Banks Embroiled In Another Mis-selling Scandal

As loyal readers know, I have on numerous occasions noted that the financial services industry in the UK has tarnished its image because of its greed and corruption, and seems intent on bringing about its own self destruction.

Today we see yet another example wherein its greed has been exposed because of yet another mis-selling scandal.

This time the mis-selling relates to card protection and identity theft insurance products by CPP Group. The BBC reports that UK banks have agreed to set up a £1.3BN fund to compensate the victims.

The Financial Conduct Authority (FCA) said that customers had been "given misleading and unclear information about the policies".

CPP Group and 13 banks and credit card firms will pay for the compensation.

Some seven million customers could now expect to receive letters from CPP from 29 August 2013, explaining how to claim compensation. Victims will receive 8% interest on the amounts being reimbursed.

During the period of mis-selling between January 2005 and March 2011, CPP sold 4.4 million policies and generated £354M in gross profit. A further 18.7 million policies were renewed during the same period, generating an income of £656M.

Many customers were put in contact with CPP when they rang a number on their new bank card in order to activate it. Many thought they were talking to their bank, but they were in fact being put in touch with a salesperson from CPP.

CPP then used the opportunity of the call to offer card protection insurance. If the customer bought the product, the bank got a commission.

CPP Group sold a card protection product costing about £30 a year, that was designed to cover losses if a card was lost or stolen. It said customers would benefit from up to £100,000 of insurance cover, but customers were already covered by their banks. Generally, cardholders are not liable for unauthorised card payments on lost or stolen credit and debit cards; ie the product was unnecessary.

Needless to say we can expect to see the "ambulance chasing" financial compensation firms jumping on this bandwagon and offering to reclaim victims' money back in exchange for a percentage; which of course is completely unnecessary,as the victims can reclaim the money themselves.

RBS Does A Deal With The DoJ

The Royal Bank of Scotland (RBS) has done a deal with the US Department of Justice (DoJ) over its involvement in the LIBOR scandal.

Sky reports that RBS' UK subsidiary has signed a two-year deferred prosecution agreement with the DoJ, as part of a package of measures that will include almost £400M in fines.

This means that if RBS commits any form of criminal offence during the two-year period, it could find itself excluded from the US market.

Additionally, 21 RBS employees have either left or have been disciplined as a result of Libor-related misconduct.

John Hourican, head of RBS's investment bank, will step down and forfeit about £4M in deferred share awards despite having had no involvement in or knowledge of the malpractice.

RBS will make a statement on the matter at 13:00 today.

Barclays Ups Mis-selling Provisions By £1BN

Barclays, the bank with a finger in every pie, has announced that it will increase its mis-selling provisions by another £1BN. The provision for mis-selling of payment protection insurance (PPI) will be increased up by £600M and the provision for the interest rate swaps by £400M.

Total provisions for mis-selling now stand at £2.6BN.

Give a man a gun and he can rob a bank, give a man a bank and he can rob everyone.

Barclays - The Bank With a Finger In Every Pie

As per Louise Armitstead:

"Tyrie to Walker and Jenkins: “Doesn’t matter what the scandal is, Barclays seems to have its finger in every pie… can you change this?"

LIEBOR - The Essential Truth

There is much hoopla going on in the media about this afternoon's bunfight at the Treasury Select Committee hearing, where Bob Diamond will be the guest star.

All attention and focus (thanks to deft media manipulation by Barclays) is on the alleged phone call from Paul Tucker (Deputy Governor of The Bank of England) on 29 October 2008:

"Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.

Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters ."

This is all very well, and has given Barclays the veneer of an "excuse"; wherein it can imply that it was asked to fiddle the rates. It has also given the Tories an opportunity to unleash the hounds, and castigate various Labour ministers of the day.

However, let us not forget the essential truth, Barclays were fiddling the LIBOR rates long before the alleged phone call took place.

For why?

To make a profit for their own greedy ends, not to save the country or the bank from financial ruin.

Let us not forget that!

Barclays Accused of "Reckless Disregard"

An independent report prepared for Guardian Care Homes (GCH), which operates 30 care homes, by derivatives experts at JC Rathbone Associates accuses Barclays of "reckless disregard" over its sale of a set of complex derivatives to GCH.

GCH are suing Barclays for £36M, and the report will be used in its case against the bank.

