Barclays Bonuses Needed to Prevent ‘Death Spiral’

March-05Barclays has defended its lucrative executive bonuses as a necessary part of running a global investment bank. The bank’s chief executive, Antony Jenkins, is preparing to explain to critics the importance of large bonus payments to the company’s rising number of executives paid in excess of £1 million a year.

The institution’s latest annual report will soon be released, revealing that the total number of executives paid in excess of £1 million has substantially increased from the 428 on staff in 2013. The report will also reveal an increase in the number of bank executives paid at least £5 million per year – admittedly, a small number.

Jenkins’ defence of Barclays’ lucrative payouts may seem odd for those familiar with his history at the bank. In 2012, he stated that it was essential that the bank lowered its cost-to-income ratio in order to remain competitive. In the last two years, profits have not increased while bonuses have continued to rise.

Despite admitting that the decision to increase compensation to executives this year was the “toughest” he has made during his Barclays career, Jenkins defended raising bonuses as necessary for running a competitive bank. In The Telegraph, the decision was defended as important for Britain’s future as a global banking sector.

With Royal Bank of Scotland scaling down its international activities and focusing on business within the UK, Barclays’ role has increased. Without a leading position in the United States – and all the pay packages that this role entails – the UK could be left without a significant international bank headquartered within its borders.

In an interview with The Telegraph, Jenkins made his thoughts clear: “I don’t think the anger around investment banking in the UK should guide our strategic decision making.”

Analysts believe that Barclays aims at becoming Britain’s global investment bank, competing with US-based firms such as Citigroup and JP Morgan.

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RBS at Risk of Credit Rating Downgrade

February-12Royal Bank of Scotland could face a ratings downgrade from one of the world’s top credit ratings agencies, according to a new report in The Telegraph. The bank faces the possibility of a ratings downgrade from Moody’s after its capital levels were revealed to be far weaker than expected.

The ratings firm says that it has put the bank’s debt on “review for downgrade” and that the bank’s weaker than anticipated capital position could result in a low credit rating. Royal Bank of Scotland was previously bailed out by taxpayers and is owned largely by the UK government.

Last month, RBS announced that £3.1 billion of extra provisions was needed to deal with several issues, including the sale of mortgage-backed “toxic” securities and its role in the payment protection insurance mis-selling scandal. RBS was also involved in the interest rate hedging mis-selling scandal that affected small businesses.

The updated provisions place RBS’s core capital below its 11% target. Based on the bank’s recent announcement, its core capital under the incoming Basel III rules will be just 8.1 to 8.5 per cent – significantly below the bank’s own targets.

RBS has been a controversial bank in recent years. After it was bailed out by the UK government using taxpayer funds, it has faced numerous challenges related to staff turnover and compensation. In 2013, the Bank of England approved RBS’s capital raising plans under a “stress test” of the UK’s largest banks.

As part of the agreement, the bank needs to make changes to its balance sheet, asset sales and risk management. The company has made several changes to comply with the government’s requirements, including floating its US-based operation, Citizens, and establishing a “bad bank” to dispose of leftover toxic assets.

In the coming weeks, RBS chief executive Ross McEwan is expected to speak with the Prudential Regulation Authority in order to discuss the bank’s current capital status.

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‘Huge’ RBS Cost Cuts on the Way

january-15Thousands of Royal Bank of Scotland staff could lose their jobs as the Edinburgh-based bank plans another round of cuts. Approximately 40,000 RBS workers have already been made redundant as the bank, which was bailed out by taxpayers in 2008, plans a £1 billion cost cutting programme to return to profitability.

Royal Bank of Scotland was bailed out during the 2008 financial crisis using over £45 billion in taxpayers’ money. The bank’s current cost-to-income ratio is 65 per cent – a figure that chief executive Ross McEwan wants to reduce to 50 per cent as the bank aims to reduce its operating costs to increase profits.

RBS’s current operating costs are £10.06 billion. The planned cost cutting measures could save the bank as much as £1.25 billion per year. Salaries currently account for more than half of RBS’s annual costs. Staff at the Edinburgh-based financial services company are preparing for what could be a swift dismissal.

