Banks: Time to get out of Europe!

Recently 500 (in words: five hundred!!) policemen were delegated to conduct a search at Deutsche Bank's headquarters. Anyone with half a brain will realise that to set loose such a large group to do a job for which they are less than qualified can only be motivated by political reasons. So it would be only natural that the Co-CEO of the business - which is after all a significant employer and taxpayer - would be in his rights to lodge a complaint with the political overseers of the judiciary and police. After all, the temporary 'constitution' of Germany is less than punctilious about a proper separation of the powers of government. But when this simple complaint causes a hysteric reaction among the ruling political establishment - fanned by a media that sings to the same collectivist hymn sheet - then it would be time for any self-respecting institution to ask itself if it is worthwhile to stay domiciled in the country or debark to friendlier shores. The same question should be asked by HSBC, Standard Chartered and any bank that does not simply want to become a 'utility' (ab)used to finance spendthrift states.

Merger Blues: Another day, another Write-off

Now it is Legg Mason's turn to eat humble pie and write off a major junk of its investment in Permal, the hedge fund group. No blame sticks to Permal though as no one (except maybe some advisers too keen on their fees?) held a gun to Legg Mason's head and forced them to pay over the odds. It remains to be seen if adding some heft to Permal's assets via the acquisition of Fauchier will help to right the ship. Fund of Hedge Funds are relatively new businesses, often built by one or a handful of entrepreneurs and the task of creating a lasting enterprise culture is a daunting one. The purchase is the easy thing!
Permal to acquire Fauchier Partners (Financial Times)

Man Group faces huge write-off on Acquisition

It was clear to me from the outset that the decision by Man Group to acquire the hedge fund GLG was more out of desperation (to diversity, or as Warren Buffett would say 'diworsify') than rational calculation. While the hedge fund business has been - and will remain - a good business to be in it requires more than any other business a fine judgement of people, enterprise cultures and business trends. Needless to say, the 'advisers' on both side of the deal above all will be interested to bank their not inconsiderable fees while wash their hands of any subsequent problems that may emerge post-deal.
Man Group faces heavy GLG write-off (Financial Times)

Libor: The Shakedown gathers steam

When I originally commented on the Libor 'Scandal' I got a surprisingly strong reaction from readers - even those that normally are quite critical of  'Ueber-Regulation' disagreed with me. But it is still less than clear who has really lost money due to the supposed manipulation - and if so, how much was lost (Dollars and Cents please you righteous citizens!). An article in the Daily Telegraph points out that from a legal point of view a successful prosecution is less than certain. So today's announcement that UBS alone might face penalties of close to $ 1 billion can only be understood in a climate of witch hunt mixed with a supine and spineless management culture in the banks concerned. After all, senior management wants to sleep quietly and does not give a damn about the shareholder's money. Similar abuse is rife in the so-called mis-selling 'scandals' related to payment protection insurance or sales of derivatives. Reader replies such as this one are not very illuminating (except about the public's attitude towards the banks) as they are unable to shed more light on the crucial question of who has lost (or maybe gained) how much from any Libor fixing.

An interesting discussion may be seen on this thread (Financial Services Regulation, Linkedin)

Distastrous Acquisitions

Rumors have it that Bank Austria may lose nearly 80 pct of the more than $US 2.2 billion that it paid for Kazakhstan's ATF bank in 2007. Together with the huge write-off that Credit Agricole recently had to make on its Greek adventure and the problems that
Man Investment has digesting its acquisitions this provides more evidence that poorly planned and/or executed acquisitions can prove to be hugely expensive.

Scandalous Regulators

Anyone who thinks that I take too negative a view of the 'efforts' of the regulators should have a look at this article. (Mises Institute)

FSA: Jobsworth at the controls!

