Do the crime – the shareholders pay the fine. Painless. But does crime pay for Lloyds Bank?

Talking to my twitter friends in the last few days, some of whom are in the process of taking legal action against various banks, I begin to wonder how much money banks are paying in legal fees these days? And I’m also wondering how much it would cost them to simply compensate people making serious allegations against them as opposed to going to Court? Would it be cheaper? Who knows but in cases where the evidence is indisputable, it would certainly help a bank’s reputation.

But no – in so many cases, they just insist black is white or rather, they get their very costly lawyers to say it for them. And even a simple letter can cost them a fortune, depending who writes it.

For example, over the past 7 years, I’ve lost count of how many letters Paul and I have had from the various legal firms in HBOS/Lloyds employ and quite a lot of them have come from Denton Wilde Sapte (now called SR Dentons), on behalf of Peter Cummings, Lord Stevenson, the Boards of HBOS and then LBG. And, because Paul and I have apparently upset the Bank so much with our allegations, those letters came from the then Deputy Chairman of DWS, Rory McAlpine (he’s left Dentons, so we haven’t heard from him for quite a while). Not only that, he also trooped up to the Cambridge County Court 6 times at enormous cost to the Bank, or rather it’s shareholders, in an attempt to secure our eviction – which fortunately, didn’t happen and in which he was not instructed.

Mr McAlpine is no lightweight in the legal world and, as top lawyers and certainly Partners in the big law firms, demand and get top dollar, those letters will not have come cheap: Britain’s biggest law firms are shamelessly exploiting the maxim that “you get what you pay for”, with hourly fees at record levels of £850 an hour, according to new research. Independent 26 November 2013 http://www.independent.co.uk/news/uk/home-news/justice-costs-fury-as-lawyers-fees-top-850an-hour-8965339.html

Admittedly most of the legal letters we’ve had from HBOS or Lloyds Banking Group, have been quite short (it takes a limited amount of words to say bugger off) but, as the letters they were replying to were generally rather long (we were trying our hardest to give them the full picture of what was going on in their HBOS Reading branch), it’s fair to assume that, between receiving instruction to write on behalf of the Bank’s Board, then reading our letters and writing the reply, Rory would have spent a couple of hours per letter. That’s at least £1700.00 per letter. Okay, so letters from someone like Mr McAlpine (who now advises Mr Abramovich) were always likely to be fairly costly but, even junior lawyers in the magic circle law firms get charged out at £450 – £500 an hour these days. Lets say £900 per letter. Then multiply that by 1000? 10,000?

Here’s some stats from Moneywise: In the last six months of 2013, Lloyds bank were the most complained about bank with 40,500 complaints going to the Financial Ombudsman; 2nd came Bank of Scotland, with 39,134 complaints to the FoS. http://www.moneywise.co.uk/news/2014-03-04/lloyds-tops-list-most-complained-about-banks

Erring on the side of caution, it would be fair to say about 150,000 people complained about Lloyds TSB or BoS in 2013. Many of those will have got the bog standard, in-house letters to say get lost but, assuming 20% merited at least one letter from the likes of Dentons or Herbert Smith or who ever is currently flavour of the month, at £900+ per letter, that works out at £27M – from one Bank.

Then add the fines – including the fines for handling customer complaints badly. In 2013, the FSA fined Lloyds Banking Group and BoS a total of £32,343,800.00. And that money was paid for (of course) by the shareholders. Did it do any good? Apparently not, because on 28th July this year Lloyds bank Plc and BoS were fined £105M for “serious misconduct relating to the Special Liquidity Scheme (SLS), the Repo Rate benchmark and the London Interbank Offered Rate (LIBOR). http://www.fca.org.uk/firms/being-regulated/enforcement/fines

