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Opinion

Sideways: Trying to square the ‘truth circle’

More coals were heaped on the head of Johnny Cameron after the details in December’s FSA report on the failure of RBS revealed how little he appeared to understand the mechanics of structured credit when he was head of global banking and markets at the firm.

Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks

Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks

The report was far from aggressive in condemning senior RBS staff or the FSA’s failure to apply appropriate supervision to the bank. But the writers took the trouble to include some damning quotes from Cameron and to make it clear they found much of his testimony unconvincing.

"How much leakage of sub-prime into CDO business? I would like to be clear in the truth circle before thinking what to say to others who think our issue is all ABS," Cameron said in one email in May 2007 to his banking and markets co-head Brian Crowe, who dryly responded that: "CDO is all sub-prime related."

The FSA report then quoted an interview with Cameron, in which he said: "I don’t think, even at that point, I fully had enough information. Brian might have thought I understood more than I did."

Given the tone of Cameron’s emailed attempt to be ‘clear in the truth circle’, it is debatable if Crowe ever thought that his long-standing boss and later banking and markets co-head understood much about the firm’s exposure to the super-senior CDO tranches on its books.

The tone of the FSA report does go some way to explaining why the regulator has given Cameron a tough time since his departure from RBS, though there is no smoking gun in the report to explain why he has been subject to the modern supervisory equivalent of a blackball.

Cameron’s attempts to join investment-banking boutique Greenhill and a City headhunter both foundered on the FSA’s qualms about his suitability for senior office, before he was eventually allowed to take a consultancy role at Gleacher Shacklock, another small investment bank.

Cameron seemed woefully uninformed about the details of one of his business lines, but regulators in Europe and the US have shown little inclination to punish other executives for the widespread failure to ask questions about the structured credit boom that preceded the 2008 bust.

For example, Osman Semerci, who presided over a dash for CDO growth at Merrill Lynch that ranked alongside the one at RBS in the eventual scale of disaster, is now setting up a new boutique bank. And plenty of other bankers who were involved in the structured credit blow-up remain active in the markets.

This partly reflects the often arbitrary relationship between crime and punishment in the investment-banking industry. Heads normally roll when there is a serious mishap, but they are not always the obvious ones.

It is still unclear how Carsten Kengeter managed to keep his job as head of investment banking at UBS last year after a combination of allegations of rogue trading hits its London offices and a failure to execute his business plan led to the departure of his group CEO, for example. Yet there he remains – for now at least – maintaining a straight face as he explains to analysts and his own staff how the new version of the UBS investment bank will avoid running into the rocks again.

The combination of anaemic growth and potential trading mishaps in rocky markets indicates there are likely to be further management changes at investment banks this year. But it will probably remain as tough as ever to guess which executives will be asked to fall on their swords – or ‘pursue other opportunities outside the bank’.

Johnny Cameron’s ‘truth circle’ will never be the main determinant of reward or retribution in an industry that is so heavily focused on relative rather than absolute performance.

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