Here’s something to tick you off today, something that you may not have figured out.
Lloyds Banking Group PLC (NYSE: LYG), the United Kingdom’s biggest mortgage lender, had to pay another fine yesterday.
(Yes, Lloyds is that too-big-to-fail bank I used to work for… but that was back in the 1980s, so don’t blame me.)
That Lloyds technically failed and had to be bailed out during the financial crisis and is still about 25% owned by UK taxpayers is beside the point.
Ask Lloyds traders how they feel about being saved to die another day. If they’re honest, and a bunch of them aren’t, they might tell you they’re glad to have the chance to continue screwing whomever they can in order to pad their bonuses.
Lloyds just paid $350 million fine for its part in manipulating the Libor, the London Interbank Offered Rate, only the most important interest rate on the planet.
The Libor is so important because bankers use it to calculate the cost, value and price of trillions of dollars of loans from sea to shining sea.
That Lloyds got caught isn’t the travesty.
That’s just the cost of doing business.
The travesty is that Lloyds suspended two traders linked to the manipulation scheme. Not fired – suspended.
But it gets better.
One of the traders, who isn’t supposed to be named – psst, it’s Clive Jones – has been suspended before. That’s right. Jones rejoined Lloyds in mid-2012 as global director of money markets after being suspended for presumably manipulating Libor.
Of course, Jones said he didn’t do that. And, of course, the bank’s internal investigation team presumed he didn’t, so they let him come back to work on his next bonus.
The other derivatives trader the bank suspended, who you’re not supposed to know, is John Argent (while British, I don’t think he’s related to Rod Argent of “Hold Your Head Up” fame). And he’s probably going to get his job back, too.
Now, here’s where I tell you what you can’t figure out.
Because I know. I worked at Lloyds.
I ran the futures and options division to hedge the bank’s trading desks in Her Majesty’s Treasury. That’s where Lloyds trades all its money, for its own accounts as well as for big customers.
Lloyds traders – the head of the government bond trading desk, the head of the currency trading desk, the head of the OTC derivatives desk – ran the show… not management.
Traders rule because traders make the bank money. Management is nothing but a buffer, a group of executives who are liaisons between higher-ups and the traders.
I was supposed to hedge the trading desk’s giant positions because management was afraid their bets could get out of hand. Why would they get out of hand? Because the traders’ bonuses depend on what they make trading.
What happened there was telling, to say the least. The heads of the trading desks wouldn’t work with me because they told me that management had hired me out of Chicago to hedge their positions as a way to control them.
But they weren’t going to be controlled. They were running the show.
They won. Management admitted that’s what was going on. It was a struggle to control the traders. The traders won.
I was a good trader, too. So the bank gave me a huge chunk of money with which to trade futures and options. No mandate, no hedging – just make money, they said. So, I did.
In the end, the traders win. They always win, because higher-ups don’t get their fat paychecks and bonuses unless the traders make a killing.
That’s Trading 101. You eat what you kill, and your bosses eat off your plate.
That’s why no one is fired. That’s why traders might get suspended and slapped on the wrist, but not fired.
Why not fire a good trader who goes bad? Because good traders are hard to find – and good traders make lots of money.
As always, it’s about the money. It’s about bonuses.