Nationalising the Banks? - A Warning from Germany

From right and left we can hear occasional calls for the nationalisation of banks. This should prevent that taxpayers have to pick up losses by private banks. But a particularly glaring example of what can go wrong when politicians are allowed to play bank manager is found in the sorry fate of Germany's Westdeutsche Landesbank. Many similar examples of mismanagement by political incompetents can be found all over the world.

Lloyds Bank boss needs a break

While we have sympathy with Antonio Horta-Osorio's health problem and wish him a speedy recovery we cannot but take the opportunity to point out that this incident may point to a management failure. While Horta-Osorio is at the center of a 'perfect banking storm' and has to battle on all fronts to steer the bank through choppy waters caused by the never ending financial crisis and the ensuing onslaught by regulators it is the mark of a good leader, and in particular the man/woman at the top of an organisation, to surround himself with strong and capable lieutenants that he can rely on. Maybe Horta-Osorio fell into the same trap as so many (chief) executives and tried to do too much himself. But no person is irreplaceable and we all know that at any moment the CEO could be knocked out of action by the proverbial bus. So an organisation should not only have a well-balanced leadership team for efficiency's sake but also for the eventuality of any succession that may be necessary for one reason or another.

Yahoo Board looks harder for new CEO

Headlines such as this one illustrate that many boards are completely negligent in one of their key tasks - making sure that there is a proper succession plan in place. That large companies find it so hard to groom candidates for the top position is testimony for poor board practice. Though one of our business lines is recruting senior professional staff we are surprised that most firms are paying much to little attention to this crucial aspect. Personnel Management is not just a support function that should be left to the personnel department that is ranked below the front line divisions in terms of clout and prestige. Instead it should be a core function in every business - and even more so in the financial service industry which basically has no tangible products and relies for its success completely on the quality of its employees.

Common Sense Lessons from the UBS Loss

It is always easy to be clever after the event, but a few simple facts are behind the latest mega loss reported by a bank:
- Top management is often too far removed from the workshop where the hard work, i.e. earning the money, is done. Management (also in the lower echelons) spends too much time in meetings/politics and pointless 'reviews' rather than really knowing the details of the business and the people involved.
- Management planning is unrealistic (see Deutsche Bank's recent pronouncement that the bank aims for 10 billion in profits this year) and this puts enormous pressure on staff to try to 'meet the target' at any cost
- Top executives are unwilling to listen to advice, those below the top are fearful to speak out, the 'cult of the CEO' accentuates this problem.
- Modern management theory is useless when common sense is left out of the equation.
- Constantly changing teams (due to pro-cyclical hire/fire personnel policy, but also excessive rotating of existing staff between business areas, locations) is enemy of a solid business culture built on trust, knowing what is going on.
- Star culture - mistaken belief that individuals can consistently reap extraordinary profits by honest hard work alone rather than relying on excessive risks or just luck.
- Preference to spend vast amounts of money on management consultants without any real experience in the business as often they field young graduates/mba's that just 'go by the book', peddling formulaic management philosophies.


At Temple Associates we do not just want to 'write a ticket', we take pride in having the time - as well as the experience - to help our clients finding staff they can rely on.

Deutsche Bank aims high, maybe too high?

To declare that he aims to reach a certain number in terms of profitability is a dangerous game to play for any company chief executive. It may be useful for internal planning and consumption but to give a number in public as Deutsche Bank CEO Josef Ackermann just pronounced (Euro 10 billion pre-tax in 2011) appears a bit unrealistic as the bank never managed to get near this number even in the 'good old days' before credit crunch and Euro crisis. The stock prices of major banks certainly would need a shot-in-the-arm and not just since the twin crisis torpedoed them. Rather than manage analyst expectations managements would be well-advised to complete a root-and-branch review of their business strategies.

