Banking, for better or for worse, is an inevitable part of all our daily lives. From our own borrowing and earnings to the wealth of our nations, we’re all in some way are inextricably tied to the big banks. This little fact wouldn’t have given us much to think about in the halcyon days of 2007, but since the global financial crisis we’ve all become painfully aware of how much we rely on our banks – not to mention how much they’ve come to cost us.
In spite of the anger and frustration felt by many consumers towards their banks, the banking profession is still, surprisingly, popular – with many bright young graduates harbouring aspirations to one day work on the prestigious stock markets of London, New York or Tokyo. And more remarkably, in spite of so many blunders in recent years, banking is still a highly profitable profession. And with an average starting salary of over $37,000 annually it’s not hard to see why. Within 5 years, the average salary rises to a nice $65,600 – for a profession that rarely requires more than a three year undergraduate degree.
But before you start Googling “graduate investment banking” take heed first. This is an industry that takes no prisoners. Those on the losing end of banking blunders risk everything from instant job losses, repossession of their homes and even prison. And even the most secure figures can suffer a nasty fall from grace. In a single day on Wall Street during the crisis, 25,000 employees lost their jobs after their employer (Lehman Brothers) was deemed to be in too deep to be worth saving. So before you fill out that Goldman Sachs application form, take a look at our top ten biggest banking blunders of recent years. You may yet change your mind about the (‘American’) Psycho world of banking.
10. Bank of America: $5 Debit Card Charge
One recurring stereotype around banks and lending institutions is that they’re only interested in profit, and will pursue it at the (literal) expense of the consumer. One of the many banks who confirmed this stereotype during the financial crisis was Bank of America. In 2011 the bank attempted to increase the charges on consumer’s debit cards significantly-to an inexplicable $5 a month to be precise. If a bank as influential as Bank of America was to implement such a fee it was set to open the floodgates for their competitors to follow suit with a similar charge, an extra expense for many who were already struggle to make ends meet each month. One customer, however, wasn’t willing to take this charge lying down.
22 year old Molly Katchpole decided she wasn’t going to take the price hike lying down and started a petition on Change.org- a site designed to build campaigns around various social issues. Perhaps unsurprisingly, thousands of people signed Katchpole’s petition – it became so popular that Molly appeared on TV defending her movement and in a rare success story of the people Vs. the banks, Bank of America backed down. The campaign was a major public embarrassment for the bank. And this incident proves banks really can’t afford to make such high-profile mistakes: The October 2011 campaign has been cited as a significant contributing factor in the 20% increase in account closures for the final quarter of the same year. Little did Bank of America know, though, that this was only the beginning of the variety of scandals the banking sector would find itself in. Customers angry at a $60 annual charge later paled in comparison to a national sub-prime mortgage crisis, the closure of several global institutions and a protest that lasted several months outside their own buildings.
9. Citibank: $158 Million Settlement
Citibank is the third largest bank in the United States with over 10,000 employees worldwide. When there are some suspicious rumblings in the mortgage division of a major bank like this, then, that means potentially huge trouble. So when Citibank’s head of mortgage quality control, Sherry Hunt, announced that 3 in 5 mortgage applications were missing vital pieces of information the Citibank bigwigs panicked. They told her to keep quiet – hoping, one can only presume to continue in the great tradition of lending people money they can never afford to repay. Ms. Hunt was the wrong person to mess with, however, and she proved this by taking the bank to court.
Hunt blew the whistle on the Citibank mortgage scandal and revealed her numerous failed attempts to persuade the bank to rectify the situation, all to no avail. The Department of Justice backed her case, finding that the CitiMortgage had approved Federal Housing Administration mortgages that failed to meet government guidelines. In 2012, the bank settled with the State for an enormous $158 million. Even more remarkably, Ms. Hunt was awarded a personal settlement of approximately $31 million as a result of blowing the lid on the scandal – proving that sometimes the virtues of courage and honesty can pay.
8. Barlcays: $163 Million Compensation Payout
One of the more recent banking blunders to hit our list, the UK bank Barclays had to pay out £100 million-or $163 million- after admitting it mischarged customers on their interest rates. This apparent mathematical error had been going on since 2008 and related to personal loans from the bank. The bank first disclosed the error in the annual report published in February 2013, but it was only in September of that year that the full extent of the error became known: the bank now owes its lenders an average of $540 a head and said it would write to those affected explaining the error. $163 million may sound like a serious blunder, but it’s a small detail when contextualised within the wider disaster of Barclay account books. In the same 2013 report which detailed the interest calculation error, the bank also admitted facing a $81.9 million fine as a result of failing to disclose payments to the state of Qatar. The Qatari payments total around $544 million: If a bank can ‘forget’ that sort of money, you can easily see how they would miscalculate something as inconsequential as lending interest. We imagine more than a few Barclays’ clients lost some confidence in the bank after that damning report…
7. JP Morgan: $920 Million Fine? Just #AskJPM
A fiscal cliff, the fall of a Wall Street institution and the bailout of a number of European countries. You’d think banks would learn a thing or two on how to manage themselves, or at least their public image. Sadly, the story of JP Morgan indicates you would be wrong. In 2013, JP Morgan decided it would try a more approachable style, reaching out to valued customers: the company organised a Twitter session where followers could tweet their questions to Chairman Jimmy Lee. What JP Morgan hadn’t bargained on was just how much their customers would have to say. Or, frankly, how misguided their Twitter strategy was: The wounds left by the banking crisis and mortgage scandal that rocked the United States have yet to heal, with many consumers still feeling the financial hardship of the crisis. So, understandably, tweeters grabbed the chance to lash out a financial institution.