Jobsworth: "a person who uses their job description in a deliberately uncooperative way, or who seemingly delights in acting in an obstructive or unhelpful manner." (Wikipedia). This definition comes to mind when observing the activities of - nameless and faceless - bureaucrats who have the ultimate say on who can occupy a senior position in the British financial service industry. I was always wondering why anyone would submit himself to the humiliating treatment meted out by people that would hardly ever stand a chance to succeed in a competitive environment. If politicians want to safeguard the financial system it is up to them to devise good regulation and not start micro-managing the sector in what can only be called a proto-stalinist manner. I have proposed simple and effective solutions in several posts, but so far no one seems to care - creating thousands of pages of new regulatory pamph is much more to the regulator's liking. Does Vernon Hill really need the aggravation at this stage in his life? The British Jobsworth establishment seems to do everything it can to protect the existing banking oligopoly while shedding crocodile tears about the lack of competition and bank lending.

'Britain' tightens grip on foreign banks

Reads a headline in today's Financial Times. This is another brilliant idea to weaken the position of the City of London as a financial centre. If my memory does not play tricks on me it was British Banks that caused most of the mayhem during the Financial Crisis 2008-09. Let the establishment - led by dusty professors, superannuated chairmen and boards and a one-time PR manager - ruin the country. UK is nearing the precipice, just wait when the herd turns on this country. Fiddling while Rome burns?.

Derivative Timebomb - still not defused

Talk, talk, talk - that is all the regulators and their political puppet masters seem to provide with respect to the derivatives market. Could it be that they just do not understand these markets? I agree with Chris Whalen and Barry Ritholtz (see video) when they call for the repeal of the Commodities Futures Modernisation Act which carved out a largely regulation-free zone for the OTC derivatives market. Even better would be a strengthening of margin requirements across the board - anything under 20-30 percent depending on the product is not good enough. Let us remember how markets moved close to that in panics during 1987 and 2008-09.  Recent worries about the adequacy of central clearinghouses put the finger on this problem but I fear that their capital and margin requirements are not up to the task - BY A MILE!

Bureaucrats take over the Banking Industry

While there are other reasons that 'banks do not want to lend' (such as lack of suitable borrowers) the nitpicking and intrusive regulation by anonymous paper pushers and their political puppet masters is another - and growing reason - for the lack of dynamism that is evident in Europe's banking industry. And that applies not only to the sickly Euro-zone but also to the UK. Latest exhibit: the procrastination  (Boersenzeitung) with which the German Banking Supervisor BaFin handles the acquisition of BHF-Bank by Kleinwort Benson. While Germany might be good at churning out industrial products (with generous help from a misguided currency defense that simply knocks out of contention all its major European competitors) the banking skills in the country will wither away to invisibility as any entrepreneur with a little bit of nous will stay clear of this country.

Banking Union - not so necessary

Today one of my favourite economic commentators states that "banking union [is] an absolute prerequisite of a properly functioning monetary union. (Jeremy Warner, Daily Telegraph). I beg to disagree. The only reason why weak banks can undermine the solvency of the host states is the lack of a proper regulatory environment in each of the euro-zone member states. As I have pointed out again and again, we are far away from reform measures that would put the banking system on a stable footing. If these measures would be implemented there would never be a requirement to cross guarantee banking systems, nor would there be any requirement  to have a European Banking Authority.

Nonsensical 'study' of High-Speed Trading

While I am critical of some aspects of high-frequency trading - esp the speed advantage that technology provides and which undermines the principle of priority and precedence - this study by a CFTC economist does not cut the mustard. That futures trading is a zero-sum game is nothing new and that those active on a daily basis want to - and have to - make a profit should not be seen in a negative way. After all, who complains about the profits that the casino operators in Las Vegas make? Without them there would be no gaming industry. So let us have more studies, but above make them relevant. This should mean that real abuses get uncovered and the guilty punished. Oh, and what happened to those responsible for MF Global - management as well as regulators?

CFTC: Regulator fit for purpose?

The US Commodities and Futures Trading Commission certainly knows how to make a hash of their task. While major regulatory disasters such as MF Global seem to go largely unpunished and the global OTC derivatives monster escapes any noticable oversight the CFTC is busying itself with closing down the tiny betting exchange Intrade. Is it not time that the overbearing bureaucrats in Brussels once and for all tell their US counterparts that extraterritorial jurisdiction is no longer acceptable?

