THE Lord Mayor of the City of London felt “shocked, upset and disgusted” by the rate-rigging scandals that rocked UBS and Barclays and admitted that the wider industry had lost touch with its role as a service provider.
But Alderman Roger Gifford, the ambassador for the UK financial services sector, insisted that banking culture is changing and many institutions succeed in putting integrity before profits.
Mr Gifford, the first banker to hold the ceremonial office for eight years, started his City career under the renowned financier Siegmund Warburg, whose bank was eventually taken over by UBS.
MPs from the parliamentary commission on banking criticised UBS executives this week over the Swiss bank’s involvement in manipulating the Libor benchmark borrowing rate.
Mr Gifford said Mr Warburg, who was highly moral and ethical and saw money as “a grubby subject”, would have been “absolutely disgusted” by the succession of scandals that have damaged the City’s reputation “as indeed all of us are”,
He added: “To a 30-year hardened banker it was shocking. It was terribly upsetting because we had all believed Libor was a very solid standard rate.”
He said there have been “huge changes” through the banking industry since the rate-rigging incidents took place, including new regulations and rules on capital requirements, portfolio management and remuneration.
Barclays, one of Britain’s biggest financial institutions, lost its chairman and chief executive in the fall-out from the Libor scandal because of the changing culture, said Mr Gifford.
The chief executive of UBS’s investment bank, Andrea Orcel, told the banking commission that the industry became too arrogant and self-convinced about its actions and said UBS is “serious about putting integrity over profit”.
Mr Gifford claimed that banking is getting back to its original purpose as “part of a means to an end... not an end in itself”. “People are not just speaking the language, they do realise,” he said.
Mr Gifford said it is “absolutely” possible to put integrity before profits in banking, pointing to a raft of banks, including Australian, Canadian, Scandinavian and British institutions, as examples.
Sweden’s banking industry was engulfed in a financial crisis in 1992 which pushed integrity to the fore, said Mr Gifford. “It’s enforced by public opinion, but it is also there – integrity over profits.”
He said it is “unfair” to portray entire institutions as lacking integrity just because of the activities of individual units. He said parts of RBS “clearly got too big for their boots” and were “a bit arrogant”. The state-owned bank is expected to be fined over the rate-rigging scandal.
“If there was criminality take people to court,” he said.
Mr Gifford, who went to Sedburgh School in the Yorkshire Dales National Park, joined SG Warburg in 1978 and worked in international banking and capital markets. “I had two meetings with Siegmund Warburg and we talked about Beethoven, about George Steiner and a societal issue totally unrelated to banking. He was interested in people, not in money and transactions,” he said.
“That was the key to the old style banking. If I like you I will lend you money. If I don’t really like you, however good your credit looks, we will just move on somewhere else.”
In 1982, he joined Skandinaviska Enskilda Bank, a Swedish investment bank. He is now head of UK operations as well as chairman of the Association of Foreign Banks in London.
Speaking during a visit to Yorkshire yesterday, Mr Gifford said the past and future role of credit rating agencies must be looked at.
Agencies gave “comfort” to banks to invest in particular instruments, like sub-prime mortgages, collateralised debt obligations, Greek bonds and Icelandic bank debt, which were later found to be “completely worthless”, he added.
Mr Gifford said: “The last few years have increasingly shown that a bank’s credit department needs to rely on its own credit analysis and not on that of external agencies.
“We can’t do without the rating agencies, but equally the relationship with them and the way they work with banks and investors, it’s important to get that right and I’m not sure we’ve quite solved that yet.”
Mr Gifford plans to use his term of office to promote the role of the City and financial services in society. He was in Leeds to learn about the city’s strengths in legal and financial services to better promote the UK’s total offering to international investors.