The next big scandals that could hit the banks

With public anger currently focused on US multinationals and their tax affairs, Britain's battered banking industry has been enjoying an overdue breather. But there are still storm clouds brewing. The summer may yet be a hot one for a number of players, and then there's the Parliamentary Commission on Banking Standards. Here we assess the likely impact of some scandals that will continue to shake the industry, and their potential toxicity
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The final Parliamentary report

George Osborne might have been hoping that the Parliamentary Commission on Banking Standards, which includes the Archbishop of Canterbury Justin Welby, would confine itself to being some sort of new standards-setting body, a kind of British Medical Association for bankers. it's done a lot more than that. The "ring fence" around retail banks has been electrified at its instigation, with regulators handed reserve powers to break up banks. A damning report into the failure of HBOS has seen James Crosby, the architect of its strategy, giving up his knighthood, a big slug of his pension, and his position on several boards. The final report is likely to make a series of sweeping recommendations for reform on issues ranging from governance to new sanctions for miscreants.

When will the fur start flying? Mid-June.

Impact Very High. The commission has real clout and the Chancellor will have to act on the meat of its recommendations, even if he tries to wriggle out of the politically more explosive suggestions.

Toxicity Moderate. This report will be about reforms for the future. But expect a few pointed sideswipes at the industry and regulators.


Regulators have so far been picking off "low-hanging fruit" on this one. Barclays went first, and while it was caught in the middle of a firestorm as a result, it did receive a notable benefit: immunity from prosecution. Then came the big one, UBS, followed by Royal Bank of Scotland. Four firms remain in the crosshairs of the Financial Conduct Authority. Their names have never been officially released, but they are widely understood to be Deutsche Bank, Lloyds, Rabobank from the Netherlands, and the broker Icap, led by Michael Spencer. However, other institutions may face action from overseas watchdogs with regulators in the US, Japan, Switzerland and Canada working on investigations. And the latter three could yet ensnare banks which have settled with UK and US regulators. If that's not enough, the Serious Fraud Office is pursuing an investigation into the actions of individual traders.

When will the fur start flying? The next big fine will likely be in the summer.

Impact Moderate to High, but only if serious wrongdoing is found at Lloyds. Foreign banks' misdeeds will carry less weight.

Toxicity Potentially still very high.

The FSA's HBOS report

This will involve regulators analysing their own failings over HBOS. The mea culpa will be closely scrutinised by the Treasury Select Committee, and it may make for an uncomfortable few days for senior watchdogs who remain in post with the new regulators, and perhaps for those who have moved on as well. However, it is probably true that it may not pack the same punch as the Parliamentary Commission on Banking Standards' review into the failure of HBOS, which saw former chief executive James Crosby give up part of his pension and his knighthood. The work is being carried out by the Bank of England's Prudential Regulatory Authority, because the failure was in supervision of HBOS's financial soundness, but it will still be published by the Financial Conduct Authority, the successor to the Financial Services Authority. And the whole thing may yet need to be re-written.

When will the fur start flying? Slated for publication in the autumn.

Impact Moderate, because the worst came with the commission's reportBut Andy Hornby, chief executive at the time, can't be looking forward to it.

Toxicity Limited.

Barclays' cash call

Last year Barclays admitted that four "current and former" employees were being investigated by the Financial Services Authority over two 2008 cash calls in which the bank raised billions from investors in the Middle East. This allowed it to avoid calling upon the UK taxpayer for funds. Chris Lucas, finance director, is the only person to be named, although there has been speculation Roger Jenkins, Barclays' former point man in the Middle East, is also in the line of fire. The cash call was mired in controversy as the generous terms offered to the new investors weren't available to existing shareholders. There was also the high media profile of some of those involved, including Sheikh Mansour, the Manchester City owner, and Amanda Staveley, a former girlfriend of Prince Andrew who advised the sheikh. BBC and Euromoney investigations have found no smoking gun. No wrongdoing has been alleged on the part of the investors from Qatar or Abu Dhabi.

When will the fur start flying? We're months away at the earliest.

Impact Probably moderate. Investigators need to show they have a case.

Toxicity Hard to gauge.

The London whale at JPMorgan

Largely a US issue, but will make some waves given that it happened in London. The FBI are investigating, and the stellar reputation of Jamie Dimon, JP's powerful chief executive, has taken a serious hit. It says much that Mr Dimon, lauded for sailing through the financial crisis virtually unscathed, is now being pilloried for the affair, which saw "London whale" trader Bruno Iksil rack up more than $6bn (£4bn) of losses. US regulators are turning up the heat, and so is Congress. The New York Post noted the remarkable change in the fortunes of Mr Dimon when compared with Goldman Sachs boss Lloyd "just a banker doing God's work" Blankfein, who is sitting pretty and being lauded as a model CEO for talking up the US economy. Mr Dimon will survive. He's seen off attempts by shareholders to force the appointment of an independent chairman, but this isn't over.

When will the fur start flying? Unknown.

Impact Low(ish) But may hasten moves to make banks operate using subsidiaries in overseas territories, making them subject to regulation in the territory where the subsidiary is based.

Toxicity Low in the UK.