LONDON - The sprawling investigations into interest-rate manipulation, money laundering and inappropriately sold products, while bad for many London-based banks, have turned into a goldmine for lawyers, accountants and other advisers.
the $612 million settlement with Royal Bank of Scotland that was announced on Wednesday is just part of a much larger total tab for the banks.
Bills from law firms are piling up at the major banks as they need extra advice to fend off lawsuits. Hordes of advisers including consulting and accounting firms take over desks at their banking clients to find better ways to oversee employees. And public relations firms are being paid to stand by in case another scandal erupts that further tarnishes the industry’s reputation.
“High-profile noncompliance cases have brought compliance to the foreground,†Simon Porter at the recruitment firm Taylr Root said, and the market for such professions “exploded.â€
“While until recently banks were just replacing people that left, they’re now recruiting actively to add people,†Mr. Porter said.
Legal fines represent by far the biggest cost. European banks are expected to pay a total of about $25 billion for settlements and client compensation, so far. HSBC has to write the biggest check, paying $1.9 billion for lapses in its anti-money laundering controls. ING Bank, part of the Dutch financial giant ING Group, reached a $619 million settlement for allegation of sanction violations in June. Standard Chartered, based in London, agreed to pay a total of $667 million in two separate money-laundering claim settlements in August and December.
UBS has to pay $1.5 billion after some employees were found to have manipulated the London interbank offered rate, or Libor. It already had a £29.7 million, or $48 million, bill from the Financial Services Authority for failing to prevent a large loss caused by a former trader, Kweku M. Adoboli.
Barclays settled its own Libor case for $450 million in June. The Royal Bank of Scotland is tallying up its legal fees in the wake of the settlement on Wednesday.
For some British banks, including Barclays, the fines came close on the heels of another costly debacle. Banks are on the line to pay an estimated total of £12 billion in compensation to some clients who were inappropriately sold a certain type of insurance.
And Barclays, R.B.S., HSBC and Lloyds Banking Group together set aside at least £900 million, or $1.4 billion, to compensate small businesses that were inappropriately sold an interest rate hedging product.
That is just the beginning. The embarrassing blunders and large fines forced banks to solicit extra help from outside advisers that can add up to several hundred million dollars per b! ank. The ! need for extra help could not come at a worse time for banks, which are under pressure to cut costs.
Many are in the uncomfortable position of having to add staff to their risk and compliance units just as they go through a grueling job reduction program. The Royal Bank of Scotland, for example, has cut 36,000 jobs across the business since 2008 but added to its compliance and risk functions in that period.
Risk managers were the second-most sought after profession in the financial sector in Britain in the third quarter of last year after computer programmers, according to eFinancialCareers, an online job search site. Job postings for compliance positions in the United States rose by 32 percent in that period compared with a year ago, the second biggest increase behind private banking jobs.
“There’s a lot more demand in the market because of more aggressive approach by the regulator,†said Nick Gibson, a director at Chase Cooper, a risk management firm.
The demand for complianc personnel has already lifted their paychecks. The average salary increase across the compliance industry was about 21 percent in 2011, up from 15 percent in 2010, according to the recruitment firm Hudson. A global head of compliance at an investment bank can earn up to £200,000 in salary. Contract staff charges about £2,000 a day, according to Hudson.
Costs for banks do not end there. As the Financial Services Authority, Britain’s main banking regulator, is getting tougher on keeping an eye on the banks following the recent scandals, it regularly dispatches monitors to the banks’ offices. Such monitors, who usually work for one of the large accounting firms, send their reports directly to the Financial Services Authority but get paid by the bank.
And they do not come cheap. Firms and individuals paid a total of £31 million for such monitoring reports in the 12 months until the end of March, according to the Financial Services Authority. A single report can cost as much as £3 mill! ion.
Add to that the costs for efforts to repair a bank’s reputation. Hiring a public relations guru to help keep the reputational damage in check could set a bank back by up to £50,000 a week, according to several people who work in the industry. A more junior advisory team could be available for £10,000 a week.Standard Chartered hired the public relations agency Maitland in August just as it agreed with the New York State’s top banking regulator to settle accusations that it laundered money for Iran.
HSBC has said that it spent more than $290 million on unidentified measures to fix shortcomings at its control functions, increased the number of its staff working on anti-money laundering controls tenfold over the last two years and started a review of its client relationships that it estimates would cost $700 million.
Banks also spent heavily on prominent hires for their ailing risk and compliance units. HSBC created the new role of head of financial crime compliance in December and filed it with Robert W. Werner, a former director at the United States Treasury Department’s economic and trade sanctions watchdog.
Two days later, Barclays announced it hired Hector Sants, the former chief executive of the Financial Services Authority, for another newly created role: head of compliance and government and regulatory relations. Barclays will pay Mr. Sants a total compensation of up to £3 million, according to newspaper reports. That would compare with about £836,000 he received at the regulatory agency.
Others who offer a different perspective on white-collar crime are also eager to jump on the bandwagon. David Bermingham, a former British banker who was convicted of a fraud linked to Enron, is offering his services to traders who might be ensnared in the rate-rigging case.
Mr. Bermingham spent 22 months in jails ! in the Un! ited States and Britain after he and two colleagues â€" referred to as the “NatWest three†â€" were charged with conspiring with Enron executives, including the company’s finance chief, Andrew S. Fastow, to skim several million dollars from National Westminster Bank of England.
His advice: Avoid extradition to the United States.
