Media framing and banking scandals — The Co-operative Bank vs HSBC
Over the past 24 months, two UK banks have had major capital shortfalls reported in the press and been embroiled in scandals involving cocaine and other illegal drugs. Those banks are HSBC and the Co-operative Bank.
In order to educate the general public and ensure effective control of banking by MPs and regulators, we need accurate and balanced media reporting on financial affairs. The way the crises at the Co-operative and HSBC have been reported confirms that objective balanced reporting of financial affairs is anything but the case.
In December 2012, HSBC was fined a corporate record $1.92 billion by U.S. authorities for allowing itself to be used to launder a river of drug money flowing out of Mexico valued at billions of US dollars.
The Co-operative Bank, on the other hand, hit the headlines for all the wrong reasons in November 2013, after Reverend Paul Flowers, the banks former Chairman, was caught by the Daily Mail in a sting operation buying cocaine and crystal meth valued at £300.
HSBC received widespread criticism from the UK press, with former HSBC Chairman and CEO, Lord Stephen Green — the manager of HSBC’s America’s arm at the time of the scandal — singled out for scrutiny by Labour MPs. HSBC was warned multiple times by USA regulators about Mexican wire transfer ‘irregularities’ in the years leading up to the drug scandal, and yet chose to do nothing. The scandal was framed as a systems failure, with no one deemed responsible.
No further action was taken by UK regulatory authorities, and no inquiry into the bank’s management failings was pursued. Lord Green was promoted to UK Trade Minister.
The Co-operative Bank on the other hand was subjected to sustained media focus, amplifying the sense of crisis at the bank. Reverend Paul Flowers was arrested, and an official inquiry launched into management failings at the bank, which led to its subsequent takeover by hedge funds — issues entirely separate to Paul Flowers’ much-publicised extra-curricular activities.
Recreational drug use remains a systemic problem across the entire banking sector.
Private Eye made its opinion on the apparent double standard known, when it published this ‘Number-Crunching’ piece in November 2013.
In many ways, the drug-related headlines are a distraction from, or symptomatic of, more serious management failings at the banks.
The Co-operative Bank’s problems — compounded when a £1.5 billion capital shortfall was reported, and Moody’s downgraded the bank’s stock to ‘junk’ status in May 2013 — began years earlier with the decision to merge with Britannia during the financial crisis in 2009. A deal which brought millions of pounds of hidden bad debts over onto the Co-op’s balance sheet.
The Britannia merger was welcomed by, and indeed enabled by, the major political parties, who saw the Co-op as an ethical alternative to the Big 5, negating the need for market intervention.
When the Flowers scandal hit the headlines however, with a general election just 18 months away, it was politically convenient for both the Conservatives and Liberal Democrats to round on the Co-operative Bank — given its publicised links with, and donations to, the Labour party.
We should not forget that all major parties warmly welcomed the Co-operative’s merger with Britannia and the subsequent Lloyds branch acquisition attempt, known as ‘Project Verde’, which resulted in the Co-op black hole being made public.
In January 2014, CNBC reported that like the Coop, HSBC faced a staggering $111 billion black hole in its own balance sheet.
The analysis was ignored by the ratings agencies and mainstream media — the HSBC stock price was barely touched. The fact that London and Wall Street Banks are major shareholders in the ratings agencies who value their stock rarely receives a mention!
Rather than being downgraded by ratings agencies with its stock junked and short-sold, markets simply yawned, and HSBC, in typically arrogant fashion, failed to respond.
Regime broadcaster, BBC, ignored the story completely, whilst IB Times reported the HSBC hole at £70bn.
Too-big-to-fail HSBC are deemed ‘Too big to prosecute’ by US and UK regulators. In many respects, as long as HSBC enjoys the implicit support of the UK Government, what bank analysts and credit ratings agencies think and say is irrelevant.
HSBC are the least transparent and accountable of the high street banks. HSBC, unlike other banks such as Barclays, have given no public commitment to pursue cultural reform in the wake of scandal.
Until the ‘too big to fail problem’ is resolved, and the gaping double standard in the way the UK media report bank news is addressed, we will continue to see a situation where markets and regulators punish small banks like the Co-operative, whilst big banks like HSBC continue to get away with murder.
In HSBC’s case, quite literally.
This story was originally published at moveyourmoney.org.uk in 2014.