17 Dec 2012

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.

14 Dec 2012

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)

13 Dec 2012

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)

11 Dec 2012

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)

10 Dec 2012

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?.

6 Dec 2012

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.

4 Dec 2012

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?

3 Dec 2012

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.

2 Dec 2012

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