Swiss-Life CEO: 'We paid too much for AWD'

With better advice Swiss-Life could have saved itself a lot of money and even more bad publicity. The chances that main-stream investment banking 'advisers' talk a willing client out of any deal he wants to do is very small. Too high is the pressure to generate fees that justify a high cost base for the employing firm, too strong the desire to buy an even bigger pad in London's Westend or in the Hamptons. A cursory examination by an experienced observer would have had loud warning bells ringing at the prospect of marrying a solid but staid organisation with a gogo marketing firm lead by a high-profile entrepreneur. On paper the numbers may have made sense - especially before the eruption of the global financial crisis - but the all-important human aspect was overlooked by the blue-eyed analysts in Swiss-Life's planning and strategy team. That the CEO still thinks that acquiring AWD was the right decision is odd - to say the least.

Bank of England appointment - not so glorious

Amid the orchestrated adulation for the newly-appointed Governor of the Bank one should not gloss over the shameful fact that once again the Government has failed to find a suitable candidate among the vast number of highly educated and experienced economists and other professionals here in the UK. Add the fact that a highly excessive pension 'contribution' is made to an already high basic salary (while huge numbers of hard-working public sector employees see their pension packages cut in unilateral fashion) and one can only wonder about the mental state of the decision makers that participated in this mock selection process. With respect to Carney's achievements in Canada one has to say that managing the affairs of a small country (by population) during a global resource boom that supports its economy while the banking system is by tradition a closely controlled oligopoly cannot have been all that difficult. And the conspiracy theorists will have a field day and argue that another Goldman Sachs 'clone' has obtaining vast discretionary powers in an unelected position.

P.S. - those who still think that Carney will save the UK may wish to look at this

HP/Autonomy: Poor Due Diligence, Poor Implementation

This tale of woe again demonstrates that relying on number crunching accountants and fee-hungry deal brokers is the wrong approach to acquisitions. And when a desperate CEO (see story) is at the controls of a business this turns into a toxic cocktail. Looking at targets for acquisitions all-too-often omits the human aspect of the assets to be acquired and - even more deadly - afterwards neglects the fact that a business is the sum of its human capital and not just a number on a balance sheet. Dealing with real people all the time in our recruitment business allows us to bring this crucial aspect into play when advising on strategic transactions.

City of London a "cesspit"? - get real Wall Street Journal!

A sad day when a respected business journal gives an experienced (?) journalist space to write such a poorly-researched and one-sided article. The so-called mis-selling 'scandals' are all the product of a politically correct media hysteria - no one was forced to purchase payment protection insurance and those claiming to have been poorly advised when they entered into swap arrangements are the victim of a crass zero-interest rate policy forced on us by clueless politicians (and applauded by equally clueless economists and media pundits). Basically they bought insurance which did not pay off - would interest rates have gone up no-one would complain, much less be willing to hand his winnings back to the banks. And outright fraud? Dare we mention Mr. Madoff and numerous US-based investment scamsters onereads in the press on a regular basis? And what about the victims of the MF Global collapse?

Bill Winters - harsh critique of UK bank reform proposals

"Bank overhaul 'may leave UK rudderless' if new crisis hits" reads the headline of the report about his evidence to the Treasury Select Committee (Daily Telegraph).
We could not agree more as we have repeatedly argued that overcomplicated 'Solutions' to the problems of the banking sector are no help, and more (expensive) 'studies' even less so. A few simple solutions are glaringly obvious: higher capital ratios on interbank lending and derivatives, funding that in its majority (90%?) matches the maturity on both sides of the balance sheet. No PhD, MBA etc required to implement or monitor this.

Hewlett-Packard - one poor Acquisition after another

Hewlett-Packard could easily become Exhibit Number One for any future case studies about the dangers and pitfalls of hastily concocted acquisitions. When common sense takes a leave of absence and megalomania takes charge of a CEO's desires nothing can stand in the way. An army of (sycophantic and conflicted) advisers is nothing but a rubber stamp and the board - full of well sleepy 'worthies' that are appointed by the CEO and for the CEO - are not providing the necessary checks and balances. The same can be said for the (mostly institutional) shareholders who are not given half a chance to properly question the proposed transaction.

