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To:
Jes Staley
From:
Jeffrey Epstein
Sent:
Sun 8/12/2012 1:43:53 PM
'this was sent by Peter to another person taking onver a finnciail institution
It hardly needs saying that you are taking over the chairmanship of CityUK at a difficult but
crucial time for the sector given the huge political and public pressures, the new regulatory
demands and the changes in governance and business models required to recover from the
mistakes of the past. You suggested we might offer some preliminary thoughts on the nature of
the challenge and we are happy to do so as we all realise the vital need to secure the UK financial
sector and London's pre-eminence.
The basic problem is self-evident. The LIBOR-rigging scandal has set back whatever incremental
gains the banking sector had made over the last three years in re-establishing public trust and
political patronage. It has cemented a perception of investment banking, and securities trading in
particular, as inherently risky and culturally unacceptable. The PPI and interest rate swap mis-
selling problems compound the perception of an industry whose view of its customers and clients
needs fundamental reshaping. Although these are not new problems in financial services, in the
public mind they are indelibly associated with 2008 and the banking sector's culpability for the
current economic crisis. If anything, European continental feelings are even stronger and this wilt
be reflected in fresh regulatory pressures from Brussels, whatever the conflicting interests
apparent in Paris and Berlin.
For understandable reasons the sector has had difficulty since 2O08 with the notion of collective
responsibility for conduct before the banking crisis. There is a palpable impatience at all levels of
the industry with continued public antagonism and criticism. Yet the political and public desire
for accountability is instinctive and strong, and is being actively reinforced by competing
electoral trends and strategies. This is of course why the subject of pay is so combustible.
Sectoral leaders who are not sensitive to this, or who try to suggest that problems are isolated to
a few unethical individuals or failed institutions, are likely to trip up, not least because the
steady flow of the Tyrie Commission's work and LIBOR-related sanctions and prosecutions will
send the opposite signal. It will fall in part to CityUK to bring home this reality to its members
and to lead with a strategy that balances a clear defence of the sector's value with a realistic
understanding of just how far its credibility has been damaged. This is a difficult path to tread.
Nonetheless, if CityUK does not navigate this course and insist on the positive value of the sector
to the UK economy, few others will. One of the problems is finding articulate and courageous
exponents from amongst banking's leaders who are prepared to speak up in a balanced and
persuasive way. The traditional trade association approach of pointing to jobs created and taxes
paid risks looking irrelevant if it does not register a debate that is shifting onto the ground of
culture and ethics. The questions put implicitly to the sector will increasingly focus on what these
jobs involve, how their profits are made and in what spirit the taxes are paid.
One of the temptations of banks is likely to be to throw money at high profile CSR work, which
risks being singularly counterproductive in dealing with a critique of their business models. For
managers accustomed to being measured by returns on equity, these more qualitative
benchmarks may be difficult. It seems to us that part of CityUK's work is in challenging the way
its members approach this changed landscape.
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One of the marked tendencies of CityUK's membership has always been to try to outsource the
sector's image to the organisation. Although visible CityUK leaders are vital, CityUK should chiefly
be a facilitator for bringing stakeholders and City practitioners together and encouraging a
common cause to emerge. Indeed, one of CityUK's key roles should be identifying and cultivating
a new generation of sectoral leaders comfortable and credible on this ground and encouraging
them as spokespeople for the sector. The sector's past narrative became all together too self-
satisfied. It should start with a sense of humility, acknowledging its massive responsibility for
economic growth and stewardship of our assets and savings. These things are genuine and durable
comparative advantages but only with the highest ethical standards and quality of governance.