Sajid Javid: The Chancellor from Deutsche Bank (?)

There is a risk in writing and publishing this post before 4pm GMT because as we await news of Britain’s new Prime Minister’s new cabinet, suggestions from the press may have guess wrongly. The strong rumour is that, as Boris Johnson begins to form his new Cabinet, which is likely to include such figures as the disgraced Priti Patel, current Home Secretary is in line to become Britain’s new Chancellor of the Exchequer. The reason for this post is based upon a theme that is currently being played out across the media, in that the past of a number of candidates are being reduced to mere footnotes in favour of a list of compliments regarding their past performances and this is being linked to ideas of what they will do in their new roles. This applies particularly to Sajid Javid who, whilst he is a son of a Pakistani bus driver and represents a ‘rags-to-riches’ story, also went to play a vital role in Deutsche Bank’s structured finance gluttonous uptake that both contributed to the Financial Crisis and has continued to haunt the bank – it is not difficult to make a connection between the actions of those in charge in the pre-Crisis era and the news that 18,000 jobs will be going at the bank. So, in this post, we will attempt to get to know the potential Chancellor in a more robust way than the media is allowing.

Javid’s early life has been well documented. The story of his Father, Abdul Ghani, settling in Rochdale and working in a cotton mill, before becoming a bus driver, is well established within the media. Other outlets discuss how Javid then moved to Bristol, where his Mother had a market shop selling clothes that she made, before opening a shop in the city. The young Javid studied at a comprehensive school before reading for his Economics and Politics degree at Exeter University; Javid was the first member of his family to study at University. In the media there is also repeated reference to his connection to the Conservative Party, with Javid attending his first Party Conference in his early twenties and revering Margaret Thatcher. However, the majority of the mainstream media’s analysis of Javid’s life now takes the same approach in that they make a remarkable leap past a massively important phase in Javid’s life. One onlooker states ‘at 25, Javid became the youngest vice-President at Chase Manhattan Bank. His reputation for success led him to be headhunted by Deutsche Bank where, as the head of credit trading, he earned £3m’. Remarkably, that is all that the author mentions, and perhaps only the author would know why this is the case, but the same issue is repeated almost across the board. The Evening Standard states ‘after a successful career where he was a director at Deutsche Bank, he was elected as an MP in 2010 for Bromsgrove in Worcestershire’. The Guardian, in a biography of Javid, say ‘Javid came into politics have been the former head of credit trading at Deutsche Bank, which the Evening Standard once estimated had required him to take a 98% pay cut. The job put him at the heart of the credit rating business that precipitated the financial crash…’ This theme is common, but why? Are the authors of these pieces suggesting that the phase of Javid’s life where he made the vast majority of his wealth and sat in a position to heavily influence the decisions of a leading global bank, in an area that brought society to its knees, is not relevant? Or are the authors merely attempting to focus on his politics, with the sentiment being that one can understand him better if one understands his politics? Whatever the reason, the sentiment in this post is that understanding that period in Javid’s life is probably more important than any other in understanding the man that may, today, become the Chancellor of the Exchequer.

Leaving aside claims that Javid was funnelling his wealth through tax havens for one moment, the suggestion is that towards the end of his 18 years in the banking industry, Javid was earning around £3.4 million a year at Deutsche Bank. However, this has been questioned and more realistic and detailed estimates suggest that Javid was earning a total of £2.4 million towards the end of his banking career. There have been suggestions from Javid’s former colleagues that he was worth every penny, with it being argued that he was ‘very creative, very energetic, and a very likable guy’, whilst he was also noted for being good at ‘crisis situations’. Yet, this picture of a cheery docile investment banker is countered by others who claim that, in opposition to the claim by his former boss that he was not involved with the creation or selling of Collateralised Debt Obligations (CDOs) whilst in Deutsche Bank’s London office, he was in fact a structured credit trader at the heart of Deutsche Bank’s involvement in the system that precipitated the Financial Crisis. Having joined Deutsche Bank in 2000, it was not until 2006 that he joined the Asia (ex Japan) division as its head of global credit trading, meaning that for the 6 years prior to this Javid was centrally placed to be involved in Deutsche’s massive uptake of structured products. Javid personally led on the sale of a Collateralised Loan Obligation product called Craft EM CLO 2006-1, and despite stating that ‘as long as investors understand the risk-rewards of an emerging-market CDO, they are very appropriate’, the CLO would go on to be massively downgraded by Moody’s and would go on to see massive defaults within the underlying pool that depleted large parts of the subordination available for junior notes. This led to Arco Capital bringing a case against Deutsche in 2012, although the case was dismissed only on the basis of the expiration of the five-year statute of limitations. Arco had claimed that Deutsche had purposefully inserted ineligible loans into the product that resulted in a 14% loss rate, although Deutsche simply blamed the Financial Crisis for the losses. Predictably, Javid is a vocal supporter of the banking sector, stating that ‘I don’t see “parasites”, I don’t see a problem that needs solving’; rather, he sees ‘talented, hard-working, dedicated men and women at the top of their game’ and that, ultimately, the industry deserves public praise and support. Moreover, the banking sector and Capitalism in general must be praised, because ‘what you know is more important than who you know, and it doesn’t matter if you’ve got a funny-sounding name, it doesn’t matter if your skin’s not white, because capitalism is colour blind’.

The reality is somewhat different however. Whether it is banks statistically being twice as likely to deny refunds for victims of fraud if the victim is not white, non-white businesses being four times as likely to be refused finance by banking institutions, women having a ‘double glass ceiling’ in the sector, there is clearly an issue that Javid is overlooking because of his own experiences. Further evidence of this societal issue is demonstrated in initiatives being adopted across the sector to increase diversity within the banking sector’s workforce – Lloyds, as just one example, has committed to ensuring that 8% of its senior management jobs are filled by people from a BAME background by 2020, aiming to increase the current total of just 5.6% of its workforce. Other studies have found that ethnic diversity in the top boardrooms across the British economy is reducing since 2014, not increasing. What does this tell us? It tells us that a. Javid’s assertion that ‘it doesn’t matter if you have a funny-sounding name, it doesn’t matter if your skin’s not white’, is nonsense, and b. that this man will potentially be bringing in this anti-progressive bias into one of the leading financially-concerned political roles in the country. It will come as no surprise to regular readers that the incoming Boris Johnson led Government is something that this author is not looking forward to, but the point of this post is that the media, academic onlookers, and general commentators have a vital responsibility to talk about the whole truth – attributing 2 sentences to 18 years of somebody’s career is not good enough, especially when it concerned leading a major bank’s involvement in the very process that caused the Financial Crisis and the subsequent period of austerity that continues to ravage the UK (and other countries, of course) politically, economically, and most importantly in the health of the citizenry. Javid must be held to account.

Keywords – Sajid Javid, Politics, Business, UK, @finregmatters