Blog by @spandavia

“.... you can't fool all of the people all of the time” - so the saying goes. But when it comes to the “too big to fail” banks, successive UK Governments have done a very good job of disproving that statement for a considerable amount of time. It's worse – even where people haven't been fooled and have fully realised the level of destruction caused by the big banks, we have been fooled (or forced) into thinking nothing can be done about it. We can't even stop giving bankers huge bonuses for failing with vigour. We certainly can't prosecute them and, because it takes years to identify their misconduct, we have even lost the ability to fine them!

Hopefully the time has come for the myth to end and our Government and our Regulators will have to stop treating us all like fools. Ironically (for me) it is HBOS that has brought this long running saga of 'How to deal with the Masters of the Universe' to a head. Not just by exposing the conduct of the Bank or the bankers but, equally important, the conduct of the Regulator who allowed at least two basket case, corrupt organisations, to bring the Country to its knees.

Needless to say, as someone who has spent years investigating the real cause of the demise of HBOS (I'm still doing it), I am delighted to hear the bosses of HBOS will finally come under the scrutiny they deserve. However, the appointment of Andrew Bailey as the new head of the FCA really does take the shine off the announcement for the following reasons:

1. Mr Bailey has long held the view bankers are not subject to the same laws or penalties as the rest of us and this is a view that dates back to at least 2012. See:  http://www.ianfraser.org/dear-mr-cameron-if-bankers-are-above-the-law-we-need-an-urgent-explanation/
2. Mr Bailey feels Mr Wheatley had a “shoot first ask questions later” approach to bank misconduct and he favours a more moderate approach. See: http://www.thisismoney.co.uk/money/news/article-3419907/No-shoot-policy-FCA-new-boss-Andrew-Bailey-distances-predecessor-Martin-Wheatley.html
3. Although, in principle, this means Mr Bailey is no longer a senior person at the Bank of England, in practice and in my opinion, this is the best way to make sure the FCA adopts the policies the Chancellor and the BoE considers to be best for the economy. So this is no longer a question of the FCA regulating banks (if it ever was) but rather an extension of the Treasury and the BoE. And, step1, we've already seen the Chancellor remove the FCA CEO and the BoE taking a hand in the decision not to continue with the review into bank culture.

With that in mind, I would ask if the FCA are really the right organisation to carry out a further investigation into who was responsible for the 'Rise And Fall Of HBOS'? Aside from the fact we've already been told the only penalty the likes of Andy Hornby or Dennis Stevenson can actually receive is a ban from working in the City (I'm sure Lord Stevenson, at 70 years of age, will be devastated to see his career so cruelly curtailed), how can a 'more moderate' model of the FCA possibly reach any conclusion that hasn't already been reached by the current 'very moderate' model  that decided no investigation was necessary?

I would recommend anyone wanting to get a good overall picture of how bizarrely and inadequately the Regulator dealt with the HBOS Investigation, should read Andrew Green QC's report:  http://www.bankofengland.co.uk/pra/Documents/publications/reports/agreenreport.pdf

Considering it was originally commissioned by the FSA Board and then the FCA and PRA with independent oversight for the TSC, it is surprisingly candid and harsh in its criticism of the conduct of ExCo (the FSA) and Mr Green has done a very good job. I'm sure this Report, released as it was just before Christmas, was meant to come and go with a minimal amount of interest or attention – but fortunately the public are less fickle than either the Government or the Regulator suspected. Public opinion still favours laying blame where blame is due, regardless of time scales. The Report, quite rightly, opened a can of worms which now can't be closed and the Treasury Select Committee have taken up the challenge to make sure the right thing is done. But what is the right thing?

