Those responsible for the banking crash must be held to account, if they are not to be held behind bars writes Alf Young
More bankers have just been handed hefty prison sentences for their role in the global financial crash. No, not here. Or in the US, where putting miscreant money men in handcuffs is not unknown. This week, in Iceland, the former chief executive and chairman of the defunct bank, Kaupthing, got five-and-a-half and five-year jail sentences respectively. At the end of 2012, two executives at another failed Icelandic bank, Glitnir, received shorter sentences, for fraud.
Charges have also been laid by Iceland’s special prosecutor against top managers at a third bank that imploded, Landsbanki, parent of too-good-to-be-true Icesave, the deposit-taker which caught out so many UK savers, including a number of local authorities.
Across the Irish Sea, the trial of three former executives of the notorious Anglo Irish Bank is due to start in January. However one recent poll found 93 per cent of respondents there are convinced no one will ever face jail for their part in bringing the Celtic tiger to its knees.
Here, UK Treasury Minister Sajid Javid judges it “quite possible” that the man who steered RBS on to the rocks would have been prosecuted, had a provision in the new Banking Reform Bill currently making its way through Westminster been in place when the Royal, hours from running completely out of cash, threw itself on the mercy of the state to survive.
A clause in this bill holding senior managers accountable for decisions that lead to the failure of the banks or building societies they run could lead to jail terms of up to seven years and unlimited fines. But since what Fred Goodwin got up to long predates legislation that, five years on, still isn’t on the statute book and has yet to be tested in court, the former RBS chief executive will have to make do with being stripped of his knighthood.
Where’s our politicians’ sense of urgency? With lots of elections again looming, are they so busy trying to pin the main blame for the crash and the years of austerity that followed on their opponents that fixing a still-dysfunctional banking system can wait? Or are they, like the new governor of the Bank of England, Mark Carney, convinced that growing financial services still remains the indispensible core of any deliverable economic recovery, whatever denials they offer about being “cheerleaders for the City”?
After all, bankers are still going off the regulatory rails on a regular basis. The latest prison sentences in Iceland were triggered by Kaupthing lending a Qatari sheikh the money to buy a 5 per cent stake in the bank at the height of the crisis. Barclays did something similar here in 2008 to avoid a state bail-out. Now it is contesting a £50 million fine imposed by the UK Financial Conduct Authority (FCA) for failing to disclose £322m in fees paid to its Qatari investors.
Barely a week goes by here without another UK bank having to pay another big fine for another regulatory breach. Regularly on the naughty step are RBS and Bank of Scotland owner, Lloyds Banking Group, both still with the state featuring large on their share registers.
Lloyds, already part way back to being free of state ownership, has just been fined a record £28m by the FCA for “serious sales incentive failings” where staff were paid bonuses even when sales of investment products were later assessed as unsuitable for the needs of the clients involved. Sales advisers were under threat of pay cuts, even demotion, if they failed to meet their sales targets. One apparently sold stuff to himself, his wife and a colleague to avoid the drop.
RBS, still 81 per cent owned by us all, has just agreed to pay US regulators $100m – the latest UK bank to settle sanctions busting dealings in Iran, Sudan and elsewhere. That penalty came hard on the heels of a £324m fine from the EU for its role in manipulating European and Japanese interest rates. Back in February a similar Libor breach cost RBS another £390m in penalties imposed by the US and UK authorities.
But all these humiliations will pale into minor irritants if allegations about the way RBS has treated some of its business customers, in distress, are substantiated. A part-time adviser to UK Business Secretary Vince Cable, Lawrence Tomlinson, has accused RBS of “financially raping” some of its small business customers by seizing their remaining assets to boost its own weakened balance sheet.
Another report, commissioned by the bank from former Bank of England deputy governor Andrew Large, on its lending to small and medium-sized companies, was critical of the bank’s oversight of the main vehicle it uses to maximise returns from its bad or doubtful debts. It’s the bank’s Global Restructuring Group (GRG). But Sir Andrew said he could not substantiate Mr Tomlinson’s claims.
Now RBS has commissioned City law firm Clifford Chance to conduct an internal investigation, amidst reports that the Serious Fraud Office is considering a criminal one too. I trust that, somewhere in this slew of inquiries, someone is charged with pulling together the whole story of how RBS’s approach to dealing with bad debts and distressed customers has evolved.
Back in the 1990s, when Sir George Mathewson ran RBS, it had a unit called Specialised Lending Services. It was sometimes described as the banking equivalent of an intensive care ward. Sir George came from a venture capital background. So did some of those he recruited, like the man who ran SLS, Derek Sach. Their aim was to turn what we might, post-crash, call a bad bank into another profit centre for the bank as a whole.
I saw it at work many times. One favoured approach was the pre-packed receivership. If a business was giving cause for concern, the bank would send in investigating accountants. They would find insolvency and recommend receivership. Oft as not, they would be appointed receivers. The business, stripped of some liabilities, would quickly be sold on. The accountants got two fat fees. The bank got its profit. The people who created the original business and their other creditors lost out.
One such deal has lived with me ever since. It was a Central Belt printing business that invested heavily in a new press to print the latest forms of foil packaging. It wanted to expand by purchasing a second press. Instead its bank sent in investigating accountants. Receivership followed. The business was sold on to a bigger rival leaving the man who started it all with nothing to show for all his efforts.
The bank concerned wasn’t RBS. It was Clydesdale. But the man running Clydesdale Bank back then was Fred Goodwin, later wooed by George Mathewson to eventually fill his shoes at the Royal. So the allegations made by Lawrence Tomlinson have had a very long gestation. If, unlike Iceland, we baulk at putting bankers in jail, at least we should be told, in all the gory detail, what some of them got up to in the years of plenty.