prized triple-A credit rating, the Chancellor was clearly in garage-sale mode: “a load of RBS branches up for sale, and Lloyds branches as well”. A case of throwing bank staff as well as bankers to the wolves.
For those who are missing their weekly diet of European bloodletting, the Commission on Banking Standards is worth watching out for. There’s a lot more to come.