EFTA01801241.pdf

From: Peter Mandelson Sent: Monday, July 16, 2012 10:50 AM To: Jeffrey Epstein Subject: Re: The chairman, Agius, and the senior independent director, poss next ch=irman, Mike Rake. Del missio is before parl select ctte this afternoon. =o:p> Chairmanqa www.global-counsel.co.uk chttp://www.global•counsel.co.uk/> From: Jeffrey Epstein <[email protected]> Date: Mon, 16 Jul 2012 11:28:56 =;0100 To: Peter Mandelso Subject: Re: still there? I know as much (little) as anyone else. Who others at Barclays do you =ean, left or still there ? Global Counsel did an Insight note a week ago. Pasted in below for eas= of reading. 9 July 2012 EFTA_R1_00141927 EFTA01801241  The British banki=g debate after Bob Diamond Summary * Bob Diamond's resignation as Chief Executive of Barclays bank clearly marks a turning point in the p=litics of banking in the UK. Aim** in* * The most significant political and regulatory outcome from these events will be to renew the debate about=universal banking. Whereas to date this debate has focused on scale, impli=it subsidy and systemic risk, it will now focus on culture, personal chara=ter and contamination from the values of the trading floor to the rest of a banking institution.=nbsp;Because these things cannot be regulated, the probability is t=at politicians will focus on their proxies, especially pay. *'' * The gap between the inherent values and perceived risks of retail and investment banking has been furth=r widened by the events of the last two months. For leaders of universal b=nks, especially those who have risen through investment banking, closing t=is gap in the mind of political stakeholders poses a particular challenge. Mr Diamond's belated ecitiz=nship agenda' at Barclays was well-conceived, but fatally hobbled by thi= tension. mi.** ******** **** ****** *ens* *** •** ***** * By falling on his sword, Mr Diamond has created the possibility of a rapprochement betwe=n his former bank and British political opinion formers. The bigger issue =or the bank he leaves behind and others like it is how — or if — it is=possible after the crisis to rebuild political and regulatory confidence in the kind of financial markets busin=sses he dedicated his career to building and the people who run and profit=from them. Bob Diamond's resignation as Chief Executive of Barclays bank clearly=marks a turning point in the politics of banking in the UK. The announceme=t that Barclay's was to be fined E290mn as part of a settlement with the FSA financial regulator over its part in =he fixing of the London interbank lending rate between 2005 and 2008 prove= the tipping point for Mr Diamond. The Barclay's CEO has long been the m=st controversial of Britain's bank leaders and had few political friends. Yet in the end, the trigger for his=resignation was not direct political pressure, but the FSA's intimation =o the Barclay's board that unattributed threats from the top of Barclays=to the Bank of England had made Barclays' relationship with its regulator potentially toxic. 2 EFTA_R1_00141928 EFTA01801242  Mr Diamond's departure and the LIBOR-fixing scandal will mark the start=of a new phase in the politics of the banking crisis in Britain. The sugge=tion that traders at Barclays and other banks were manipulating what is ultimately a key public benchmark fo= pricing financial products compounds a run of mis-selling and tax plannin= controversies. With a Parliamentary enquiry now to take place on the LIBO= issue in the UK, and the issue likely to ripple across other jurisdictions and produce both litigation an= possible prosecutions, banks in the UK are confronted with new levels of =olitical and public disdain. The fact that the Bank of England's own con=uct remains subject to question in some aspects of the LIBOR scandal will not deflect from this. It is safe to assume that the setting of LIBOR will now be moved into t=e remit of the UK financial regulator. Brussels will tighten market abuse =ules to apply criminal sanctions to tampering with indices like LIBOR. But the most significant political a=d regulatory outcome from these events will be to renew the debate about u=iversal banking. Where this debate has to this point focused on scale, imp=icit subsidy and systemic risk, it will now focus on culture, personal character and contamination from the values of the trading floor to the rest of a=banking institution. Because these things cannot be regulated, the probability is that politicians will=focus on their political proxies, especially pay. The return of Vic=ers The link between what has happened at Barclays and the un=versal banking argument is trust. Preserving the universal bank model reli=s on public trust that the core retail functions of a bank and its trading=activities can be properly and completely segregated. The UK Independent Commission on Banking chaired by Sir John V=ckers proposed in 2011 that they could be preserved in a single institutio= but in separate entities, with the retail functions ringfenced with their=own higher capital levels. The Vickers Commission recommended that all derivatives services should be kep= outside this ringfence. The UK government accepted the argument that retail banks=should be able to maintain some simple derivatives functions such as produ=ts for hedging currency risk for business clients. The Barclays experience=is already leading politicians and commentators in the UK to argue that simple derivatives may be an oxymoron= Trying to define them may be a futile exercise, and one that will inevita=ly be gamed by banks. The UK government shows some reluctance to revisit its in=erpretation of the Vickers proposals. But if the British Parliamentary enq=iry into the LIBOR issue now concludes that the government has erred on th= side of trusting banks, then the pressure for an outcome closer to the original Vickers recommendation, to =e written into next year's Banking Act, will be intense. The universal banking debate will take another serious tw=st if the new leadership of Barclays ultimately decides to break the bank =p into a retail bank and an investment bank and broker/dealer. As extreme =s this sounds, the intangible costs in political and regulatory animus Barclays now attracts could suggest tha= a clean break makes sense. An arrangement that gave existing