Banks never short on scandal – some old, some new

Almost a decade after the 2008 banking crisis, fresh scandals are tumbling out of the woodwork almost daily, all of them nasty, costly and hugely damaging to the reputations of the banks and bankers involved. The latest one may cost Barclays’ American-born chief executive, Jes Staley, his job for breaking the strict rules designed to protect whistle-blowers who try, usually anonymously, to bring misconduct inside the bank to the attention of its senior executives.

In this case, Mr Staley stands accused of protecting Tim Main, an old colleague since their JP Morgan days, by first of all ignoring concerns about his past raised by the whistle-blower and then, even more seriously, of trying to identify him. On Monday morning, Barclays shocked the City by outlining the chief executive’s extraordinary series of interventions to unmask the poor whistle-blower and his serious (but still unrevealed) allegations against Mr Main, one of Barclays’ top investment bankers.

Barclays runs through chief executives at a rate of about one every five years, three in the past decade, and no one seems to be giving Mr Staley much chance of surviving this latest scandal. Regulators on both sides of the Atlantic, who rely heavily on whistle-blowers to do their job for them, take a dim view of any measure to discourage them coming forward. So do shareholders, and boards of directors, who have to take responsibility for the actions of their chief executive. Mr Staley, I fear, must fall.

The latest Barclays scandal comes as an older one raises its head again, this one reaching deep inside the Bank of England. On Monday night, less than 12 hours after the whistle-blower revelations, the BBC’s Panorama programme played a tape that clearly shows a Bank of England official pressuring a senior Barclays manager, Peter Johnson, to submit a lower reading for the key Libor interest rate during the 2008 financial crisis. The BoE has always denied it encouraged banks to submit false readings, although actually it was probably the right thing to do if you wanted to avoid financial meltdown.

Barclays was fined £290 million (Dh1.32 billion) for its role in Libor-rigging, Bob Diamond, the bank’s chief executive at the time, was forced to quit and four of its bankers were convicted of criminal offences, two of whom went to jail. But now the focus is on the Bank of England, where, nine years after the event, officials have already fallen.

Mr Staley, however, stands accused of something even more serious in the eyes of the bank-hating public: hypocrisy. When he arrived on the scene two years ago, he talked grandly of making Barclays a “values-driven organisation which conducts itself with integrity at all times”. But then they all say that. Two of his predecessors, John Varley and Mr Diamond, face questions from the Serious Fraud Office for their role in Barclays’ £7.3bn rights issue cash raising in 2008. And they were pretty vehement too about stamping out misconduct in the bank. Old habits die hard.

Over at Lloyds, the ghosts of the 2008 crisis have also resurfaced. In February, six former bankers of HBOS were jailed for their criminal role in a £1bn local scam that destroyed the livelihood of at least 100 small business owners more than a decade ago. When Lloyds took over HBOS in the wake of the Lehman Brothers crash, its due diligence process, involving more than 5,000 man days of investigative work, missed this completely, with disastrous consequences. A confidential report, written by a Lloyds employee, which has now surfaced, implies that the HBOS management knew a great deal more about the scam than they pretended, but kept the details to themselves in case Lloyds pulled out. They would have been right: if Lloyds had known about it, they would have run a mile from the acquisition, which brought losses of £45bn with it.

At the time, the Lloyds team suspected they were not being shown the full picture, but came to the conclusion that the HBOS management was so incompetent they didn’t have a clue what was in their own balance sheet. “I don’t think Andy [Hornby, the HBOS chief executive] knew the extent of how bad the book was,” one of the Lloyds people told me afterwards when I interviewed him for my book, Black Horse Ride. In light of the recent revelations, that seems rather generous. Although Lloyds never got near to discovering the scams, the Thames Valley police, with a fraction of the resources, managed to find enough evidence to send the perpetrators to jail.

One of the big public complaints since 2008 has been that no senior banker has ever faced prosecution despite the enormous damage done. As more and more details of past misconduct emerge, that may be about to change.

Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis.

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