Big banks fail to regain trust of the public
The world's biggest banks have failed to regain the public's trust after the financial crisis, with many feeling they may now be too big to manage
Leaders of the world's biggest banks, from Citigroup's Vikram Pandit to Barclays' Bob Diamond, have failed to honour promises made in Davos to restore trust in their industry after the financial crisis.
UBS chairman Axel Weber, the former Bundesbank president who is serving as one of six co-chairs of the World Economic Forum's annual meeting in the Swiss ski resort this week, is taking a different approach. His bank is shrinking.
Weber, whose company is undergoing the most radical surgery among its global peers, will be joined in Davos by the chief executives of the world's nine biggest investment banks. All face a sceptical public after their firms were fined record amounts and took charges last year for misdeeds ranging from money laundering and rate-rigging to trading losses.
Mark Arena, a former head of communications for UBS, said that with each scandal, "the behaviour is described as unconscionable and unacceptable, and the following week there's yet another issue that comes forward. There is a growing suspicion among regulators and also among the public that these firms are just simply too big to be managed effectively".
Since Weber became chairman in May, UBS, which is based in Zurich, has been pummelled by past sins. Former trader Kweku Adoboli was sentenced to seven years in prison for unauthorised trades; the bank was found guilty of fraudulently selling interest-rate swaps to Milan; and it agreed to pay US$1.5 billion to settle claims that traders manipulated a benchmark interest rate. UBS is now cutting more than 15 per cent of its staff and shutting most fixed-income trading, to focus on wealth management.
Weber, 55, said: "There is now a debate on whether that's a unique strategy that UBS is following. Others need to decide what is right for them. But if we read the signs right, then I think we are understanding that the future of investment banking is changing."
Joining the debate in Davos will be Goldman Sachs's chief executive, Lloyd Blankfein, 58, who is returning for the first time since 2008, and JP Morgan Chase's Jamie Dimon, 56, making his third straight appearance. Dimon's pay for 2012 was cut by 50 per cent after his bank suffered a loss of more than US$6.2 billion on a trading strategy he called "flawed, complex, poorly reviewed, poorly executed and poorly monitored".
Diamond and Pandit, who both stepped down as chief executives last year, will not be visiting the Alpine resort this week. Pandit was co-chairman of the 2012 meeting. "Trust has been broken," he said at a press conference then. "Banks have to serve clients, not serve themselves."
Less than three months later, shareholders rejected the bank's executive pay plan amid criticism that it allowed Pandit to collect rewards too easily. Pandit, 56, sold his hedge fund to Citigroup for US$165 million and received US$15 million in cash over five years at the company. He was replaced in October by Michael Corbat, 52, who will be in Davos this week.
In 2011, Diamond said in Davos that the financial industry had not done a good enough job educating the public on "how we add to the quality of their lives". Diamond said that "we need to regain the trust of the public".
Diamond, 61, resigned in July after Barclays was fined £290 million (HK$3.6 billion) for attempting to manipulate the London interbank offered rate, or Libor. His departure came after British regulators said they had lost confidence in him. His successor, Antony Jenkins, 51, will be in Davos.
HSBC's then-chairman Stephen Green, speaking in Davos in January 2009 as banks were still reeling from the global credit crisis, said the business world was suffering from a lack of trust.
Last month, the company agreed to pay at least US$1.9 billion to settle claims by US regulators that it laundered funds for Mexican drug cartels and nations with sanctions imposed upon them, including Iran. The settlement, the largest such accord ever, involved behaviour alleged to have taken place from 2006 to 2010. Green, 64, who left the bank at the end of 2010, is now Britain's minister for trade and investment.
Banks and financial services companies are the least-trusted industries, according to a survey of more than 31,000 people in 26 countries released this week by the public relations firm Edelman. In developed markets, trust is 10 percentage points lower for those two industries than it was in 2008, according to Edelman.
Morgan Stanley's chief executive, James Gorman, 54, said at an industry conference in November: "We're going to be in the doghouse for a while." Gorman will be in Davos for the second time this week.