Another week, another financial furore: the banks still have a lot of work to do to regain public trust
He was known as the Ambassador … That, apparently, was the name a US dollar trader at Rabobank went by. Peers sometimes shortened the moniker to Ambass. His existence has emerged in a cache of emails and electronic messages released by regulators last week as the Dutch bank was fined a colossal £660m for attempting to rig the Libor rate.
Becoming the fifth financial firm to be fined for Libor manipulation – the first was Barclays, which paid £290m nearly 18 months ago – was particularly painful for Rabobank, a co-operative founded in 1898 to cater for Dutch farmers and considered so squeaky-clean that right up until 2011 it had been able to boast of a coveted AAA rating. Some 30 of its employees were said to be involved in attempts to manipulate the key benchmark rate, in a scandal that has exposed the lack of integrity of groups of bankers and the familiarity with which they treated each other.
Bank bosses wanted the world to believe these were isolated incidents – just a handful of individuals within enormous empires who went unregulated and unnoticed by their employers. The problem the bosses now face is that a new investigation is under way, this time into the foreign exchange markets, and it appears to be gathering pace.
At the start of the week, only Royal Bank of Scotland had admitted to being asked by regulators about potential manipulation of the foreign exchange markets – markets which are so enormous that £3 trillion changes hands every day. But by the end of the week, Barclays, Deutsche Bank, UBS, Citigroup and JP Morgan had added their names to the list of banks co-operating with requests for information.
A dozen or more employees have so far been suspended while investigations continue and no one has yet been found to have done anything wrong. The Financial Conduct Authority, one of a handful of regulators looking at the market, has warned it could take some time to determine if an arcane currency benchmark has been manipulated and whether anyone should be punished as a result.
But the nascent investigation has all the hallmarks of the Libor investigation. Huge dumps of emails and electronic chats are no doubt being handed to regulators, who are now combing through them for evidence of friendly exchanges between dealers offering beers, bottles of Bollinger champagne or even a curry.
A new scandal is exactly what the banking industry does not need. Five years after the 2008 bailouts even those banks that escaped taxpayer handouts are keen to move on from the damage the financial crisis did to their reputations. As it is, the old ones are not going away. The payment protection insurance fiasco, for instance, has now cost banks £20bn – and Lloyds Banking Group alone is responsible for £8bn of that total, £364 for each of its 22 million current account customers. Lloyds' admission last week that it was taking another £750m hit for PPI was shocking.
At the end of the week, the additional £250m RBS was putting aside had been lost in the news that the government was stepping back from forcing a breakup of the 81% taxpayer owned bank.
Little wonder that regulators are asking banks to hold extra capital for so-called "conduct risk". The Treasury said last week that RBS needed more capital to cover "additional headwinds which may adversely affect their capital resources, for example future costs of redress". The Swiss regulator has forced UBS to hold more capital too.
A let-up in the bad news seems unlikely. This week Co-operative Bank is scheduled to published the (delayed) prospectus for the £1.5bn fundraising which is forcing its once-proud owners – the mutual group of supermarkets, undertakers and pharmacies – to hand control to New York-based hedge funds.
It is just another reminder of the mess banks get themselves into. The industry is desperate to put behind it the scandals of the past five years, but with every week that goes by that goal seems to move further out of reach.
CBI effective at stiflng interest
Has the market got ahead of itself on the chances of an interest rate increase? The CBI seems to think so. The self-proclaimed voice of British business is raising its economic forecast for the UK and sees a "steady growth path" through to 2015 and beyond. But it does not see that taking the Bank of England off the course mapped by forward guidance.
Financial markets have been betting the Bank will have to act sooner than it had forecast after news last month that Britain clocked up growth of 0.8% in the third quarter and a slew of housing market reports suggested prices were now taking off well beyond central London.
As we enter the final quarter, those bets have been scaled down, albeit only slightly, as predictable worries emerge over the sustainability of the recovery. Chief among them is doubt about consumers running up to the crucial Christmas season for Britain's vast retail sector. How can households keep spending when they are being hit by soaring energy bills and food prices?
But it is the prospect for jobs that Bank-watchers should be looking at most closely, according to the CBI.
Governor Mark Carney and his policymakers have said that, barring various "knockout" clauses being triggered, they won't raise rates at least until the unemployment rate has fallen to a threshold of 7%.
The CBI says that, based on reports from its members, that level is more than two years away. The recovery may well quicken, with GDP growth this year of 1.4% and then 2.5% next – both slightly higher than the CBI's last batch of forecasts – but businesses won't be out hiring in droves.
First, hours worked will rise. That is good news for those suffering from Britain's longstanding underemployment problem: the army of workers unwillingly on part-time hours may finally get to work a full week.
But for those looking to move out of unemployment, it is discouraging: the CBI sees the jobless rate holding at 7.7% this year and easing only slightly to 7.5% in 2014 and 7.3% in 2015. All that means rates will stick at their record low 0.5% to the end of 2015.
Supermarkets take product placement to court
Sainsbury's used to like telling us to try something new today – and the fresh item on the supermarket's shopping list last week was a trolley-load of lawyers. It is the latest move in boss Justin King's ongoing campaign to attack Tesco adverts that claim its own-label goods are cheaper.
King argues the ads are misleading as Tesco fails to point out that many of Sainsbury's own-label products have superior ethical or provenance standards. That's not quite how the Advertising Standards Authority saw it, when brushing aside Sainsbury's protests, so now it's taking its case to a judicial review. Expensive? Probably. But the legal tactics have also provoked plenty of press coverage – which, unlike advertising, the companies don't pay for – and which reinforces the message that Sainsbury's food is better and Tesco's is cheaper. Will either side be too upset with that?
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