Worst M+A Deals in Banking History

Bankamerica/Countrywide Credit, Commerzbank/Dresdner Bank, Lloyds TSB/HBOS, RBS/ABN Amro....the list is long and the memories have begun to fade, but deals such as these should feature prominently in any business book or university class about 'Business Strategy' or 'M+A'. If all the high-powered executives at the helm of these institutions would have lived in the same spot one could have suspected that there was a suspicious substance in the local water supply that made them all lose their collective marbles while they were throwing away the wealth of their shareholders in an act of wanton destruction. And they cannot argue that they had not been warned. At the time the storm signs in the financial markets were clearly indicating force 12 on the Beaufort Scale. But while the damage has been done these deals should forever be a warning not to allow management - or deal-hungry investment bankers - to get into value-destructing transactions.

How to prepare for slowdown in investment banking

Predictions of a decline of 16 percent in global investment banking revenues will pose a serious challenge for investment banks and securities dealers. Senior management is still trying to get a handle on all the regulatory changes they are hit with (and no end is in sight) and global markets in equities, commodities and bonds may be at or close to a peak. So the outlook is not rosy as declining markets usually also lead to a decline in market activity. One thing is clear: a stop-and-go management style in all likelihood will fail, hire-and-fire policies have been tried numerous times over the past 20 to 30 years and done nothing but demotivate and demoralise organisations (many of which have sadly disappeared from the industry). Managements are called to get away from 'macro-management' (lots of flip charts, off-site meetings, management consultants) and buckle down to manage the everyday aspects of their businesses, nurture staff - and above all manage the often inflated expectations regarding compensation that their employees might still garner.

UBS: dramatic appeal by Chief Executive Gruebel

Oswald Gruebel's dramatic appeal to the staff of UBS's US investment banking staff demonstrates the difficulty of managing today's sprawling international banking businesses. Once an operation is - rightly or wrongly - under pressure due to difficult markets or competitive weaknesses it requires near-superhuman skills to put the ship on the right course again. Investment Banking, Securities Dealing and Investment Management are basically simple businesses when one looks at their basic constituents but as I always say: it is not brain surgery, but people - and companies - who want to succeed in these businesses need a blend of a lot of different skills and it is exactly this combination that is the challenge - especially when the 'assets' of the business walk out of the door every evening.

Good Management must show Empathy

If reports are true that the UBS's chief of investment banking scolded his staff for behaving like spoiled children he may well have said the truth. But if the report is also true with respect to the reaction by staff it highlights one fact: it is not only what you say that counts, it is also important how you say it. Morale - especially in a people business like investment banking - is a fickle thing and it can easily evaporate and hole a company below the water line.

Not all firms can occupy top position

When a senior executive of UBS admits that the bank may no longer aim for the top spot in the rankings of global investment banks he puts the business on a more sensible and realistic footing.
Aiming for the top may be useful to encourage ambition but it can also be destructive if carried too far. Like in sport, there can only be one winner in business and being number 2, 3 or even 10 does not automatically brand you a failure.

Mitsubishi/Morgan Stanley JV loses big on Derivative Bet

One should have thought that the turmoil of the past few years has led managements in all securities units to batten down the hatches and keep to a strict regime of risk management in all trading activities. That two major participants in the global investment banking business have to book a loss of nearly 1 billion dollars on a trading strategy that went wrong beggars belief. The more things change, the more they seem to stay the same....

Size matters - but not in the way the consultants think

A well-known consultant to private banks recently claimed that smaller (Swiss) Wealth Management Banks face a challenging future. The problem with this one-dimensional view is that size does not have to be a valid variable when drafting a path for the future development of any financial institution. If the small banks have no future, the middle gets squeezed and the big ones are too big, who is going to survive? The consultants have a lot of explaining to do as they can not all be right at the same time. Experience and common sense should be the guide as banks in each of these categories can prosper if they make the right decisions.

Forced Ranking: UBS falls for Management Fad

The 'forced ranking' human resource management tool introduced by CEO Oswald Gruebel at UBS has created bad blood among employees at the bank. The instrument that can at best be called controversial (and inhuman at worst) has attracted massive criticism as a quick Google Search will demonstrate. Top of the list are negative references and it can only be seen as a sign of desperation that a company that traces its roots back over more than one century finds itself compelled to reach out for such a measure in order to improve its inadequate - and at times catastrophic - performance. It is quite difficult to understand why a CEO who has always led from the front - Gruebel started out as a bond trader and was for a while the star of the nascent Eurobond market - would fall for a concept that has been abandoned by other companies. The cost-income ratio in the investment bank may well be too high at 80% but it would be better to cut the fat in one fell swoop rather than drag out the agony. Regular reviews are in any case now an over-hyped fad that waste much employee time, create bad blood and serve only to boost the sense of self-importance in the human resource departments.

