Unholy scandals: Another year of banking shame as the hapless stewardship of Britain’s banks continues

By JAMES SALMON FOR THE DAILY MAIL

Updated: 04:30 EST, 8 January 2014

The most extraordinary business story of last year shows no sign of running out of shocking twists.

Yesterday the senior regulator who approved the appointment in 2010 of Rev Paul Flowers as chairman of the Co-op Bank was grilled by the Treasury Select Committee.

Clive Adamson denied that he had been ‘negligent’ but admitted that he thought Flowers was fit for the top job despite having no relevant banking experience and the small matter of a spent criminal conviction in 1981 for gross indecency.

In trouble: The near collapse of the Co-op provides yet another stark example of the hapless stewardship of Britain's banks which has helped trigger the worst financial crisis in living memory

The man now dubbed the ‘crystal methodist’ stepped up to the pulpit last year to provide the sex and drugs scandal that the banking industry had been lacking.

Headline writers had a field day when Flowers, compared by one unkind MP to the amorous Uncle Monty from cult comedy Withnail & I, was caught by an undercover reporter in November allegedly buying crack cocaine. 

Further tawdry details emerged, including emails from Flowers organising drug-fuelled romps with rent boys.

But the lurid headlines overshadowed the real scandal, which reflects a much more deep-seated problem which preoccupied the Treasury Select Committee yesterday,

Namely, that a 63-year-old minister with no real banking experience – bar a short stint as a clerk after university – was deemed fit to run a major lender.

The near collapse of the Co-op provides yet another stark example of the hapless stewardship of Britain’s banks which has helped trigger the worst financial crisis in living memory. Early last year some of the key actors in that crisis were finally forced to account for their actions.

A succession of failed bank bosses were called in to give evidence to the influential banking commission of MPs and peers, set up by the Chancellor after Barclays was fined £290million in June 2011 for rigging Libor interest rates.

Perhaps the overriding image was the crumpled, dejected figure of James Crosby, the former chief executive of HBOS and the man described by the banking commission as the ‘architect of the strategy that set the course for disaster’. Over the following weeks, Crosby was forced to quit a string of lucrative positions, before becoming the first man since 1948 to forfeit his knighthood.

The banking commission’s final report in April recommended a string of radical changes, many of them enshrined by the Coalition in the Banking Reform Bill that received Royal Assent in December.

These include jail sentences of up to seven years for reckless bank bosses, set to come into force next year. 

In 2012, the word Libor entered the vocabulary as Barclays and then Swiss giant UBS were fined by regulators for rigging interest rates. Last year, firms including Royal Bank of Scotland and currency broker ICAP were slapped with huge fines.

In November the European Commission joined the party imposing a total of £1.4billion in penalties  on six financial firms, including RBS, Deutsche Bank, and Citigroup. Now it seems likely that the word Forex will be discussed at breakfast tables across the country.

Banks across the world are being investigated by regulators for rigging  the £3 trillion a day foreign currency market.

Some 15 banks are thought to be under investigation by the UK’s Financial Conduct Authority. Few would bet against another wave of fines in 2014.

There was also further glaring evidence last year that Britain’s biggest banks still haven’t managed to get their own finances in order, with the Bank of England identifying a £27.1billion black hole in five of the country’s biggest lenders.

They were all ordered to plug these shortfalls by shrinking their balance sheets or raising money – but without restricting lending to the economy.

Banks received the unlikely support of Business Secretary Vince Cable, who described the Bank of England as the ‘capital Taliban’ and accused them of choking Britain’s fragile recovery.

The protests fell on deaf ears, with banks having to take drastic action to shore  of their finances.

Barclays raised £6billion in October by selling new shares to investors in an emergency rights issue.

And the Co-op has launched a rescue package, which will involve floating on the stockmarket and handing control to hedge funds, if the deal is rubber stamped by investors.

The thorny issue of lending to cash strapped small businesses raised its head, with two withering reports  blasting the lending record of Royal Bank of Scotland published in November but there was better news last year at Lloyds, which was back in the black after being bailed out in 2008 to the tune of £20billion.

The successful sale of 6 per cent of the bank for £3.2billion in October, augurs well for the future.
It is widely hoped that at least one more tranche will be sold off next year.

One reason, at least, to look at the bright side.