As noted in my review of 2020, bankers behaving badly is a significant theme. And the beat goes on in 2021 with stories reflecting this unfortunate trend. It is my opinion that until banks create cultures that value and celebrate ethical behaviour, this trend will not stop. Unfortunately for far too many banks the only culture they seem to create is one focused on making money regardless of the behaviours used to do so.
As in the past Deutsche Bank continues to be a leader in this area. On 8 January the Financial Times reported that Deutsche Bank would be paying yet more fines – this time $125 million. The underlying issue for most of the fine was the use of “business consultants” who were paid fees that were used to conceal the payment of bribes to acquire business. And on 25 January the Financial Times reported that Deutsche Bank had started an internal probe to look at the potential mis-selling of products to clients with the potential that some of the profits realised by Deutsche Bank were shared with co-workers of the clients. This time Deutsche Bank was taking the lead in the investigation and keeping its regulators informed but nevertheless the culture of the bank becomes a question. What a shame that the energy and knowledge of the bankers involved were not focused on helping clients rather than looking for easy (albeit illegal) ways for the bank and its employees to make money.
On a different front we learned through the Financial Times on 24 January that MasterCard has seen fit to increase fees for transactions that due to Brexit are now seen as crossing legal boundaries. Whilst one could say that this action was an appropriate response to the decision of the United Kingdom to leave the European Union, it is an example of financial organisations looking constantly for ways to increase revenues. It is unclear that the costs of clearing transactions for MasterCard increased due to Brexit but they did increase the costs by nearly 500% with that increase going to the banks that process the transactions. Once again clients being forced to pay for bank profitability without receiving a substantially better service.
But I think it is useful to see that it is not only banks and bankers that have a culture issue. In a late 2020 article the accounting profession was also brought to account for its behaviour. The Financial Times noted that KPMG was being investigated for its role relative to the efforts by a buyout fund to avoid responsibility for the pension liabilities of an acquisition. As with banking there are many opportunities to “legally” take steps to increase profits but what about the morality of reducing the pensions of the c0-workers of the company involved in this transaction. The need for a higher standard of conduct by well paid individuals seems to apply not just to bankers but also to professional services firms.
And finally a bit of cheer on this subject. Today the Financial Times reported that Goldman Sachs has reduced the compensation of its CEO, David Solomon, by $10 million to a “mere” $17.5 million. Goldman noted that Solomon was not “involved in or aware of the firm’s participation in any illicit activity at the time . . . the board views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the firm”. A step in the right direction of holding senior management responsible for what happens on their watch.