Given the levels of distress, destruction, anxiety, austerity and sheer misery the management of HBOS caused, banning very affluent people from becoming more affluent in the same sector seems, to me, a remarkably ineffectual penalty. In my opinion, what really needs to be done first is a full on forensic investigation of the issues Mr Green QC has raised. And this in turn would possibly raise the question of whether there should be a criminal investigation into the management of HBOS – which would not be time barred. For example, consider point 140 (page 38) of the Andrew Green QC report:

On 16 September 2009, E&Y produced a draft report for the FSA, entitled ‘Havana: Rights Issue workstream . ‘Project Havana’ was the name given to the investigation arising from the failure of HBOS. This substantial document analysed the adequacy of the disclosures made by HBOS in relation to the Rights Issues. As stated above (paragraph 122), this was not part of the investigation into Mr Cummings although it noted that “specific areas of [the] work and findings to date may be linked to the objectives of the ongoing... investigation of Mr Cummings”. The ‘Conclusion’ in the report identified matters which might be the subject of “further investigation”, one being: “The accuracy of the disclosed level of Corporate impairment losses in...public documents.” The link referred to was that E&Y had noted that Corporate impairment losses were neither quantified nor discussed in the Trading Update for the June prospectus, and that this overlapped with the issue being investigated in relation to Mr Cummings that the Corporate Division was slow in recognising and reporting stressed assets in the period between April and December 2008. Having received the report, the FSA asked E&Y to suspend work on the Rights Issues pending a decision by the FSA’s senior management as to whether this work should continue independently of the investigation into Mr Cummings.

Call me a cynic but it seems highly unlikely the Corporate Division was either slow or unaware of the impairments and there is a very obvious reason why detailed information was not included in public documents – they simply didn't want anyone to know exactly how much of a mess they were in. One could argue that by not putting information into the public domain while, at the same time, asking shareholders for billions of pounds via a Rights Issue, the management of HBOS were being deliberately deceptive and potentially trying to defraud shareholders. Of course the defence to this would be that the Report identifies the period from April 2008 up to December 2008 while the Rights Issue was announced on 29th April 2008:  http://www.theguardian.com/business/2008/jul/21/hbosbusiness.rightsissues1

So in theory, the figures that count are those prior to April 2008. But details of the basket case accounts and financial statements are very clear in the BoS Censure Report issued by the FSA and prepared at the direction of Hector Sants and published in March 2012. Point 4.122 (Page 31) states:

In the period April 2008 to December 2008, HBOS made a number of public statements relevant to the level of impaired assets within the Corporate Division's portfolio and the level of provisions which had been made:
 
(1) on 19 June 2008, HBOS issued a prospectus in relation to a rights issue. Corporate’s year-to-date impairment losses were not quantified or commented on in the prospectus. Management information indicated that, as at 31 May 2008, it had year-to-date impairment losses of £369.9 million;
(2) on 31 July 2008, HBOS published its interim results. This included details of the financial statements as at 30 June 2008 and stated that, as at 30 June 2008, there were year-to-date impairment losses of £469 million;
(3) on 18 November 2008, HBOS issued a prospectus in relation to a placing and open offer. This included details of the financial statements as at 31 October 2008 and stated that, as at 30 September 2008, there were year-to-date impairment losses of £1.7 billion; and
(4) on 12 December 2008, HBOS published a Trading Update. This included details of the financial statements as at 30 November 2008 and stated that, as at 30 November 2008, there were year-to-date impairment losses of £3.3 billion.

Point 4.126 (Page 32) then goes on to say:

On 27 February 2009, Lloyds issued HBOS’s preliminary results for 2008. This confirmed the impairment losses in Corporate as £6.7 billion...

Surely this huge discrepancy in statements alone should have resulted in serious investigation into management. And going back to the point about the Rights Issue, consider these two very odd  situations in 2012:

This is a statement from the excellent Plenderleith Report (Point 98 – Page 28) published October 2012:

1. As noted above, the run on Northern Rock marked a step - change in the level of the Bank’s engagement with individual banks and it is clear that the Bank, and indeed the other members of the Tripartite, were fully aware of the vulnerabilities of HBOS prior to its need for ELA in October 2008. By September 2007 the Bank was receiving what it felt were more appropriate data from the FSA, at any rate on banks identified as more vulnerable, including daily liquidity reports from the FSA on HBOS ….

