Britain’s four biggest banks have been caught in corrupt dealings. On 27 June 2012 Barclays was fined £290m for fixing the London interbank offered rate (Libor). HSBC faces a possible $1bn fine for laundering Mexican drug money and Barclays, HSBC, the Royal Bank of Scotland (RBS) and Lloyds face the courts for mis-selling businesses interest rate swaps.
The swaps were sold as protection against interest rate rises but have left companies with huge costs they were not told about. This is what banks have to do to make money – it is their normal practice. New scandals will not be far away. TREVOR RAYNE reports.
The Bank of England, the Financial Services Authority (FSA) and the House of Commons Treasury Select Committee give the appearance of seeking to discipline the banks, but they will do all they can to protect them. The assets of Britain’s four biggest banks are four times the size of the British economy; most of these assets are held abroad. Barclays alone, with assets of £1.5 trillion, exceeds Britain’s gross domestic product. The weight of banking and finance in the British economy is so great that the British ruling class cannot allow it to be undermined.
‘This cesspit’, said Paul Tucker, deputy governor of the Bank of England, ‘The rotten heart of finance’ echoed The Economist on the discoveries unearthed by investigations into Libor-rigging in the City of London. Lord Turner, chair of the FSA, who had previously denounced some banking activities as ‘socially useless’,1 pronounced, ‘There is a degree of cynicism and greed which is really quite shocking…’. ‘Shocked’ no doubt like Captain Renault upon discovering gambling in Rick’s Bar in the film Casablanca – as he pocketed his winnings. The Governor of the Bank of England, Sir Mervyn King, was dismayed: ‘From excessive levels of compensation, to shoddy treatment of customers, to a deceitful manipulation of one of the most important interest rates, and now this morning to news of yet another mis-selling scandal, we can see that we need a real change in the culture of the industry.’ And so Bob Diamond, chief executive of Barclays, had to go.
King described Barclay’s Libor dealings as ‘fraud’. Former Labour government Financial Services Secretary Lord Myners and current Coalition Business Secretary Vince Cable said that offenders should be gaoled. This will not happen – not under this or any foreseeable British government anyway. Chancellor of the Exchequer George Osborne commented on 28 June that rigging Libor was not a criminal offence under the City’s regulatory regime. (Financial Times 2 July 2012).
It was Balzac who said ‘Behind every great fortune there is a crime’. Barclays can pay its £290m penalty with just 13 days’ worth of profits. Some 12 global banks are under investigation by different authorities for Libor-fixing. They face combined penalties of $22bn. These banks are private monopolies and they manipulate prices; this is what private monopolies do and that is one of the reasons they are formed.
The Libor rate is an interest rate, the price of money; it measures the cost of short-term loans between the world’s major banks. As the Libor rate varies so do the rates of loans from credit cards to mortgages, from student loans to derivatives. If we combine the loan market with the interest rate swap market and short term interest rate contracts, all tied to the Libor rate, it amounts to $1,037 trillion: a fantastic and implausible sum when in 2010 the world’s Gross Domestic Product was $63.6 trillion. This disproportion between the amount of credit and underlying values is unsustainable.
Executives at Barclays, HSBC, RBS of Scotland, Lloyds and their foreign counterparts think they own the world – and they very nearly do. That is why they behave like feudal autocrats; unaccountable to anyone beyond their shareholders who, like them, are beholden only to the Golden Calf of Profit.
Seeking shelter
The daily Libor rate is based on an average interest rate estimated by leading international banks in London on the rate they would be charged if they borrowed from other banks. If a bank submitted a relatively high rate compared to other banks it suggests a lack of confidence in the state of that bank and its share price could fall. A low rate suggests a strong position where other banks are happy to lend to it and the bank’s share price might rise. Barclays admitted to submitting artificially low rates to improve its status; seeking to appear as a haven amidst the crisis that engulfed the banks in October 2008. Two of the four biggest British banks, RBS and Lloyds, had to be recapitalised and funded by the government with £530.37bn between 2007-11 (National Audit Office), to stop them collapsing; Barclays and HSBC were not. Barclays had been submitting high Libor rates, suggesting that a third major British bank was in trouble. It quickly started submitting lower rates.
Appearing before the Treasury Select Committee on 4 July Bob Diamond threatened to implicate the Bank of England in the Libor scandal: Barclays had released a note taken by Diamond of a conversation with the Bank of England’s deputy governor Paul Tucker on 29 October 2008, implying that the authorities would turn a blind eye to Libor fixing. Diamond claims he was told that Whitehall might want to nationalise Barclays. Barclays’ chief operating officer, Jerry del Missier, said that he understood a communication from Diamond to be an instruction to get Barclays’ Libor rate down. Del Missier told his more junior traders to understate their submissions to the rate-setting process. Bob Diamond denies giving any such instruction. The Bank of England denies making any suggestion to Barclays and Whitehall and former Labour government ministers deny putting pressure on the Bank of England. Hence, as Diamond explained, ‘I am sorry that some people have acted in a manner not consistent with our culture and values’ but the fixing was ‘limited to a small number of people’ – 14 at the maximum.
