In the past few months, reports have been piling up that relate to rate-fixing scandals, hedges, misdealing public offerings, and of course Muppets, have increased shook investor confidence in the banking sector. Here is an overview:
Barclays interest rate rigging scandal
In terms of Bank fraud, the hottest dispute so far is the one that Barclays PLC (LON:BARC) (NYSE:BCS) is suffering from. The inter-bank interest fixing scandal has now resulted in the fall of three big executives from Barclays PLC (LON:BARC) (NYSE:BCS), the CEO Robert Diamond followed by the chief operating officer, Jerry Del Missier and Barclay’s Chairman Marcus Agius.Barclays PLC (LON:BARC) (NYSE:BCS) has been fined a sum $455 million over the rigging scandal. The allegations of this UK bank is under investigation.
JPMorgan’s risky trades and losses
It has been a bad year for JPMorgan Chase & Co. (NYSE:JPM) on many fronts. The esteemed Wall Street giant lost $2billion in bungled bets in May of 2012, then the speculations on whether the huge losses stemmed from the bank’s hedges were made.
Initially JPMorgan Chase & Co. (NYSE:JPM) predicted that its losses will double in the next few quarters. That turned out to be wishful thinking, as the losses not only could exceed $9 billion, but the expected time over which this could happen will be much less than a few quarters. The JPMorgan debacle has made concrete confirmations in the concept that ‘nothing is too big to fall’, when such behemoth enetrprises make risky trades, the aftereffects take a long time to wash away.
Dimon, JPM’s CEO, has repeatedly said that although the trades that resulted in such huge losses were ‘stupid’,and the incident itself was isolated. If the pressure of billions of dollars lost in trades was not enough, just yesterday as reported by us, JPM is now under investigation by Federal Energy Regulatory Commission with regards to potential power-market manipulation. Since the May 10 disclosure of losses, the company’s stock has fell 13% from $41.23.
Morgan Stanley’s shady dealings in Facebook IPO
Morgan Stanley (NYSE:MS) was the lead financial under-writer in the Facebook Inc (NASDAQ:FB) IPO disaster of May 18, which left fingers pointing everywhere. Anything and everything was blamed, from the opinion that the initial offer price was too high, to the technical glitches in NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)’s trading which resulted in a delay. Reports that General Motors Company (NYSE:GM) was pulling its Facebook Inc (NASDAQ:FB) ads which started circulating just days before the IPO was set to take place. Facebook Inc (NASDAQ:FB)’s total market cap fell more than $22 billion after this infamous incident.
The IPO’s leading underwriter was Morgan Stanley’s Micheal Grimes and most of the blame has been put on the decisions made by this one person that lead to shutting out JPMorgan Chase and Goldman Sachs Goldman Sachs Group, Inc. (NYSE:GS) from crucial meetings prior to the IPO. This shady business included increasing both the number of shares offered and the price range and allocating 26% of the IPO shares to individual investors (typically it is not more than 15%).
Resignation of Goldman Sach’s Executive
Another bad chapter in banking business has been the publicized resignation of a Goldman Sachs Group, Inc. (NYSE:GS) senior executive. Executive Director of Goldman Sachs , Greg Smith, published an angry letter in New York Times that detailed his reasons for resigning from the company on March 14 2012. The letter in essence puts the blame on Lloyd Blankfein, CEO of Goldman Sachs since 2006. He disagreed with the company’s tactics of empowering those who had the most money, and encouraging people to make more money by using financial instruments that Goldman does not want on its own balance sheet.
The one after another banking scandal has harmed the trust of investors. The Barclays scandal has resulted in higher interest rates paid by homeowners and businesses, as a result of the bank’s rate-rigging. If these embarrassing reports of what goes on behind the curtains in the banking sector keep popping up, people in the US and UK will lose the little trust they still have in the system.