The rigging of foreign exchange markets is a bigger scandal than Libor.
It lacks the element of surprise since it is no longer news that some traders will lie, cheat and swindle when inadequately supervised. But that’s what makes it bigger. Forex-rigging continued to happen after the Libor scandal broke.
Note the end-date of the investigations overseen by the UK’s Financial Conduct Authority and the US’s Commodities Futures and Trading Commission: 15 October 2013. The deterrent impact of Libor seems to have been zero.
What were these banks’ managements doing to honour their worthy words about cleansing the rotten culture in trading rooms? As FCA chief executive Martin Wheatley noted wearily, monitoring employees’ chat rooms “is not a complex thing to do.”
Quite. The existence of potential conflicts of interest between a bank and its clients is obvious in currency markets. So, too, is the scope for collusion. You do not have to be Sherlock Holmes to suspect that chat-room exchanges such as these might indicate dodgy practices: “how can I make free money with no fcking heads up”; “just about to slam some stops”; “lets double team em”.
Yet this garbage was bandied about for years. Did managements really not know, or even suspect, something was wrong? Did they just turn a blind eye? Or did they take comfort in the false notion that the forex market is so big and so liquid that it would be impossible to rig? All possible explanations are alarming.
In a rational world, the customers would move their business to firms with higher standards. That is not going to happen because investment banking is almost a closed shop. The five firms involved in today’s settlement plus Barclays, which is yet to settle, are six of the biggest banks in the world.
But if fines (paid by shareholders anyway) don’t improve behaviour, and if bank managements can’t, or won’t, police their trading floors competently, what’s left? Criminal convictions for fraudulent behaviour are one great hope – rightly so because the threat of time in jail is the surest way to concentrate minds on trading floors. We wait to see what the Serious Fraud Office delivers.
But regulators must also look beyond endless fines. The FCA, we are told, considered imposing suspensions on the banks from trading forex on behalf of clients but decided against. Some of the offending acts were considered too ancient and there was a fear of disrupting a critical financial market.
OK, but a three-month temporary ban on trading forex would improve behaviour faster than any fine. Managements would fear being sacked. Shareholders might wake up and demand proof of root-and-branch reform. Or big banks might break themselves up into easier-to-manage units.
Heavy-handed? You bet, but six years after the financial crash, some of the world’s biggest banks are still out of control. In other fields, firms with shoddy practices fear the loss of their licence to operate. Big banks don’t, but should.
“Making Sainsbury’s great again” was an excellent strap line from a decade ago – it conveyed confidence and a sense of purpose. “Evolving to win” – the latest effort – is ugly and sounds timid.
Unfortunately, timidity – or, at least, defensive thinking – sees to be the new order of things at Sainsbury’s. New chief executive Mike Coupe’s strategy is sharper than his slogan, but it contained little to suggest that sales or profits can return to growth any time soon.
Announcing £150m of lower prices is sensible. Sainsbury’s role in supermarket-land is not to be the price-setter, but nor can it afford to stray far from the pack. More price cuts may be needed when Tesco gets serious. A more aggressive attack on internal costs represents good housekeeping. And a halving of annual capital expenditure to £500m-£550m is just common sense.
The new dividend policy – pay out half the earnings, whatever they are – is imaginative and more shareholder-friendly than Tesco’s straight 75% slash. But it also underlines the uncertainty: dividends will just track earnings mechanically. There are no promises beyond that.
Meanwhile, 25% of the stores are deemed either too big or in the wrong place, thus a £628m charge to cover impairments on current property and undeveloped land. Top marks for candour, but that’s worrying, even if third parties can be recruited to fill the empty aisles with their own offers. Mind you, Tesco, home of white elephant hypermarkets, has more to worry about on the property front. That’s next year’s story.
For Sainsbury’s, it seems to be a case of muddling though “challenging market conditions” to the best of the management’s ability. That’s evolution of a sort, but shareholders may not see it as progress.
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