UK Bank Bailout Money may never be recovered?

Opine the Solons sitting in Westminster. While this may not be a firm prediction but just a way of garnering a headline (CNBC) in the media it speaks volumes about the incompetence among 'lawmakers' (and the political class in general). Why should major banking institutions such as Lloyds TSB and Royal Bank of Scotland be beyond repair? If that would be the case one should start an orderly dismantling now. Maybe the raft of well-intentioned but often counterproductive regulation is intended to achieve just that. But then it would be better to admit this rather than trying to gain political capital with irresponsible statements. There is no reason why both banks should not be worth a lot of money in a few years time, maybe not as much as the taxpayer has put in but close to it at the very minimum.

BoA manager on wrong track

If it would not be printed in black and white I would believe that this initiative comes from a third-rate bucket shop (Bloomberg). That the equity sales staff at Bank of America Merrill Lynch (BAML) has reportedly been set a quota of 30 client meetings each month smacks of sheer desperation but also of a complete lack of trust between management and staff. This augurs badly for the future of BAML.

Commerzbank wins right to appeal UK bonus ruling

This headline made me look up the details of the original court case in which a large group of employees in the former Dresdner Kleinwort investment bank were vindicated in their claim that the bank should honor its promise of a guaranteed bonus pool. This amazing quote made by Stefan Jentzsch in a town hall meeting in the winter of 2008/09 makes you wonder what goes on in the heads of Commerzbank management when he said.....".. both Martin Blessing and Michael Reuther are men of honour who will stick to the bonus commitments already publicly made. Also I could not understand how and why, for what no doubt will be just a small economic amount even if it happened, they and their senior Commerzbank management collectively would wish to destroy their reputation as trustworthy leaders ..". No further comment required I think. The irony is that it was sheer folly for Commerzbank to buy Dresdner in the first place - but in that respect the management found itself in good company as Lloyds and Bankamerica entered into similarly suicidal bids at roughly the same time when they purchased HBOS and Merrill Lynch respectively.

Rating Agency reform- new idea but not enough

John Carney (CNBC) makes a new suggestion when he writes that rating agencies should not receive non-public information. While this may be a useful step in the right direction he does not explain why the shift to a different payment model would not be appropriate. The current system of having the issuer pay for the ratings is not only fraught with conflicts of interest, it is also expensive as usually more than one agency has to be hired thus duplicating effort and expense - and in many cases a third agency gets its pound of flesh. Agencies might be less profitable but this reduction in cost is only appropriate in the current climate of austerity. If the Value Line Investment Survey can achieve a long history of excellent service to the investment community there is no reason why there should not be enough demand for rating services that have to be paid by the investor. Does the financial community really want for the dead hand of bureaucrats in Brussels and elsewhere to get involved by dragging its feet and hoping that the current state of affairs can continue?

UBS Top Management feathers it's nest (again?)

Having just handled the beginning of the mass cull of employees in the most unprofessional way one could think of, the top management of UBS is already reported to be busy to design another dysfunctional and one-sided 'incentive' plan for itself. The fish always stinks from the head downwards and it is deplorable that despite growing disenchantment about exaggerated bonus and compensation plans for the tiny number of employees at the top of organisations the people at the helm of this bank - an institution that owes its survival to the generosity of the great unwashed public, i.e. the Swiss taxpayer - still are not 'on message'.