The Telegraph notes that the report alleges that the terms of the loan posed "a risk of breach of covenant", while also claiming that the hedges sold to GCH were never likely to have protected it against rising interest rates.

Barclays in a statement last week said:

"This action is completely without merit and we will contest it vigorously. Barclays is satisfied that it provides sufficient information to enable a client to make an informed, commercial decision about the products it offers."

On Friday, Bob Diamond, CEO of Barclays, said the number of complaints was "very small", but admitted "mistakes" were likely to have been made.

The banks marketed these products as protection against potential higher future costs, the products do not do this. It would have been in the hapless purchasers' interests to take out a simple to understand fixed rate loan. Unfortunately, for the hapless customer, the commission earned by the banks on these complex financial products were higher.

I will leave you with the thoughts of Bob Diamond, 3rd November 2011:

"The only way that banks will win back the public's trust is to become better citizens. That starts with how we behave, and in demonstrating we act with trust and integrity. 

At banks this means the interests of customers and clients must be at the very heart of every decision made."

How very true!  

Spanish Youth Unemployment Soars

As our EU overlords seek to impose further austerity measures on their subjects, whilst at the same time seeking an increase in their own budget for 2013 of 6.8%, it is worthwhile remembering that the EU financial straitjacket is having real consequences for real people.

Spanish unemployment figures have hit a record level of 5,639,500 at the end of March (24.4%), with youth unemployment at a shocking level of 52%.

The EU may care to pause and reflect on those figures for a moment, before it continues with its self destructive quest to fill its bloated coffers with a 6.8% increase in budget.

"Free" Money - The Great PPI Giveaway

Courtesy of the greed and lack of ethics of our tainted financial services industry, there are billions of pounds to be "given away" by the recalcitrant banks and lending institutions that conned people into buying the now widely derided Payment Protection Insurance (PPI) policies.

Simon Gompertz has published the headline figures:

"The extraordinary scale of the PPI compensation grab:

£5bn compensation still to be paid out

12 million policies may have been mis-sold

800 claims management companies  trying to get a slice of the money

£2m a month being spent on advertising by these claims companies

They charge 25% or more in fees, plus VAT

Banks are making 50,000 compensation payments a week

That's around £400m a month being paid out

The payments average £2,750, some are £16,000 or more

Some say this massive cash payout could give a boost to the economy

How to claim compensation? Contact your bank, or the Financial Ombudsman Service"

Given that the banks showed no ethics in selling these now widely derided products onto their naive customers, there is no shame in asking for them to pay the money back (but don't waste money on using a claims company).

A Diamond In The Rough?

How much is a top banker really worth these days?

Well, if you are on the board of Barclays it appears that you believe that your CEO (Bob Diamond) is worth £17.7M.

Unfortunately for Diamond not everyone is of the same view. The Association of British Insurers (ABI) has sent its members an "amber alert" note raising concerns over Mr Diamond's pay (the second amber alert it has issued re Barclays).

ABI are less than impressed with the £5.75M contribution by Barclays to settle Diamond's tax bill he incurred when moving from the US to the UK.

ABI are not alone in being peeved at the size of Diamond's remuneration. Standard Life, Fidelity, Aviva and Scottish Widows are also up in arms about it. On Monday Pirc advised its members to vote down the deal.

So, how much is a "top" banker really worth?

The Financial Crisis Explained

Beware The ISDA of March

Following this morning's meeting, ISDA has announced that CDSs on Greek bonds have not been triggered, ie there is no credit event....yet.

However, ISDA has also stated that its decision may change as PSI progresses.

One might ask how it is that a 75% haircut is not a credit event, and has ISDA taken leave of its collective senses?

The answer is that we will have to wait until the CACs are used, before determining whether ISDA has taken leave of its senses (ie CACs will be th trigger).

Here is their statement in full:

EMEA Determinations Committee Statement March 1, 2012

In light of today’s EMEA Determinations Committee (EMEA DC) unanimous decisions in respect of the two potential Credit Event questions relating to the Hellenic Republic (DC Issue 2012022401 and DC issue 2012022901), the EMEA DC has agreed to publish the following statement:

The first submitted question (DC Issue 2012022401) asked whether the holders of Greek law bonds had been subordinated to the ECB and certain NCBs whose bonds were acquired by the Hellenic Republic prior to the implementation of new Greek legislation such that such subordination constitutes a Restructuring Credit Event. (The full text of the question is available here http://www.isda.org/dc/view.asp?issuenum=2012022401.)

