21 May 2015

Bank shareholders should sue on forex fines


The Financial Times Lex column says, quite rightly, that bank shareholders should be furious at the latest fines imposed by regulators. Barclays, RBS, J.P. Morgan, Citi and UBS are paying a combined £3.6bn for nefarious activities. While it is true that – incredible as this may seem to baffled taxpayers – the fines for foreign exchange fixing are lower than anticipated, the problem is the rolling nature of the investigation and the way in which big government continually makes a play post-crisis for public opinion with big fines on big banks.

It is increasingly clear that it is a game. Whenever fines are announced, the big banks promise not to do it again. Everyone at the top then keeps their jobs, including the regulators. Shareholders, meanwhile, get stiffed. All they know is that the authorities may be back for more soon, and the institutions that shareholders own now have less in the way of resources to lend to customers to make profit, which is the job of a bank.

Almost seven years after the height of the crisis, it seems that we – taxpayers, consumers, citizens, even financiers – are trapped in this game, a game without end. With government declining to break-up the banks, the banking sector in the UK is still enormous (despite some big banks shedding operations to make themselves easier to manage safely). There is less in the way of meaningful UK competition now than was the case before the crisis, and the promising talk of digital disruption and new entrants has yet to be translated into change that consumers can spot. The fines and stern lectures merely obscure a much deeper problem with an industry that needs change, competition and challenge.

Shouldn’t large shareholders of banks do something dramatic to break the cycle? Many of them, such as the pension funds, are losers twice over, because the forex fiddling was at their expense and the banks they own have had to pour money into government coffers that should have been put to better use. The shareholders should investigate suing the management that let them down. Come to think of it, they should even consider suing the regulators who missed the outrageous forex scam for ages.

Iain Martin is Editor of CapX.