Chris Blackmore, Business Editor of the London Evening Standard is quite right in saying that there ought to be a few more bank executives either resigning or at least participating in an exit interview.
Sadly, even on the rare occasions when they are shown the door and pushed, they are invariably given a very big parachute so they’re never in any great danger.
Spygun understands the industry and knows that there is an almost masonic bond which nurtures, develops and then protects individuals who would be eaten alive in the outside business world. It is no good expecting them “to do the right thing” because they have no concept of what that means. These men are “takers”.
When it suits them, they are the victims of “external economic forces over which we have no control”. Regrettably, they never seem to have any concept or inkling of these forces and consequently, when the solids hit the air-conditioning, it is always a surprise.
They certainly did not see that mortgage securitisation was an accident waiting to happen. The reason why most did not see the danger is because many did not understand the nature of securitsed mortgages.
They are the “Untouchables”. These are the executives who can lose millions and still stick £100k per annum into their pension fund.
What Chris highlighted is their arrogance but it is not just arrogance that has brought them to this point.
In the eighties we had the Genesis of the “corporate entrepreneur”. American banks were looking for individuals who were by nature, entrepreneurs but who would be willing to work within a large organisation, bend the rules where necessary and make big bucks for the business.
It did not matter if they made expensive mistakes, because they had the company’s assets to fall back on. They were encouraged to take risks, on the understanding that occasionally they would make losses..
The Americans were good at it and it is that mentality which bundled up dodgy mortgages and sold them on.
Here is the UK, we played at it, made the right noises and created what can only be described as “ersatz” corporate entrepreneurs. We had the suit, the car, the management jive talk and sometimes even a dodgy MBA but we were never the real thing.
The bad news is that here in the UK, the 80s corporate entrepreneurs are now in charge.
However, because they continue to lack the entrepreneurial flair of their American cousins, all that they can do is sit tight and fill their pockets until their personal final whistle sounds.
This is Chris Blackmore’s excellent article which appeared in the Evening Standard on 28th July 2008. It is reproduced here with his kind permission.
Thank God for Mark Burgess, head of equities at Legal & General. At last, an institutional investor has had the guts to say in public what many of them have been muttering in private these past few months – that not enough senior executives at Britain’s banks have quit in the subprime debacle.
Only one has gone – Bradford & Bingley’s Steve Crawshaw, and that was for angina – whereas in America and elsewhere, the sight of highly paid bankers eating humble pie has been a regular occurrence. Look at Royal Bank of Scotland. Its shares have plunged twothirds in the past year, partly because the bank followed its rivals and thought it could make millions from trading in fancy financial instruments built around dodgy borrowers in the US ( precisely the sort of people RBS would not ever lend to normally) and also because it ignored the warning signs and paid a fortune for ABN Amro.
Imagine if a business in any other sector had seen its value plummet so much. Do you think its bosses would still be in situ? Do you suppose RBS analysts would hold back from demanding management changes? Yet RBS chairman Sir Tom McKillop and chief executive Sir Fred Goodwin carry on regardless.
They’re not alone. At HBOS, Lord Stevenson, the chairman, and Andy Hornby, the chief executive, have presided over a share-price collapse of 75%. You have to wonder what sort of cloistered world they inhabit. Surrounded by fawning colleagues, lost in their own vanity, they are shielded from the uncomfortable truth. No surprise then, that Edinburgh is referred to as “Fredinburgh” in tribute to Goodwin’s hold over the home of the Scottish banking establishment.
It’s the sense of complacency I find so breathtaking. Somehow, Goodwin and McKillop, plus their compatriots at other British banks, are saying: “We’re different. Yes, we know others have gone, in New York, Paris, Zurich and Frankfurt, but we’re not like them.” This is arrant nonsense – arrogance that isn’t lost on foreigners when they look at how we conduct ourselves in this country.
Frankly, it’s the sort of old boy matiness that was supposed to have been banished from the City but is clearly as entrenched as it ever was.
It rears its head in other ways, too. One of my bugbears has always been the rank failure of our authorities to prosecute for fraud and other instances of white-collar crime. In the US, managers are frequently led away in chains – but not here. In the UK, apparently, our bosses are clean – they wouldn’t dirty their hands with a bit of crookery.
What rubbish. Jessica de Grazia, the former US prosecutor, has just compiled a report into the Serious Fraud Office. What did she find? Only that the organisation had “pass-the-buck, risk-averse culture, lack of focus and skills”.
Oh, and get this. De Grazia said the SFO had charged seven defendants in five years, against 50 in the same period by the US Attorney’s Office for the Southern District of New York. Seven in five years!
Even when we do pursue cases, we do not get them right. The SFO’s conviction rate for 2003-7 was 61%, compared with 92% in New York.
Concluded De Grazia: “A criminal justice system that produces this little cannot be said to be effective in deterring, detecting or punishing criminals who commit serious white-collar crime.”
But it’s the silence that is so damning. Where are the calls for change? Why isn’t the City jumping up and down, saying enough is enough? How can we honestly lay claim to be the world’s leading financial centre when we behave in such a lackadaisical fashion?
What is required is more like Burgess, a fund manager who is not comfortable sitting on his hands, to break their silence. Legal & General holds 5% of RBS. For the sake of the City’s reputation, the other 95% need to stand up and be counted.