Banking Reform: Key problem no nearer to solution

Thousands of pages have been written about how to reform the banking system but we are no nearer to a solution. The key problem that needs to be solved is the fact that under the existing banking regulations the taxpayer is the ultimate guarantor of (most if not all) banking deposits. As long as this deficiency is not remedied we will not have a properly regulated banking system. If an engineer has to construct a bridge it is either safe or not. The same non-compromising yardstick should be applied when discussing solutions to the problems of the banking system.

CDS trading still poses danger to financial stability

During the height of the Credit Crunch we have repeatedly warned about the dangers of a self-feeding spiral that could destabilise companies and banks in particular. Nothing has been learned and the market's attack on Bankamerica seems to become a repeat performance of the chaos that was allowed to dominate the markets back then.

FATCA - the true tragedy

The absurd legislation making its way through the US government machine is a sad indictment for the inability of the European 'elites' to make a clear and determined stand in defending the interests of their citizens and the financial industry in the Continent. A simple threat to retaliate tit for tat and subject the US institutions to the same treatment would have stopped the whole nonsense right in its tracks. After all, if the US is so keen to catch potential tax cheats it could impose stringent controls on its own citizens, control all movements of money in and out of the country and in the process make a laughing stock of the expression 'land of the free'.

Worst M+A Deals in Banking History

Bankamerica/Countrywide Credit, Commerzbank/Dresdner Bank, Lloyds TSB/HBOS, RBS/ABN Amro....the list is long and the memories have begun to fade, but deals such as these should feature prominently in any business book or university class about 'Business Strategy' or 'M+A'. If all the high-powered executives at the helm of these institutions would have lived in the same spot one could have suspected that there was a suspicious substance in the local water supply that made them all lose their collective marbles while they were throwing away the wealth of their shareholders in an act of wanton destruction. And they cannot argue that they had not been warned. At the time the storm signs in the financial markets were clearly indicating force 12 on the Beaufort Scale. But while the damage has been done these deals should forever be a warning not to allow management - or deal-hungry investment bankers - to get into value-destructing transactions.

Regulation will atrophy banking industry

The failure of governments and regulators in reforming the global banking systems in any meaningful way is illustrated by news that more examiners will be "embedded" in the banks and securities firms they regulate (Wall Street Journal). I have always warned that a financial system that relies on regulation and not on competition will lead to the creeping takeover of all business decisions by a bureaucratic (and uncontrollable) monster where 'Kommissars' will have to vet any decision made by the business managers. These in turn will become more and more risk averse.

Oppenheim / Deutsche Bank - Haste makes Waste

While it may appear to be a cheap shot to criticise Deutsche Bank's takeover and rescue of Germany's venerable Sal. Oppenheim in the summer of 2009 one aspect of the transaction can definitely be described as representing poor management practice. As this report illustrates, the decision to bid for the bank was made with undue speed and it is clear that proper due diligence would not have been possible. Time may have been of the essence - it always is in rescue bids - but the bidder can only gain from any delay. If the situation the target finds himself in (Merrill Lynch, HBOS, Dresdner Bank) is really dire the value of the asset has only one way to go: Down. Managements of highly rated organisations such as Bankamerica, Deutsche Bank,  Lloyds TSB or Commerzbank should really be aware of this simple fact and all managements in all acquiring companies should never feel under time pressure (real or imagined) - as Terra Firma's Guy Hands found out to his cost when bidding for EMI.

How to prepare for slowdown in investment banking

Predictions of a decline of 16 percent in global investment banking revenues will pose a serious challenge for investment banks and securities dealers. Senior management is still trying to get a handle on all the regulatory changes they are hit with (and no end is in sight) and global markets in equities, commodities and bonds may be at or close to a peak. So the outlook is not rosy as declining markets usually also lead to a decline in market activity. One thing is clear: a stop-and-go management style in all likelihood will fail, hire-and-fire policies have been tried numerous times over the past 20 to 30 years and done nothing but demotivate and demoralise organisations (many of which have sadly disappeared from the industry). Managements are called to get away from 'macro-management' (lots of flip charts, off-site meetings, management consultants) and buckle down to manage the everyday aspects of their businesses, nurture staff - and above all manage the often inflated expectations regarding compensation that their employees might still garner.

UBS: dramatic appeal by Chief Executive Gruebel

Oswald Gruebel's dramatic appeal to the staff of UBS's US investment banking staff demonstrates the difficulty of managing today's sprawling international banking businesses. Once an operation is - rightly or wrongly - under pressure due to difficult markets or competitive weaknesses it requires near-superhuman skills to put the ship on the right course again. Investment Banking, Securities Dealing and Investment Management are basically simple businesses when one looks at their basic constituents but as I always say: it is not brain surgery, but people - and companies - who want to succeed in these businesses need a blend of a lot of different skills and it is exactly this combination that is the challenge - especially when the 'assets' of the business walk out of the door every evening.

Good Management must show Empathy

If reports are true that the UBS's chief of investment banking scolded his staff for behaving like spoiled children he may well have said the truth. But if the report is also true with respect to the reaction by staff it highlights one fact: it is not only what you say that counts, it is also important how you say it. Morale - especially in a people business like investment banking - is a fickle thing and it can easily evaporate and hole a company below the water line.

Bank Austria pays for costly Kazakh mistake

We were concerned about the high price that BA paid for ATF Bank in 2007 and our worries about buying an emerging market bank were proven correct. Regulators in Almaty have asked BA to inject another Euro 198 million. The lesson should be clear: never buy such risky assets in a seller's market.