Some movies in Indian theatres begin now with a horrific ad that shows just how much tar a lung (attached through the windpipe to a cigarette smoking mouth) accumulates in a year. Though ads that warn people about the ills of predatory banking may never make it to the big screen, the buzz that a “tobacco moment” is near for big banks is in the air. The “tobacco moment” refers to a point in time in the late 1990s when widespread litigation and settlements cost the tobacco industry around $200 billion. It caused more than just a name change in some of the large food conglomerates to get away from the taint of promoting products that cause cancer. The conclusion: tobacco companies settled up and promised to become better corporate citizens.
After the 2008 financial crisis, banks have been on the defensive as scandal after scandal showed them maximizing profit at the cost of customers, regulations and business ethics. Some accusations are around constructing and selling financial products that harm the buyer, mis-selling products, fixing the most-used interest rate benchmark, the Libor (London inter-bank offered rate), global money laundering and now energy market manipulation. After being on the back foot for a while and agreeing to pay billions of dollars in fines, it seems the banks may be fighting back. In a significant move, Deutsche Bank AG has “drawn a line in the sand” and rejected a US Federal Energy Regulatory Commission (FERC) direction to pay $1.5 million in fines over charges of manipulating power markets. The bank has sent an 83-page rebuttal saying that it will be cheaper to pay the fine, but at question for the bank is not the money but the principle. FERC’s position, says the bank’s response, will attack the foundation of organized power markets. There are news reports that other banks may follow suit and push back at the regulators with their considerable legal firepower.
It’s clear that we’re buckling down for a no-holds-barred fight in which the global too-big-to-fail banks hunker down to fight off regulators, governments and their own customers. As an aside: Indian retail consumers of financial products have moved to real estate and gold ever since their trust was betrayed by banks and insurance companies. Maybe the rest of the world will do the same before the tobacco moment truly kicks in for big finance.
Are banks nearing their “tobacco moment”?