Tuesday, 31 March 2020

Business (5)

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london whale

The JP Morgan’s former supervisor, the Spaniard Javier Martin-Artajo, was arrested Tuesday in Madrid, almost two weeks after U.S. prosecutors accused him of trying to hide losses from transactions that cost the bank more than $ 6.2 billion, the scandal the "London Whale".


Martin-Artajo surrendered this morning, after being contacted by investigators, and his passport was confiscated in extradition proceedings, said a police official Spanish Bloomberg.


"The arrested person is suspected of manipulating and overpricing positions in the bank's loan portfolio in order to achieve the objectives of daily gains and losses," it said in a statement the Spanish police.


American Prosecutor has indicted this month on Martin-Artajo, a Spanish national, and Julien Grout, a French citizen for trying to conceal losses. Both risk jail sentences of up to 20 years if convicted of the most serious charges, including conspiracy and computer fraud.


Martin-Artajo, aged 49 years, supervising trading strategy for portfolio investment officer of the office of JP Morgan in London and Grout was the trader who worked for it. They are accused of conspiring to falsify statements filed with regulators in March-May 2012.


Managing Director of JP Morgan, Jamie Dimon, the bank's losses characterized as "the most stupid and embarrassing situation that was ever involved."


Discovery of the loss, in May 2012, led to republish financial results of JP Morgan, in a hearing of a U.S. Senate committee investigation of the Commission and the American Stock Exchange and Securities and Financial Sector Regulatory Authority in the UK .


Bruno Iksil, French trader at the center of this scandal, nicknamed "the London whale" because of the size portfolio which he had given, he concluded in June a deal with U.S. authorities that will not be indicted and in which committed to cooperate with investigators.

Commission led by Andrew Tyrie recommends jailing reckless bankers for and enforcing a wait for bonuses

George Osborne is facing pressure to radically overhaul Britain's banks by introducing a new law to jail bankers for "reckless misconduct" and force bankers to wait up to 10 years to receive their bonuses.


The proposals, among the key measures recommended in a major report by the parliamentary commission on banking standards, also include a call on him to consider breaking up the Royal Bank of Scotland. They come ahead of the chancellor's crucial set-piece Mansion House speech to the City on Wednesday night.


The chancellor is urged to restore confidence in the financial system by making top bankers more accountable for their actions in the wake of the 2008 bank bailouts, the Libor rigging scandal, and the shoddy treatment of customers mis-sold payment protection insurance.


The senior Conservative MP Andrew Tyrie, who led the commission, said the 80 or so recommendations were intended to "change banking for good". They also include giving regulators new powers to halt bonus payouts and pensions for bosses of any banks that have to be bailed out by the taxpayer in the future.


"It is not just bankers that need to change. The actions of regulators and governments have contributed to the decline in standards," Tyrie added.


Set up in the wake of Barclays' £290m fine for rigging Libor a year ago and counting former chancellor Lord Lawson and the Archbishop of Canterbury Justin Welby among its members, the commission also uses its 550-page report to call for:


• A revamp of the way bankers are authorised to work in the City and to make top bankers more accountable after so few of them were sanctioned following the 2008 banking crisis.


• An audit of the number of women on trading floors, on the grounds that employing more female traders could reduce risk.


• New measures to foster high street competition, including an investigation into whether bank accounts numbers can be made portable in the same way as mobile phone numbers.


• Giving everyone a right to a simple bank account.


• And an overhaul of the "court" of the Bank of England, giving it a new board of directors.


The Treasury is ready to make amendments to the finance bill to adopt the recommendations. It consulted last year on the possibility of criminal sanctions for directors of failed banks but has yet to publish its conclusions.


In the past, the commission's report said, top bankers had "donned blindfolds" as they knew they could not be punished for wrongdoings they could not see. When they could "not claim ignorance, they fell back on the claim that everyone was party to a decision ... the Orient Express defence".


The report, which will be supplemented today by seven more hefty volumes, reopens the debate about the future of 81% taxpayer-owned RBS by calling on Osborne to review, by September, whether it should be broken up into a good and bad bank. Tyrie warned the government it may need to be "bold" on the future of RBS and consider the merits of all options to break it up and sell it off, including splitting it into a number of smaller banks in order to boost competition on the high street.


"The current state of RBS creates problems for banking competition and for the British economy. Further restructuring may well be needed. The government may need to be bold," Tyrie said.


"Political considerations must be put to one side," and parliament needed to be told of any "insuperable" obstacles to a break up.


Osborne is expected to use his Mansion House speech today to signal a sell off the government's 39% stake in Lloyds Banking Group but he is not thought likely to endorse the idea by the cross-party commission to shut down UK Financial Investments, the body set up to look up after the taxpayers' stakes in the bailed-out banks.


The commission described UKFI as a "fig leaf" to hide political interference by the chancellor, who yesterday insisted he had not personally forced Stephen Hester to resign as boss of RBS last week to clear the way for the bank's privatisation.


The commission, though, said the government had interfered in the running of both bailed-out banks. "On occasions it has done so directly, on others it appears to have acted indirectly, using UKFI as its proxy," the report said.