The EMEA DC unanimously determined that the specific fact pattern referred to in the first submitted question does not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions (the 2003 Definitions) and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The second submitted question (DC Issue 2012022901) asked whether there had been any agreement between the Hellenic Republic and the holders of private Greek debt which constitutes a Restructuring Credit Event. (The full text of the question is available here http://www.isda.org/dc/view.asp?issuenum=2012022901.)

The EMEA DC determined that it had not received any evidence of an agreement which meets the requirements of Section 4.7(a) of the 2003 Definitions and therefore based on the facts available to it, the EMEA DC unanimously determined that a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.

Wheels Start To Come Off Greek Bailout

Unsurprisingly, less than 24 hours after the announcement that the bailout had been agreed and that the Greek crisis had been "solved", the wheels are now coming off the agreement.

There will be a G20 summit in Mexico on 25-26 February, where the EU will beg the IMF to increase its contributions to prop up its firewall.

Unfortunately, the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project. In fact, according to the Telegraph, the IMF will threaten to pull the plug on its contribution to the Euro130BN bailout unless the Eurozone creates a Euro750BN fund.

The small problem with this idea is that Germany has no intention of creating such a fund, because it would increase Germany's exposure to default.

Olli Rehn, the EU's economic and monetary affairs commissioner, wants to merge the European Financial Stability Facility (EFSF) with a new European Stability Mechanism (ESM) which has yet to be created.

The fantasy value of this yet to be created ESM is Euro500BN.

However, as with the ludicrous "values" placed on the busted flush of the EFSF, it is safe to assume that the ESM will never reach that level.

As with all matters pertaining to the Eurozone firewall and the bailout, the "leaders" of the Eurozone are building castles in the air.

Greek Problem Sorted - LOL!

Some of the media are happily pumping the Eurozone line that the Greek problem is sorted, and that now the second bailout of Euro130BN has been agreed (after a marathon 13 hour session of finance ministers) we can all move on.

Not quite, aside from the fact that the Greek economy is sunk and that borrowing money to pay off debt will not resolve this problem; the private bondholders (sans ECB, which protected itself by sleight of hand last week) will have to take a NPV haircut of 74%.

Institute for International Finance (IIF) crisis resolution official Jean Lemierre was only told of the size of the haircut this morning.

The "party line" is that the creditors will voluntarily accept his haircut. The reality is that there will be a few who refuse to have their "assets" further written down, as such Greece will have to enforce the Collective Action Clauses (CAC) and force the recalcitrant bondholders to accept the 74% haircut (this of course is a default event).

Aside form that, all Greece has to do is to reduce its debt from 160%to 120.5% of GDP in 2020.

"Easy"!!!!

LOL!

This is not over, by any stretch of the imagination.

Here is the Sustainability Analysis by the Troika dated 15 February (as you can see, this will not work).

Greek Sustainability Proposal

Greece Agrees To Escrow

The media report that Greece has agreed to an escrow account, whereby bailout funds will be deposited and distributed as and when Greece honours its part of the bailout deal; the escrow account formally subordinates national funding needs to those of creditors.

D Day For Greece?

Today, according to the media, is "D Day" (Decision Day) on the second Greek bailout.

Most in the mainstream media, egged on by spin and hype from the usual suspects in the Eurozone, are predicting that the bailout will be agreed and that the Euro130BN will be handed over to Greece without further ado.

However, scratch beneath the surface and the picture isn't quite so rosy.

In the event that the deal is agreed today, acceptance by Greece of the terms of the deal will in effect mean that it has defaulted.

For why?

The ECB has done a better deal for itself than other bondholders, and those that hold out against this subordination will be forced to take a 70% haircut (the is a default event, by any definition of the word).

Additionally, to add to Greece's woes, the Eurozone finance ministers (ever reluctant to trust Greece) are looking into setting up an escrow account which will be used to pay the bailout in tranches (if and when Greece honours its side of the deal).

Finally, in a comment not yet picked up by some in the media, Finland has said the deal will not be approved until 12 March.

Deal done?

No!