BUSINESS CLASS: Banking on justice

This week our travels take us to 10 Downing Street, where they're fighting over who will wield the bank-bashing stick, to Melbourne, where an angry mob is baying for refunds, to Wall Street, where prosecutors are still searching for the smoking CDO.

It's war. All over the world, bankers are donning their flak jackets and scurrying into their bomb shelters as the air raid sirens sound above them. From Wall Street's investment giants, to Australia's own small financial pond and the rarefied heights of Switzerland's tax havens, banks have come under attack as politicians and regulators worldwide respond to the post-GFC zeitgeist that has them well and truly installed as public enemy number one.

In the UK, the new David Cameron- (and Nick Clegg-) run 10 Downing Street is already experiencing its first in-house ructions, and the issue behind the tensions has the City on tenterhooks.

The problem, says The Guardian's Julia Finch, is that two men – Vince Cable, the high-profile Liberal Democrat and newly appointed secretary of the government's Business, Innovation and Skills (BIS) department, and the new Conservative Chancellor of the Exchequer, George Osborne – "are tussling over is who gets responsibility for overseeing the banks and ensuring that bankers ...can never again take the economy to the brink of collapse."

"Osborne's people say it is his job," writes Finch, "and he will be chairing a cabinet committee [on which Cable will be sitting] that commissions a report into splitting the mega-banks in two, so that retail banks and investment banks cannot be part of one group."

But Cable, who dubbed bankers "pin-striped Scargills" in the recent economics debate, clearly wants to "drive forward a radical shakeup of the industry", say The Guardian's Larry Elliott and Jill Treanor. And just as clearly, he thinks Osborne is too much of an economic lightweight to do this job himself.

"Osborne has talked tough on banks," says Finch, "but Tory instincts (and funding) suggest a more emollient approach to the financial sector than that of Cable."

So while it looks like British banks have had a reprieve for now, they needn't get too relaxed, adds Finch. "It may be a taste of things to come because, although the coalition agreement states 'we agree' on so many measures, Cable clearly thought he alone had the remit to bash the banks into the required new shape." And it's unlikely he'll go down without a fight.

In Australia, there's a small battle being waged by the people, with over 40,000 businesses and individuals signing up for a class-action lawsuit, headed up by law firm Maurice Blackburn, against 12 of Australia's major banks for allegedly charging exorbitant amounts for overdraft fees.

Maurice Blackburn's chairman Bernard Murphy has said that under contract law in Australia, banks are entitled to charge for contractual breaches like having a cheque dishonoured, or honoured outside the normal overdraft limit, or being late with a credit card payment, "(but) the banks are entitled to charge only the actual cost of that breach – a genuine pre-estimate of that cost." And obviously there are plenty of ordinary people out there who feel confident that they have been taken for a ride on this.

And a public that has lost faith in banks is not good for business – just ask Paul Edwards. The GM of corporate communications at ANZ was this week blindsided by allegations that workers at one of the bank's inner city Melbourne branches had been using the internal email system to deal drugs.

"Something like this in a bank of all places is an incredible shock to people and a real disappointment given that trust and integrity are actually key to running a bank," said Edwards. Actually key.

Meanwhile, in the US of A, "there is a sense out there that what Wall Street did to the rest of America is downright criminal," writes Ann Woolner on Bloomberg.

And if the recent actions of Bank of America Corp CEO Brian Moynihan are anything to go by, there's a sense on Wall Street that they'd better start toeing the line on regulations – or at least appear to be doing so.

According to Valerie Jarrett, the women described as Barack Obama’s "liaison to corporate America", Moynihan has "been willing to speak out bravely in his industry on the need for reform measures... And he has been willing to come to Washington and roll up his sleeves and work on the issue."

It's an unusual stance, say Julianna Goldman and Hans Nichols on Bloomberg. "While many US banks’ chief executive officers publicly oppose at least some elements of ...Obama’s plan for financial regulation, Moynihan... backs a consumer financial protection agency, addresses shortcomings the administration finds with his bank’s home-loan modification program, and pursues small business initiatives in collaboration with the White House."

Well played, we say. Especially considering the recent news that prosecutors are digging for more possible crimes on Wall Street.

This week, says Woolner, "the Wall Street Journal reports Morgan Stanley has got investigators peering into its conduct, citing unnamed sources. This came as a surprise to the firm’s chief executive, James Gorman, which is itself surprising.

"And yesterday the paper reported the SEC and federal prosecutors are joining forces in a preliminary probe that’s resulted in civil subpoenas for JPMorgan Chase & Co, Deutsche Bank, UBS, and Citigroup."

"...And while the feds are doing that, New York Attorney General Andrew Cuomo’s office is trying to find out whether investment banks misled rating companies into over-rating the derivatives they concocted, the New York Times reports."

And if that isn't enough to give your average investment banker dyspepsia, how about the news that the hallowed practice of "using Swiss banks to hide from the tax collector" is set to be nixed.

"As Swiss lawmakers appear poised to resolve a tax dispute between UBS and Washington, one thing is becoming clear: an end to absolute banking secrecy will change the country’s pre-eminent financial sector," says Matthew Saltmarsh in The New York Times.

"Niche private banks that previously specialised in undeclared assets in Geneva and Zurich will have to adapt, and some may fail, analysts and academics predict. Those that remain will have fewer assets to manage.

"...The changes are being wrought not only because of what is known in Switzerland as the UBS bill, which parliament is expected to pass early next month. Several updated tax treaties with the United States, France, Germany and other countries, by promising government cooperation, also aim to dissuade would-be tax dodgers from trying to shelter undeclared assets in Switzerland."

But is all this investigating and questioning and shining of light and dissuading really anything for bankers to worry about? Woolner thinks not:

"Dig into the emails and the prospectuses, draft and final versions. Question anyone who can shed light. Look for evidence of traders touting mortgage-related securities they knew were overpriced, hiding crucial information that should have been disclosed to buyers. ...But don’t assume that agents will be parading handcuffed financiers before cameras any time soon. It may feel like we’ve been robbed, but proving a crime even occurred is tough when the weapon isn’t a Colt .45 but a synthetic collateralised debt obligation."

And she's got a point. Just look at the efforts by the SEC to prosecute Galleon co-founder Raj Rajaratnam, who was indicted last December as part of the largest ever hedge fund insider trading prosecution. When quizzed about some cryptic instant messages he had sent to a market analyst, Rajaratnam, who has pleaded not guilty, said: "We were going to see cricket in Trinidad... We were talking about the cricket packages.” Cricket. Of course.

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