Opinion: When bankers go rogue

by Tayo Oke

They are usually thoughtful, smart, alert and trustworthy; they know what they are talking about even if they make you sad by refusing to meet your requests. Such is the iconic image of bank managers etched on many peoples’ minds as they carry out their affairs with their bank. A crooked bank manager is such an aberration that it is not even worth pondering, or so it seems until the Lehman Brothers’ forced collapsed and liquidation in America in 2008 punctured this settled image of the village bank manager who would not hurt a fly from our collective psyche. So, now, it is official: bankers do engage in fraudulent activities, and many have even gone to jail recently in various trading countries for that reason, including, notably the United States of America and the United Kingdom. The latest saga to afflict a major bank in the latter is the scandal of manipulation and market abuse levelled at Barclays Bank, for which it has been fined a staggering £300m (N750bn) by the regulator. The offence involved a cynical manipulation of the London Interbank Offered Rate, a benchmark interest rate used across the world, whose shifts have implications for trillions of dollar worth of assets, including, business loans, mortgages, personal loans, credit cards, etc. It is being described in financial circles as the “Wall Street scandal of all scandals”, “rotten heart of finance”, “the mother of all scandals” etc; there is an on-going Congressional hearing into this as I write. Since our economies in Africa are still tied to the apron-strings of the industrialised West, it is only right, therefore, that we try and put things in a perspective for ourselves.

During the 2007-9 period, at the height of the financial crisis, banks were worried about their balances, and so connived in submitting lower than usual borrowing rate for their calculations. It is a straightforward lie to appear solvent and prudent to the outside world. They then went about lending in the open market at a lower rate than would have been possible under a serious financial constraint. That, in turn, affected the rates of return for major investors: pension funds, derivatives, mutual funds, adjustable mortgage rates, etc. They collected less profit than would have been possible in an unrigged market. Barclays informed their staff, we are told, on a weekly basis, of the rates they were having to charge to clients and the rates at which Barclays was borrowing. According to an account of a whistle-blower in the London’s “Independent” newspaper of Saturday July 7th, Barclay’s chief executive, Bob Diamond, ran the show at the bank with the ruthlessness of a Julius Caesar. Senior staff were put on so much pressure to deliver on targets through the CEO’s policy of “escalation” i.e. anything that goes wrong in any department immediately gets escalated right up the chain of command in the bank, and if you do not, and later found out, you are booted out of the organisation. Mr Diamond, we also learn, built a “Darwinian environment where large egos prosper and sensitive souls suffer”.

I am sure the above will sound familiar to a lot of people in our own banking environment in Nigeria. The banks offer eye-popping salaries to their executives in return for what amounts to the bank’s virtual takeover of their lives. They work to meet deadlines and targets always with one aim: increased margins. It is not surprising therefore, that many take excessive risks, with only a modicum of supervision. It is this shift in focus from looking after people to looking after money that has characterised today’s banking environment. When banks used to be banks, lenders and borrowers knew one another by name, they formed close relationships with one another, and the bank acquired the information they needed to evaluate their investments. Since our banks have merged their commercial and investment arms, the risks have become even greater. Our banks have now become major players in the securities market; they have thus become traders in information rather than traders in people. The investment arm of their operations involves, in the main, the issuance of new securities by corporations and entrepreneurs in need of capital. In addition, they also act for the federal and state governments in issuing debt securities (or primary market). The environment in which the securities are traded upon issue is the Nigerian Stock Exchange (or secondary market). This is where one of the so-called distressed banks, the former Intercontinental Bank, perhaps overplayed its hand. A bank bent on making quick, large returns would invest in firms they themselves are advising at inflated figures, they get involved in venture capital investments in order to close deals on fledgling and vulnerable medium-sized businesses, and render advisory services to secondary market investors through their asset management arms. In short, the bank executives remain bankers in name only because the skills and competencies they develop overtime shift so far away from finance to interpretation of information at best, and casino-like wheeling and dealing at worst.

It is true that bankers in advanced economies have fallen into disrepute recently. Our own bankers can thus take solace in the belief that they are not alone in suffering from the contempt in which they are now held worldwide. We learnt of the “distress” our bankers created for our economy, which forced the Central Bank of Nigeria to bail them out with the taxpayers’ money. We also learnt of their continuing inability to return to serving small businesses in the community through regular lending. It is hard to imagine any change in this financial stalemate though, until and unless the traditional division between commercial and investment banks is restored. The incessant focus by bank executives on high risky margins takes them away from their primary responsibility of lending and supporting long-term investment in the economy, from which they have derived so much in the last couple of decades. Unless this happens, the prediction by a former Governor of CBN, Prof. Chukwuma Soludo, when addressing the House of Representatives on the financial crisis that massive bank failures will happen again in our country might become a reality sooner rather than later. Put it this way, when you give a young ambitious man billions of naira to play with in an air-conditioned office complex in one of the smartest streets in Lagos, you throw lavish incentives at him to cushion the pains of long and excruciating office hours, in effect, you give him the whole bank to use as his personal fruits machine, and if he gets things right, the boss allows him even more latitude to gamble by awarding him extravagant bonuses and share options. If and when it seems it is all coming crashing down, the CBN jumps in to the rescue. The liabilities become ‘socialised’, but the bankers’ gains remain personal. In this (all too common) scenario, it becomes inhuman to eschew greed and criminality from the midst of bankers and other financiers. In conclusion, yes, bankers also go rogue in the West, but with one notable difference; they invariably get caught sooner than later, charged to court, convicted and gaoled. With us though, a few rogue bankers are ever detected let alone caught; and on the rare occasion that they get charged to court, they get a derisory sentence, or worst, have the case dismissed for lack of evidence or diligent prosecution.

This piece was originally published in Punch.

 

Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

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