Chief executive Ross McEwan presided over significant cuts to expenditures during his leadership role with the Commonwealth Bank of Australia. Analysts believe his goals include reducing RBS’s overseas commitments and automating large amounts of its retail banking business within the UK.

Royal Bank of Scotland avoided a government division last year, when lawmakers and political leaders sought to divide the bank into two – a “good bank” and a “bad bank” – to improve its ability to lend to British businesses. The bank plans to split off £38 billion in high-risk loans to a new division.

Analysts believe that RBS will produce a significant loss during 2014 due to its new plan to split off its ‘toxic investments’. RBS plans to write off around £4.5 billion in high-risk loans, releasing as much as £11 billion in capital. The bank has not made any comments on the speculated job cuts.

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European Commission Fines Eight EU Banks for Rate Rigging

december-06Eight banks, including UK-based RBS, have been fined for taking part in illegal cartel action to fix interest rates. The banks fixed rates for financial derivatives, causing an increase in pricing for trillions of dollars worth of financial products such as credit cards, personal loans, and mortgages.

Of the eight banks involved in the scandal, two managed to avoid financial penalties by exposing the existence of the rate-rigging cartel: Barclays and UBS. The total fines add up to an astounding 1.7 billion euros (£1.4 billion) and are intended to prevent a similar rate-rigging scandal from reoccurring.

Other banks to be involved in the scandal include Deutsche Bank, which was fined a total of 725.36 million euros – the largest fine levied against all of the banks. Fines were also dished out to JPMorgan, Credit Agricole, HSBC, and others for their own involvement in the rate-rigging conspiracy.

Finance industry experts have voiced their frustration that the government-owned Royal Bank of Scotland was involved in the scandal. The bank paid £391 million for its involvement in a previous rate-rigging scandal involving the Libor interest rate, with UK financial services company Barclays also a subject of the fines, paying a total of £290 million.

After Barclays was fined, chairman Marcus Agius and chief executive Bob Diamond promptly left the company. The bank claims that it volunteered information about the rate-rigging scandal to the European Commission and “co-operated fully” with investigators involved in the case.

Investigators claim that they were shocked not just by the scale of the scandal, but by the way banks brazenly co-operated with each other in order to fix rates across the industry. European Commission vice-president of competition policy Joaquin Almunia noted that the banks are “supposed to be competing with each other” for business, and not manipulating benchmarks together.

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New Royal Bank of Scotland chief executive Ross McEwan promises changes to the way the bank does business. The new chief executive claims that RBS will switch to a customer service-focused model in response to a “seismic shift” in the way bank customers are using RBS’s services.

The number of people using bank branches for common transactions has decreased by more than 30 per cent in the past three years. Customers are increasingly turning to ATMs and online banking systems for inter-account transfers and other formerly common branch banking tasks.

In response to the changes in the way people interact with their banks, RBS plans to invest more than £30 million in new-generation cash machines. The new machines will be designed in partnership with NCR in Dundee.

The changes to consumer-focused banking are part of a large-scale chance in RBS’s business strategy. The company plans to modernise its customer service in order to deliver better service to its retail banking customers. As well as new cash machines, the bank will open several 24-hour banking centres in busy areas of Edinburgh.

Mr McEwan believes that RBS needs to change its focus from internal problems and scandals to its customers. The bank plans to increase its range of everyday banking services and focus on adding additional facilities for customers in order to improve their experiences.

Despite the large planned changes to RBS’s consumer banking services, Mr McEwan has promised not to disrupt the “safety and soundness” that had been established by his predecessor within the bank, Stephen Hester. RBS was bailed out by the British taxpayer at an immense expense and has since focused on refocusing its business.

Commenting on the bank’s obligations to the British public, Mr McEwan noted that it was “clear that RBS has a special obligation to the people” and that the Scottish bank must “never put the country in that position ever again.”