shareholders=a stake in both new institutions might be acceptable. Barclays would no doubt sell such a split as a smart comm=rcial move. But the political and regulatory subtext would be to undermine=the case that such banking agglomerations are both necessary and useful. A=though the French and German commitment to their own universal banking systems is very strong, such a split would =ertainly empower critics of the universal banking model in the EU and the =S. The Liikanen Group inquiry is due to report to the European Commission =n bank structure later this year. The Commission itself is then expected to issue its own recommendations on=bank structure. Both will certainly draw on the Barclays experience. The culture quest=on 3 EFTA_R1_00141929 EFTA01801243  This bigger issue about the values of the trading floor i= going to prove hard to shake off. The role of securities divisions in dri=ing investment bank profits over the last two decades has predictably seen=a generation of securities managers rise to the leadership of investment and universal banks. While it is perh=ps unwise to generalise too much, most of these men have brought with them=the directness and self-belief that comes with surviving a career on the t=ading floor. They also bring with them a view of the market and of mar=et-making that is often at odds with the way most politicians understand t=em. Watching Lloyd Blankfein of Goldman Sachs trying to explain to the US =enate in 2010 why it was legitimate for Goldman Sachs as a market maker to be both long and short in the US pr=perty market at the same time reinforced the point. There is a yawning gul= between a trader's pragmatic view of financial markets and a wider poli=ical and public audience who generally interpret the market maker's pragmatism as cynicism, detachment and shor= termism, especially when it results in making a lot of money. Banks tend to be highly impatient with this public and po=itical ambivalence. Most banks' response to efforts at greater regulatio= of securities markets have often been rooted in the argument that these m=rkets are fundamentally a forum for free trade between consenting adults and should be treated as such. It is =his argument that the LIBOR- scandal, with its taint of market fixing, and =he persistent flow of suggestions of contempt for customers and clients, d=es so much to undermine. The events of the last two months have succeeded in cemen=ing for good the idea that the banking crisis of 2008 was ultimately the r=sult of unethical, 'casino' behaviour on the trading floor. Whatever f=ilings banks might have exhibited in their ethical standards here, the reality is that the banking crisis had i=s roots in poor lending and risk standards, and poor management of loan bo=k funding, rather than wild gambles or duplicity in the securities markets= The Vickers Commission explicitly recognised this by focusing on raising capital standards at the retail ban=s that make up the backbone of the British credit system. Recent huge losses in the Chief Investment Office at J P =organ and conduct like that of Barclays' traders have made this di=tinction far too subtle to insist upon politically. This may not matter mu=h in regulatory terms — regulators have already embarked on a wide range of securities markets reforms. But it wil= help embed the persistent political idea that retail banking is inherentl= 'safe' while investment banking and securities markets business is in=erently 'risky'. To which recent events have added the taint of suspect ethical conduct. For universal bank leaders who have come out of the secur=ties world, this is likely to be part of the challenge of dealing with pol=ticians and regulators over the next few years. Politicians actively quest=oned Mr Diamond's credentials to lead a retail bank when he was appointed Barclays CEO in 2011. His departu=e leaves an even greater burden on universal bank leaders to understand th= growing political gap between the skillset desired of retail bank managem=nt and the caricature of the men and women who make a living on the trading desks. Mr Diamond maintained a =lass office on the trading floor at Barcap even after his transition to le=dership of Barclays; a gesture heavy with meaning for his critics. </=pan> Mr Diamond's instincts were to close this gap by champi=ning a 'citizenship' agenda for Barclays. The main problem with this i= not the agenda, or the work that was done by the bank in its name. It was=the persistent undermining of this message by the perceived conduct of the bank itself. Not just questions of culture=and character raised by the admission that traders had sought to manipulat= LIBOR rates for personal and institutional profit and the mis-selling of =ayments insurance and interest rate hedges for small businesses. But also fundamental questions over the =ank's business model, the way it rewards its highest earners including M= Diamond himself, its approach to its own tax affairs and the 'aggressiv=ness' of the tax services it provides to clients, irrespective of their legality. In this, obviously Barclays is=far from alone. Politicians are at something of a loss as to how concrete=y to address these issues of values and character and this poses a particu=ar challenge for banks. Culture is hard to regulate and the public have no=real appetite or patience 4 EFTA_R1_00141930 EFTA01801244 for reassurances that a renewed rigour from supervisors will fix the problem. The proxies f=r culture are going to be pay and senior accountability, and these are the=two things that ultimately tripped up Mr Diamond at Barclays. Althou=h many in banking would like to argue that these things are beside the point, politically they are the point. Like much else in the current banking model, the case for=remuneration levels in banking is based purely on the logic and discipline=of the free market for financial services. Yet the bailouts of 2008 and th= LIBOR-fixing scandal have further exhausted political and regulatory patience with the idea that banking exi=ts in a free market. High levels of remuneration are also glaringly at odd= with the wider economic context and the prevailing political climate. Geo=ge Osborne, the British Chancellor, has tried to accommodate London-based investment banks by resisting the