Sunday, 1 January 2012

The year in review: 2011



Below is a timeline of the main events that impacted the financial services industry in 2011.


• January
UK prime minister David Cameron kicked off bonus season by calling for a settlement between banks and the government that would better link bankers’ pay and the amount banks lend to the real economy. The PM called for 
“responsible levels of remuneration” alongside adequate lending to all kinds of businesses.Chancellor of the exchequer George Osborne also announced plans to limit bonuses at banks; a call met by Barclays chief Bob Diamond’s now famous statement that the period of remorse and apology for banks was over.The revolution that first ousted Tunisia’s Zine al-Abidine Ben Ali in January would grow into a fully fledged Arab Spring. The revolution, fuelled by domestic and international political discontent, brought an end to Hosni Mubarak’s rule in Egypt and Muammar Gaddafi’s hold on Libya. It currently threatens the power of Syrian president Bashar al-Assad. The shake-up has redefined not only the political status of a chunk of the Middle East and North Africa but also the economic opportunities in the region.


• February
Christian Littlewood, the former Dresdner Kleinwort and Shore Capital banker, received a record 40-month sentence after pleading guilty to eight counts of insider dealing. Littlewood, his wife and family friend Helmy Omar Sa’aid were all part of the Financial Services Authority’s ruling. The regulator’s investigation began with a review of share trading patterns ahead of the announcement of a potential takeover in August 2008.Deutsche Börse and NYSE Euronext announced a $10bn merger to create the world’s largest exchange operator. Complex from the start, the plans were met by a barrage of questions about what the new company would look like, how it would overcome regulatory hurdles, and wider implications of such a new trading giant. The deal called for Deutsche Börse shareholders to receive 60% of the combined new company and a management team comprised of an equal number of representatives from each firm.
• March
David Cameron (left) unveiled plans to attract wealthy foreign investors by allowing those with £5m to invest to stay in the country indefinitely after waiting just three years. Investors willing to deposit a minimum of £10m in the UK would be able to stay after just two years. The incentives compare with the current minimum five-year wait. The plan also doubled the amount of time both cohorts could spend outside the country and still retain non-domicile status. The FSA geared up for a harsher crackdown on the failure of banks to segregate client money from their own funds after fining JP Morgan Securities £33.3m for allegedly mixing client money with its own over seven years. The regulator ruled that every financial services institution handling more than £10m in client accounts would have to put an individual in charge of ensuring the money is segregated from the bank’s funds.
• April
The Independent Commission on Banking published its interim report in an initial step towards transforming the UK financial sector. The interim report required banks to ring-fence their retail operations and hold 10% core Tier-1 capital. It also called for bondholders to share the burden of bank failures. It found that the US’s Volcker Rule would be unlikely to have a significant impact in the UK.
• May
Galleon Group founder Raj Rajaratnam was convicted by a federal jury in New York on all 14 counts of securities fraud and conspiracy. The former hedge fund manager’s conviction came after one of the highest-profile cases since Enron. Rajaratnam was accused of using sensitive insider information from top industry players to make illegal profits. Swiss commodities giant Glencore’s £11bn initial public offering marked London’s biggest market debut. Nine banks handled the deal, which closed flat at 530p per share on its first day of grey-market dealings, after hitting the market at a point when investors’ enthusiasm for new listings was tepid.
• June
The FSA said one of the new regulatory bodies set to replace it would investigate whether investment banks had done enough to prevent bribery. The announcement came a month before the new UK Bribery Act took hold. That legislation promised to prosecute companies that actively participate in bribery or have others make bribes on their behalf. FSA leaders said a review of existing systems that were supposed to prevent employees from paying bribes to win business showed “troubling failings”. The Basel Committee on Banking Supervision established capital rules for systemically important banks. The new requirements from the regulator, which will take hold over the next seven years, will require banks to hold cushions of between 1% and 2.5% of extra capital as a percentage of their risk-weighted assets on top of the 7% required for all banks. The rules were met with anger from the financial industry, which said they would halt future growth.
• July
The UK’s largest care home group, Southern Cross, went under in July as a result of financial problems. The collapse turned up the heat on the Blackstone Group, which previously owned the business and was criticised for loading it with debt before selling it five years ago. It also put the spotlight on private equity firms and led to fears in the industry that increased regulation could follow. The IPO market ground to a halt over the summer. By July, 75% of the 29 completed or proposed large flotations in Europe had been pulled or traded below their issue price. A Financial News survey of 100 market participants showed that 95% respondents either did not trust what bookrunners told them about demand for a flotation, or would prefer more transparency.
• August