UBS to cut 10,000 employees

Not only does one have to ask why a large bank all of a sudden finds that it would be necessary to amputate a huge chunk of its operations it is also a step that will in all likelihood lead to even more management problems later on. Management and the Board must have been asleep at the watch for a very long time that such a drastic measure is required to bring the ship on course. Successful firms adjust staffing levels continuously - this is not only much cheaper and efficient, it is also less destructive for employee morale and customer confidence. The way that these 'restructurings' are conducted are also hugely wasteful. While the cost that is bandied about at UBS may include a lot of things that are not related to redundancy payment a large part certainly is. Given the probably inflated compensation levels one can only assume that the pay-offs will also on the generous side. A new top management and/or consultancy firm will probably suggest in a few years time that too much was cut, or the wrong sector was cut and the hiring/firing merry-go-round will enter a new stage. This will - again - inflate costs and lead to a management non-culture of revolving doors where employees are not familiar with each other due to excessive staff fluctuation. After the Adoboli case we all know where this leads to.

Cuts at UBS to take three years

Reads a headline in today's Financial Times. I rubbed my eyes over the time-span that the refocusing of UBS would take if management was really intending to keep to this horizon. In the world of markets and investment a year is already a very long time but planning over three years can only be called wishful thinking - apart from the tremendous uncertainty that it would create in the whole organisation. That three former Merrill Lynch staffers now seem to pull the strings in the key Global Markets division also raises a big question mark. We all know the fate of the once mighty Merrill Lynch after it went through numerous revamps over a period of several decades.

The Great Bank Robbery

While no one will deny that some sales of Payment Protection Insurance (PPI) were not in the customer's best interest (and even that statement is debatable) it is obvious that the UK banking industry is the subject of a populist witch hunt. Intelligent people are not forced to buy any product and in the case of PPI no one can argue that he was 'mis-sold' the product unless he actually tried to claim a payout and was denied compensation in an unfair fashion. There could be an argument about the premium paid but even that can never be reason for a blanket call for compensation as this could lead to the end of a free market system where every purchase could lead to a compensation claim later on if applied in a general fashion. Is this the way to run a banking system? or an economy? No wonder there are serious commentators who predict that the UK will be a Third World Economy by 2014.

Wall Street 'Eat-what-you-kill' System

The claim by the ex-Goldman Sachs staffer Greg Smith should not surprise anyone. Business by definition features an inherent conflict between seller and buyer. While one looks to achieve the highest price possible the buyer wants the exact opposite. Competition (and a dose of ethics) provide the safety valve against the exploitation of customers. The egregious margins achieved in other sectors of the economy - luxury goods for example - could easily also be accused of 'eating and killing' the customers. The lesson that should be learned by all investors - be they small or large individual investors or 'sophisticated' institutions - is that 'buyer beware' is essential when considering to enter into financial transactions, - especially when the other side possibly has an information advantage and is incentivised to exact the maximum possible gain from the counter party.

Citigroup: Shock about exit of CEO

That some employees at Citigroup may be in shock (Financial Times) about the sudden departure of the CEO speaks volumes about the fact that the role of the CEO in today's corporation is vastly exaggerated. While no one would deny that the decision of the leader is critical it does not mean that this is necessarily a good thing as many examples in business (and history) show. Relying on the judgement and predelictions of a single person creates risks that would be mitigated in a more collegial system of leadership.

Goldman: Internal Probe on 'Muppets' draws a Blank

We are not surprised (Financial Times). Who would commit the word to email or voice mail, let alone a printed document? That person really would deserve to be fired - not for the word but for sheer stupidity. But the problem is this: Investment Banking and Securities Dealing are full of products where the interests of the firm and the customer (we avoid the word client on purpose) are directly opposed. But this is the case in almost all businesses. The vendor wants a high price, the customer a low price. A healthy amount of competition therefore is necessary to make sure that customers get the best service. However, this also requires customers that are intelligent and diligent enough to make sure that their interests are served, i.e. do not get taken in by fancy brochures, the image portrayed by the salesman or invitations to ball games and fancy restaurants. One should always be on one's guard when confronted by sales patter but at the same time no firm will be able to survive if it does not control the urge to take advantage of its customers. This requires more than a nicely formulated 'code of conduct'. It requires constant effort from the top of the organisation down through the ranks. It certainly does not help things if top managers of financial firms pay themselves a king's ransom that is disproportionately large in comparison to the pay that those lower down the hierarchy get paid.

