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.

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.

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!

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.

Not all publicity is good publicity

How much longer can the image of Goldman Sachs get knocks such as these? It is time that someone minded the house again.

UBS boss hires old friend for senior role

When one reads that the recently appointed CEO of UBS hires a former colleague from his days at Merrill Lynch as Co-Head of Global Investment Banking one has to assume that the hiring old an (business) friend may give a certain amount of comfort and hope that relationships in the top management team will work smoothly. But there is always the danger that sentimental aspects cloud the judgement or that conflicts of interest impede rational decision making or sour the morale of the other team members. The big question is also why a global (?) player like UBS cannot grow its own senior managers. Once you had to be an officer in the Swiss Army to climb the management ladder at the old UBS (before it was taken over by local rival Swiss Bank Corporation) and that surely was not providing an adaequate talent pool (and led to the sorry demise of the 'old' UBS) but has the bank really drawn the right conclusion and found the right formula? The track record over the past 10 plus years speaks a clear verdict.

UBS appoints ex Bear Stearns CFO to senior role

One can only wonder, and wonder and wonder again about the Personnel Policy (if you can call it that) at UBS. Just last week someone still working there said that the people around him change constantly, there is an annual turnover rate of 70 pct. Now the firm pins its hopes on Sam Molinaro, and he is based in far away New York. Given the fate of his last employer and how long he was away from the major league - can this be any help for the once proud ship UBS? Does the bank have nobody in its ranks who could to this job?

Toxic Mix - Politics and Consultants

Royal Bank of Scotland (RBS) had enough problems at its hands before a young and inexperienced politician and a consulting firm made its life near-impossible. Running a bank after a near-death experience due to overreach by its previous CEO and board (some members inexplicably still have not been purged) is a tough assignment. When a chancellor with hardly any real business experience outside the charmed circle of lobbies and professional party politics tries to micro-manage a business the task becomes impossible - especially when nimble competitors do not face similar constraints. And giving a consulting firm carte blanche to meddle in this situation cannot help much to safeguard the ailing ship RBS. Staff of the consulting firms often are quite young and have no practical business experience worth mentioning. Even senior consultants often have moved up the consulting ranks and have similar deficiencies with respect to real business life. If anything, they might be busy trying to jump ship to a position on 'the other side of the fence'. Quite a number of senior positions in Financial Institutions are held by former Consultants and we are polite enough to describe their track record as 'mixed' at best.

Compensation under control?

Despite our recent positive comment on Barclays Bank we have to put out a critical comment about the compensation practices at the leading (only?) British Investment Bank. It is risible that compensation increases by 2 pct during 2011 when total headcount drops by 6000 over the year. It means that 'cheap' bank and support staff was 'cut' while expensive staff in 'Wealth Management' and Investment Banking was added. This may be an explanation but it should not be an excuse for lax oversight.

Goldman Spin Master to retire

Goldman's public image suffered a few scratches during the past few years. So when we spotted that the firm's PR supremo was leaving after 12 years with the firm we were reminded of the time when (investment) banks and many other businesses got by without spin masters, and a happy time it was. After all, all that really counts is how well you work for your clients (or should one only say customers these days?). They pay the bills and word of mouth does the rest. Which CFO would really allocate a piece of business according to the size of a corporate image ad in the latest edition of Euromoney (or the FT). Good PR means to answer the hard questions in a straightforward way, and most importantly, do business the honest way. If that is not evident to the outside world than the best PR campaign is only wasted money.

Barclays does not 'fall short'

As some in the Media and Analyst community may want you to believe. I am the first to be sceptical when banks make grandiose announcements about the goals they try to achieve. But succeeding in investment banking is a game where those who last the course will win out in the end. Nervous prodding by analysts and media should not divert management's attention too much. The way the competitive landscape has unfolded over the past few years should allow Barclays to slowly but steadily up the rankings. Profitability is under pressure at all banks and no one can be sure what the new banking world will look like in a few years. On a more mundane scale, even the refurbished branches of the bank look great when compared to the competition here in the UK.

UBS - curious selection of new board members

What is the 'politically correct' composition of a company board? We are not sure that board members are more than an in-house management consultancy. They certainly are far removed from the real owners of the company and even the fiduciaries in the asset management world have little say in the affairs of a board. But news that UBS has appointed two women to its board - one an academic economist and the other one a lawyer - raises some questions. Given the appalling track record of economists (you all know the many jokes about economists, as for example: An economist is a trained professional paid to guess wrong about the economy) one can not be too hopeful about these latest appointments. Don't forget the lawyers though: Q: Why won't sharks attack lawyers? A: Professional courtesy. Maybe selection by eye colour would be more effective. There may be a good cause for more women on company boards but we doubt that giving in those who expect miracles from this will be proven to be right in the long run. Whether or not a bank run by economists (Axel Weber, the incoming Chairman of UBS is another one) only time will tell.

Credit Traders accused of manipulating valuations

During the court case in which former senior credit traders of Credit Suisse are accused of manipulating the valuations of their trading books the revealing statement by one of them caught my eye: When a data-entry employee asked one of the accused “What sort of P&L do you need today?”  the trader responded that all books should end the day ‘up’ by $35 million” and the prosecution claimed that later one of the traders “artificially increased the prices of several ABN1 positions” to meet the trader's profit target. (Bloomberg BusinessWeek). This confirms our suspicion that the controls in many investment firms are woefully inadequate.

Dual CEO'S - if anything a formula to be promoted

The recent troubles at Blackberry manufacturer Research in Motion seem to suggest that dual leadership can be damaging for an organisation (FT). But Rome had two consuls during its rise to dominance, and they were limited in their power to a tenure of one year. Goldman Sachs in the late 1970s and early 1980s had co-chiefs - and that was when the firm laid the foundation to its rise to dominance. The challenge for boards and shareholders is to make sure there is a deep bench of talent - a thing that is sorely missing in many companies, why else would a company ever look for an external candidate for any of its top positions?