2. Prior to the Plenderleith report, the BoS Censure Report (March 2012) was publishing the fact that in the last five months of 2007 there were 163 transactions in excess of £75M (198 in the first 7 months) and 49 in excess of £250M (61 in the first 7 months) from BoS Corporate. This was slightly curtailed in the first quarter of 2008 with only 46 exposures over 75M and only 11 over £250M but, all the same, 23% of the Corporate portfolio was in exposure to 30 single names.

How could that happen? The Bank of England was so concerned about the liquidity position of HBOS by September 2007, it was monitoring the situation with daily updates and yet no one thought to stop BoS Corporate haemorrhaging billions of pounds to a few individuals. And these mega loans (considered as assets until they were impaired) will surely have been reflected in annual bonuses for goals achieved? How could the BoE or the FSA, while monitoring the situation daily from September 2007, consider it appropriate for HBOS to have a Rights Issue at any time in 2008?

And, given their disastrous financial position, how could the Chairman of HBOS have made the statements he did to the shareholders – this is an extract from an article by Ian Fraser with some cracking comments from Lord S:

At the meeting at which shareholders were persuaded to vote in favour of the rights issue, in Edinburgh on June 26, the HBOS chairman said: “The rights issue is absolutely right and will put us in a competitive position.”
He added: “We are saying performance will be satisfactory and resilient. Armageddon may happen and we should be prepared for it and we are.”
And he said: “We are telling the truth; we are truthful people. But if we weren’t, there’s an army of regulators, auditors etcetera to make sure we are.”
You can read the whole article here: http://www.ianfraser.org/hbos-may-have-misled-investors-on-4bn-rights-issue-says-former-executive/

It's sad and you have to be a bit of an anorak to do this but if you want to know what happened in HBOS you really have to read and compare all three reports - the Andrew Green QC Report, the BoS Censure report and the Plenderleith Report. And if you do that you can't help but think it is laughable we are now going to have another report (finally into the management of HBOS) but, whatever the outcome, it's too late to do anything except give a few people a wag of the finger (probably from the TSC) and take away their ability to do the same again by running other banks.

I reiterate, the management of HBOS caused thousands of people extreme distress, destruction, anxiety, austerity and sheer misery. Nothing has been done to remedy that situation and Lloyds Banking Group (and their management) have, if anything, made a bad situation worse in their attempts to hide the truth about the disastrous merger and their own Rights Issue.

I have no doubts whatsoever, a real investigation into the management of HBOS would indeed allow for more severe penalties because it could not fail to identify that HBOS was a wholly corrupt organisation which could only have behaved as it did by the management either condoning or turning a blind eye to a staggering amount of criminal conduct. The problem is (and this is why I seriously doubt such an investigation will ever really be done), it wasn't just the management of HBOS ignoring criminal conduct.

Unlike George Osborne, I would not have put Andrew Bailey in charge of the FCA. Mr Bailey may be George's idea of a tough cookie and, after the Green QC Report, it will take a tough cookie to persuade anyone that the HBOS management didn't 'mislead' shareholders over its Rights Issue – or that it wasn't an outright and deliberate con. But I believe Mr Bailey's remit will be to put the lid back on the can of worms called HBOS and that won't work, won't help and will just damage an already damaged FCA even further. It is time Mr Osborne and others realised that there are now as many or more people out there determined to expose the truth about our financial sector, as there are people trying to hide the truth.