Bear Stearns Deal: I am a big boy says Dimon

You may well be a big boy many a JP Morgan Shareholder may think. But the revelation that the deal may have possibly cost JP Morgan $5 to $10 billion demonstrates that Mergers and Acquisitions are a dangerous game that more often than not destroys value for the acquirer as many academic studies document. Apart from the business aspect there is also the fact that corporate governance is not properly functioning with respect to dealmaking. Shareholders (and not only those on the acquiring side) have too little say and are not able to scrutinise the terms of the deals before they are agreed.

CEO sets the tone for any business

We agree with this statement (Who's the Best on Wall Street: Risk Management Report Card - CNBC) but want to add that the development and empowering of a team of senior managers (and good succession planning for all these positions) is as important in fostering a strong culture in any business, large or small.

Unexpected consequences of regulation

Forcing ING to sell assets may lead to a reduction in competion in the UK savings market. Well done Brussels! Your bureaucrats never disappoint. (Daily Mail)

Financial Transaction Tax: Ideology wins over Reason

No surprise that the tax-and-spend zealots have won a victory (Reuters) on the issue of the Financial Transaction Tax (FTA). Politics is forever dominated by those who either want to control other people's lives and behaviour (Stalin and Hitler are extreme examples, but history is full of prominent examples, not a few of them have earned themselves the additional title 'Great') or those who want to benefit from the sweat and effort of their fellow human beings (Slavery being the extreme example there). The proponents of the FTA are a confused bunch where the common denominator is (1) a lack (or unwillingness) of understanding of economics and finance, (2) the desire to spend other people's money and (3) the desire to legislate in an arbitrary, discriminatory and undemocratic fashion. The fact that in the case of the FTA a tax is levied on a particular activity puts the intelligence coefficient behind this tax on a par with the medieval window tax. Basically all taxes directed at specific human activities should be kept to an absolute minimum as they are an effort to constrain the free choice of the citizens. This means that any discussion of the FTA's technical merits are an implicit admission that such arbitrary legislation is acceptable. In addition, tax legislation in most (pseudo)democracies following the 'Westminster Model' is undemocratic and not subject to the agreement of the citizens - for a discussion of this aspect readers are referred to have a look at www.dirdem.org. Please get in touch if you are interested to support our campaign for direct democracy. In the meantime we will watch with interest the impact of the FTA and financial markets - who will win, who will lose - and how long the machinations of the Euro-Clique can continue until their whole bureaucratic edifice implodes.

Investment Management to the Rescue?

Many banks now think that a renewed focus on asset management will allow them to replenish their depleted earnings as investment banking income continues to be under pressure from difficult trading markets and uncertain economies. (see Wunderwaffe Asset Management?) While asset management certainly is a (very) profitable business if managed correctly it is also a business that requires management skills that are not always in abundant supply in many financial service firms. This applies to banking and insurance behemoths but also to small boutiques. While the larger bureaucratic organisations can easilty be stiffled by too much politics, rigid hierarchies and the lack of focus due to a multitude of business lines the smaller firms are not immune to infighting among senior management and often are overly dependent on an autocratic founder or dominant shareholder.

To-big-to-fail banks worse than before - Roubini

No one should be surprised about Nouriel Roubini's latest comment. The simple reforms that would go a long way to make banking systems safer - while not requiring enormous rule-books and an army of expensive consultants, lawyers, accountants and compliance officers - have still not been considered, let alone implemented.

Regulators turn blind eye on Payday lenders
The number of bureaucrats in regulatory agencies is growing exponentially but where is the beef?

Subsidised Bank lending problematic

This headline (Government scheme to boost lending to small firms 'could lead to abuse by banks and plunging rates for savers', Daily Mail) points to a serious flaw in all schemes that are designed to boost bank lending. Apart from a command-and-control economy where governments direct banks to lend to specific sectors or companies the use of subsidies (including those from supranational entities like the EIB or World Bank) open the door for abuse. The application process is convoluted and not transparent in most cases and it is far from clear that in the end it is not more important who knows the bank manager well - or is politically well connected - than the viability of the project for which the loan is proposed to be used.

