Bureaucrats to run UK Financial Sector

The Great, the Good and the Not-so-Good are slowly taking over the running of the UK Financial Sector. After all, it the Establishment managed to run the UK Automobile Industry into the ground, why not give it a try in another sector that (still) is a leading participant in a global industry? I warned some time ago that to give regulators (and indirectly politicians who pull the strings in our cherished pseudo-democracy) unfettered control over senior appointments in Banking, Insurance and Fund Management would make it very difficult - and certainly frustrating - to manage any of these businesses. An recent illustration is provided by the fact that two candidates for the position of Chief Financial Offices at Legal & General were rejected by the Commissariat, formerly known as FSA, now split into two units, presumably to provide more jobs for second-rate pen pushers. The explanation, that candidates did not show sufficient familiarity with insurance, does not convince. Since when did a CFO of an engineering company have to show familiarity with the intricacies of machinery design? This is just another drop on the stone of bad news that will lead to a mass exodus of financial service firms once a certain pain threshold is passed.

EU Bonus Cap - Welfare for all is ultimate destination!

One may agree with this policy (EU casts wider net for Bank Bonuses, CNBC) or not - but there will be many side-effects, intended or not. Staff will migrate to other sectors, in particular private equity and hedge funds, also traditional long-only fund managers. If politicians then want to extend pay caps the next stop for professionals will be the general corporate sector. That would mean that eventually ALL business compensation will have to be controlled - by politicians with only the slightest democratic legitimacy (Has anyone anywhere had a chance to vote for these measures? Does anyone even know his 'representatives' in the national or European Parliaments?). All this and the question of migration to areas outside the control of Eurocracy is completely left open. We might as well hand all our salary to politicians and just receive vouchers for our daily need - Welfare for all is the destination!

Scariest Part of Gold Crash?

Reads a headline but the article forgets to mention what really should scare investors, market professionals and regulators: the fact that the price of a major asset can plunge by such a large amount in a few days demonstrates the inherent fragility of financial markets. During the past 30 years the unprecedented growth of  (mostly over-the-counter) derivatives - subject to 'light-touch' supervision - has created a huge house of cards of interconnections between all financial market participants that could rapidly spiral out of control. The absurd length of time required to unwind all the liabilities from the collapse of Lehman - and the number of company 'boxes' created by that firm - shows that the current regulatory scheme is not up to the job. Proper stress-testing of banks, insurance companies, securities firms, asset managers and pension schemes would have to be much tougher and assume a shift in asset prices by multiples of the underlying assumptions that are used today, something in the order of 20-25 percent.

German Managers want banking pay limited - but not their own

A poll conducted by Handelsblatt comes to the conclusion that German Managers favour limiting pay in the banking industry but not in their own companies. How hypocritical can you be? But apart from this questionable aspect limiting pay in the banking industry would mean that only second-rate people would want to pursue a career in banking. This episode demonstrates that the question of pay - especially for senior management - cannot be tackled in specific industries but must be part of a wider solution based on sound management and moral principles.

Fed sends Minutes a Day (!) early - the real questions

In the Lobby-infested cesspool that is Washington it is no surprise to find that the Fed 'accidentally' sent copies of the latest Minutes to a select list of banks, investment managers and lobbyists. While the easy excuse is that it just is a 'fat finger' error caused by some junior staffer (an unpaid intern?) I just find this explanation less than satisfactory. As anyone who has ever sent an email message to a maillist should know a message is only sent to the recipients that are included in the list. If only this select group of recipients gets the mail it should mean that there was a sort of priority list. Otherwise all those who have signed up to get the Fed minutes delivered upon release should have seen the message at the same time. In addition, there should be a forensic audit into the trading activities of all recipient firms to find out whether they profited from this information or not.

Libor - Regulators asleep on the Watch (again)?

While I have doubts that the alleged or actual manipulations of the Libor rate-setting process really did major harm to anybody it is amazing that one large market participant was allowed to play a crucial role in the fix. Another case of regulators asleep on the watch?

No regulators slated for failure

But HBOS chiefs 'slated' for failure (Financial Times). And anyone thought that there was a proper investigation of banking problems?

