Credit Suisse Compensation Plan - Incentive or Disincentive?

While the new compensation structure that has just been announced may at first sight appear to be a step in the right direction it raises a number of questions: relying on the return on equity may be an incentive to increase leverage (and risk) in order to achieve a superior ROE. Making payouts over a number of years could lead to employees just marking time in order to cash in the awards. Depressed share prices and/or a low return on equity may punish hard-working employees that have no influence over either of these two yardsticks. At the same time top management is free to award itself levels of compensation that are high enough to shelter them from the negative fall-out from these two factors, thus creating an unhealthy 'them and us' atmosphere that is not conducive of good team-work.
One unintended effect of complicated and onerous compensation structures dreamt up by the big investment banks may well be that smaller competitors will become a more attractive employer. Younger employees in particular will not be able to spend these 'awards' to support a young and growing family when you need cash for housing, education and other pressing needs.

Open letter to members of the UK Treasury Select Committee

With reference to today's hearing I would like to point out that compensation for Bankers cannot be seen in isolation. Pay for staff in other sectors of the financial services industry - especially in the so-called 'Private' Equity business as well as in Hedge Funds - exerts a strong influence on pay levels in (investment) banking and the securities business. In addition, the problem of spiralling compensation for (top) executives in general industry and business is far from being resolved and also influences the general atmosphere with respect to control (or lack of control) of senior executive pay.

Central Clearing: Solution or Problem?

Pushing more business onto central clearing systems is not the ultimate solution in the search for a more stable financial system. The question remains the same: Would the system be able to deal with a (near instantaneous) change of 20 or 30 pct of asset prices? Only then could one be reasonably sure that a market panic could not topple the financial system. But that would require a substantial increase in margin rates and a corresponding reduction in the amount of leverage available to all market participants.

M+A: Success ratio lower than at Russian Roulette

The statement may seem to be a bit extreme but anyone contemplating a Merger or Acquisition would do well to keep this warning in mind. All too often senior management falls in love with an idea or is egged on by advisers who are paid on completion only and therefore have no real stake in the ultimate success of the transaction.

Compensation gravy train: one train in the UK that you can rely on!

A woman has been awarded half a million pounds in a series of compensation payments after accusing four public sector employers of discrimination, unfair dismissal or sexual harassment (Daily Telegraph, 11 Nov 2010). While a disproportionate amount of claims are settled in the Public sector the financial sector is also vulnerable to the frightening rise in red tape and social engineering created with little regard to the realities of private business.

Patchy hiring to follow frenzy at European banks says Reuters

The real test of management will come when business volumes have declined so much that present staffing levels can no longer be justified. Those companies that have hired wisely and responsibly will have to do much less pruning than those that adhere to a irresponsible 'hire and fire' philosophy of human capital (mis)management.

Tulips anyone?

That comes to mind when reading about the frenzied trading in today's story stocks such as Facebook, Twitter and Linkedin. Which bank will it be that is left holding the bag financing a speculative hot-shot when the whole bubble bursts?

Deutsche Bank: rated most exposed by Japanese Regulator

While Deutsche Bank has performed admirably (at least on a comparative basis) during the financial Crash we kept being concerned about the slender margin of safety that is provided by the equity capital basis. DB may be less exposed to sovereign loans in the Eurozone and corporate loans may also be a lower part of its portfolio than in other institutions but that means that the bank is more exposed to financial assets and counter party credits. And the purchase of supposedly 'safe' businesses such as Deutsche Postbank and Oppenheim are by no means guaranteed to provide the high returns that management continues to aim for. News that Deutsche Bank is the lucky (?) owner of the most recent addition to the Las Vegas hotel scene does little to inspire confidence in the bank's risk management skills. Maybe the bank should pay its bonuses in the form of free hotel vouchers until the full extent of its exposure has been recouped.

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 Boerse: another Euro 450 mio written off on ISE

In 2007 the German Stock Exchange (Deutsche Boerse) acquired the International Stock Exchange ISE for more than Euro 2 billion. This write-off follows a provision of Euro 420 million in the last quarter of 2009. Acquisitions are minefields for the unwary and should only undertaken after careful analysis and after consulting advisers that give objective advice based on long financial and markets experience.