Osborne is also facing pressure from business secretary Vince Cable to back away from any quick sale of RBS while Ed Balls, the shadow chancellor, is telling him to "resist the temptation for a loss-making fire sale". Balls said: "The government must look at the whole range of options for the future of RBS to ensure the taxpayer gets its money back and there is no return to business as usual."


The report does not recommend a full-blown competition investigation into the banking industry, which is dominated by the big four of RBS, Lloyds, Barclays and HSBC – an option that Cable is thought to regard as important.


Pat McFadden, a Labour MP who sat on the commission, said: "Our report is about tackling the cultural and standards failings in banks. From running unacceptable risks with other people's money to PPI mis-selling, money laundering and Libor interest rate rigging, these failings have been a betrayal of the taxpayers who bailed out the banks and the majority of good honest people who work in the industry."


A Treasury spokesman described the report as "very impressive", saying: "The government publicly welcomes the commission's recommendations on increased personal responsibility especially at a senior level, increased professional judgment by regulators and better functioning markets. We will report before the summer recess."

The parliamentary commission on banking standards has recommended new laws so top bankers can be jailed for 'reckless misconduct'

A major report from the parliamentary commission on banking standards calls for a new law to jail bankers for reckless misconduct, the deferral of bonuses and more measures to foster competition. The commission, chaired by Conservative MP Andrew Tyrie, also reopens the debate about the future of partly taxpayer-owned RBS and Lloyds.


Ed Balls, Labour's shadow chancellor


On the future of RBS and Lloyds, it is vital that government decisions are driven by the best interests of the British taxpayer and the wider economy, not a political timetable. On RBS in particular, David Cameron and George Osborne must resist the temptation for a loss-making firesale at the current share price which would add billions to the national debt … The government must look at the whole range of options for the future of RBS to ensure the taxpayer gets its money back and there is no return to business as usual. This should include looking at the case for splitting retail and investment banking at RBS, as the commission proposes.


Chuka Umunna, shadow business minister


It is absolutely right, as the parliamentary banking commission says, that senior bankers guilty of reckless misconduct should be jailed.


Lord Myners, former Labour city minister


This is a scholarly report which will meet considerable resistance over time from the banks … [The banks] have successfully derailed a number of similar interventions on capital, ringfencing, bonuses and I think we will see a similar response here.


In many areas Tyrie has said there should be further reviews … very little is going to happen in the next 24 months as a result of this report.


John Cridland, CBI director-general


There are tough criminal sanctions in the UK for those who engage in fraudulent behaviour. Enforcing these must come before the introduction of new sanctions.


The commission has not followed the ill-advised route of trying to impose artificial pay caps. Ensuring remuneration is firmly linked to long-term performance and behaviour is the right way to promote a better culture.


RBS is already well down the route of restructuring its business. It's in everyone's interests, including businesses, for RBS to be returned to private hands as soon as possible, and the best way to do this is to give the bank regulatory certainty and the space to restructure, free from political interference.


Len McCluskey, Unite general secretary


The commission has flunked a golden opportunity to recommend that the government explores the full nationalisation of RBS … RBS could become the dynamo which helps drive the UK out of the economic doldrums through lending and support to businesses and communities.


This would repay British taxpayers by building a British investment bank. Powerhouse nations like Germany use their banks to promote jobs and growth for future generations.


The commission had an open goal to help rein in City excess and it missed.


Tinkering at the edges is not enough. The differences between the pay of the highest and lowest paid in Britain's biggest banks is completely unacceptable. Spreading reward more evenly across the banks would embed a culture of fairness and responsibility.


John Allan, national chairman of the Federation of Small Businesses


Small firms have been rocked by scandal after scandal in the banking sector, not least Libor rigging and mis-selling of complex financial products, which has affected many of our members. We feel these recommendations should help clean-up the sector as well as encourage greater competition. However, a decade ago, the Cruickshank report identified many of these problems, so the fact another review is needed is a sad indictment of the lack of progress.


With the concentration of banking in the last 20 years, real competition and choice has all but vanished. More competition is needed across the sector, not just in retail banks but from alternative providers, if access to finance is to improve for small firms and for innovation to flourish. For too long the main high street banks have had a monopoly on lending to these customers.


Tom Gosling, head of PwC's reward practice


This is a hard-hitting report from the commission and it's not surprising to see some high profile pay proposals. Overall, the pay proposals are sensible and the commission has avoided headline-grabbing but unworkable proposals.


Regulators are looking to [bonus] deferral as the answer, but we're sceptical this will do much to change bankers' behaviour as deferred bonuses hold little value in their eyes. Our research shows that people discount bonus payments by around 25% for each year they are deferred. Deferring bonuses for even longer periods, particularly if claw-back becomes more likely, will mean they are entirely disregarded in employees' eyes.

Parliamentary commission chairman Andrew Tyrie has proved a tough cross-examiner of the banking business

The final report by the parliamentary commission on banking standards underscores the role of Andrew Tyrie, its chairman, as the man who has done more than any regulator to expose the causes of the financial crisis.


