Weird Tales from the Wacky World of British Banking.
This article was published in Ceylon Today on February 19 2014.
The BBC reported recently that Lloyds’ Bank, the UK’s largest retail bank, was back to “normal” again. What is normal in the world of British banking? My own experience has been that service provided by my Sri Lankan bank has been far superior to that provided by UK banks.
Is HSBC normal? I thought about my own unhappy experiences with HSBC when I read that listeners have told BBC Radio 4’s Money Box that HSBC stopped them withdrawing their own money. Stephen Cotton tried to withdraw £7,000 from his instant access savings account to pay back a loan from his mother. He wrote to complain to HSBC about the new rules. He also complained that HSBC had not informed him of any change. The bank said, “As this was not a change to the Terms and Conditions of your bank account, we had no need to pre-notify customers of the change.” Mr Cotton said, “I’ve been banking in that bank for 28 years. They all know me in there. You shouldn’t have to explain to your bank why you want that money. It’s not theirs, it’s yours.”
Some years ago, I signed up with HSBC but pulled out when I discovered that they were charging me a fee of £25 a month for a £50 a month standing order. This was supposed to be free of charge. After I had joined, they introduced a new rule whereby they would levy a charge of £15 per month if the current account balance fell below £15,000. Soon after this, they introduced a levy of £20 per month if the balance was less than £26,000. As I was not using HSBC as my main account, I quickly realised that I could not afford them. After a heroic struggle, I managed to get them to refund all the charges they had made.
As well as stealing from me, HSBC undertook criminal actions that led to a fine of $1.9 billion. Bloomberg Markets magazine reported that HSBC was facilitating money laundering by drug dealers and state sponsors of terrorism.
Profits slumped last year at Barclays Plc and income is falling at its investment arm. It is not surprising then that it has decided to cut costs by getting rid of 12,000 staff. What is surprising is that it is rewarding poor performance by paying some staff higher bonuses. This is a slap in the face for taxpayers who bailed out much of the banking industry during the financial crisis. The payout gives the lie to Barclays CEO Antony Jenkins’s pledge for restraint. Since the 2008 crisis, the total of bonuses to Barclays staff has reached £80bn. Financial journalist Nils Pratley wrote: “the pie has shrunk in size but the well-paid employees will receive a larger slice at the expense of investors.”
Jenkins himself is prepared to share the pain for “legacy litigation and conduct issues” (Banksters cant for criminal activity) by declining a bonus (possibly £2.75m) but a £4m shares payout should ease his pain somewhat. Jenkins defended the bonus increases, saying Barclays had to compete with global rivals to recruit the best staff.
On 27 June 2012,the Commodity Futures Trading Commission fined Barclays Bank was fined $200 million, the United States Department of Justice fined them $160 million and the Financial Services Authority £59.5 million for attempted manipulation of the Libor and Euribor rates. The London Interbank Offered Rate (Libor) is the average interest rate estimated by leading banks in London for borrowing. The British Bankers’ Association (BBA) administers Libor, which underpins approximately $350 trillion in derivatives.
On 27 July 2012, the Financial Times published an article by a former trader, which stated that Libor manipulation had been common since at least 1991. Banks were falsely inflating or deflating their rates to profit from trades, or to give the impression that they were more creditworthy than they were. Around 20 major banks were named in investigations about rate-rigging.
Barclays was among a number of banks engaged in the rigging of interest rate products intended to reflect the cost of interbank lending in euros. The European Commission said it was shocking that competing banks were in collusion and fined eight banks a total of 1.7bn euros (£1.4bn) for forming illegal cartels to rig interest rates. Barclays was excused financial penalties for revealing the cartels’ existence – something like a plea bargain for a stool pigeon.
A Barclays spokeswoman said the bank was “grateful” to the Mail on Sunday for making them aware that highly sensitive information, including customers’ earnings, savings, mortgages, health issues and insurance policies, ended up in the hands of unscrupulous brokers. An anonymous whistleblower passed the newspaper a memory stick containing files on 2,000 of the bank’s customers. The whistleblower estimates up to 1,000 people could have been “scammed” and among the victims are doctors, businessmen, scientists, a musician and a cleaner. All the customers had sought financial advice from the bank, and passed on their details during meetings with an adviser.
Royal Bank of Scotland (RBS) trader Tan Chi Min stated that RBS knew of the Libor rates manipulation and that it supported such actions. RBS was another of the banks reprimanded by the European Commission.
RBS CEO Stephen Hester, admitted 2012 had been a “chastening” year with losses reaching more than £5bn. RBS was not chastened enough to prevent paying bonuses of £287m to its investment bankers.
Hester said: “Along with the rest of the banking industry we faced significant reputational challenges as we worked with regulators to put right past mistakes. We are determined to overcome the cultural and reputational baggage of pre-crisis times with the same focus we have applied to the financial clean-up from that era”. “Reputational challenges” is Bankster cant for gross skulduggery.
The Serious Fraud Office is looking into whether RBS systematically defrauded companies by forcing them out of business. Lawrence Tomlinson gave evidence to the Treasury Select Committee about the “shady” behaviour detailed in his report, Banks’ Lending Practices: Treatment of Businesses in Distress. Tomlinson, the ‘entrepreneur in residence’ at the Department of Business, suggested that RBS manipulated customers into committing minor breaches of their loan terms in order to shunt them into a special division known as the Global Restructuring Group (GRG). The bank imposed extortionate interest rates and fees, causing some firms to collapse. That enabled RBS to strip their assets at rock-bottom prices.
The payment protection insurance scandal continued to weigh on RBS, the total cost reaching £2.2bn. Lloyds was also hit by being found out on PPI. The scale of compensation being paid by Lloyds for mis-selling PPI credit insurance comes to £9.8bn. PPI costs for all banks are now approaching £20bn.
PPI (Payment Protection Insurance) was a fundamental breach of trust. The selling point of PPI was that you would have your mortgage and/or credit card debt paid if you became ill or unemployed. In fact, PPI was a scam of which Monty Python’s Ron and Reg Devious would have been proud. The banks did not tell paying customers that the self-employed and anyone with a pre-existing medical condition would not benefit. In many cases, customers did not know they were paying PPI premiums because they were tacked on to other products. This was an industry-wide, systematic cheating of the banks’ own customers.
The PPI scam arose because the cartel of big banks were trying to attract customers by offering the delusion of “free” current accounts. The banks made current accounts pay for themselves by charging unjustifiably large amounts for going overdrawn and by selling PPI. At its peak, revenue from PPI was £5 billion a year.
The banks may not be able to get away with these crimes and misdemeanours for much longer. Regulators have failed abysmally to control their excesses but it may be technology that does for them. According to Edelman Trust Barometer, trust in the Banking and Financial Services industries has dropped to 50 percent among the global, informed public. Technology and consumer electronics companies are the most trusted. Most of the products you get from your bank you can get online. Crowd-funding sites like Indiegogo, Kickstarter, Kiva and Zopa can provide loans. MoneySuperMarket.com can find you loans plus the best suppliers of travel, pet and mobile phone insurance, Here in Sri Lanka, the business magazine Echelon has reported how, in rural villages, bank branches are not needed because of the use of mobile phones to arrange payments and loans. Mastercard, backed by mobile phone companies Vodafone, EE and O2 recently announced that it is developing a contactless mobile payments system using smartphones. A world without banks is not impossible.