When the state loots the shareholder

State-sanctioned looting of shareholders becomes the norm in the United Kingdom. First not-so-gentle persuasion was used to force banks to compensate 'victims of mis-selling' (though how these millions were forced to buy products that they were not supposed to either want or need still is beyond me). Then all those who were at the loosing end of derivative contracts that were designed to protect them against interest rate risk were out with their begging bowls and a complicit media commentariat, lobbyists and politicians jumped on the bandwagon to punish the unloved banking sector. The latest illustration of madcap regulatory overreach is given today as the UK's FSA fines Prudential Plc 30 (in words: thirty!!!) million pounds on the spurious pretext of not having been informed in time about a possible bid for AIA. The shareholders and pensioners who are paying for this nonsense will be the ones picking up the bill that feeds the ever-rising army of paper-pushers in the regulatory Gulag that slowly strangles the financial industry in the UK - no need for the 'Troika' to aid an inept government of PR luvies.

Stalinist Incomes policy - spiteful and arbitrary

The European (Dis?) Union is on the slippery road to serfdom (Hayek) when professional agitators like Sven Giegold (read his CV carefully, you will shudder when you read it!) are given the opportunity to introduce 'laws' that arbitrarily set pay (Financial Times) for a minority of the population that he and his minions want to punish for ideological reasons. It is not possible to argue with these extremists (have a look at what 'Attac' stands for) and the only way to combat the takeover of the pseud-democratic institutions in the EU and the member states is a complete overhaul of the political system based on a radical and comprehensive form of direct democracy safeguarded by a proper bill of rights that bans discriminatory legislation. Those who do not just want to shrug their shoulders or clench their fists in their trouser pockets should contact me and take part in the democratic reform project.

UBS: Will Junk Pay motivate the troops?

I doubt it. When regulators don't regulate properly and management runs the ship aground it is not obvious why 6,500 staff should pay the penalty. Top management may be able to be paid in monopoly money as it has (hopefully) made it's pile and could happily retire even if the bonds that are being paid turn out to be worthless. But any aspiring young - or even middle-ranking - banker needs hard cash to pay to the ever-rising cost of housing, education etc. And is there ever going to be a penalty for regulators or politicians that don't do their job properly. The ECB has just announced that it will hire another 2,000 (useless) bank 'supervisors' in the near future....wish we had another Kafka to weave a novel with this subject matter.

JP Morgan: Review of the 'Whale' Trades

Nothing but a very thorough review of the losses made by the 'Whale' was to be expected but one still has to wonder how much good this report will do. Its recommendations certainly will keep a lot of regulators and JP Morgan staffers very busy in the future. But looking at the quite unstructured text in the 18 pages it contains hints at the main problem any financial institution faces: complexity and human frailty combined with a good mix of fear, risk and greed. Setting up ever more complex procedures and review bodies will only go so far and never be a perfect substitute for common sense and competent, honest and modest people.

UK: Hellbent on destroying its banks?

Readers know my scepticism with respect to the LIBOR witch hunt (and the PPI/payment protection insurance brouhaha that is completely blown out of proportion and turns all notions of individual responsibility on its head). But if there is any truth to it that the regulatory jobsworths (and their political puppetmasters) put pressure on Royal Bank of Scotland to get rid of two senior executives than one really has to say that the 'Coalition' here in the UK is hellbent on destroying what is left of indigenous UK banking institutions. Cameron and Osborne (and with a little bit of luck Nick Clegg as well) will find themselves cushy jobs with their Etonian or City friends and hangers-on after (as I would expect) they lose the next election. But the taxpayer and citizens of the country would have seen their (involuntary) investment in RBS go down the tubes.

Libor Trades - Simplistic Calculations

Reports about the profits that Deutsche Bank is supposed to have made (where can we finally expect to see a hard copy of dollars and cents?) are simplistic to say the least. Of course, ALL trading houses will (hopefully) have made money from 'Libor trades'. The alternative would have been to have lost money in these trades. But as even any intern serving in an investment firm knows, that does not mean that any profit has been made in an improper fashion. Have any of the critics in the media, politics and regulators even had a good look at the acres of office space trading desks occupy? do they know how many different desks and investments are linked to Libor? Then they would understand that even the efforts of a group as large as the (supposed) group of UBS staffers can hardly have shifted the actual Libor rates produced collectively by ALL the contributing banks by more than a tiny amount. And even within UBS, for example, there would have been winners and losers on any given day, just that the people responsible for Libor quotes may have gained a small advantage at their expense. But for that I still would like to see actual proof and not general displays of shock, horror etc

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.

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)

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)

'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.