Tuesday, August 2, 2016

"Incompetent and Greedy Bankers", Really?

The Subsidized Mineowner, 1925
Wikimedia Commons
Here follows a tale, which would be interesting if it wouldn't be so disturbing and indicative of how twisted the current financial system still is. 

It's about a bank that was perceived to be one of the most vulnerable after the 2008 financial crisis.

This bank received $45 billion from the Troubled Assets Relief Program (TARP) and the federal government declared in 2008 it would protect this bank against potential losses on its $306 billion pool of toxic assets.

Although the Federal government did not fully nationalize this bank, it did take a 36 percent stake in this institution.

This bank was one of five large mortgage servicers that in 2012 agreed to a $25 billion settlement with the US government to resolve allegations of loan servicing and foreclosure abuses.

Then from 2012 till today this bank paid a mind boggling number of fines and penalties, for example - with thanks to Corporate Research Project-:

-  $158 million to settle charges that its mortgage unit fraudulently misled the federal government into insuring thousands of risky home loans.
- $590 million to settle lawsuits charging that it deceived investors by concealing the extent of its exposure to toxic subprime debt.
- In January 2013 this bank was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve claims of foreclosure abuses.
-In March 2013 this bank agreed to pay $730 million to settle a lawsuit brought by institutional investors charging that they were misled by the bank concerning risks associated with several offerings of securities.
-In July 2013 this bank agreed to pay $968 million to Fannie Mae to settle claims that it misrepresented the quality of home loans sold to the agency.

- In December 2013 this bank was fined $95 million by the European Commission for its role in the illegal manipulation of the LIBOR interest rate benchmarks by major U.S. and European banks.
- In March 2014 it came to light that this bank's Mexican affiliate was being investigated by U.S. prosecutors in connection with possible money laundering charges.
- in April 2014 this bank agreed to pay $1.13 billion to settle claims by institutional investors which had demanded that it buy back residential mortgage-backed securities sold during the run-up to the financial meltdown.
- In July 2014 the U.S. Justice Department announced that this bank would pay $7 billion to settle charges relating to the packaging and sale of toxic mortgage-backed securities in the period leading up to the financial meltdown.
- In November 2014 this bank was fined $310 million by the U.S Commodity Futures Trading Commission and $358 million by Britain's Financial Conduct Authority as part of a settlement of charges that it and other major banks manipulated the foreign exchange market.
- In May 2015 the Justice Department announced that this bank was one of a group of banks pleading guilty to criminal charges of conspiring to fix foreign currency rates. This bank was fined $925 million (and another $342 million by the Federal Reserve) and put on probation for three years. The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.
- In July 2015 the Consumer Financial Protection Bureau announced that this bank would pay about $700 million to customers to settle allegations that it misled them into purchasing unnecessary add-on products for their credit cards. 
- In May 2016 the Commodity Futures Trading Commission ordered three subsidiaries of this bank to pay a $175 million penalty to resolve allegations that they manipulated interest rate benchmarks.
- The CEO of this bank paid a price for the bank’s transgressions. In April 2012 the bank's shareholders rejected a board-approved plan to hike his annual pay to $14.9 million, and the following October he was ousted from his post.

Several leading officials criticised this behavior strongly.  In the U.S., former FDIC chair Sheila Bair called this bank a basket case and the worst bank during the financial crisis. 

Mervyn King, former governor of the Bank of England, "has repeatedly criticised banks and bankers in the wake of the financial crisis, both during his tenure as governor, up to 2013, and since. King described bankers as “incompetent and greedy”. In 2009, he told a parliamentary committee that the “vast amounts of money beyond the dreams of ordinary people” paid to bankers had engendered a reckless culture in the City of London. A year earlier, he bemoaned as “unattractive” the fact that so many top graduates were drawn to the City rather than other more worthwhile careers."

Hear, hear, mr. King! I could not agree more with you. Good to see that a leading central banker has shown integrity and fortitude in denouncing the banks' behavior. So, you may want to know finally which bank we have been describing above? This bank has its origins in one of the oldest banks in the US: it's Citibank.  

Oh, I forgot to mention one more thing, as just reported in The Financial Times

"Mervyn King, former governor of the Bank of England, has quietly taken up a role as a senior adviser to Citigroup, surprising friends and former colleagues who assumed his disdain for bankers would stop him following peers through the “revolving door” connecting policymaking and finance."

Enough said.


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