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RBS Set Back by Fines, Credit Rating Adjustment

november-08-03More bad news for Royal Bank of Scotland. The bank, which has been in and out of the headlines for the past five years over its controversial conduct and government bailout during the financial crisis, has agreed to make a $150 payment to settle US charges that it deliberately misled clients based in the United States during 2007.

The Securities and Exchange Commission (SEC) claims that one of RBS’s subsidiary companies – known at the time as Greenwich Capital Markets – used illegal tactics in order to mislead investors purchasing a $2.2 billion security. The company allegedly lied about the loans meeting underwriting guidelines, when 30 per cent of the loans in the security actually failed to comply with standards.

Despite paying the fine, the bank avoided admitting wrongdoing in the case and will continue to operate under taxpayer ownership. Analysts believe that the fine is one of several recent developments that will cause complaints from UK taxpayers, who currently own over 81 per cent of the troubled financial services company.

Other concerns include the settlement the bank paid to US regulators over its level of involvement in the Libor interest rate scandal. Of the £390 million paid in fines, over £300 million was paid out to US, rather than UK-based, regulators. The SEC is adamant that the majority of the fine will be repaid to investors hurt by the bank.

The UK-owned bank has been pursued by several regulators for its involvement in fraudulent practices during the 2007-2008 financial crisis. In 2011, RBS was sued by the Federal Housing Finance Agency for its involvement in misleading investments aimed at Freddie Mac and Fannie Mae.

Analysts believe that the fine paid by RBS could be one of the last settlements from the financial crisis. JPMorgan Chase and other US-based banks have also paid large fines in recent months for activity dating back to 2007 and 2008.

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Former RBS Boss ‘Obsessed With Minutiae’

september-04-01Infamous former Royal Bank of Scotland CEO Fred Goodwin has been blasted for his obsession with cleaning and minutiae in a new book documenting his leadership of Britain’s most notorious bank.

The banker, who was once knighted for ‘services to banking’ in 2004, was obsessed with minor details of RBS’s operation that were completely unrelated to its value as a business, a new book from Iain Martin claims.

Making it Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy will hit bookstores next week, but stories are already leaking out from the book that claims to document the strangest activities of RBS’s infamous former leader.

Mr Goodwin was reportedly so obsessed with minor details about the bank’s image that he insisted on ordering the company’s fleet of Mercedes S-Class company cars in the exact same shade of blue as the bank’s logo.

He also reportedly grilled Mercedes sales representatives to ensure that the carpets of the vehicles were the same beige as those in the company’s offices. The CEO’s eye for detail extended far beyond vehicles, according to workers interviewed as part of the tell-all book.

Former RBS employees, almost all anonymous, claim that Mr Goodwin was upset at the design of the company’s Christmas cards and insisted on taking control of basic office projects due to his personal objections.

He reportedly banned all flat-topped filing cabinets from RBS offices in an effort to reduce the piles of documents that would end up stacked on top of them. The CEO’s attention to detail extended to the company’s front steps, which were cleaned after his mother found a cigarette butt left on the steps of its Glasgow headquarters.

The infamous CEO, who was stripped of his knighthood last year after the extent of the bank’s mismanagement, became a source of public ridicule after his lack of any formal financial management training was revealed during a hearing in the House of Commons.

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Business Secretary: Selling RBS Could Take Years

august-13-03Both the Royal Bank of Scotland’s chairman and the Prime Minster have a very clear stance on public RBS ownership: it should be sold as soon as possible. But Business Secretary Vince Cable has a different view – one that sees RBS sitting in public hands for well over five years as the bank slowly transitions back to private ownership.

Bailed out in 2008 at a £45 billion taxpayer expense, RBS has changed from being an annoyance into a major political issue over the past twelve months. The government has lost almost 30 percent of its investment in the bank over the past few years due to a stock price that’s declined from £5.02 to £3.25 since its purchase in 2008.

Despite the bank’s recent declaration of a quarterly profit, the government’s stance on the bank has been clear – sell it, and quickly. Business Secretary Vince Cable has publicly stated that he believes a return to private ownership for RBS is unlikely in the next five years due to the government’s inability to dictate a rigid timetable.

