Weekly Financial Review #25

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Plead The Fifth

Big global banks were back in the headlines for all the wrong reasons this week, with allegations of bad behavior and accompanying fines weighing on their share prices.



  • In September, Credit Suisse received a slap on the wrist from regulators for failing to prevent money laundering – but ING got hit with a $900 million penalty. > Read our story

  • Also in September, Danske Bank’s CEO resigned amidst a $230 billion money laundering scandal. > Read our story

  • In October, GAM’s customers took their money elsewhere after poor record-keeping became an issue at the investment management firm. > Read our story

  • Last week, South Korea handed out its biggest-ever financial fine to Goldman Sachs for illegal trading practices. > Read our story
  • On Thursday, Deutsche Bank’s stock dropped after its offices were raided by anti-money laundering police. > Read our story


Connecting The Dots

The United Nations estimates that in any given year an amount of money equivalent to perhaps 5% of the entire world’s economic output is “laundered” – funneled by criminals through banks and legitimate businesses in order to obscure its illegal origins. The UN also believes that finding, freezing, and recovering ill-gotten gains has become harder to do over the years – suggesting money laundering will remain a fact of life for a while yet.

One of the principal concerns of financial regulators around the world – and the reason behind several of the large fines levied recently – is that banks aren’t doing enough to prevent money laundering or other criminal behaviour. For example, Swiss regulators rapped Credit Suisse on the knuckles for having loose anti-money laundering and corruption controls – and for promoting an employee who’d committed fraud (rather than sanctioning him).

Lax controls aren’t the only problem, however. Sometimes a good banker – or bank – goes bad. In South Korea, Goldman Sachs was fined for selling shares via a banned practice; the company also stands accused of helping senior political figures in Malaysia loot the country’s investment fund to the tune of almost $5 billion. And earlier this year, Britain’s RBS and France’s Société Générale paid fines for wrongdoing extending back several years.



  1. Regulators don’t just take down banks – they take down their stocks too.

    When news of a scandal breaks, investors often race to sell the affected company’s shares and bonds, worried that any investigation could reveal wrongdoing at the company and result in a potentially hefty fine. Of course, that’d leave less money in the kitty to invest in growing future profits, and could put the company at greater risk of default.

  2. A bad reputation can hang around like a bad smell.

    A company with a rep for flirting with the wrong side of the law risks an exodus of customers who don’t want the negative association – or the risk of being caught up in the next scandal. Aside from lost revenues, scandal-plagued firms might find they’re charged more interest on new borrowing, as lenders may see them as a riskier proposition. In a bid to head this off, Goldman Sachs in 2011 published several changes it would make to the way it treated clients, after being accused of misleading investors in the run-up to the global financial crisis. 


Also On Our Radar

Shares of telecoms giant Altice Europe rose 8% on Friday after it announced it’d sell off a stake in its French cable business for $2 billion – and would use the cash to reduce its debts (it’s got $60 billion worth). Investors were probably pleased to hear that: earlier this month, Altice reported a drop in profit due to slashing prices to win customers in France – increasing the risk that the company would be unable to pay its debts.


Reading For The Weekend

  1. The Asian Banker comments on what banks can do to stop money laundering: Read more
  2. Citywire explains where regulators found Credit Suisse lacking: Read more

  3. The story of “Fabulous Fab” – from a Goldman Sachs trading desk to the courtroom, by The WeekRead more
  4. Where’s my missing $4.5 billion? The Guardian reports on the 1MDB scandal: Read more



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