London risks losing its status as the world’s top financial center as the $360 trillion interest-rate fixing probe follows a series of market abuses by banks that eroded trust in a city already shrinking faster than rivals.
JPMorgan Chase & Co.’s trading loss of at least $2 billion, the alleged $2.3 billion fraud at UBS AG and the investigation of at least a dozen banks including Barclays Plc for rigging global interest rates all happened in London in the last year. The effect is taking a toll on the capital of a country enduring its first double-dip recession since the 1970s, which fired more financial-services workers than any other country in 2011 and again this year.
The U.K. economy has suffered from losses made in its financial-services industry. Of the country’s nine largest banks, four were nationalized or forced to take state aid during the financial crisis, costing the country more money than any other project in history outside of world wars. The government is imposing the biggest budget cuts since the 1945, and unemployment is at 8.2 percent.
The Libor settlement followed earlier mis-steps with customers. U.K. banks including Barclays, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc have set aside 6.4 billion pounds in compensation to customers who were mis-sold insurance for loans. The banks last week agreed to repay small and medium-sized businesses improperly sold interest-rate derivatives following a probe by the U.K. financial regulator.
The public aren’t sympathetic to the bankers’ plight.