Giant plastic duck and banking arrests the talk of the town

A PR stunt could not distract from the walk of shame at British banks

Rush hour City commuters emerged blinking from the underground yesterday morning wondering whether they were hallucinating.

In front of them, bobbing down the Thames through Canary Wharf and the City – the twin hearts of the capital’s financial services industry – was a 50ft plastic yellow bath duck weighing half a ton.

The PR stunt, the brainchild of an online bingo firm, brought some levity to London. Staff in the glass-fronted offices of banks and insurers stopped to watch. The duck was the talk of the town.

Sadly by lunchtime, playtime was over. The City was rocked by not one, but three blows with a record fine for money-laundering levied on Britain’s biggest bank, the first British arrests made in the Libor price-rigging case and new revelations of incompetence at state-backed Northern Rock. Banking in London has seen so many dark days since the collapse of Lehman Brothers, it is hard to say where yesterday ranks in the pantheon. But it certainly stands out.

First came the walk of shame at HSBC, which has bowed to a record $1.9 billion fine from US regulators. The fine will end a long-running investigation into money-laundering by the bank, which prosecutors alleged cleaned cash for Mexican drug lords. The settlement followed a similar deal on Monday between American regulators and Standard Chartered.

Previously Britain's "nice" big bank, Standard Chartered will pay $327 million for breaching US sanctions against Iran and then, according to earlier allegations by New York state regulators,  co-opting Deloitte to help to cover up its wrongdoing.Previously Britain's "nice" big bank, Standard Chartered will pay $327 million for breaching US sanctions against Iran and then, according to earlier allegations by New York state regulators, co-opting Deloitte to help to cover up its wrongdoing. *

Got off lightly

Of the two banks, the view in the City is that HSBC got off lightly. The bank has a market cap of £118 billion so $1.9 billion is loose change and it was facing the real possibility of an indictment that would have killed off its US business. Reports suggest regulators pulled back from charging HSBC not for the want of evidence, but because the collapse of its American arm would have caused systemic damage to the US economy.

The US government’s money-laundering probes related to the banks’ American arms and, as such, properly fell in the jurisdiction of US regulators. The bigger concern in the City is that US regulators stepped in to investigate the rigging of Libor interest rates in London because British regulators failed to get a grip on the problem.

Barclays became the first bank to settle its price-fixing case in the summer, unleashing a furore that claimed the head of its chief executive, Bob Diamond. At the time, the Serious Fraud Office (SFO) promised to launch its own investigation, albeit on the back of US evidence.

Yesterday it took a significant step, arresting three British bankers who live and work in the UK. The fraud squad swooped on the three men in a dawn raid, questioning them at a City of London station and searching their homes in Surrey and Essex.

Battered reputation

The SFO badly needed to do something to redeem its battered reputation. The fraud-buster has failed to bring charges against any individuals implicated in the financial collapse of 2008. Worse, its former director general Richard Alderman was forced to drop his high-profile pursuit of Robert and Vincent Tchenguiz over the collapse of Icelandic bank Kaupthing and the brothers are now suing the SFO.

New broom at the fraud office David Green will be keen to show his metal with charges that stick, while the City desperately needs its regulators to show America they can police Britain themselves.

Completing the triple whammy, George Osborne announced yesterday afternoon that taxpayers will have to pick up a £270 million bill for errors made by Northern Rock after it was taken into state ownership in 2008. A blunder in the wording of loan statements meant the bank was not legally allowed to charge interest. The part of Northern Rock not sold to Richard Branson’s Virgin Money will have to refund customers an average of £1,775.

The public might ask how many nurses, policemen – orplastic ducks – that cash might have paid for.

* This article was amended on December 12th, 2012