THE banks are riding high again, in the markets at least. If you’re an investor you’ll welcome the strong start to 2013 that bank shares have made, led by Lloyds Banking Group and Barclays.
It may also leave a sour taste in the mouth. Shouldn’t they be paying the price for getting us into this mess, rather than watching investors drive their value upwards?
It’s not a new trend, however. The MSCI World Banks Index rose by 28 per cent last year, helping recover some of the 25 per cent plunge the previous year.
While they’ve been mired in scandal, from Libor manipulation and payment protection insurance (PPI) mis-selling to money laundering, they’ve also been bolstering their balance sheets and, in some cases, returning to profit. And that’s what investors look for.
But for those waiting for penance to be paid for the banking crisis, there may be a sense of the culprits thriving while the innocent suffer for their sins. Barclays and UBS, both fined heavily for Libor rigging in 2012, were among the year’s biggest share price risers.
If you’re looking for analysis of why the big global banks are recovering, Rolling Stone magazine isn’t necessarily the first place you’d go. However, the latest issue carries an enlightening yet alarming piece explaining how some of the biggest Wall Street banks are exploiting a crisis they did so much to create.
It focuses on the huge bailouts received by the likes of Citigroup, Bank of America, Goldman Sachs and JP Morgan Chase. Not only did the money come with conditions (such as lending targets) removed or watered down, but the banks managed to get around rules aimed at limiting executive bonuses.
Since 2009, the five biggest recipients of bailout aid have taken in some $1.1 trillion (£682 billion) in all, according to Rolling Stone. Over that time, they’ve made profits of $180bn (£112bn) yet still paid out around $477bn (£296bn) in pay and bonuses.
The cash has also helped them move back into riskier investments, with signs of the reckless speculation that helped cause the initial crisis. In other words, the bailout money given to the big US banks has not only helped them rebuild their profits and reward failure with exorbitant bonuses, but it could well take us back to where it all started, with disastrous consequences.
While the UK passes a benefits cap that will hurt the vulnerable and widen the poverty gap, many of the biggest global banks, emboldened by the knowledge that the state will come to their rescue if it all goes wrong, are slipping quietly back into their ruinous old ways.
Costs mount from PPI complaints
THE cost of dealing with complaints about mis-sold PPI just goes up and up. The Financial Ombudsman Service (FOS) anticipates a 45 per cent increase in its workload over the coming months, forcing it to increase the levy that funds it. The workload surge will be fuelled by yet more PPI complaints, expected to top 245,000 in the next financial year.
You might have thought they would be ready to tail off, yet it’s estimated that while more than three million people have complained to banks about PPI, those complaints account for just a tenth of PPI sales.
Of course, PPI was not always mis-sold. Many complaints have been generated by claims management companies, resulting in claims by people who have never even bought PPI.
That so many such cases are reaching the FOS reveals much about the attitude of most banks and building societies to PPI complaints. Customers can take their case to the FOS if their complaint to the bank hasn’t been dealt with satisfactorily within eight weeks. Several high-street banks are taking full advantage of that, knowing full well that many people will opt against taking it further.
Still, there is one small silver lining: it’s creating employment, with the FOS taking on 1,000 more staff to handle the extra complaints.