Diamond addressed his Committee inquisitors using their first names, which is not unreasonable given that four of them are from banking and finance and two are ex-Barclays employees. A sixth of the House of Lords, charged with scrutinising financial legislation, have direct ties to financial services firms. The current government Minister for Trade and Investment is Lord Green of Hurstpierpoint. From 2005 until December 2010. Green was Chief Executive and then Chair of HSBC. It was under Green that HSBC laundered the drug money.
Barclays was trying to defend its position among the world’s banks. The Bank of England, the Financial Services Authority, the Treasury Select Committee and now the Serious Fraud Office will seek to defend the dominant role of the City in international finance and imperialism.
The US Federal Reserve sent the Bank of England a note in June 2008 recommending changes to the Libor process ‘including procedures designed to prevent accidental or deliberate misreporting’. This suggests that US banks knew and collaborated in the fixing. Was there a pattern to the collaboration and if so who would be the losers? We are not likely to be told the full story.
No remorse
Diamond will forego the $20m pay-off he could have expected and will make do with $2m. He resigned from First Boston in New York in 1995, in disgust at his £8m bonus, to join Barclays. Barclays grew, like other banks from trading in securities and derivatives – speculation. In the first half of 2010, for example, Barclays Capital (which Diamond managed) generated 90% of Barclays’ profits.2 Traders rose through the ranks to the top of the bank. Diamond has taken about $310m in salary, benefits, bonuses and shares since he joined Barclays Board of Directors in 2005. Del Messier received nearly £50m in 2010. In 2009 Barclays 238 top paid employees took a combined income of £1.01bn (averaging £4.27m), compared to just £113m paid by the bank in taxes in Britain. This is the contempt of the gilded and untouchable. Nothing better illustrates where real power lies in Britain.
In January 2011 Diamond said that ‘The time for remorse is over’ for the banks. In August 2011 Barclays was ordered to set aside £1bn for mis-selling payment protection insurance and in February 2012 was told to pay £500m to the Treasury after a tax avoidance scheme was uncovered. No remorse there then.
Illustrious company
The interlocking directorships among Britain’s banks and multinational companies express the concentration of ownership in monopoly capital. They also suggest that the Governor of the Bank of England had to make discreet enquiries before summoning Barclays chair Marcus Agius on 2 July 2012 and telling him to get rid of Diamond. Diamond resigned on 3 July. Alongside Diamond on the Barclays Board sat the chair of Tesco, the chief executive of Rockefeller & Co, the chair of BT and easyJet, a director of publisher McGraw-Hill, a director of SAB Miller (the world’s second biggest brewing firm and bottler of Coca-Cola), a director of Barrick Gold (the world’s largest gold mining company), the former US Under Secretary of State for Economic, Business and Agricultural Affairs who was also advisor to the Coalition Provisional Authority in Iraq. Such illustrious figures also bring their blessings to matters cultural: being on the boards of or advisers to Oxford and Cambridge Universities, the School of Oriental and African Studies and the Guards Polo Club and, of course, in football it is the Barclays Premier League.
The main holders of Barclays’ stock are the China Development Bank and the Qatar Investment Authority. Qatar’s investment kept Barclays out of British state hands in 2008-09. Qatar Investment Authority and its subsidiaries bought the London Olympic Village, they bought Harrods in 2010, the Shard in London and a majority holding in Canary Wharf Group. Qatar won (bought) the right to hold the 2022 World Cup, when the entire population of Qatari nationals would not fill 12 football stadiums! Qatar participated in the war on Libya, is sponsoring the attempted overthrow of the Syrian state and is buying up Greek state assets.
Speaking to the Cooperative Bank on 9 July Labour Party leader Ed Miliband spoke of his vision for banks of the future: ‘An economy based not on the short-term fast buck take what you can. But on long-termism, patient investment and responsibility, shared by all. Not an economy based on predatory behaviour but productive behaviour. But an economy that works for all the working people…a move from the Casino banking we have to the Stewardship banking we need…’ This is deceit – capitalist banks are robbers and gamblers and they have been for four centuries – they rob the world.
Al Capone is attributed as saying, ‘You call me a criminal? Look at the banks!’ Diamond Bob’s traders affected the style of gangsters: ‘Dude! I owe you big time.’ ‘Come over one day after work and I’m opening a bottle of Bollinger.’ Bollinger champagne retails at £395 at Harrods, with 10% off. We are dealing with a usurious, parasitic system that promotes and rewards pathological behaviour – this is the only way that capitalism can survive. An August 2011 rioter was gaoled for six months for taking a £3.50 bottle of water. Why are Diamond and his fellow robbers not in gaol?
1 David Yaffe, ‘Bankers in command as austerity hits home’, FRFI 220, April/May 2011.
2 David Yaffe, ‘Paying for the crisis’, FRFI 217, October/November 2010.
Thanks also to the Centre for Research on Socio-Cultural Change.
Fight Racism! Fight Imperialism 228 August/September 2012