UBS hit by loss on Facebook IPO

This headline says it all. The hottest (or most hyped, depending on your point of view) new issue deal of the year, maybe decade, and one of the investment banks involved in the deal has to declare a $356 million loss related to the transaction. As I am never tired to repeat: Investment Banking is a simple business - if you do not make it complicated!

Asian Financial Centers - Opportunity or Threat?

To predict that Asian economies - and financial centers - will see more growth than Europe or the USA will come as no surprise to anyone. But the use of words such as 'power shift' sounds alarmist as the expression carries an undertone of threat. Quite to the contrary, the growth of these Centers will create numerous opportunities for older centers - in particular those in Europe, and especially for the dominant center in London.

Libor Manipulation: A Victimless Crime?

After having received a lot of criticism for my earlier post on the subject I am glad to find voices that also 'query the effect of Libor manipulation'.

The latest Idiocy from Brussels (via Paris)

Control freaks in Brussels and various capitals in 'democratic' Europe are having a field day planning ever-more convoluted regulations. The latest example are the "Guidelines on sound remuneration policies under the AIFMD" that have just been released for 'consultation' by the Paris-based ESMA. The perfect antidote for those suffering from sleepless nights. I did not expect much before opening the document but 104 (!!) pages surpassed my expectations by a wide margin. Anyone wants to comment? Does the political class really push Europe down to second-class economic status?

Libor Manipulation: each coin has two sides

I am not condoning manipulative behaviour by any of the banks that contributed to setting London Interbank rates. But to all those confessing to be 'shocked' I would like to say that they should see things in perspective. For everyone who is charged too high an interest-rate as a consequence of manipulation there is another party who can enjoy a lower interest rate. Even among those banks contributing to the daily fixing there will be losers and winners on any given day. It is highly unlikely that they all would be positioned the same way. The way the rates are set (smoothed averages of the rates submitted by all 16 banks) also prevents that rates are too far out of line with the 'true' market rates. Inverted comma due to the fact that one can dispute what a market rate for Libor is as it moves up and down all the time and is not necessarily set in stone. Different customers get charged different rates, it is after all a free market rate.
In conclusion one may say yes, there was manipulation. But was there really a lot of damage done? and who lost/won, and by how much? The bloodhounds in politics, the media and self-declared experts will have a field day, as will have lawyers on both sides of the Atlantic. There will be wholesale condemnation of greedy bankers but very little forensic work. And above all this will be another triumph for the compensation culture. One group will escape without any punishment: the regulators who have once more found to be sleeping at the wheel!

UK Establishment: Bent on destroying Banks

While the Euro Crisis rages and serves as a useful decoy one development is largely unnoticed by the Commentariat: the war that the UK Establishment - political parties and some parts of the media - wage against the banking system that they claim to protect from intrusive regulation from abroad.
Certainly there may have been cases of mis-selling of payment protection or swaps but to rule that all such transactions were executed in bad faith by the banks that sold the protects is going too far, not just a step but a mile! The payment protection bandwaggon is in full swing, all customers can claim full refunds even if they were fully aware of the limitations of the product. The campaign to allow untold numbers of commercial clients who went into swap transactions to hedge against (mostly interest rate) risk is in full swing and probably will also provide a let-off for those who argue (with the benefit of hindsight) that the derivative deals landed them with losses. Basically one could apply a similar argument to all insurance products that have been sold and where there was no subsequent claim. Were the premiums not wasted and in effect a 'loss' for the buyer of the insurance? As there is no free lunch the shareholders of the banks as well as the majority of bank customers will be the ultimate victims of this totally unjustified witch hunt that is perpetrated against the banks.

Bank Bailouts for ever?