Tyrie, a former adviser to Conservative chancellors Nigel Lawson and John Major, joined parliament in 1997, but was passed over for a ministerial job when the Tories got back into power in 2010. The outspoken MP then won the chairmanship of the powerful Treasury select committee, where he has carved out a role as inquisitor-in-chief of the financial crisis. From here, he proved a popular choice to chair the commission on banking standards, a cross-party group of backbenchers and peers, created when the government declined Labour's proposal for a public inquiry into the Libor rate-rigging scandal.


Tyrie has proved a tough cross-examiner of the banking business. "What really sticks in the craw of the electorate," he told the Guardian in April, "is that what you and I would consider to be very serious offences have been committed, and yet there doesn't seem to be an orange jumpsuit on anyone – although there may yet be with Libor."


The commission's report also underscores Tyrie's view that banking problems were pervasive, squashing the "few bad apples" defence mounted by financiers. "The sheer scale and variety of things that the banks got up to is quite extraordinary," he said in that interview. "These are large numbers of people over very long periods, able to conduct malpractice, market abuses and what you and I would call simple fraud."


The other members of the commission were Justin Welby, archbishop of Canterbury, Mark Garnier MP (Conservative), Lady Kramer (Liberal Democrat), Lord Lawson (Conservative), Andrew Love MP (Labour/Co-operative), Pat McFadden MP (Labour), Lord McFall (Labour/Co-operative), John Thurso MP (Liberal Democrat) and Lord Turnbull (crossbench)

National Audit Office says reduced salaries and conditions have deterred applicants from private sector and led to gaps

Cuts to the pay and conditions of senior civil servants have deterred private sector managers from taking up Whitehall jobs and could result in an exodus of talent, the government's independent auditor has warned.


A report by the National Audit Office concludes that there are "clear capability gaps" in the senior civil service and the situation "does not represent optimum value for money".


The findings will concern ministers, who have called for private sector managers to apply for senior civil service posts and have reassured the public that they can deliver cuts without losing senior staff.


The report finds there has been a 17.4% real-terms reduction in the base salary for senior civil servants from 2009 to 2012.


It also finds that just four out of 15 permanent secretaries at government departments in December 2012 had significant commercial experience.


Union leaders said civil servants must be better rewarded or ministers should be prepared to watch their most talented employees leave.


Dave Penman, general secretary of the FDA, the senior civil servants' union, said: "It is becoming increasingly clear that a lack of action to address the issue of pay and reward could have serious consequences for delivering reform."


The report warns that an upturn in the economy could lead to "an exodus of the most talented and marketable senior people, just at the time that effective corporate leadership is needed to deliver the challenges of the remainder of the parliament".


The number of people joining the ranks of senior civil servants from the private sector fell in 2009/10 and had yet to recover, the report said.


It added: "The Government has explicitly committed to open up the service, with more internal transfers and more free flow of skills to and from the private sector, but there are several barriers to progressing this.


"Many civil servants below SCS [senior civil service] level are entitled to pay increments, while the base salary for the SCS has reduced by around 17% in real terms over four years, making promotion to the SCS less attractive for experienced, talented people.


"Evidence from departments and the recruitment sector suggests that restrictions on pay and conditions, coupled with concerns about unclear objectives and lack of autonomy, may be restricting the pool of people willing to join the SCS in mid-career from the private sector," the report said.


Auditors also found problems with the way that mandarins are organised, calling for a culture change to create a "unified, corporate leadership group that can work across departmental silos and make the most of the full range of its skills" but "it is not clear how this shift will be achieved".


NAO head Amyas Morse said that the real challenge is to shift the long-standing culture in the civil service to create a leadership group with the full range of skills needed for future success.


"This is far easier said than done," he said.


Separately, the government has been urged to change the way that jobcentres are run after MPs found that in two out of five cases, they do not know whether those who stop claiming benefits have actually found work.


The public accounts committee said counting the number of people who stop claiming benefits was a "flawed measure" of jobcentres' effectiveness.


The MPs also expressed surprise that there were only 522 disability employment advisers covering 740 jobcentres.


The Department for Work and Pensions (DWP) was urged to review support for disabled claimants, particularly in light of low numbers finding jobs through the work programme.


The MPs noted that about 40% of people reclaim benefits within six months of stopping, and about 60% within two years.


"The department should identify which indicators it will use to ensure it has a full understanding of the performance of jobcentres under universal credit and the destination of claimants, and use this information to better understand whether its interventions are delivering a long-term reduction in the number claiming benefits," said the MPs.


Margaret Hodge, who chairs the committee, said: "On its own, the number of people who stop claiming benefits is a flawed measure of how effective jobcentres are.


"Jobcentres should have a degree of flexibility to deal with local priorities but the DWP does not know enough about what works and why."


PCS general secretary Mark Serwotka said: "We do not believe that sanctions work, they should be scrapped, and ministers should start fixing our broken economy and stop blaming those who are suffering as a result of their failed policies."



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