Banking goes through ebbs and flows based on the success of investments, political developments and the price of capital. In the 1990s, capital became increasingly cheaper allowing large global banks to invest all around the world. Since 2008, many major banks have been much more careful about their investments and are slowly retreating to their home shores.
Remember LIBOR. In the beginning of a banking relationship, the concept of free money to a debtor is great. But when the debtor stops making payments, that relationship sours quickly. Or when the debtor hears about large banks manipulating LIBOR, then it gets bad. The top banks in the world admitted to manipulating not just LIBOR but many other financial markets too. This was at the same time as they were receiving tax-payer bailouts. With closer scrutiny and political outrage, big banks have had to trim their global ambitions.
CitiGroup Becomes Protectionist. Capitalism under the Anglo-Americans has continually praised the free market trade around the world as a way to enjoy the best products and services. Citigroup might have been one of the best examples of Yankee Banking prowess with branches in more than 100 countries circa 2011. But Times Change. In 2014, Citibank is completely withdrawing its banking operations from Japan, Egypt, Costa Rica and Hungary. Is there something the bankers are not telling us? Citibank Chief Executive Officer Mike Corbat said “While these consumer franchises have real value, we didn’t see a path for meaningful return[.]” Now, Citi is down to some 24 countries.
British High Street Banks in Lock Step with Yankee Banks. HSBC has also withdrawn its consumer banking from countries, such as Colombia, South Korea and Russia. Barclays has also withdrawn its retail banking from France, Italy, Portugal and Spain. If we are in an economic recovery, why are the top Anglo banks waving the white flag?
Consumers are Heavily Indebted and Angry. As the economic depression continues from 2008 to 2014, the masses are starting to wake up. There is something incongruous about unemployed taxpayers bailing out wealth banking executives, while the High Street banks receive record compensation packages. The European Union Banking Authority has directed a “Bonus Cap” on compensation that top banking executives can receive. The Greek economy is a catastrophe after years of broken promises. When you listen closely to the banker’s justifications for withdrawing from these markets, there is something missing. They admit that the potential for profits depended on certain unmet factors, but that is not the bottom line. The bottom line is what CTBC Bank Chief Executive Noor Menai states in a moment of honest: “The number one priority for both HSBC and Citi today is to stay out of trouble on anti-money laundering and bank secrecy act issues[.] Given the almost biblical vengeance the regulators can extract from you – you have a risk heat map – it almost makes no sense to stay in those countries.”
Writing on the Wall. Billionaires Jim Rogers and Marc Faber have summarized the issue quite succinctly: none of the issues that caused 2008 have been resolved. They have merely been papered over with more debt. The UK called 2008 a Credit Crunch, yet most English businesses still have a tough time getting a loan. The Piper Must be Paid. Politicians are experts at the “blame game.” They have blamed global warming, terrorists and everything under the sun for the global depression while rewarding top executives bankers with fat bonus checks. Now, it is time to balance the books. As the politicians put pressure on the bankers, the financial institutions have been force to retreat from the periphery to concentrate on core banking concerns. Perhaps, the world functions better as small villages. As global banks leave the developing world, the primary question might need to be: Who will fill the vacuum?