No, this is not an attack on the British banking system. God knows, it probably couldn’t survive another attack. It is however, about the continuing fallout from the banking crisis, incompetency at management levels, and skulduggery in executive offices. It is not a rehash of all the things we already know. It is a reminder that the recompense is not over. It is not another expose. It is an explanation.
There is a proverb that says “He that sows to the wind will reap a whirlwind.” That almost sounds absurd, but when you think about it, it is probably meant to explain an element of the natural law of sowing and reaping. That law says that you will get what you sow (corn brings forth corn), it will take some time to get to harvest, and you will reap in abundance. Now no farmer will sow to the wind. Farmers have more sense than that. Apparently, however, bankers don’t.
Our examples for today are Barclays (LSE:BARC) and Lloyds (LSE:LLOY).
Barclays
Barclays announced yesterday that it is placing an additional £700 million on reserve against continuing claims against its part in fraudulent Payment Protection Insurance. Barclays’ share price slid 3.75 pence by early afternoon as the bottom line of the report was that the bank is no longer projecting a profit for the period. What was earlier projected to be a £1 billion gain, has turned into a estimated £100 million pre-tax loss. This is due to sowing seeds of LIBOR manipulation and illegal interest rate swapping along with the PPI fraud into the banking field. It’s no wonder that the fruit of those seeds is choking out the fruit of doing business the right way.
Of course, in keeping with “banking standards” Barclays is blaming the need for the additional set-aside on an unexpected increase in claims (see “whirlwind” above). That’s the second unexpected thing for Barclays. The first unexpected thing was that they got caught. The second was anticipating much less fallout. And these guys are running the bank. Really? Don’t they understand basic life principles? Or do they just think that they don’t apply to banking?
Lloyds
It’s only speculation, but at least one analyst has projected that Lloyds is going to set aside as much as an additional £1 billion to cover PPI claims. But it is now known that Lloyds is going to have to deal with the fallout from faulty mortgage record keeping by its subsidiary the Bank of Scotland ranging from 2004 to 2011. But it’s okay. It only affects a quarter of a million customers! The FSA has fined Bank of Scotland £4.2 million for an inadequate mortgage records system. Lloyds describes the problem as “the result of mortgage information being held on two separate, unaligned systems, and problems with two further processes where manual updates wren’t always carried out.”
It’s amazing that it only took seven years to figure it out! Well, that’s not actually true. Reading the statement closely, it becomes clear that they knew of the problem at some point, probably early on, but chose (unwisely) to cobble together a two-part manual stick-and-glue “solution” to an IT problem. On the Gutheil Management Skill Scale, this kind of approach is somewhere between Incompetent and Stupid. But then, you’ve got to learn to think like these bankers. “It’s an IT problem, so it’s way too expensive to fix. We need to find a cost-saving work-around.” They probably payed the genius that came up with the idea some kind of a fat bonus. It just seems to me that it would have been much less expensive to have spent some money to fix the IT problem.
Whether it’s Lloyds or Barclays or any of the other major banks, it about time these guys started to realize that there are some laws they just can’t break without suffering widespread, long-term damages. Better, they think, to look good in the short run, make a bundle of money, and don’t worry about the future. If that’s what they think, they all ought to be poster children for incompetency.
Well, in retrospect, I guess this was an attack on the British banking system.