Recently SME Alliance has had what I can only describe as a bizarre experience with the FCA. We have written to the TSC documenting events and our concerns http://www.smealliance.org/blog/sme-alliance-letter-to-andrew-tyrie-tsc-re-fca

Unfortunately, I can confirm, despite all the evidence presented which has been described as 'irrefutable' by financial journalists, the FCA wrote to us on Friday evening to say they have identified no misconduct by any of the banks concerned or by the FCA themselves. We will post the FCA reply on the SME Alliance site tomorrow. Nevertheless, we are determined to try and collaborate with all the regulatory bodies and will continue to bring financial misconduct to their attention. On a positive note I can also confirm two directors of SME Alliance had a very positive three hour meeting with the ICO this week – details will be in the next members newsletter.  

Going back to the FCA, fortunately many people are waking up to the fact that the FCA is simply not capable of doing what it says on the tin and leads the vanguard on concealing the truth in the interests of the City. Hardly surprising as it has been given the impossible task of protecting the public from misconduct in the financial sector and, at the same time, protecting the financial sector and the markets. The end result continues to be chaos and entirely detrimental to the Country and the economy. Big banks and firms in the financial sector continue to behave as if the City of London is the Wild West; we continue to be seen as the money laundering capital of the world; SMEs still can't get the funding that would result in jobs and taxes for the Treasury and; legacy issues for bank misconduct continue to benefit no one except lawyers.

Hopefully, the Debate in Westminster tomorrow, 1st February, will result in some serious changes to regulation and will show the FCA is 'not fit for purpose' and never could be. Which isn't to say there aren't some good and well meaning people in the FCA. But as an organisation, it has been asked to be simultaneously poacher and game keeper and that is trying “to fool all of the people all of the time”.

Footnote: Our friends at Bully Banks, the Connaught Action Group, NAB and others have asked us to mention they are holding an assembly at 2.30pm outside Parliament tomorrow and immediately before the Debate on the FCA conduct.  It is described as a 'Brolly Day Assembly' and all those attending are asked to bring a black umbrella with them. They welcome anyone who would like to attend and show their support. 

We sent this letter to Andrew Tyrie and the TSC Committee Members via e-mail at 9.00am on Monday 18th January. Unfortunately the volume of correspondence to the TSC means it has only just been logged in and the TSC members will probably not have received it yet. We did want the TSC to read this prior to making it public but, given the time scales it seems this is not possible and we wanted our members to see this when considering any comments from FCA executives at today.s TSC session. We hope members will download this and share it with their MPs prior to the Debate tabled by Guto Bebb MP and John Mann MP on 1st February 2016. 

Please note: This blog is the individual views of @Spandavia, a member of SME Alliance.

We've started the year with a call to stop so called 'banker bashing' and with various investigations or reports into bank conduct by the regulator being cancelled. Not a brilliant start – and certainly a confusing one in many respects.
 
To the best of my knowledge, the FCA and certainly the FSA before them, have never been involved in 'banker bashing.'
 
Perhaps if they had been a bit more aggressive in their attempts to properly supervise bank conduct, we wouldn't have had the conveniently named 'global credit crunch' and the Chancellor would not be making worrying noises about our economy today. Anyway – as they've never been 'banker bashers', it's obvious they can't stop the practice. But that does not give them the right to pretend anyone else, who has been 'bashed' by bankers, will stop legitimately trying to get banks to behave 'fairly and reasonably' – otherwise known as 'banker bashing’.
 
The public, who have been given scant and rather pathetic explanations about why our multi billion pound banks nearly went bust and needed bailing out with taxpayers’ money, are not inclined to stop banker bashing.
 
