Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 1149 - 1159)



  Q1149  Chairman: Good morning and welcome to the Treasury Committee's inquiry into financial stability and transparency following the Northern Rock situation. For the record, will you please introduce yourselves?

  Mr Mills: Mr Chairman, my name is William Mills, I am the Chairman and Chief Executive of City Markets and Banking for Europe, the Middle East and Africa.

  Lord Aldington: I am Charles Aldington, Chairman of Deutsche Bank in this country. I should also say to the Committee that I do not sit in the House of Lords.

  Mr Corrigan: I am Gerald Corrigan, Managing Director at Goldman Sachs in New York.

  Mr Palmer: I am Jeremy Palmer from UBS.

  Q1150  Chairman: Do you agree with the recent comments of Peer Steinbrück, the German Minister of Finance, that the snooty attitude of bankers who believed they were cleverer than everyone else is largely to blame for the credit crisis?

  Lord Aldington: Mr Steinbrück's comments were made in the context of what has been happening recently in Germany.

  Q1151  Chairman: He spoke about the global crisis.

  Lord Aldington: Yes. I am sure that it was intended largely for a domestic audience. The developments which we have seen over the past few months are the result of things that have happened in the economy over the past few years and are not the fault of bankers.

  Q1152  Chairman: You are as pure as driven snow?

  Mr Corrigan: I think that as a general matter bankers should conduct themselves with a legitimate element of humility. While I do not want to associate myself with the particular remark to which you refer, I think humility should be a central part of the way we approach our business.

  Q1153  Chairman: The Governor of the Bank of England said you had developed a range of increasingly opaque and complex financial instruments. That means investors while searching for ever higher yields lose sight of the risks involved. Mr Palmer, do you agree with the governor?

  Mr Palmer: Over the past few years, as is now well known, we have lived through a period of stability and low interest rates which has led investors to search for high yield. That search is often quite legitimate. Institutions have their own clients and liabilities in the form of pension fund-holders or policy-holders and as intermediaries the banking sector has sought to satisfy that demand, and the housing market in the US provided opportunities to do so.

  Q1154  Chairman: Is that your answer?

  Mr Palmer: Yes.

  Q1155  Chairman: If I may start again, do you agree with the Governor that you have developed a range of increasingly opaque and complex financial instruments that mean investors while searching for every higher yields lose sight of the risks involved?

  Mr Palmer: I believe that in all cases the investors were sophisticated and given all the information they required.

  Q1156  Chairman: Therefore, you do not have opaque and complex financial instruments?

  Mr Palmer: Complexity is a fact of life and it has resulted from people searching to satisfy their particular needs.

  Q1157  Chairman: Therefore, you have not lost sight of the risks involved?

  Mr Palmer: The information that was available was considered at the time to be normal.

  Q1158  Chairman: Mr Mills, has Citigroup lost sight of the risks involved?

  Mr Mills: Mr Chairman, I would just emphasise that the end-buyers of these complex instruments were sophisticated institutions that were provided the opportunity to review all of the structures and all the documents associated with them. I think as it relates to losing sight of the risk, with the benefit of hindsight there were some stress scenarios that maybe should have been reviewed further.

  Q1159  Chairman: Citigroup has lost reportedly between $8 billion and $11 billion. The former chief executive, Chuck Prince, said, "We have to keep on dancing." Are you keeping dancing? In other words, you just keep going in the market and when the music stops you will see where everything falls out?

  Mr Mills: Mr Chairman, I believe that our former chairman's comments were in relation to leveraged finance and in relation to the ...

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