ra=her rigid rules inserted at the last minute by the European Parliament int= the European CRD4 Directive applying ratios for fixed and bonus pay at Eu=opean banks. But in doing so he is well aware that he is badly out of step with the public mood. The accountability problem is as simple and blunt as poli=ics gets. The massive market disruptions of 2008 and the ensuing economic =risis have created a latent political desire for personal accountability f=om the banking industry that it has so far been unable to meet. In part this is because the most egregiously m=naged institutions in the period leading up to 2008 have simply disappeare=. The survivors are generally not inclined to feel implicated in the indus=ry's wider collective problems. Mr Diamond always seemed to hint at the indignation of an executive whose =ank had survived the banking crisis without direct government support and =ho felt he had little to answer for, at least until his employees' malpr=ctice made this untenable. This is part of what made him such a lightning rod and figure of resentment for ma=y politicians. The political fal=out How will this play out politically? The UK's Labour opp=sition has clearly judged that there is mileage in a renewed campaign agai=st the bankers. However, although Labour supports a tightening of the gove=nment's proposed rules on derivatives inside the ringfence for British retail banks proposed for 2013, its ultim=te aim is not a particular regulatory outcome but something closer to a mo=al posture on capitalism. Labour leader Ed Miliband has broadly disowned t=e banking record of the Labour government before 2010 and has put a "better, improved capitalism" at =he heart of his election platform. This is achieving some resonance in thermedia. His aim is to use a moral and ethical critique of banking as a way =f differentiating himself and the Labour party both from its own past and the Conservative- led Coalition government= The Coalition government inevitably will be forced to cover the same grou=d. The Conservative party is much less inclined to make a mo=al issue of banking, still less of capitalism more widely. However, most o= the very small number of genuinely forensic critics of the banking sector=in the UK Parliament are Tories, and often individuals with financial services backgrounds. The Chancellor =eorge Osborne currently seems more inclined to use the LIBOR issue as an o=portunity to attack Labour's record in government, but if other banks ar= fined and the Parliamentary enquiry is highly critical, then he will have to tack to stay close enough to the =ublic mood. His own backbenchers have already started to grumble that he h=s misjudged the LIBOR scandal by playing it for politics rather than a que=tion of principle and policy. For an industry that is used to justifying its social rol= largely in terms of taxes paid and jobs created, this is difficult territ=ry. Assuming that banks accept that there is a need seriously to tac=le and talk about internal culture, providing evidence of this response is not easy. It will require bank leaders who ar= more visible, vocal and accountable, and internal management that is will=ng to pit the long term interests of institutions against the short-term c=lture of the trading floor. For boards, and in particular the many non-executive boar= members of banks charged with providing external oversight of institution=l conduct and compensation, this adds both additional responsibility and a=ditional exposure. It will require a keen political ear. But it will also require politicians and regulators =o engage in a more subtle debate 5 EFTA_R1_00141931 EFTA01801245 about culture. And care by politicians th=t their desire to curb unacceptable behaviour does not spill over into a t=reat to the existence and competitiveness of the banking sector as a whole. By falling on his sword Mr Diamond has created the possib=lity of a rapprochement between his bank and British political opinion for=ers. The bigger issue for the bank he leaves behind and others like it is =ow — or if — it is possible to rebuild political and regulatory confidence in the kind of financial markets busin=sses he dedicated his career to building and the people who run and profit=from them. Ends Lord Mandelson Chairman www.global-counsel.co.uk From: Jeffrey Epstein <[email protected]</=» 6 EFTA_R1_00141932 EFTA01801246  Date: Sun, 15 Jul 2012 23:51:18 J=;0100 To: Peter Mandelson what do you know of the libor scandal.. do you know the other sat ba=clay.. lets talk tomorow The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of Jeffrey Epstein Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected] <[email protected]> , and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved Disclaimer This email and any attachments to it may be confidential and are intended s=lely for the use of the individual to whom it is addressed. Any views or o=inions expressed are solely those of the author and do not necessarily represent those of Global Counsel LLP. If you are not the intended recipient of this email, you must neither take=any action based upon its contents, nor copy or show it to anyone. Please =ontact the sender if you believe you have received this email in error. Gl=bal Counsel LLP is a limited liability partnership registered in England with number OC359787, registered office =7 Farm Street, London W1J SRJ. The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of Jeffrey Epstein Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected] <mailto:[email protected]> , and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved Disclaimer 7 EFTA_R1_00141933 EFTA01801247 This email and any attachments to it may be confidential and are intended s=lely for the use of the individual to whom it is addressed. Any views or o=inions expressed are solely those of the author and do not necessarily rep=esent those of Global Counsel LLP. If you are not the intended recipient of this email, you must neither take=any action based upon its contents, nor copy or show it to anyone. Please =ontact the sender if you believe you have received this email in error. Gl=bal Counsel LIP is a limited liability partnership registered in England with number OC359787, registered office =7 Farm Street, London W1J 8 EFTA_R1_00141934 EFTA01801248