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.

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?

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.

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).

Is there any 'Leadership' in the City of London?

The 'Leadership' of the City of London (if there is something worth that name) is outmaneuvred at every stage. Not surprising as it is composed of superannuated 'worthies'. Decisive action a la De Gaulle would stop the interventionists on the Continent dead in their tracks. What would happen if anyone would want to dismantle the EU agricultural subidy gravy train over France's wishes?

Tobin Tax: Political Caste in Germany wants your blood!

Norbert Lammert is the current President of the German Lower House (Bundestag). Today a headline tells us that he is also 'supporting' the introduction of a financial transaction tax. While some might argue in favour of such a tax it is revealing that its supporters have mainly one common denominator: they are supporters of more state spending and indirectly in support of 'robbing Peter to pay Paul' (or pay themselves or their political clients). Particularly galling is the fact that people such as Lammert - who as far as we could find out has never held a proper job in the private sector - have the temerity to put more and more onerous taxes and 'charges' onto the shoulders of the powerless citizens. In the case of Germany one also has to say that the country has a long tradition of putting (too much) faith into regulations and top-down dirigism. Despite the economic and political success after 1945 one should not forget that this was just to compensate for the disastrous policies pursued in the decades before and as a consequence the net balance is not that encouraging. The irony is that Germans worked hard in order to deliver goods on credit to all their customers in the Eurozone who now can not repay the loans. So there is a huge bill coming due and the good standing of Germany in the credit markets is to a large extent only the reverse side of the fact that many other countries are in distress. So by necessity some markets must have low interest rates as they offer a refuge - but they are not of much higher quality. Putting another tax on business will not improve things for anyone - but it will guarantee that the German financial markets will become even more a backwater.
PS: Readers who want to support a fundamental change in political systems that allow professional politicians and lobbyist to run roughshod over the interests of citizens may want to support Dirdem - Campaign for Direct Democracy here and here

Who wants to submit to the degrading 'FSA approval process'?

News that Richard Moore, a very senior and experienced financial market executive that Lloyds TSB wants to hire as its global head of trading, 'has yet to receive FSA approval' before his appointment can be finalised illustrates the absurdity of recent regulatory 'innovations' in the UK.  It reminds very much of the old boy network that 'regulates' entry to British Universities where personal interviews are nothing but a smoke screen to weed out 'undesirable' applicants or favour those who appear 'politically correct. In a rational system of regulation one should assume that an executive with more than twenty years experience in senior and responsible roles should be more than suitable to take on a role such as head of trading at Lloyds TSB. If he has done something that contravened regulations or laws that would be a reason to prevent him from taking a senior appointment. But to give unaccountable bureaucrats - often with hardly any or much less practical business experience - the final say in an inquisitorial and secretive procedure will do nothing to help London its pre-eminent role as a global financial centre.

Advice to the City of London: stop the bureaucratic control freaks before it is too late

Reading Monsieur Barnier's latest utterings (pity he has no pregnant young wife, maybe that would put a stop to his unnecessary activities) makes one wonder what the reaction of the representatives of British interests - be it the cacophony of associations pretending to speak for the 'City' or the arms of Government (FSA, Bank of England, Treasury) will be. Pious talk will get them nowhere against the hunger of the typical continental bureaucrat (statist control freaks) for ever more power. As an Austrian who works in the City for 30+ years I am allowed to say that. Call their bluff or face certain defeat, the choice is there.

CDS - Why not prohibit states issuing debt?

When a professional party politician like the MEP Markus Ferber (he is a charge on Europe's citizens since the tender age of 29!) states that prohibiting uncovered CDSs on government bonds is under serious consideration we see that one thing is certainly represented in the useless European Parliament: ignorance about financial markets! I am critical of Credit Derivatives for a number of reasons as this blog documents but prohibition by the EU and/or its member states would simply drive the business to friendlier shores. The flood of government paper in itself is a sort of uncovered short sale that can only be described as a Ponzi scheme. As the debt level inexorably rises towards a tipping point - close to or above 100 percent of GDP - the political class that is addicted to buy votes by spending other people's money becomes increasingly desperate in the search for ways to extend its spending spree a little further - at least beyond the next election.

UBS CEO raises doubts about London

Oswald Gruebel, CEO of UBS, wants the British government to state its intentions concerning regulation and taxation that will affect the banking sector in the years to come. Gruebel states that it is very difficult to work in a constantly-changing environment and that there may be a point where it becomes preferable to de-emphasise London as a business hub. In my opinion there is a danger that the City of London may suddenly reach a critical 'tipping point' though it is not obvious if the candidates to take over a large part of the business are really an alternative. Zurich would simply not have the capacity and Frankfurt and Paris are not exactly free from regulatory overgrowth. CS may have be a special case as it has a large hub in its Swiss headquarter and the duality of two large centres pose a management problem in terms of duplication and coordination that American or Asian banks coming to Europe do not have when concentrating European activities in London.

Andrew Smithers on Banking Equity Ratios, Competition and Pay

We heartily recommend Andrew Smither's latest comments on the failure of banking regulation. Smithers argues that higher capital ratios would limit public subsidy to banks and pose no threat to lending volumes - if anything, banks would lend more than under the ill-considered Basel III capital ratios that come into effect in 2018.

Tax burden in UK becomes problematic

A simple calculation in the sports section of a British newspaper came to the conclusion that a football player who would move to England on a total compensation of Euro 3 million would take home only around half that amount after the deduction of all taxes. In Switzerland his take-home pay would be nearly 2.4 million. Obviously this also has clear implications for Britain's standing as a global financial centre. With discrepancies as large as this the decline in London's relative attractiveness - especially for foreign professionals - becomes evident.