There are many reasons for this and I find it both frustrating and illogical that, after so many years when banks have simply refused to accept any of the proposals to stop them behaving badly, the powers that be fail to understand the public view. Maybe we're not putting our case against miscreant bankers clearly enough. But if I had to explain the reasons and without writing a 500 page report which few people will actually read (as per the HBOS report), I would say we can't stop banker bashing because:

1. For years and certainly from the early 90's, some banks have had policies that deliberately and wilfully harmed their clients – both business and private. Many of these policies have been proven to either breach regulatory rules and/or the common law and have resulted in massive fines but, with very few exceptions, no one has been held accountable for the damage done.
2. Because no one saw fit to control or regulate the banks, their misconduct culminated in several of our biggest banks almost going bust overnight back in 2007/2008 (four did). This was so catastrophic (and the remedy was equally catastrophic) the entire Country was plunged into austerity – jobs were lost, budgets for almost every social service were cut, benefits for some of the poorest people in the Country were reduced and this is over and above the thousands of people who lost much of their life savings. But no one has been held accountable.
3. For a couple of years post 2008, there was much pontificating in high places about cutting bankers’ bonuses and jailing those responsible for our economic demise. I'm not talking about the £5000 bonus for the bank cashiers or the back room staff in the local branches – I'm talking about the eye watering, telephone number bonuses for the senior executives, some of whom were the very people responsible for the massive failures that financially affected everyone - except them. However, what this cut in wages and bonuses really meant for the top dogs was their seven figure remuneration packages were briefly reduced to six figures. And now, seven years on from the heady days of banker excess, we're actually back to where we started and still no one has been held accountable for the austerity and poverty that's rife across the Country.
4. This is the worst one for me – probably because as a member of SME Alliance I read about the unbelievable conduct of banks towards small businesses every day. After the credit crunch and having had billions from the Treasury, the Government, quite rightly, told the banks to get their houses in order because they had to pay their debts. I don't suppose anyone ever actually told the bankers to, “do what the hell you like and we'll close a blind eye to how you do it as long as we get the money” but in a round about and, no doubt, diplomatic way, they sort of did. And some banks, in their wisdom, looked at who had real assets to replace the virtual assets they'd been playing fantasy accounting with for so long and decided they would simply appropriate those assets. They had been doing this anyway for some years but this system of theft was rapidly accelerated after 2008. Schemes like IRHP and the misuse of EFG loans helped destabilise tens of thousands of small businesses, making way for departments like GRG or the various business recovery units, to swoop in and take whatever they wanted.

 
Of course business owners are neither stupid nor frightened to fight for what they've worked hard to achieve and many of them fought back against what was, at the very least, unethical conduct (which banks should not practise according to the FCA Principle 1 - A firm must conduct its business with integrity or words to that effect) and more and more frequently criminal conduct. But in general people fought their cases individually relying on, initially, the regulators (who were busy helping build the banks up again and who were increasingly more influenced by Treasury policies) and, as a last resort, the Courts. Pointless because the banks, using shareholders’ money, simply picked these business owners off like fleas from a dog. Helped by the Treasury and the MoJ, who cut legal aid left right and centre while increasing Court costs, very few business owners could afford to take on a bank with deep pockets. Consequently thousands of SMEs were wiped out (and continue to be wiped out) and no one has been held accountable.
 
Here we are in 2016 and what has really changed about bank conduct now compared to bank conduct in 2006? How many bankers have gone to jail? How many bankers have faced individual fines as opposed to the fines their shareholders are forced to pay as an alternative to holding individuals responsible? How many bankers and traders are back to receiving more in one wage packet than the average person earns in a life time – in some cases ten lifetimes? And what are these massive pay-outs for? Are these people brilliant entrepreneurs who, at their own risk and based on their own inspirational ideas, set up companies that employ lots of people and benefit society? Are they scientists or brain surgeons or inventors? Are they great artists or writers who will leave a cultural legacy for future generations? No – these stunning pay packets are for people who juggle and play with other people's money, assets and lives – and many of them are not very good at what they do. In fact many board members of big banks are not even bankers in anything other than collective title.
 
I wonder, years from now, how history will remember the top bankers of the late 20th and early 21st century? I don't think there will be any commendations in the history books and I don't think future generations will be keen to say they were related to the so called 'masters of the universe'. The legacy these people leave will be shameful.
 
