Gulliver protests too much about bank scrutiny
HSBC Holdings chief executive Stuart Gulliver sounded more than a little peeved during the bank's results press conference when he observed in response to questions about its "compliance failures".
"It seems to me that we are holding large corporations to higher standards than the military, the church or civil service - Douglas and I should be aware of everything that is being done within the organisation," said Gulliver, referring to chairman Douglas Flint. "Can I know what every one of 257,000 people is doing - clearly I can't."
It is tempting to repeat that old mantra "he still doesn't get it". But we suspect he does. Nevertheless, we feel it is premature for banks to start getting on the front foot again. They still have a lot to answer.
The bank's governance problems were not simply a case of one rogue banker, but activities that involved whole departments. Indeed, in the heady days of the US subprime mortgage boom, a lot of people were involved - a whole section of the bank was "rogue". Yet when asked senior bankers at HSBC some years ago how all that could have happened, there was a shaking of heads around the table, and we were told "they were a law unto themselves and we never knew what was going on".
You would have thought large corporations have by now figured out the management systems and the kind of people they need to have in place so that people at the top can have confidence in the various sections of the bank. You can't help feeling that when non-compliant behaviour among employees is widespread, someone senior must be aware.
Referring to the practice of helping clients evade tax at its Swiss business, Flint said on Monday the affair was "totally humbling" and conceded "yet again it is a sign that we did not fully understand" what was going on inside the bank. Yet, to the outside observer, Swiss banking and tax evasion go together like rabbits and the lettuce patch.
Gulliver said the increase in staff numbers from 136,000 in 1998 to more than 300,000 in 2006 meant the bank "did not have strong enough controls" to police itself. Since taking over, he has laid off about 50,000 employees and closed 77 businesses. So it was slightly disconcerting to hear him saying he cannot know what all of his 257,000 employees are up to. That's not the point. Does he have the confidence that the bank is now at a sufficient size to police itself? The answer for the moment is unclear.
As to complaining about being held to unreasonably high standards, the banks only have themselves to blame, given their role in the global financial crisis. People still feel pretty raw about the crisis and its aftermath. Quantitative easing has been toxic - not for the banks of course, nor for the rich. The resulting asset inflation has widened inequality around the world, exacerbating social tensions.
There are those that will say deregulation in the banking industry over the past 20 years and the resulting growth in financial services, credit and financial wizardry has been a wonderful thing and good for all. But it has also been a period in which while the banks and other corporates were able to flourish, they flagrantly broke the rules until it all blew up with catastrophic consequences.
In his book, , Joseph Stiglitz, a Noble prize winner and the former chief economist of the World Bank, says of this period: "Those at the top have learned to suck money from the rest in ways the rest are hardly aware of. That is their true innovation."
Many people feel exploited and betrayed by the banks and it is for this reason that people want to hold the banks to high standards.
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