Now is this bad bank culture. More examples this morning of what “bad bank culture” really is, and its costs to the community, shareholders, customers and employees (not to mention to taxpayers). Goldman Sachs overnight finalised a deal to pay US$5.06 billion to settle claims that it misled mortgage bond investors during the financial crisis. The deal first emerged in January and stems from the firm’s conduct in packaging, securitising, marketing and sale of residential mortgage-backed securities between 2005 and 2007. (The Big Short backfires?) Goldman Sachs, which reports its March quarter results next week, adds its name to a parade of shame on subprime mortgage rorts. The US Justice Department has reached settlements with five other major financial institutions since 2012: J.P. Morgan Chase (US$13 billion), Bank of America (US$16.6 billion), Citibank (US$7 billion) and Morgan Stanley (US$3.2 billion). Adding in the Goldman Sachs settlement, that’s a grand total of nearly US$46 billion (around $70 billion). This settlement is separate to one announced last Friday night by Wells Fargo, America’s biggest housing bank, and considered to be the best managed. It agreed to pay the US government US$1.2 billion for hiding most of its bad loans for 15 years up to the 2008 housing market crash. — Glenn Dyer
It’s a UK disease as well. A London-based think tank has estimated that Britain’s 10 largest retail banking scandals have cost the sector 53 billion pounds in fines and lawsuits over the past 15 years. That is close to $100 billion. The New City Agenda report found this huge cost had eroded shareholder value and damaged reputations. The report found that the misconduct charges have had a “devastating impact” on banks’ profitability, significantly reducing dividend payouts to shareholders:
“The profitability of U.K. retail banks has been imperilled by persistent misconduct and an aggressive sales-based culture. This has made every citizen poorer through our pension funds and our ownership of the bailed-out banks.”
That is something Prime Minister Malcolm Turnbull and others do not understand (or refuse to understand) about the cost of our much smaller banking disasters and examples of failed culture.
Since the millennium, the British banking sector has been marred by a series of scandals, such as mis-selling payment protection insurance (PPI), identity theft and rigging of interest rates such as Libor. PPI payouts have hit the banks the hardest, costing them a whopping 37.3 billion pounds (or around $70 billion).
“Banks have proved hopeless at estimating the total cost of their misconduct — with some increasing their PPI redress provisions 10 times over the past 3 years,” the report said. Now that’s an indictment. And remember NAB was hit for an estimated $2 billion or more as its now spun-off UK banking operations were forced to pay compensation and fines on the mis-selling claims. Add the US and UK costs together and it’s roughly $170 billion. Now PM, that’s what bad bank culture costs — plus myriad other costs, damaged lives and more. — Glenn Dyer
Panama hats in the Tasman. Quietly, the NZ government has revealed an inquiry into its foreign trust disclosure rules after the government was embarrassed by revelations in the Panama Papers. After defending the disclosure rules last week, Prime Minister John Key yesterday changed tack, saying it was worth examining whether the disclosure regime could be improved. Key said NZ would change its rules if the inquiry recommended it, or by a specially convened OECD meeting on Wednesday triggered by the leak of the papers. The Panama Papers revealed New Zealand foreign trusts set up by senior figures in Malta — news that triggered protests against the government in Malta. This sounds like a bit of tap dance by the Teflon-PM across the Tasman, who has belatedly realised the damage bad publicity on tax-shuffling could do to his government and the country’s reputation. Key is a former investment banker at Merrill Lynch. — Glenn Dyer