Standard & Poor’s made a landmark decision to downgrade US sovereign debt from its prized AAA rating amid a political stalemate over the country’s debt ceiling. Citing a lack of confidence in the country’s ability to reach a political solution, S&P lowered its long-term sovereign credit rating and said it was pessimistic about future decision making. The historic move by S&P reflects rating agencies’ push to become more proactive than they were during the financial crisis. HSBC announced plans to cut 30,000 jobs as it reduced costs and restructured its business. The move came after the company’s decision in May to step back from retail banking in certain countries and focus more on its wealth management operations in others. The jobs will be axed by the end of 2013. BNY Mellon chief executive Robert Kelly (right) quit the giant custody bank, citing management differences. The move, which followed the firm’s announcement that it would shed 3% of its global workforce, caused shares to drop nearly 3% in after-hours trading. Kelly was replaced by president Gerald Hassell.
• September
UBS was rocked by a rogue trading scandal in which trader Kweku Adoboli (above) was arrested for his alleged involvement in unauthorised trades that cost the bank $2.3bn. The scandal led to the resignation of the Swiss bank’s chief executive Oswald Grübel, a move that left the future of UBS’s investment banking business uncertain. The first wave of Occupy Wall Street protesters entered New York’s Zuccotti Park in September, beginning what would become a massive global occupation of the world’s financial centres. Shortly after the New York movement began, protesters set up camp outside St Paul’s Cathedral, where they remain. Two members of the cathedral’s clergy resign over its handling of the protesters. The Independent Commission on Banking delivered a 363-page report on reforming the UK banking industry. The report included topics first introduced in the April draft, such as a separation of retail and wholesale banking activities and a requirement that banks hold equity capital of 10% of risk-weighted assets. The document called for a primary loss-absorbing capacity of at least 17%; a Tier-1 leverage ratio of up to 4.06%; and regulators to be given powers to impose certain resolution and counter-cyclical buffers. The reforms were criticised by politicians for being too lax and by the industry as too far-reaching and detrimental to the UK’s business climate. Vince Cable’s Department for Business proposed a plan that would require companies to provide forecasts of executive pay over one and three years in a move aimed at better informing shareholders about executive compensation. Cable also wants to see bank pay kept in line with performance.
• October
October was a bleak month in the financial world as global banks reported weak earnings and announced plans to significantly reduce their workforce through 2012. The parade of less-than-favourable news started with JP Morgan reporting a 13% decline in total net revenues quarter-on-quarter and continued with other top-tier banks announcing losses and job cuts. Many announced shifts away from investment banking and moves towards wealth management. Rajat Gupta, a former director of Goldman Sachs and Procter & Gamble, surrendered to the FBI on charges of passing inside information to Galleon Group’s Raj Rajaratnam. MF Global, the futures broker founded by former Goldman Sachs chief executive Jon Corzine, filed for the largest Chapter 11 bankruptcy filing by a securities firm since Lehman Brothers. It soon emerged that about $1.2bn in customer funds were missing. Corzine resigned days later.
• November
UBS named Sergio Ermotti (right) as its permanent chief executive ahead of its annual investor day in New York. Ermotti, who joined the Swiss bank from UniCredit in April, soon unveiled plans for the bank to focus on wealth management as a key growth area as it trimmed its investment banking operations. With the eurozone crisis in full swing, Italy and Greece saw their prime ministers step down and be replaced by technocrats. In Greece, former vice-president of the European Central Bank Loukas Papademos replaced George Papandreou and in Italy, former European commissioner Mario Monti replaced Silvio Berlusconi. Sir Richard Branson acquired bailed-out Northern Rock for £747m in cash. The entrepreneur had been chasing Northern since November 2007, shortly after there was a run on the bank amid fears that it would collapse. Virgin’s final payment for the high street bank could top £1bn depending on its success and the timing of a future flotation or sale. Legg Mason Capital Management announced that Sam Peters would replace Bill Miller as chief investment officer of the firm’s Value Trust fund at the end of April. Miller will become chairman.
• December
HM Treasury began a consultation on a proposal that would require the 15 largest banks operating in the UK to disclose the compensation of their eight most senior non-board executives. The proposal is a further attempt to better correlate compensation with bank performance. Some said the proposal should have called for disclosures from more than just top senior executives, while others said requiring banks not partially owned by government to reveal salaries was unfair. George Osborne announced in his Autumn Statement plans to raise the UK bank levy in a move aimed at preventing projected tax revenue shortfalls. Hoping to collect at least £2.5bn from the levy each year, the Treasury plans to raise the rate to 0.088 per cent in January. Osborne also projected long-term austerity in the UK and a brush with a mild recession. The FSA issued its long-awaited report on the failure of the Royal Bank of Scotland. After stating a year ago that it would not bring action against RBS management and would not make its findings public, the regulator bowed to pressure to be more transparent. The report detailed failures by RBS’s management as well as the FSA’s own regulatory shortcomings, outlining how the body has since resolved the biggest issues. The report was published two weeks after the FSA celebrated its 10th anniversary. European leaders continued to haggle over potential solutions to the eurozone crisis. David Cameron vetoed a proposal to form a new EU treaty after his call for safeguards for the UK’s financial industry were dismissed.
By sarah krouse  finance news

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