On both sides of the Pond, bankers are busy looking after their own. The Slog casts his rod towards all things fishy.
“I’m not Spartacus, but I think that might be him over there….”
When all news is bad news, perhaps no news is good news. This seems to be the Standing Order as far as new Bank of England boss Andrew Bailey is concerned. Not due to take up his position until March 2020, Mr Bailey is already under pressure for the late arrival of the HBOS Gravy Train Report. Four years after the probe began, and more than a decade after the demise of HBOS, the Inquiry is still ongoing. One is left wondering not only why it’s taken four years to publish, but why the Inquiry led by Bailey took six years just to get started.
Andrew Bailey’s rise to the top of the BoE has been described by the BBC as ‘slow and steady’. So his HBOS Inquiry progress is, if nothing else, consistent with his general approach.
However, other factors may be involved. His time as head of the Financial Conduct Authority (FCA) brought a storm of criticism down on his head about both the Royal Bank of Scotland’s treatment of small businesses in the aftermath of the financial crisis (a fraud of industrial proportions that involved nobody going to jail) and the FCA has also faced criticism in recent months over the demise of the flagship fund of one of the UK’s best known money managers, Neil Woodford.
The FCA is and always has been something of a gummy watchdog, and Bailey is seen by many as having been central to that.
More specifically, however, in 2008, he was centrally involved with the 2008 government rescue of, um…..blow me down, the Royal Bank of Scotland and HBOS.
I wonder if by any chance this might help explain Andrew Bailey’s somewhat tentative approach to Inquiry Management.
The first rule with central banks, self-regulation by bankers, banking firms and credit rating companies is “withhold information”. The second is “distract”. If all that fails, the third rule comes into effect: “lie”.
Our own newly reconfirmed Prime Minister has spent the last fifteen years telling us we must learn to love bankers. Mind you, he also told us that the Newscorp hacking scandal was poppycock, there’d be a full Inquiry into the Elm House paedophile racket (we’re still waiting) and his mate Tim Yeo’s taxis were better for the environment than the existing ones (they were worse).
Nevertheless, should we have learned to love our bankers, or should we be just as wary of our banks’ stability as we always were?
In October 2016, the Bank of England asked all UK banks for details of their exposure to Deutsche Bank’s record-breaking level of toxicity. Since when there has been a stoney silence from Threadneedle Street.
In Q3 2017, the BoE also asked the banks for a breakdown of their consumer debt books, being concerned about both the size and quality of those “assets”. Further silence.
The latest credit and stability report from the former Fred Carney’s Circus in July of this year was less than encouraging. It reported that UK banks’ £2.7 trillion exposure to leveraged corporate loans was at a record high – and that ‘the share of corporate borrowings that are the lowest investment-grade rating’ is also at record levels.
The share of new leveraged loans with no collateral and minimal protection has more than tripled since 2007, and it remains close to record highs globally at almost 60%.
The BoE noted that “standards of lending have fallen generally”, but that ‘it is actually Europe’s banks that appear to have proportionately the biggest exposures. Of the top 8 most exposed banks, 5 are in the Eurozone’. Funny that we never knew about that during the Withdrawal Agreement negotiations.
However, in the middle of a long and rewarding report, this blithe statement appears:
‘The Bank of England doesn’t delve into [intra-bank] exposures’
Right then. So the BoE asked for a full breakdown of that three years ago, but now it doesn’t. Okey-dokey.
To be honest, this was either just a silly use of syntax or tense (ie, we don’t delve into it in this kind of report) or very worrying indeed….especially as I’ve never come across any report following the Bank’s request of October three years ago.
Despite the lack of report on Deutsche exposure, if it was all hunky dory, why was the Old Lady reported by the FT as “scrutinising the Deutsche Bank overhaul very closely” last July?
Withehoulde, De Stract & Lye, personal Bankers to the Gentry.
***
Things are no different in the US. As the final milking of the financialised cow gets under way before before Crash2, there are very clear signs to guide those investors who are not entirely wide-eyed.
For example, the United States circa $12 trillion home mortgage finance market has been until recently very well underwritten…ie, kosher. But observe: in recent months, American banks have been lowering borrower deposit requirements, and the increase in the number of consumers falling into the dodgey category (bad loans waiting to happen) has been steadily going up.
Just as in 2006-8, many such subprime mortgages will be salami-sliced into bond packages. The desire to dump these ordures somewhere – anywhere – is apparent in Wall Street trend data that suggested in the region of $30-40 billion of such bond issuance in 2020….a 450% increase on the 2018 figure.
In the middle of last year, The Slog suggested that maybe (this time around) the big crock of doo-doo might be the US car loans sector. The additionally explosive ingredient this time is that – with credit rates at an all-time low – the “affordable” credit rating applies to every which way kind of undesirable borrower.
Confirmed and accredited numbers from the American automotive financing business show that over 30% of the overall auto loan market can today be defined as “sub-prime”….that horribly hollow echo from 2009. New loans from the middle of 2019 have been showing disturbing percentages of borrowers defaulting within a matter of months.
Sadly, the delusional suckers who thought they could have a 4-wheel drive monster for close to free are going to realise very soon that only banker delusions are treated under the National Wealth Service.
US taxpayers are coughing up for the third bailout in twenty years – the dotcom bust, the post 2007 fiasco (a cool $29 trillion) and now the NY Fed’s ongoing ‘liquidity crisis’ aka Let’s Rescue Jamie Dimon.
The banksters don’t go to debtors’ prison, don’t get foreclosed, don’t fear regulators, don’t learn from their mistakes and – above all – don’t ever offer so much as a scintilla of Truth to anyone.
This applies whether they are central, corporate, mutual, private or retail. And there is not a political class anywhere in the world with the balls to reform them using a cast-to-the-four-winds approach.
Danger with a capital D that stands for Debt
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