Perhaps the most appalling thing about this social tragedy is the fact they don't care. I don't include all banks in this or even all bankers. I'm sure there are many good people in the banking industry – I  know many myself. But while the saying is “cream always floats to the top”, in the banking world it seems more likely you will get to the top if you have 'essence of deadly nightshade' running through your veins. Regardless of what simpering speeches are given to the Treasury Select Committee, the fact remains that it has to be the people at the top of banks who give the orders that destroy businesses, take people's houses, steal people’s savings and literally ruin lives. But, even when faced with clear evidence of totally outrageous behaviour by people in their bank (and this includes criminal and, more worrying, psychopathic behaviour) and even when it's supported with substantial and incontrovertible evidence, these top people will smile sweetly at the media cameras and say “we have investigated these allegations and they simply aren't true.”
 
Please give that line full consideration because it's important and outrageous that it's true and SME Alliance has been dealing with one such case very recently. I know we all say it's common for bankers to say 'black is white' but the truth is, they are so comfortable they've got the regulators and other authorities on their side, they have convinced themselves that, because they say it, it's true. They are living in a parallel universe and believing it's the real world.
 
I have spent Christmas, New Year (and I'm still doing it now), going through the two reports about HBOS – although one is actually about the FSA's conduct with regard to HBOS. How anyone in authority managed to reach the conclusion one man was responsible for all the disasters in HBOS, beggar’s belief. How anyone felt the best course of action against the senior management of HBOS was to take 'no action' and let them all just swan off to other equally well paid executive positions, is nothing short of criminal. But that is what has happened to date. With the exception of Peter Cummings no one has been held accountable for the catalogue of disasters in HBOS (including far more and well documented criminal examples than the one isolated case mentioned in the Andrew Green QC report).
 
And this is why 'banker bashing' will not and cannot end in the foreseeable future because it is imperative that the actions of bad bankers are fully exposed, that such conduct is wiped out and those people who have broken the law, personally pay the penalty. It is the only way to restore trust, not just in British banks but in the British justice system. Equally important, it's the only way we will ever get our economy back on its feet. Small businesses in Britain employee millions of people and are crucial to the economy. SMEs, as even the Government like to remind us when it's handy to their cause, are 'the backbone of the Country'. But without proper funding and with banks free to run riot and steal their assets without penalty, we will just see more and more industries closing down, high streets closing down, in some cases entire towns closing down and eventually, our entire economy will be completely reliant on our corrupt and unethical financial sector alongside a half a dozen giant global corporations.
 
I don't go in for conspiracy theories – I've never met a person who was really a lizard (although I've met quite a few snakes in recent years) but I think what I've just described is called 'New World Order'. In light of this and because more and more people and organisations like SME Alliance, are sharing information and evidence to stop banks picking SMEs off one by one, I think the options for 2016 are two. One, banks stop bashing society and businesses or, two, banker bashing must be intensified until the authorities finally have to take the appropriate action, do their jobs and hold people accountable for their actions. Only then can banker bashing really stop. 
 
I hope there will be more challenger banks available this year and I sincerely hope they set new standards in banking and that more and more people move to more ethical banks. But that won't change the legacy issues that blight SMEs – only a radical change in thinking from those at the very top of our big banks can do that. Let's hope that in 2016 they start to realise black is black, white is white and a reality check is well overdue. Surely the banking sector itself would like to see the industry cleaned up and with all the rotten apples taken out of the barrel? And the only way that can happen is for the bad seeds to be held accountable.
 
Finally – we all have a wish list at the beginning of a New Year. I think the SME community and certainly those abused by banks, would wish to get on with their lives, run their businesses, have adequate funding and not spend 100% of their time fighting a bullet less war. They'd like their legitimate complaints to be dealt with 'fairly and reasonably', either by the banks or by the regulatory bodies. Of course as a consequence of such wishes ever materialising, we would see an end to 'banker bashing'. So the truth of the matter is, it could stop at any time – it's all down to the banks.
 
Happy New year to all
 
Nikki