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By Andrew Newton on 07 Oct, 2009 - 02:48 UTC

Stephen Green, Chairman of HSBC and author of a new book "Good Value", has said in a BBC interview that he feels banks owe the public an apology.


This makes quite a change from the tales of "back to business as usual" emanating from Wall Street and London's Canary Wharf, and much more appropriate to the author of a book with the subtitle "Reflections on Money, Morality and an Uncertain World". I wonder though whether an apology is enough. Here's a reminder from my earlier post about what we can now view as:


the worst financial crisis since the Great Depression: an increase in the number of people around the world in chronic hunger and poverty by over 100 million, to 1.02 billion; between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists; an increase in global unemployment by between 29 million and 59 million people; one in eight US mortgage borrowers is behind on mortgage payments or facing foreclosure at the end of the second quarter 2009; pensioners relying on developed country stock market returns for their retirement incomes have seen their savings fall by 45%.


The Financial Crisis Inquiry Commission in the US holds out the promise of going beyond apologies and the inevitable return to customary way of doing business. It offers a public space in which public but impotent anger can be channeled into better understanding and a focussed demand for real change, generating and sustaining in its turn the political will for the necessary reforms.


London could do with a comparable public inquiry of its own.


 

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Bank secrecy is coming in for multiple challenges: the risk opacity behind the credit crunch, tax avoidance schemes, and now aiding corruption.

In a new report, "Undue Diligence: How banks do business with corrupt regimes", Global Witness attacks the way banks that have helped hide the money of dictators and other unsavory siphoners of developing country resources.

"By doing so they have facilitated corruption and looting of natural resource revenues, denying
some of the world’s poorest people a chance to escape poverty.

‘The same lax regulation that created the credit crunch has let some of the world's biggest
banks facilitate the looting of natural resource wealth from poor countries,’ said Gavin
Hayman, Global Witness Campaigns Director. ‘If resources like oil, gas and minerals are to
truly help lift Africa and other poor regions out of poverty, then governments must take
responsibility to stop banks doing business with corrupt dictators and their families.’"

The non governmental organization goes on to recommend to the G20 four financial sector reforms to clamp down on banks taking on such people as clients:

"• Banks must change their culture of ‘due diligence’ – the process by which they check that a customer is legitimate. This isn’t about box ticking. Banks should only take the business if they have identified an ultimate beneficiary who does not pose a corruption risk. Other business should be turned away.
• Governments must ensure that anti-money laundering laws in each jurisdiction are absolutely explicit that banks must do this due diligence properly, and financial regulators must actively enforce these laws.
• Cooperation between governments has to improve to ensure that national bank regulations become globally compatible, accountable and transparent, and are not hindered by bank secrecy laws. This must begin with reforms to the intergovernmental body that oversees the anti-money laundering regime, the Financial Action Task Force.
• Governments must ensure that new global rules are put in place to help banks avoid corrupt funds. The most important change is to ensure that every country produces full public online registers of the ultimate beneficial ownership of all companies and trusts under its jurisdiction, to help banks identify and avoid business with a corruption risk."
HSBC offloads a Household chore
By Andrew Newton on 02 Mar, 2009 - 11:28 UTC
Banking giant HSBC is closing down the business of a US acquisition that has lost twice as much as it cost to buy in the first place.

HSBC bought the subprime lender Household International in 2003. At the time Household was subject to litigation in 50 US states over allegations of predatory lending - making loans available to people who did not understand their commitment - while HSBC had and still maintains a broadly positive reputation for prudence and responsibility.

Analysts thought that the deal would be problematic as a result of this action, but seemed reassured when the 50 states reached a $484 million settlement with Household on 16 December 2002.

While I am sure lax lending was present elsewhere in the group, the Household acquisition took HSBC full into the front line of the problems that have subsequently rocked the global economy.

One day it would be interesting to get an insider view on why such a reputable group threw in their lot with a business as flawed as Household.
While some bankers continue to demand their bonuses, a Kuwaiti institution offers to pay for its mistakes.

Some 20 wealth management clients of the National Bank of Kuwait are being completely reimbursed by the bank for all money lost as a result of their investment in the alleged Ponzi scheme run by Bernard Madoff, the New York broker.

NBK is paying out around US$50 million to cover both the original principal and the gains that they were led to believe they had made on them but which authorities say were fictitious.

By contrast, while Spanish bank Santander has also taken responsibility for putting clients into Madoff's scheme, its offer to clients that have lost money as a result has been described by the leader of one group of disgruntled clients as being more in the nature of a threat than an offer.

The offer comprises Santander preferred stock equal to the principal invested by the client, in return for foregoing legal action and retaining Santander as their "preferred" bank as long as the shares remain in circulation. The preference shares could stay in circulation indefinitely.

Santander group has a market capitalization of $119 billion and NKB has a market capitalization of $18.5 billion, while losses on the Madoff scheme amount to $3.2 billion for Santander clients versus the $50 million that NKB has had to find.

The argument goes that Santander could not afford to do what NKB has done, and other banks have yet to stump up at all yet.

So who would you put your money with?
Sustainable Finance Ltd, the green business consultancy focusing on the direct and indirect impacts of the financial sector, has been bought by PricewaterhouseCoopers, the monolithic management consultancy and audit firm.

The US arm of SFL will be absorbed into PwC's US advisory services business, with SFL's Matt Arnold taking over PwC's sustainability services arm there. SFL's operations elsewhere will continue to operate in their own name and continue to be headed by Leo Johnson, who is being admitted into PwC's UK partnership.

HSBC's former group head of sustainability, Jon Williams, has already become a partner in PwC UK and will work with Johnson's team.

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