Banks' £1 trillion dicey bets
Posted by Jamie at 8 35 PM on Saturday, June 12
BANKS like bailed out giant RBS have gambled over £1 TRILLION of money they don’t have on high-risk bets.
Ten international banks - including the Royal Bank of Scotland and Barclays - have put staggering sums on risky bets which could leave them empty handed.
And hundreds of billions of pounds worth of the assets of banks - including those bailed out by the taxpayer - are still linked to risky products that helped caused the banking crash.
The shock findings come as a major report calls for the big banks to be broken up and rogue traders struck off.
In total the 10 banks have risked £1.1 trillion of money they don’t have on derivatives - hugely complicated financial products linked to underlying assets.
The “products” are complicated mathematical formulas which rely on the value of another asset – such as a stock or American housing market – but have no physical worth themselves.
They can reap huge rewards, but if they don’t come off they can leave the banks with NOTHING.
Derivatives are hugely controversial because they helped cause the devastating banking crash.
But its latest annual accounts reveal 30 per cent the assets of Barclays - £416 billion - are still linked to bets on derivatives.
RBS - 84 per cent owned by the taxpayer - has 20 per cent of its assets - £421 billion - resting on derivatives bets.
Ten per cent of HSBC assets - £174 billion - are linked to such bets. For Lloyds - 41 per cent of which is owned by the taxpayer - the figures is just 5 per cent. But that still adds up to a massive £49 billion.
The scandal shows the banks have not learned the lessons of the catastrophic crash.
And there is further evidence that they have returned to business as usual and are still paying out bumper rewards.
In the year before the crash British banks paid out £10 billion in bonuses. The investigation by Channel 4’s Dispatches programme reveals in 2009 they still paid out £6 billion. And many bankers got 300 per cent increases in their base salaries.
Expert Sean Springer, who advises banks on pay levels, said: "An individual earning a million pounds would get a £100,000 basic salary and £900,000 bonus.
“Today they're getting £300,000 basic salary and a £700,000 bonus." City Head Hunter Chris Roebuck said: “What really happens is that they are altering the way they are paying people so that they can say to the public we're actually paying lower bonuses, but most of the people in the organisation are actually getting just the same money as they were before."
The analysis also finds the financial sector doesn’t contribute nearly as much as thought to the British economy.
Banks are resisting reform, claiming they make a pivotal contribution to taxes and jobs.
But the total taxes paid by the sector in the six years to 2008 was £193 billion - a sum wiped out by the banking crisis.
Over the same period the manufacturing sector contributed almost twice as much - £378 billion.
The financial sector employs the same number of people it did in 1991.
And in the decade before the crash just 3 per cent of banks’ cumulative lending went to manufacturing firms.
The findings come as a commission on the future of banking calls for sweeping changes.
The commission includes heavyweight figures such as Business Secretary Vince Cable, top economist Roger Bootle and Tory big-hitter David Davis.
It calls for banks to be completely restructured so their investment advice is separated from their trading.
And it demands “living wills” detailing how the collapse of a bank would be managed. These should make sure that within any banking group the core deposit and lending functions and the payment system are ring-fenced.
A new class of “safe haven” accounts should be set up with a 100% guarantee. They would only be invested in safe assets.
The commission also calls for a code of conduct for bankers. And those who breach it should be struck off like doctors.
It also says to stop mis-selling banks should no longer reward frontline staff for increasing sales.
Instead they should get bonuses linked to customer satisfaction.
And it says bank boards rather than regulators should take primary responsibility for the stability of their institutions.
Commission chairman Mr Davis said: “Banks provide a vital service to the economy, without which no modern nation can survive or prosper. Nevertheless, fatal flaws in the structure, regulation and behaviour of the banks almost crippled the world economy in the last few years. The United Kingdom cannot afford to face such a crisis again. Nor can it afford to allow the fundamental weaknesses in its banking system to go on, precisely because the economy depends so much on an effective and efficient financial system.”