Any other business

This time we really are getting tough on dodgy bankers (just don’t expect it to reach the boardroom)

Plus: George Osborne’s RBS sale; and the power of crowdfunding

8 August 2015

9:00 AM

8 August 2015

9:00 AM

Fourteen years is a long stretch. The punishment imposed on former UBS and Citigroup trader Tom Hayes for his role as ‘the hub of the conspiracy’ to rig yen Libor rates is the same as the maximum sentence for burglary with intent to commit GBH. Even though no public attempt has been made to quantify his fraudulent profits or identify victims, Hayes’s punishment is twice that imposed on rogue trader Kweko Adeboli, who lost UBS $2.3 billion — both having pleaded ‘not guilty’. With remission, Hayes will serve about half the term: Adeboli, jailed in late 2012, came out this June. But even so, the socially awkward Hayes has forfeited a chunk of his life for the spurious gratification of peer-group esteem and bonuses he did not seem to enjoy spending.

And his sentence has certainly sent ‘a message to the world of banking’, as Judge Cooke put it, while 11 other accused await trial on similar charges. But in saying that Hayes’s conduct was ‘condoned… and even encouraged’ by senior bankers (‘Everything I did my managers knew about… sometimes… all the way to the CEO,’ was the defendant’s own claim) the judge left open the question of how far this quest for justice will go, and whether the public will ever be satisfied that it has gone high enough. As the BBC’s Eddie Mair put it to SFO director David Green: ‘Do you think you’ll manage to jail all the dishonest bankers in London, and if you do, how many will be left?’ I suspect the answer is that however extensive the investigation, the evidence trail will never quite reach the top floor.

Why sell now, George?

Whatever George Osborne’s real reason for selling a first tranche of RBS shares at a £1 billion loss to the taxpayer, you can bet your last collectable RBS banknote bearing Fred Goodwin’s signature that it wasn’t because Governor Carney advised him to do so — which was the explanation junior Treasury minister Harriet Baldwin was sent round the studios to offer. Maybe it’s worth a billion to this ever-political Chancellor to be able to go on saying that the banking crisis, and any residual RBS cost, was Labour’s fault in the first place, but let’s hope not.

More likely he thinks he won’t get a better starting price by waiting until the autumn: he cited ‘what’s happening in world stock markets’ as a threat to growth last week. And City advisers to UK Financial Investments, which holds the RBS stake, must believe offering institutional investors cheap RBS shares now will increase their appetite for more later.

As I said in relation to the allegedly mispriced Royal Mail sell-off in 2013, markets are capricious and issue pricing is an inexact science. The real mystery is why bankers are paid so much to do it. At least in the RBS sale, the banks involved — Goldman Sachs, UBS, Citigroup and Morgan Stanley, the first two having had a hand in Royal Mail, and all hoping for bigger deals ahead — were on this rare occasion acting for no fee.

The wisdom of crowds?

I’m a big fan of a food kiosk at York station called Filmore & Union. Not that I’m a health faddist, but Filmore’s spicy chicken and rice is a sustaining train-picnic alternative to the cardiovascular timebombs of Burger King and West Cornwall Pasty. One day in June, I found a leaflet in my little carrier bag inviting me to become a shareholder in Filmore, by way of a website called Crowdcube. Intrigued, and well satisfied with my lunch, I registered for information — and the emails with which I’ve been inundated ever since offer a case study of the rising power of ‘crowdfunding’.

The fledgling Filmore enterprise has seven outlets around Yorkshire, serviced from a central kitchen under chef Will Pugh, nephew of owner Adele Carnell. They achieved sales of £3.1 million last year, aim to open more sites soon, and aspire ‘to become one of the largest well-renowned food health brands in the UK’. The offer, to raise £500,000 for 10 per cent of the shares, valued the business at £5 million. I consulted a venture capitalist with whom I’ve invested elsewhere: he told me it looked expensive in relation to sales, even if the business moves into profit this year. Perhaps others made the same observation, because ‘Exciting Update No. 2’ in early July said the valuation had been reduced to £3.75 million.

