$3.3 billion, even to most corporations, represents a vast sum of money, however the investing public have become so used to financial services regulatory authorities issuing banks with extremely high fiscal penalties for a recent succession of transgressions, that a perception has arisen in which banks can afford to easily settle fines, no matter how high they are, without much ado.
But can they?
Following the recent fiscal penalties issued to six major banks on conclusion of the investigation into FX rate manipulation by Swiss, British and American regulators which resulted in a collective fines to the tune of $3.3 billion, one particular British bank has resorted to issuing a staff memorandum requesting assistance from employees in being able to “play their part and help to improve their local RBS or NatWest branch through painting, tidying up and general DIY.”
RBS was subject to a $399 million fine in November upon closure of investigations into FX rate fixing by the Financial Conduct Authority (FCA).
According to a report by British news source The Daily Mail, the memorandum was circulated company-wide and subsequently leaked to the Politics Home website, asking bank staff to commit their spare time to performing general maintenance, minor repairs and even cleaning duties within retail branches.
Whilst the company denies that this is an initiative to reduce costs, instead positioning the initiative as a means of engendering camaraderie among staff with the memorandum detailing that it is intended to “demonstrate the power of Working Together”, its timing is interesting as it was issued just a few days subsequent to the fines levied on the bank by the FCA for its part in the FX rate manipulation case which was closed not in favor of the banks in November this year.
Aside from having to pay fines to the FCA for FX trading malpractice, the company’s retail banking operation was issued a £56 million fine for a computer malfunction two years ago which locked millions of customers out of their accounts.
With regard to the new policy of asking employees to assist with extra-curricular activities, an RBS spokesman said: “In the last year, we have invested over £100million in refurbishing and modernising our branches across the UK. This initiative is voluntary, and enables our head office teams to spend more time in branches and lend an extra pair of hands to do simple tasks such as clear out cupboards or filing, allowing front-line staff to continue to focus on our customers. Over 300 members of staff have signed up to get involved in the last 24 hours.”
The bank’s woes began when several years ago with former CEO Fred Goodwin’s strategy of aggressive expansion primarily through acquisition, including the takeover of ABN Amro, eventually proved disastrous and led to the near-collapse of RBS in the October 2008 liquidity crisis. The €71 billion (£55 billion) ABN Amro deal (of which RBS’s share was £10 billion) in particular stretched the bank’s capital position – £16.8 billion of RBS’s record £24.1 billion loss is attributed to writedowns relating to the takeover of ABN Amro.
It was not, however, the sole source of RBS’s problems, as RBS was exposed to the liquidity crisis in a number of ways, particularly through US subsidiaries including RBS Greenwich Capital. Although the takeover of NatWest launched RBS’s meteoric rise, it came with an investment bank subsidiary, Greenwich NatWest. RBS was unable to dispose of it as planned as a result of the circumstances surrounding the collapsed energy trader Enron.
However the business (now RBS Greenwich Capital) started making money, and under pressure of comparison with rapidly growing competitors such as Barclays Capital, saw major expansion in 2005-7, not least in private equity loans and in the sub-prime mortgage market. It became one of the top three underwriters of collateralised debt obligations (CDOs).This increased exposure to the eventual “credit crunch” contributed to RBS’s financial problems.
In 2008, the majority of British banks collapsed and required a large scale taxpayer-funded bailout by the British government, resulting in the nationalisation of most large banks as the vast debt that they had racked up became unserviceable.
Goodwin left the bank, taking with him a sizeable pension of £693,000 a year which was later revised to £703,000. The treasury minister at the time, Lord Myners, had indicated to RBS that there should be “no reward for failure”, but Goodwin’s pension entitlement, represented by a notional fund of £8 million, was doubled, to a notional fund of £16 million or more, because under the terms of the scheme he was entitled to receive, at age 50, benefits which would otherwise have been available to him only if he had worked until age 60.
In terms of the outlook for senior, highly rewarded employees, RBS and HSBC have notoriously paid less remuneration to FX traders than rival Barclays over recent months, however Barclays has suffered similar downturns in performance which led to it offloading entire business units, and considering the redundancy of some 19,000 staff across all sectors of its global operations.
In dire times such as these, it is clear that banks can no longer afford to stump up large capital sums for regulatory fines, just as employees, whether senior or not, can ill afford to jump ship when faced with adversity for fear of not being able to find gainful employment at a different company.