Cash is king when bankers race to get ahead
MOVIES about the global financial crisis of 2008 — think The Big Short, or Too Big to Fail — largely blame the greed of US bankers and their peers in the City of London.
The global economy and emerging-market nations such as South Africa come across as victims of the excesses of Wall Street and London.
But what has become evident from the Competition Commission probe that named traders at three of South Africa’s leading banks — Barclays Africa/Absa, Investec and Standard — is that perhaps the blame needs to be spread more widely.
The commission said altogether 18 banks were involved in colluding to manipulate slight movements in the dollar/rand exchange rate.
Given the globalisation of financial markets, it was perhaps inevitable that the US investment banking culture exemplified by failed institutions such as Lehman Brothers would spread.
Indeed, the parent company of Barclays Africa, Barclays plc, was fined a record amount by UK authorities in 2012 for trying to manipulate interbank lending rates. Bob Diamond was forced to quit as CEO.
It now appears that the rot may have spread to Barclays plc’s South African subsidiary, in which it acquired a controlling interest in 2005.
This week Maria Ramos, CEO of Barclays Africa, issued an apology for the bank’s involvement in the exchange-rate shenanigans exposed earlier this month by the Competition Commission.
Ramos says the bank has had to take a journey to try to understand “who we are, what we’re about”.
She says efforts to change the culture throughout the Barclays plc group were launched after the Libor scandal, in which Deutsche Bank, UBS, Rabobank and the Royal Bank of Scotland were also implicated.
The Libor collusion dated as far back as 2003 and the interest rate manipulations happened almost daily. Libor (the London InterBank Offered Rate) underpins more than $300-trillion worth of loans globally.
At the heart of much of banking skullduggery is the way corporate incentive programmes reward staff performance — many employees are tempted to ignore ethics in the pursuit of riches.
Ramos says it is important to match incentives with conduct. “We never just pay people for what they do, we also pay people for how they go about doing it.”
She says that although the industry offers the potential to “make it big”, anyone in Barclays Africa who “went about that badly — if the how wasn’t within our values — may not get paid very well”.
Simon Brown, founder of Just One Lap — an investment education platform — says industry regulations has been tightened to curb outrageous remuneration and to hold people and organisations more accountable.
As far as the image of the highflying banker goes, the industry is no longer what it used to be, he says.
“It’s better to be a lawyer, particularly in a merger and acquisition space — you’ve got as many lawyers as you have bankers but bankers are under more supervision,” Brown says.
Still, banking scandals continue to make headlines around the world.
In September last year, Wells Fargo announced it was paying $185-million (about R2.4-billion) in fines to Los Angeles city and US federal regulators to settle
We never just pay people for what they do, we also pay people for how they go about doing it
allegations that its employees created millions of fake bank accounts for customers.
According to Forbes, the fraud appeared to stem from the then CEO John Stumpf’s mantra to employees, “eight is great” — meaning get eight Wells Fargo products into the hands of each customer.
But employees struggled to meet the quotas and satisfy their managers so they cut corners by opening accounts for customers and issuing them credit cards — without the customers’ knowledge.
For banks, generous financial rewards are a big part of attracting and retaining the best people.
“It’s a very competitive market for skills,” says Ramos.
“Banking is about getting the right people and getting good people.
“We have to pay them appropriately to compete effectively for those skills.”