That seems to have given the deal a turbo-boost, because this week’s update announces ‘we’ve raised an AMAZING £931,960 from 317 investors’. The offer has now closed; I didn’t invest because other priorities intervened, but having tested Filmore’s menu extensively, I’m persuaded the business deserves success: if it goes pear-shaped after I’ve praised it here, I’ll eat my little carrier bag.

I did invest (through a conventional capital-raising) in Unbound — the UK pioneer of book publishing via online pledges, which is a different use of crowdfunding. It has delivered 50 books in its first three years, having attracted 60,000 users and a year-on-year near-doubling of pledge income. So far so good: author Philip Pullman calls it ‘the brightest… of all the bright new shoots the digital world has helped to spring out of the wizened old stump of the book world.’

The obvious danger of crowdfunding, my venture capitalist points out, is that ‘financially ignorant punters can easily be attracted by ridiculously overpriced offerings’; Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay was a history of such folly published in 1841. There are bound to be scandals sooner or later, and we’ll take a much closer look at the sector in a forthcoming issue of Spectator Money. But a decade ago, no mechanism existed that could have raised almost a million of capital from hundreds of private investors for a provincial foodie venture, or even a few thousand to publish an esoteric book. As advances in the productive use of our savings, ‘amazing’ is not too strong a word. Readers may like to email with other examples of the wisdom, or otherwise, of crowds.

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Show comments
  • Patrick Roy

    If I went into a bank with a stocking over my head, robbed it and got caught, I would do serious time. These guys are BANK ROBBERS!!!! THIS ISN’T SERIOUS FRAUD, ITS ROBBERY ON THE GRANDEST SCALE ONE CAN IMAGINE!!! THE MESSAGE NEEDS TO BE SENT – YOU WILL GO DOWN. And this can’t come soon enough. There’s enough money to be made in banking; when you break the rules, its GAME OVER.

    • mattghg


      • Patrick Roy


  • Frank

    We will know that the SFO is serious about cleaning up the banks when it has investigated and prosecuted 100 cases of fraud carried out by financial institutions.

    • Fraser Bailey

      Make that 1000.

  • rationality

    Tom Hayes is no more than a sacrificial lamb. They would never go for the big guys who gave the orders to rig LIBOR.

  • DennisHorne

    The answer is not to jail a few minions but claw back money from the big banksters, all of them. Take everything, including their houses.

  • WTF

    It is in the manner of things that those at the top have ALWAYS escape punishment for criminal acts whether its Blair & Iraq or banking chiefs & their pimps and that is why justice is never done or even seen to be done.

    In any organisation be it government or financial there are always Teflon coated executives who exert pressure on their junior staff to commit crimes by embarking on quasi criminal activities where they expect the staff to cross that line in the interest of profit and bonus´s for those at the very top but they never put anything in writing to convict themselves of illegal doing.

    Tom Hayes and others should learn from this and surreptitiously record EVERYTHING that’s said by these top echelon crooks and where possible entrap them into saying exactly what they mean (and record it) so there’s no question about their criminal intent. Once done, keep this evidence as a plea bargain for the day when they will inevitably get caught out and give the authorities two choices, a reduced sentence with no jail time provided they bring the top guys to book. If they fail to play ball, its tabloid paper time to name and shame the authorities and the top guys.

  • polistra24

    On crowdfunding: Yes, there’s plenty of opportunity for fraud. Yes, you need to do careful research. But this misses the more important point. OTHER routes for funding a venture have become totally rigged and useless. The stock market no longer serves any purpose and needs to be eliminated. Banks no longer make loans to small businesses.

    Crowdfunding is a RESTART of the original functions of investing and banking, now that those two institutions have abandoned their purposes. Participants need to behave like old-fashioned shareholders and bankers: willing to risk something but requiring proof of ability and character from the venture.

  • Nicholas Gallop

    Who was Tom Hayes’ manager, and his manager’s manager? When will they be on trial? Or alternatively fired and barred from future financial services work because they allowed the regulatory breaches to continue? Will fraudulently earned bonuses be clawed back?