Although the bank didn’t technically lose any money from the PR disaster, the bank’s attempt to win back support at a time when they were negotiating a $920 million fine from the federal regulators was an #epicfail. When the bank released the hashtag #AskJPM in November 2013, it went viral – but not for the reasons the bank was hoping. High points included “What’s it like working with Mexican drug cartels? Do they tip?” as well as “How do you decide who to forclose on? Darts or a computer program?” And the very pertinent question by one follower, “why did u think this would be a good idea”? To this day, we and the rest of the world are wondering the same thing.
6. HSBC: $2 Billion Fine
In 2005, before the shadow of the drop from the fiscal cliff was looming, many a bank thought they were invincible and were more than happy to try and pull the wool over consumers’ eyes. In the case of HSBC however, it seems it was the bank rather than the consumer who was deceived. At least, that’s what they claim – and I guess we’ll have to take them at their word, because the size and scale of the scam operations being processed by the bank is quite unbelievable. The commercial and corporate bank operates in more than 80 countries around the world, making it the ideal candidate for, oh, say a Mexican drug cartel to use to move around their dodgy cash. It appears that cash was being laundered via the Caymen Islands, having been transported overseas by the drug lords (or more likely their minions) in cash boxes and then fed into their international financial network. Over $650 billion – yes, Billion – worth of transfers were made, seemingly without arousing suspicion from HSBC. The money, held by the HSBC, was being used to keep the cartel going, buying everything from more drugs, to aeroplanes to transport those drugs. In 2012 when US senators finally came down on the bank for the colossal levels of negligence and illegal activities, HSBC said they were sorry. That makes it okay, right? Maybe not, but the almost $2 billion settlement the banking corporation were compelled to pay was the more significant penance.
5. Icelandic Banking Crisis: $4.6 Billion Bailout
For those of you who don’t know, Iceland is a large, remote island in the far north-west of Europe, known as the home of eccentric singer Björk and famous for some pretty awesome landscapes. Not particularly controversial, the Icelandic people generally fly under the radar. So it came as a surprise when, in 2008, the country’s financial institutions hit the headlines due to a banking crisis. Iceland was the last place people expected an economic crisis; it was viewed in the same vein as most of the Nordic and Scandinavian countries where the weather is cold, but the social and economic protection is cosy and warm.
The rest of Europe may have been mildly intrigued, but their involvement in Finland’s crisis suddenly soared, however, when many overseas customers – particularly in the UK and the Netherlands – began to realise that their money was tied up indirectly in Iceland’s now frozen financial system. Collectively, they stood to lose millions. Those affected were no Wall Street investment bankers – they were ordinary consumers who had been attracted to these so-called “icesave” accounts for their high interest rates. The $4.6 billion bailout for Iceland’s crisis was a combination of funds from the International Monetary Fund (IMF) and aid from the governments of Sweden, Denmark, Norway and Finland. While this is a colossal sum of money, Iceland made the decision not to capitalise the bank, instead letting the bank take the fall for their irresponsible dealings.
To this day, the measures taken in the wake of the Icelandic banking crisis are the subject of much debate. Many feel the country should have gone the way of nations like Ireland, who nationalised their banks to prevent the financial system collapsing completely. The result of the Icelandic decision meant that the nation’s stock market dropped 90% while unemployment soared, as did inflation. Today, however, the country is beginning to find its feet again – but the scepticism around banking institutions in the country remains.