Compensation gravy train: one train in the UK that you can rely on!

A woman has been awarded half a million pounds in a series of compensation payments after accusing four public sector employers of discrimination, unfair dismissal or sexual harassment (Daily Telegraph, 11 Nov 2010). While a disproportionate amount of claims are settled in the Public sector the financial sector is also vulnerable to the frightening rise in red tape and social engineering created with little regard to the realities of private business.

Extensive interpretation of race discrimination by UK courts

It is no secret that nationals from countries where their employer is domiciled often do - or at least appear to - get preferential treatment from their respective employers. This applies to banks and other financial institutions irrespective of their country of origin. This may well be considered unfair by some observers but could on the other hand be justified to some extent. How many Europeans working for a Japanese bank for example are fully conversant with the Japanese Language? And in the future we will have a tough time to find many seasoned professionals able to express themselves fluently in Mandarin, Russian or Arabic. So we noticed with quite some bewilderment that an English court can use legislation intended to fight race discrimination when sitting in judgement about an compensation claim by an English employee working for a French bank here in London. If the Gold Standard would have to be applied in every decision concerning promotion it would mean that in nearly every case the employee who loses out would have a case to sue. In addition, who determines which employee merits promotion more? Should every decision have to be submitted to a court or tribunal before it becomes effective? Politicians, the Courts and pressure groups all combine to make the UK a less efficient and less inviting place to locate a business and court cases such as this one are the worst possible advertisement for UK Plc.

FSA vetting procedures - deepening bureaucratic morass

An interesting side-effect of the FSA's vetting procedures for senior banking executives is highlighted in the Financial Times: the widely-applauded push for more female board members may be hindered as the vetting procedures tend to favor experienced males, especially those with an accounting or audit background. As it is difficult to find many senior women with that kind of background companies may struggle to fill vacancies with women candidates. In addition, candidates may be deterred from putting themselves forward and submit themselves to the FSA vetting regime. We are not really of the opinion that favoring women during a search is the right way to go - just the other day an old colleague from Goldman Sachs mentioned to me that any woman aspiring for a more senior role there must make a hard choice between domestic and professional life with any one going to pursue her career in earnest likely to have the backing of a house husband. But on a wider front one has to ask why would any experienced professional want to undergo the humiliation of being 'vetted' by paper-pushers at the FSA that have achieved less and are less capable? Any person worth his salt in Moscow, Tokyo, Hong Kong or New York is well advised to stay where he/she is and say 'thanks but no thanks' to any job offer here in London. And that is without even mentioning the weather, taxes or public transport.

Frankfurt no serious competition for London

There hangs a question mark above London's position as the leading global financial centre. Too much regulation and taxation may well lead to a draining away of business to other centres. But one look at the way the German government handles the banking sector makes it clear that the competition is unlikely to come from European cities. News that the German coalition government is about to slowly strangle Commerzbank, one of the few major financial players left in Germany, ensures that Frankfurt will remain a regional and national financial player (at best).

FSA fines Goldman Sachs $31 million

The way the FSA arrives at the amount of fines levied is shrouded in mystery. Only dictatorships like the good old USSR and the like were allowed to operate in this fashion. London as a place to do business is on a very slippery slope and it should be remembered that its pre-eminence has only been achieved over the past 20 or so years. Before that finance was a cottage industry at best. People are highly mobile, communication is much better than 20 years ago and decamping to friendlier shores should not be too difficult - especially when half the top professionals are foreigners anyway. The backoffice can safely be handled in places like India.

Sauve qui peut!

Today's news is dominated by triumphalist announcements by the bureaucratic supremos that want to control (strangle?) the financial markets in the EU. Michael Barnier and Jean-Claude Trichet are both products of the statist mindset that is drilled into the brains of the French bureaucrat (or 'Elite' as they call tend to call themselves). But after checking again we found not the slightest shred of evidence that either of them has ever earned a single penny by providing useful services to their fellow citizens. They spent their whole lives at the expense of the taxpayer and both enjoy wielding unprecedented power in artificial bureaucracies that allow them to issue edicts without any democratic restraint. If Britain wants to preserve any chance to keep its position as a world-class financial center it has seriousely to consider to opt out of regulation that is imposed from outside. The alternative is the acceleration of the migration of qualified experts to friendlier climates like Switzerland and further away.

Pay rules: Bureaucratic nightmare in the making?

A report by PriceWaterhouse raises the spectre that new pay regulations could be applied to thousands of financial services firms. While the usual sham 'consultations' are conducted by the FSA we can confidently predict that by implementing new pay regulations beyond the small group of systemically important banks the dead hand of government would certainly make one mighty step towards killing the goose that lays the golden (tax) eggs in the City of London.
The average employee has zero influence on the overall risk profile and financial performance of his employer. A small circle of top managers is wholly responsible for the success of any enterprise in our system of corporate governance and any major delay in paying the much-needed pay-checks to staff further down the rung will only massively demotivate staff - and in many cases make them willing to consider a move to friendlier shores.

Neo-Feudalism will kill London Financial Centre

News that the FSA has reputedly blocked the appointment of John Hyman by Nomura will send a chill through the UK's financial centre. As we predicted a short while ago, any self-respecting banking professional will think twice about moving to or staying in the City of London where he is subjected to an inquisition by faceless and unaccountable bureaucrats who in all likelihood are less qualified than the people they are supposed to vet. Box-ticking and political correctness will be at a premium and who knows - the old-boy network, titles and knowing the right people will also help applicants. The right kind of leadership is essential to the success of any organisation and this vetting system will insure that over time the quality of leadership in the City will be on a downward trajectory. Hong Kong, Singapore and New York will love this!