Dealings a long way from home no longer look like such a sure way of safeguarding a reputation
Back in the not so distant days of 2008, the City blazed, but two towers of banking stood in splendid isolation from the inferno. As Lloyds, RBS and HBOS flared up and tumbled, neither HSBC nor Standard Chartered felt obliged to call 999, largely because both did so much of their business at a safe distance from British shores. Something of a halo has hovered above StandChart, in particular, ever since. Only last week, Richard Meddings, the finance director, was being talked up as the man to salvage the battered standing of Barclays, while StandChart’s chief executive, Peter Sands, was being spoken of in connection with the governorship of the Bank of England. But after HSBC was beset by one scandal a fortnight ago, on Monday American regulators dragged the name of StandChart into the mud. Dealings a long way from home no longer look like such a sure way of safeguarding a reputation in banking.
It did not take long after the initial catastrophe for the country to cotton on that all those CDSs, CDOs and other acronyms were little more than a complex code to conceal big bets being placed with other people’s money. It was, after all, hard not to notice, seeing as the rest of us were left footing the bill when things went wrong. The initial conclusion in respectable circles was not that the financiers had flouted the rules exactly, but rather that they had used big brains and ruthless cunning to enrich themselves by working around them. The Guardian’s revelations about the complex web of arrangements through which Barclays avoided tax while sticking on the right side of the law epitomised the perception.
After Barclays was fined £290m in June for fibbing about the market’s readiness to lend it money, the so-called Libor-rigging scandal, the old narrative about “cunning law-abiders” began to give way to muttering about “banksters“. Rumbling along in the background at this time were JP Morgan’s dodgy dealings in London, RBS’s busted computers that briefly separated customers from their accounts and the continuing saga of mis-sold payment protection insurance. So the reputation of banking had hit a new low even before HSBC’s $27.5m fine in connection with the laundering of Mexican drug money a fortnight ago. Then – late on Monday – a dossier of allegations from the New York State Department of Financial Services accused Standard Chartered of breaking American sanctions by concealing some $250bn of transactions with Iran.
StandChart strenuously denies “the portrayal of facts” given by the New York watchdog, only one of several regulators. It is also worth pointing out that the fiery condemnation of this business, which was born out of the marriage of two venerable banks of the Victorian Empire, as a “rogue institution” is very much of a piece with a mercantilist instinct in American regulation, which has often resulted in foreign-based businesses being more aggressively interrogated than those listed in the US. Even so, the charges look serious, and – in wiping 16% off the bank’s value on Tuesday – the markets let it be known that they were less than convinced by the late-night response that StandChart eventually scrambled together several hours after the news dropped.
We must wait to see how the stand-off between aggressive regulator and defiant bank plays out, but what’s clear is that these allegations come at the worst possible time for the City. Its traditional motto is “my word is my bond”, but today New York congresswoman Carolyn Maloney can claim that “every big trading disaster happens in London”. She may have her own reasons, but if this view takes hold, it will have sweeping implications. This is a nation whose governments have routinely failed to distinguish between the interests of the City and those of the broader population, and have allowed negotiating hands in the EU to be dictated by financial interests, as is seen with the UK’s resistance to a Tobin tax. Alienation from the Square Mile has been building for some time, but such is the sense that standards have slipped that the City’s ancient charters no longer command any respect.