4. Anglo-Irish Bank: $29.3 Billion Bailout
Ireland has had a rough time when it comes to banking blunders of late: the Emerald Isle has endured a catalogue of banking blunders that in themselves could form an impressive top ten list. But the biggest-and most infamous- of these was that of the Anglo-Irish Bank, who in many ways set the ball rolling for the financial collapse that hit the country. A massive surge in property prices in the country in the boom years of the Celtic Tiger drove lending to astronomical levels for realtors and consumers alike. Banks were lavishly lending ever increasing amounts – all the while putting their customers’ saved assets at risk. And to make matters worse, while Anglo-Irish was the bank most associated with this combination of reckless lending and hobnobbing with property developers, the practice was in fact widespread on the island nation. So much so, that the in 2008 the State was forced to nationalise at least some percentage of every bank to prevent financial ruin for the country. By September 2010, the Irish government confirmed that total bail out for Anglo Irish alone was $29.3 billion, though the entire bailout plan for Ireland – which was financed jointly by the EU and the IMF – weighed in at $116.2 billion. The fall from grace here was spectacular: some billionaire bankers and property developers were declaring bankruptcy, while others simply fled the country to their houses in the United States. Others scrambled to hide their remaining funds in whatever way possible. And then just when the dust appeared to settled a series of recorded conversations from the bank’s senior executives was leaked, in which they pretty much came across as the most ungrateful and ingratiating people ever. Sounds like pretty much any banker though, right?
3. Northern Rock: $44.09 Billion Bailout
Anglo Irish and Northern rock mark a turn on our list away from simple ‘blunders’ and more towards banks who went bust to the tune of billions of dollars. But don’t feel too sorry for them: if a company charged with looking after a hefty portion of a nation’s money somehow loses it, there’s generally something dodgy happening behind closed doors. Northern Rock was one of the first indications that things were not running as smoothly as they should be in the banking sector during the first decade of the 21st century.
Back in 2007 no one knew quite how bad things would get for the banks, but Northern Rock was a grim sign of the times – so grim, in fact that they caused the first ‘bank run’ in Britain since 1866. What does that mean? Effectively that the bank ran out of money, and couldn’t afford to pay back its own customers. To prevent full-scale financial pandemonium the Bank of England stepped in and guaranteed all deposits within the bank- essentially buying out the bank to the tune of $44.09 billion. The nationalisation was a messy process however, with British consumers for the first time doubting the security and, indeed, credibility of the banks and their financial representatives. Many consumers blamed the financial regulator for not spotting the warning signs sooner. Upon announcement of the Northern Rock disaster, customers across the country rushed to their local branches to withdraw their savings causing queues streets long.
Most worryingly, the nationalisation of Northern Rock set off something of a domino effect, with several banks in the UK, Ireland and the United States later requiring state support to save them from financial collapse. This blunder was a foreboding sign of tragedies to come.
2. Greek Bailout: $203.3 Billion
If there’s an image that defines the blunders of banks in recent years, then it’s that of Greek protesters in the country’s capital, Athens. The nation was Europe’s biggest victim of the financial crisis and has been the slowest to recover. Greece fell victim to ludicrous lending habits from banks, with every single banking institution taking the fall. To date the country has required multiple bailouts from the EU, the International Monetary Fund and the European Central Bank – to make up a reported $203.3 billion shortfall. Of this money, $34.2 billion has gone into recapitalising the country’s banks, while a further $57.6 billion has been used to balance the State’s own books. Bailouts- as any Greek citizen will tell you- mean severe cutback in government spending, with local and national services across the board slashed. Greeks reacted angrily to the financial situation, with violent rioting in Athens becoming commonplace.
Many feel that toxic banks should be left to fend for themselves, while others suggest Greece should opt out of the Europe-wide currency, the Euro. These steps have yet to happen, though, and slowly but surely Greece appears to be crawling its way back out of the red. And while $203 billion is a scandalous amount of debt to clock up, it is quite literally a fraction compared to the crashing debt that takes the number one spot…
1. Lehman Brothers: $613 Billion Debt
The shocking fall from grace of the once mighty Lehman Brothers bank in the United States in many ways defines the sense of disbelief and uncertainty that surrounds the global economic crisis. You may notice that the extent of Lehman Brothers’ debt is in itself, incredibly, larger than the bailouts for several small nations combined. To the outsider this banking blunder was a shock: the bank had reported profits from its inception in 1850 until 2008 and it was the fourth biggest investment bank in the United States. Then, in the third quarter of 2008, the bank reported a $3.93 billion loss, as well as a $5.6 billion write-off of untenable mortgages. Suddenly, the bank was scrambling left, right and centre to find a buyer to bail them out. The more Lehman tried to push their sale, the more potential buyers worried, and the lower their stock price fell. The bank posted their losses on the 10th of September: by the 15th, they effectively no longer existed. Wall Street and the government had refused to bail them out. Taxpayers had already seen their hard earned cash plunged into the sub-prime mortgage disaster and they weren’t going to give away any more to lending institutions.
Left out in the cold, there was nowhere for the bank to go but down and with a $613 billion debt, it was a sharp drop. Much of this debt was wiped off, mainly to prevent a domino effect on Wall Street that would have left plunged those the Lehman Brothers had borrowed from in the red too. While this was probably the most dramatic of events in the banking crisis, many consumers were unsympathetic: Lehman Brothers had irresponsibly raised the stakes ever-higher in lending and they paid the ultimate price. While the fat cats of Wall Street mourned the loss of the lender, for the ordinary American, it was just another working day.
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