DECEMBER 13, 2010.
How Bankers Get Away With It
They are selfish, ruthless, unpredictable scoundrels. Doesn't a tiny part of you want to be like them as well?
By ADRIAN MAILE
In the 1980s I worked for Lloyds Bank, at that time one of the big four High Street banks in the U.K. In one memorable year late in the decade, the bank's executive team saw fit to write off more than £1 billion to account for bad debt exposure in Latin America. What do you think happened to the share price? Did it go down? No. It went up.
Now call me old-fashioned, but how could the bank's shareholders—and I was one of them at the time—have ever expected that? How could such a massive write-off be seen as positive?
The bad debt was clearly caused by management stupidity and over-exposure to market risks, the value of which more than equalled the bank's entire annual profit. However, the "market" stunningly, and completely, overlooked the mismanagement and flagrant disregard for the capital the bank held, and focused instead on the write-off, judging that this solution to the problem had been the "prudent" thing for management to do.
The last time I looked, being prudent was about being risk aware, considered, savvy, careful and conservative with one's money. So how can a bank that has given away an entire year's profit by offering risky loans to beneficiaries that could never ever repay the interest on the interest, let alone the principal, be seen as "prudent"?
What happened here is what usually happens to bankers: 1. They made a massive mistake with other people's money; 2. They then had to take action to fix the problem; 3. The market forgot to punish them for step 1 before rewarding them for step 2 (which never would have happened if they had been competent in the first place).
Bankers are almost always allowed to move on. In the case of Lloyds Bank, no one was hung out to dry, no one was let go, demoted or moved sideways. The bank just shrugged off a billion-pound screw-up and moved on stronger than ever (until next time. . . ).
The 2008 financial collapse was similar to the problem faced by Lloyds more than 20 years ago, just more global and more widespread and deeper and more catastrophic. It wasn't just one bank, it was nearly all of them that had piled into high-risk market instruments and got burned. This time, the banks found it a bit tougher to be forgiven—some were not. Share prices dropped to the floor, confidence was rocked worldwide, and no amount of financial engineering could hide the problem.
There was a massive global backlash as economies dived into recession. The fattest of the fat cats were vilified publicly. Heads and even whole banks rolled. There was nowhere to hide. Well, nowhere apart from one solace: our governments, which used taxpayers' money to bail out the banks. They had to—only an unlucky few banks could be allowed to fail.
Now, a little further on, slightly more strongly regulated and scrutinized, most have survived and are back making billions in profits for their shareholders, repairing their market capitalizations and rebuilding their status. Again, they have been allowed to move on.
How can this be? How can the bankers be back in play so quickly? Top of the tree again, lining their pockets, while most people struggle to make ends meet because their tax money went to the bankers and their services are being cut back as a result.
I'll tell you how: Bankers are selfish, tough, ruthless and unpredictable. They are scoundrels. They operate a simple business policy, known in my day as 3-6-3: Take deposits at 3%, lend at 6%, and be on the golf course by 3 p.m.
Now don't think for a moment that I am admonishing bankers. I'm not. I admire them. I admire the way that they are so completely committed to their own personal gain that the world makes exceptions just for them. Doesn't even a tiny little part of you want to be like them as well?
Mr. Maile is the author of "Secret Habits of Successful Bastards" (SB Publishing, 2007) and "How to Be a Successful Bastard" (SB Publishing, 2009).
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