Basel III - 'Dangerous Nonsense' - discriminates against small banks

A report by the respected Austrian lawyer Gerhard Wildmoser comes to the conclusion that the new Basel III regulations favor big banks at the expense of smaller - and often much more conservative - banks. The key causes of the Credit Crunch - the careless attitude to customer's deposits, the purchase of questionable assets and the reliance on the state as a lender of last resort - would not even be addressed by the new regulations. In my view, the unelected bureaucrats and lobbying dominated by 'Too-big-to-fail' banks and their assorted 'research institutions' is on course to score another magnificent own-goal at the expense of taxpayers and citizens in general.

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.

JP Morgan to acquire Brazilian Hedge Fund

It is not necessarily a logical consequence that banks that now are required by regulators to scale down their proprietary activities have to compensate for this by buying into hedge funds. Hopefully they do so if they expect to make a profit out of their stakes. But apart from the hefty price tags hedge fund businesses still attract, we think that adding to in-house asset management offerings runs counter to the tendency towards using 'open architecture' in asset management - and in particular with respect to the product selection for a bank's high net-worth and other retail clients.

Scandal of Lehman Bankruptcy Costs

The spiralling costs of related to the resolution of the 2008 Lehman bankruptcy can only be described as scandalous. Rather than worrying about how to make life for the banking and investing industry more difficult the regulators (in most countries) should pay attention to this little understood corner of the financial world. Similar abuse goes unchecked in ordinary bankruptcies as well were suppliers or creditors get short shrift from a dysfunctional and inbred community of 'bankruptcy professionals'. Assuming the average overall cost of a professional should be around $300,000 the costs that have been run up in the Lehman case so far ($982 million) would pay for the services of an army of just under 2000 professionals working exclusively on this case during the past 2 years. Any money squandered during this process leave investors worldwide out of pocket and therefore this is no game where no one is losing out. Where are legislators, regulators, the media or the corporate governance tribes to check the efficacy of the endless hours billed or the rates charged?

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.

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).

Buyer's remorse over signing-on payments

I always felt that the mad scramble to sign up investment advisers or private bankers and pay them massive up-front bonuses in the hope that they will be able to convince their clients to follow them to the new employer smacked of desperation. So a report in the  Wall Street Journal ('Signing bonuses haunt Wall Street') comes as no surprise to us. In addition, this hiring practice leaves open the question whether lavish inducements are suited to ensure that the advisers will have their customer's best interests at heart when helping them with their investments.

Joaquin Almunia - what does he know about banking?

The current EU commissioner in charge of competition policy, Joaquin Almunia, is just another typical example of the career politician who more and more dominates the life of ordinary citizens in our 'democracies'. He never earned his living outside the sheltered confines of government bureaucracies and owes his whole existence to the party hierarchy in Spain. How someone with his skill-set can be expected to be in charge of a department that requires at least some basic understanding and real-life experience of business and banking is beyond me. Admittedly, things are not much better in other parts of the world but that is little consolation for Europeans who have to live with the consequences of misguided policies that ultimately threaten the viability of their economies.

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.