As part of the ‘agreement’ reached, Lloyds also had to pay £62M to the Commodity Futures Trading Commission and £51M to the Department of Justice in the USA. And to top it all off, the bill for PPI payments from Lloyds has almost reached £10BN: The cost of the payment protection mis-selling scandal has hit more than £22bn after Lloyds Banking Group said it was setting aside an extra £1.8bn to compensate customers. It takes the cost for Lloyds alone to just short of £10bn after the bank, which is one-third owned by the taxpayer, revealed the extra costs in a surprise trading update less than two weeks before its annual results announcement.
http://www.theguardian.com/business/2014/feb/03/lloyds-ppi-compensation-bill-10-billion-pounds

Then there’s the various shareholder groups waiting to sue the Bank with group actions (one group is apparently suing for £4BN) and, of course, the many SME owners who are due compensation for the many and various ways their businesses have been destroyed by the Bank.

My point is: surely we have reached the stage where banks and bankers should start realising ‘crime does not pay.’ Yes it may have worked for years for the Mafia and Organised crime syndicates but they don’t have to worry about their reputations. If anything, their crimes have been glamorised by the media and the public and, whatever atrocious crimes they commit, end up, sooner or later, as blockbuster movies or spectacular TV series. But what works for Tony Soprano (RIP) just doesn’t work for bankers. Villains or professional criminals work with the motto “if you can’t do the time, don’t do the crime.” Bankers, on the other hand, seem to have a motto of “we commit the crimes, the shareholders pay the fines but we always get our bonuses.” People are getting sick of it. Bankers make lousy bank robbers, they get caught all the time and worse than that, our regulators make lousy sheriffs, they do eventually catch the robbers but only penalise the victims (shareholders).

I read an article today by Mark Kleinman, Sky News, where he quoted Antonio Horta-Osorio saying:

“Enforcement and fines have an important role as a credible deterrent against future misconduct.
“But the new rules will potentially reverse the burden of proof where individuals are guilty until they prove themselves innocent in the eyes of the regulator.
“I worry that this could incentivise people to do nothing, as they could waste their time trying to create a paper trail rather than doing what they should be doing, focusing on customers.
“Secondly everyone makes mistakes. If you do a major thing wrong like causing the failure of a bank you should be held accountable for the decisions that you made. But we need to separate the major mistakes from the small ones which will always happen.”

I totally agree Mr H-O, everyone makes mistakes – but that’s where we part company. The mistakes Lloyds Bank sees as “small ones”, are actually the mistakes that ruin people’s lives. And, in the case of the many SMEs that have been totally trashed by HBOS/Lloyds, was that a mistake or was it, as it seems with GRG, a deliberate policy?

I get it that many of the mistakes Lloyds are dealing with now, were in relation to BoS, HBOS or the former management of Lloyds Banking Group but, unfortunately, it’s your watch now Mr H-O. In my opinion, it would be much better for Lloyds Bank to really deal with the skeletons of the past and then go back to traditional banking. The way things are going, a few more major fines, a couple of big group actions by unhappy shareholders, a lot more SME owners suing the bank and a few thousand more of those £900 legal letters – there won’t even be enough money left to buy hay for the black horse. As things stand, the only winners are the lawyers, who must be thoroughly satisfied with ‘bank conduct’, because its making them a fortune. And don’t get me started on auditors and administrators, who seem to be doing as well if not better than the ‘consigliere.’

p.s I wrote this blog last night (Friday 15th) and the first thing I’ve seen on twitter this morning is another article in the Daily Mail about the horrendous sales culture in Lloyds Bank. What’s wrong with this Bank? Is it trying to lose customers? And, considering the ongoing sales culture, how did the Bank manage to include the following in last year’s annual accounts (page 43 of Lloyds Banking Group 2013 results):
Conduct Risk:
Principal risks

As a major financial services provider we face significant conduct risk, including selling products to customers which do not meet their needs; failing to deal with customers’ complaints effectively; not meeting customer expectations; and exhibiting behaviours which do not meet market or regulatory standards.

Mitigating actions

Customer focused conduct strategy implemented to ensure customers are at the heart of everything we do.

Product approval, review process and outcome testing supported by conduct management information.

Clearer customer accountabilities for colleagues, including rewards with customer-centric metrics.

Really?

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