U.K. Banking Sector a Cesspit?

(eToro Blog) Even as Prime Minister David Cameron has been fighting to protect the interests of the U.K.’s banking sector from E.U. fiscal policy constraints, some members of that banking sector have apparently been working behind the scenes to reach the same goal in a wholly unscrupulous manner, however. It came to light late week that certain staff of Barclays Bank had been manipulating the setting of the daily LIBOR rate fixing through the submission of false reports. U.S. and U.K. regulators have meted a fine of £290 million on Barclays Bank, and the non-monetary costs are already mounting.

Issuing a “meal culpa,” earlier today, Barclays Bank Chairman Marcus Agius resigned his position which some critics see as an attempt to alleviate some of the pressure for the call for the CEO’s resignation as well. Barclays’ reputation and integrity have also been badly tarnished, but the collective disgust and distrust will spread well beyond to the entire sector.

The U.K.’s business secretary, Vince Cable, said that a massive cesspit exists in the U.K. banking system, and that the government is trying to clean it up. Sir Mervyn King, the Bank of England’s governor, similarly expressed that there was something very wrong with the banking industry in the U.K., citing among other things the LIBOR deceit, excessive pay of key officials and poor treatment of customers, which needs to be put right.

King said that the current LIBOR fixing system should be revamped so that actual trades set the rate, and not banks’ estimates. He is also calling for the government to craft legislation that will create a larger gap between the banks’ investment arms and their retail sections. The chairman of the Financial Services Authority, Lord Adair Turner, said that a complete overhaul of the industry is needed, as the investigation revealed a quite shocking degree of greed and that those behaviors are surely to be discovered in other areas of trade. He expects more severe regulation will be the likely outcome of the Barclays scandal, and hopes that the FSA will be given greater regulatory powers; one criticism of the FSA as the industry’s financial watchdog is that their agency is essentially all bark and no bite, with no remedial capacity.

Shares of Barclays Bank had lost some £3.6 million since the news hit last week, but the resignation today of the bank’s chairman has given the share price a boost and it was nearly 10 points higher right after the announcement. Analysts at UBS and elsewhere said that despite the impact on banks’ share prices they still believe bank shares, including Barclays, are a good buy in the long run.

As of this writing the FTSE is trading up at 5601.33, a gain of 30 points of 0.54% and sentiment on OpenBook is being driven by bulls who are buying 86% to 14%. Trader vidasandi from India is relatively new to OpenBook, but already has four followers and one copier. The trader has had a mostly productive day trading the FTSE closing half a dozen positions earlier with an average gain of 36%. Over the past month, the trader’s 14.6% allocation in the FTSE has yielded a 15.4% gain while the entire portfolio has resulted in a 1-week profit of a respectable 131.3%.

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