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.

Salz Report on Barclays - another Figleaf for the Establishment

The lengthy - and ridiculously expensive - Salz Report has to be seen in the long English tradition of conducting expensive and lengthy enquiries when the solution to the problem would just have taken common sense and a willingness for decisive action. Both ingredients are missing. It is not clear why there would have to be an enquiry into Barclays Bank and not into any of the other major banks, investment institutions, regulators and politicians who must certainly share a large part of the blame for problems in the financial sector - and wider economy - that have evolved during the past few years. The proverbial blind man could see that executive pay in banks - but also in investment firms and major listed companies - has spiralled out of control. It leaves a sour - not to say salty - taste in one's mouth when one sees that the costs of the report are such that the 'solution' is part of the (pay) problem. How can anyone justify that a 244 page report that any junior management consultant with his head screwed on could has put together can cost £17 million! And how much of that did go to the City 'Grandee'?

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.

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.

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.

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)

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)

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.

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

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?

Bill Winters - harsh critique of UK bank reform proposals

"Bank overhaul 'may leave UK rudderless' if new crisis hits" reads the headline of the report about his evidence to the Treasury Select Committee (Daily Telegraph).
We could not agree more as we have repeatedly argued that overcomplicated 'Solutions' to the problems of the banking sector are no help, and more (expensive) 'studies' even less so. A few simple solutions are glaringly obvious: higher capital ratios on interbank lending and derivatives, funding that in its majority (90%?) matches the maturity on both sides of the balance sheet. No PhD, MBA etc required to implement or monitor this.

UK Bank Bailout Money may never be recovered?

Opine the Solons sitting in Westminster. While this may not be a firm prediction but just a way of garnering a headline (CNBC) in the media it speaks volumes about the incompetence among 'lawmakers' (and the political class in general). Why should major banking institutions such as Lloyds TSB and Royal Bank of Scotland be beyond repair? If that would be the case one should start an orderly dismantling now. Maybe the raft of well-intentioned but often counterproductive regulation is intended to achieve just that. But then it would be better to admit this rather than trying to gain political capital with irresponsible statements. There is no reason why both banks should not be worth a lot of money in a few years time, maybe not as much as the taxpayer has put in but close to it at the very minimum.

The Great Bank Robbery

While no one will deny that some sales of Payment Protection Insurance (PPI) were not in the customer's best interest (and even that statement is debatable) it is obvious that the UK banking industry is the subject of a populist witch hunt. Intelligent people are not forced to buy any product and in the case of PPI no one can argue that he was 'mis-sold' the product unless he actually tried to claim a payout and was denied compensation in an unfair fashion. There could be an argument about the premium paid but even that can never be reason for a blanket call for compensation as this could lead to the end of a free market system where every purchase could lead to a compensation claim later on if applied in a general fashion. Is this the way to run a banking system? or an economy? No wonder there are serious commentators who predict that the UK will be a Third World Economy by 2014.

Subsidised Bank lending problematic

This headline (Government scheme to boost lending to small firms 'could lead to abuse by banks and plunging rates for savers', Daily Mail) points to a serious flaw in all schemes that are designed to boost bank lending. Apart from a command-and-control economy where governments direct banks to lend to specific sectors or companies the use of subsidies (including those from supranational entities like the EIB or World Bank) open the door for abuse. The application process is convoluted and not transparent in most cases and it is far from clear that in the end it is not more important who knows the bank manager well - or is politically well connected - than the viability of the project for which the loan is proposed to be used.

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.

Libor Manipulation: A Victimless Crime?

After having received a lot of criticism for my earlier post on the subject I am glad to find voices that also 'query the effect of Libor manipulation'.

UK Establishment: Bent on destroying Banks

While the Euro Crisis rages and serves as a useful decoy one development is largely unnoticed by the Commentariat: the war that the UK Establishment - political parties and some parts of the media - wage against the banking system that they claim to protect from intrusive regulation from abroad.
Certainly there may have been cases of mis-selling of payment protection or swaps but to rule that all such transactions were executed in bad faith by the banks that sold the protects is going too far, not just a step but a mile! The payment protection bandwaggon is in full swing, all customers can claim full refunds even if they were fully aware of the limitations of the product. The campaign to allow untold numbers of commercial clients who went into swap transactions to hedge against (mostly interest rate) risk is in full swing and probably will also provide a let-off for those who argue (with the benefit of hindsight) that the derivative deals landed them with losses. Basically one could apply a similar argument to all insurance products that have been sold and where there was no subsequent claim. Were the premiums not wasted and in effect a 'loss' for the buyer of the insurance? As there is no free lunch the shareholders of the banks as well as the majority of bank customers will be the ultimate victims of this totally unjustified witch hunt that is perpetrated against the banks.

Defer bonuses for 10 years?

Andrew Haldane, an otherwise sane Bank of England official, has suggested that bonus deferral and claw-back periods should be extended to 10 years or more for (senior?) bank executives. While we have sympathy for those who think that bank regulation is not up to the task we would consider this proposal to be unworkable and counterproductive. Who in his right mind would be willing to work on that basis? 10 years is an awfully long time - just think of the young banker aged 25 who would have to wait until he is 35 to enjoy the benefits of his effort! You might as well work in a communist system. One has to suspect that the Bank of England officials - typically for the caste of government employees all over the world - simply have lost touch with reality. We have pointed out repeatedly that proper banking reform has still not really been enacted. Stalinist 'command-and-control' systems are no appropriate substitute.

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.