Speaking to the Sunday Telegraph, Mr Cable stated hat he doesn’t ‘think it would be sensible for the government to set a rigid timeline’ on the bank’s sale, and that ‘RBS going back into private ownership [during] this Parliament or probably within five years’ is unlikely.

Mr Cable claims that the bank has grown too big and that breaking it into a good and bad operation, as the government has suggested, simply isn’t feasible. He has stated that there is ‘no simple yes or no answer’ regarding the best course of the bank, and that returning the bank to private ownership before 2018 is ‘pretty unrealistic.’

David Cameron stated in May that his goal was to return RBS to private ownership as soon as possible. RBS chairman Sir Philip Hampton has stated that the bank may return to private ownership by the middle of 2014, or perhaps sooner, but that the ultimate timetable will be decided by the government.

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Lloyds Sale to Begin Soon, RBS Could Soon Follow

june-20-01George Osborne indicated that the 39 percent of Lloyds current owned by taxpayers could be sold ‘within months.’ The Chancellor announced the impending sale during a Mansion House speech, which he makes every year. He claimed that Lloyds could be sold at a profit for the government, freeing up billions of pounds in revenue.

Lloyds shares are currently valued at above the 61.2p that the government needs in order to break even on its holdings in the company. While a sale could potentially be profitable for the government, the huge amount of shares that are publicly owned – around 39 percent of the bank – means that they will likely be sold at a discount.

The shares should likely be sold to fund managers first, allowing large quantities of the government’s shares to be sold relatively quickly. The Chancellor claimed that a portion of the government’s shares could later be sold to the general public as part of a larger offering.

Lloyds’ return to private ownership has been designed to benefit British taxpayers, according to the government. The bank is reportedly more effective in managing its operations when privately owned, supporters claim. Sir Mervyn King, the outgoing Bank of England Governor, claimed that the bank required ‘decisive action.’

Royal Bank of Scotland Group, another financial services company largely owned by the government, aims to return to private ownership by the end of 2014. RBS chief executive Stephen Hester recently stood down from his post, leaving the bank in a search for a replacement that will guide it while under private ownership.

With Lloyds returning to private ownership within months and RBS following in the next eighteen months, the UK’s financial sector could see a change in services that’s beneficial for the re-emergence of the financial services industry as a whole.

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Libor Scandal: Tom Hayes Charged With Conspiracy to Defraud

june-18-0333-year-old former UBS and Citigroup trader Tom Hayes has been charged with a variety of conspiracy offenses regarding his involvement in the Libor interest rate scandal. The derivatives trader has been charged with eight counts of conspiracy to defraud and will appear in a London courtroom on Thursday.

Hayes is one of several former UBS traders to have been charged with conspiracy to defraud. The trader, a British national based in a Tokyo trading office, was arrested in December 2012 as part of a joint US-UK effort to crack down on traders involved in the Libor conspiracy.

As well as the charges he faces in the UK, Hayes faces serious charges of wire fraud and anti-trust law violations in the United States. The US Department of Justice has taken an active role in the investigation into Libor interbank interest rate fixing, as many of the banks involved in the scandal maintained a large US presence.

Hayes worked for UBS for three years from 2006 until 2009, before being hired by Citigroup as a derivatives trader in 2009. His involvement in interest rate rigging started during his career at Citigroup, insiders claim, with Hayes reportedly being fired by the Manhattan-based bank for rate rigging at some point in 2010.

The derivatives trader also worked for Royal Bank of Scotland for two years from 2001 until 2003. UBS and RBS, two of Hayes’ former employers, have been fined a collective $2.5 billion during the past twelve months for their involvement in the scandal. Over one dozen banks remain under investigation and could face fines.

The US Justice Department claims that Hayes ‘globally impacted financial products tied to yen Libor’ during his career as a trader in Tokyo. He is accused of conspiring with brokers to manipulate the Libor rate, allowing him to generate large profits on his derivative bets.

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