Analysis: Banks behave badly redux: Is it killing confidence?

Mon Jul 16, 2012 1:46am EDT
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By Jennifer Ablan

(Reuters) - It wasn't supposed to be like this.

After the worst financial crisis since the Great Depression almost took the global economy over a cliff, tough new regulations and stronger internal controls at the world's major banks were meant to help restore confidence in the financial system.

But recent headlines have some top investors and strategists questioning whether there has been any progress at all.

The horror stories include the deepening scandal that big banks rigged Libor, the benchmark international lending rate; JPMorgan Chase's (JPM.N: Quote) mounting losses from disastrous credit bets and a possible cover-up attempt; and the disappearance of customer funds from Iowa futures broker PFGBest, discovered after its founder tried to commit suicide and left a note outlining a 20-year fraud.

Add in the problems surrounding the botched trading debut by Facebook as well as the insider trading scandal that led to the conviction of hedge fund managers and big name businessmen such as former Goldman Sachs director Rajat Gupta -- and the picture isn't pretty.

The signs of a falloff in investor confidence are not hard to spot.

U.S. Treasuries, the traditional safe-haven for risk-averse investors, are drawing big demand even though they offer only the slimmest of returns, while U.S. equity mutual funds have racked up big outflows.

And even though some of that investment trend may reflect the fragility of the U.S. economic recovery, the real problem lies elsewhere, said Larry Jeddeloh, founder and chief investment officer of the TIS Group, an institutional research firm that also manages client money.   Continued...

The building housing the PFGBest headquarters is seen in Chicago July 11, 2012. REUTERS/John Gress