Too Big to Jail?

Written by Max Osbon on November 5, 2013

Nobody’s too happy with the big banks these days. The public distrusts them and the regulators have been levying hefty fines for misdeeds before, during and after the financial crisis. The fines are big, but who’s really paying the price?

How does $93B in fines affect you?

Fines on the six major Wall Street firms – JP Morgan, Bank of America, Morgan Stanley, Goldman Sachs, Citigroup, and Wells Fargo – now total $93 billion since 2010. And that’s just within the United States. In Europe, Deutsche Bank, Lloyds, UBS, and others are setting aside billions of euros and pounds for what they are referring to as “known and unknown” litigation. All of these banks are adding to their reserves quarter after quarter for these very issues.

But who is picking up the tab? When the cost of doing business at the biggest firms now includes setting aside considerably large sums of money for ongoing and potential legal issues, who pays for the increased stress at the bottom line? The answer is: You do. The fines may not equal the profits made during the craze leading into the subprime crisis, but they’re taking a big chunk out of current earnings.

In Greek mythology, Sisyphus was forced to roll an enormous boulder up a hill, only to watch it roll back down again. The big banks are no fans of Sisyphus – one way or another they will make sure they do not end up working for free.

Lost in complexity

The big banks’ legal departments clearly have their work cut out for them. We keep seeing examples of rogue employees (remember the London Whale?) and unmonitored departments creating their own rulebooks. These shenanigans distract focus from the legitimate work that benefits customers. And fines drive up costs that are eventually passed on to institutional and individual clients alike.

With the ultimate goals of the banks being survival and profitability, the internal messes make you wonder how much attention is really focused on serving customers. Not to mention the fact that roughly 12 percent of financial advisors move to rival banks in any given year. Where’s the customer on this disjointed priority list?

Power in simplicity

Osbon Capital operates as a glass box. On the regulatory side we are proud to pay NRS as our industry leading compliance consultant. We know the rules benefit individual investors and we like to see them enforced. In fact, we see compliance as a competitive advantage for bottom line, reputation, and longevity of the firm. We welcome a peek into our engine room to see how we operate.


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