As long as there is no radical reform of the banking system we may well have to endure bank bailouts for a very long time and this prediction by a senior economist may well come true. (CNBC)

While Rome burns the EU's Almunia plays in his little Sandbox

One could not make this up, but while the EU's house is on the edge of a major conflagration the useless Nannycrat Joaquin Almunia, in his role as the EU's competition commissioner, continues his fight to destabilise Germany's banking system by imposing untimely conditions for the 'restructuring' of Bayerische Landesbank. At a time when it should be 'all hands on deck' to get the economies going and allow banks to lend money this career politicians picks senseless fights at the ultimate expense of the citizens - who had no say in his selection for office. Careful perusal of his CV left me with the impression that he has not done a single day's work outside the sheltered realm of politics.

Jamie Dimon: From Saint to Villain

Since news about the trading loss in JP Morgan's Chief Investment Office broke in April there has been any number of commentators who vilify Jamie Dimon, JP Morgan's CEO. But most of them forget that investment is never a sure-fire bet. One has to take losses from time to time, there is no one-way street otherwise we would all be millionaires. I would guess that there has not been a single commentator who really has seen the full history of these trades and as a consequence no one is really qualified to pass judgement. For a large institution like JPM the only thing that counts at the end of the day, quarter and year is the overall P&L. If positions were under water during any period that is a professional hazard and needs to be managed properly. But many years, decades even, of investing have taught me that the really skilled investor shines when he has to nurse a loss-making position back to profit. Those who unleashed the attack dogs in the Media and in Politics are to a large extent the same ones who fell for the cult of the imperial CEO - and thought he could walk on water.

JP Morgan 'loss' - too much ado about nothing?

The reported 'loss' that JP Morgan took on its investment account may appear to be large but in the context of a portfolio size of $ 300+ billion and a total balance sheet of more than $ 2000 billion it really is small beer. Every investor or trader worth his salt will know that no investment goes up in a straight line. Daily fluctuations of one percent are the norm. That would mean that the investment book could be up or down three billion dollars on any given day. Hedging is no panacea. If you fully hedge all risk out of a portfolio you may as well stay in treasury bills as the cost of the hedge will eat up all the expected profit. I am sure that some aspects of the portfolio could probably have been handled better but loan books - even surrogate ones - are usually meant to be held to maturity so the mark-to-market loss should not have been of any consideration. That various busy-bodies (media, various officials like the department of justice or the New York Auditor) should feel competent to be backseat drivers for JP Morgan's investment department adds a twist of absurdity to the whole affair. Jamie Dimon also made a mistake to preemptively excuse himself in front of a baying media crowd rather than calmly explain the realities of the investment game.

Poor start for Monsieur Hollande

Hollande has done surprisingly poorly in the second round of the French Presidential elections. Given the unpopularity of Sarkozy (due to his somewhat abrasive and erratic behaviour) and the strong headwinds due to the fallout from the ongoing financial crisis, one would have expected nothing but a landslide victory by the socialist contender. Now he uses the first days after his vapid victory to hit out (Daily Mail) at the Financial Sector, and in particular at the City of London. We have a simple switch to suggest to this party apparatchik: Give up all the costly subsidies that your farmers receive and we might think about protecting the City of London less vigorously. The cost of the subsidies that hundreds of millions of consumers have to bear is readily quantifiable while the damage that the financial sector is causing - if there is any at all! - is mostly based on smoke and mirrors (even the backing of 'Star' economists from Harvard etal is less than convincing, they only achievement they can be proud of is to get too much shelf space by the media).

Defer bonuses for 10 years?

Andrew Haldane, an otherwise sane Bank of England official, has suggested that bonus deferral and claw-back periods should be extended to 10 years or more for (senior?) bank executives. While we have sympathy for those who think that bank regulation is not up to the task we would consider this proposal to be unworkable and counterproductive. Who in his right mind would be willing to work on that basis? 10 years is an awfully long time - just think of the young banker aged 25 who would have to wait until he is 35 to enjoy the benefits of his effort! You might as well work in a communist system. One has to suspect that the Bank of England officials - typically for the caste of government employees all over the world - simply have lost touch with reality. We have pointed out repeatedly that proper banking reform has still not really been enacted. Stalinist 'command-and-control' systems are no appropriate substitute.