Smaller players will win market share in Investment Banking

We agree with Chris Whalen, MD of Institutional Risk Analytics, when he predicts that smaller firms will gain market share in investment banking and fill in the gaps left by the demise of several large firms during the Credit Crunch. Regulation will also to a certain extent clip the wings of the dominant firms and force them to reduce their activities in certain business segments.

UBS dress code memo

UBS was (and is?) known for fast-tracking officers of the Swiss Army Militia through its management ranks. We are not sure that the 'new UBS' (post SBC 'Merger') adheres to the same management principles. But given the fact that banks worldwide are inundated with more or less sensible regulations it is amazing that someone in the - still vast - bureaucracy of a large bank finds the time to devise such a detailed prescriptive paper. Rulebooks such as this tome certainly would not surprise anyone if it would be given to fresh recruits in an army barrack. I wonder what it does to promote morale at the workplace?

Deutsche Bank set to leave Postbank alone after merger

We were never sure if the frugal customers of Deutsche Postbank really will make a large impact on Deutsche Bank's profitability. The headline makes us wonder even more. What is the point of buying the bank when it will be managed with such a light touch?

UBS wants to take more risks says CEO Gruebel

Oswald Gruebel, himself a trader by background, says that UBS wants to take more risk in order to increase profits from Investment Banking. It remains to be seen how that strategy blends with the regulatory desire to reduce proprietary trading in banking. But risk in investment banking does not only mean positions (punts) taken by traders in bonds, equities, forex and commodities. It can also mean higher risk by lending (for higher margins) in commercial and investment banking. As such it is often disguised (even from the bank's management) and potentially more dangerous for that reason. But all banking is to some extent depending on taking (intelligent) risk and the change in strategy therefore is not necessarily an imprudent one. Execution and attention to detail - as always - is the key. On the other hand one would think that a truly global franchise such as UBS should make enough money from client-related business alone so that excessive risk taking is no longer required for the achievement of a satisfactory return on capital.

UBS - enterprise culture blamed for credit desaster

The just published report on the inquiry of events during the 2007-2009 credit crunch puts the blame for UBS' woes at the door of a lack in an appropriate enterprise culture.We are in the privileged position that we do not only work as recruitment consultants to a number of financial service firms but as business advisers we are also offering a more 'holistic' service that does not end with putting 'bums on seats'. Our own direct experience in the markets has taught us the importance not just of individual brilliance but of an enterprise culture that is not solely focused on maximising profit for the firm and/or the individual. As the products the industry offers are intangible it is all too easy to forget that pride in the work/service performed and customer satisfaction should be primary motivators. Profits should be a consequence and not the sole motivator of those working in banks, brokerage and money management businesses.

Goldman versus Matt Taibbi - PR Battle looms

Given the history of the stormy relationship between Goldman Sachs and Matt Taibbi it will be interesting to see who wins the public relations battle during the next few months. Goldman has just launched a major PR campaign to improve its public image while Taibbi's new book 'Griftopia' about how he thinks that Wall Street really works is going to be published in November. With respect to Goldman we would advise the company to spend less money on expensive ads but devote more thought on how to avoid getting business and politics mixed up in the future.

More pessimism about outlook for investment banking

Andy Kessler is always interesting to read. In his latest piece in the Wall Street Journal he makes a pessimistic prognosis for the investment banking industry. He thinks that current - and prospective - levels of business activity cannot support the present number of traders, salespeople and deal makers. While we think there is a chance that emerging markets and markets in Eastern Europe and Asia will to a certain extent help to reduce this pressure on the industry it will at best help to keep levels of employment and activity at similar levels to what they are now.