Pitfalls of Acquisitions

The 2005 takeover of Eurohypo by Commerzbank is just another example in a long list of acquisitions that led to disastrous consequences for the acquiring party. While not many people could have predicted the Credit Crunch at that time it confirms the conclusion of many studies that say that at least half of all acquisitions are not successful. Utmost due diligence is therefore the order of the day when undertaking M+A projects. Unfortunately, too many deals are driven by egos - especially those of CEO's who brush aside all concerns - quite often even those voiced by their internal strategy and planning departments.

Bankers need to find bonus accord?

That seems to be the opinion of Mark Kleinman (FT). But quite apart from the legal aspect of companies coming together on a sensitive subject I would be sceptical about the success chances for any such accord. As long as economic pressures lead to competition for the services of quality professionals there will be upward pressure on the compensation packages for those most in demand. Salaries (and employment numbers) among the run-of-the-mill employees may well be under downward pressure at the same time but top performers should remain well bid for. This trend is exacerbated by the fact that alternative investment managers in the hedge fund and private equity sectors are continuing to benefit from an extremely lax regulatory environment that gives them a leg-up when competing for staff with banks, traditional fund managers as well as industry and commerce in general.

How to protect bankers from themselves

The story of then 34-year old Moses Stern who - despite having no experience in the real estate business - obtained a $126 million loan from Citigroup to buy a chain of shopping malls demonstrates that bank regulations are needed to protect bankers from themselves. Bank Lending must be made subject to much stricter regulation with respect to loan-to-value limits and the quality and amount of underlying collateral. If there can be margin rules for share buying there is no reason that similar rules cannot be applied to lending - especially in property lending which seems to be to bankers what drugs are to drug addicts. Property lending appears to be easy as there are no tricky judgements to be made about the value of a business and bankers can push up the lending volume quite easily.

BBVA acquires 24.9 % stake in Turkey's Garanti Bank

While the price may appear to be high compared to still depressed share prices in most banks it is not a dramatic premium compared to prices paid for banks in emerging markets during the pre-crunch euphoria when they were way above intrinsic value.

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).