Cuts at UBS to take three years

Reads a headline in today's Financial Times. I rubbed my eyes over the time-span that the refocusing of UBS would take if management was really intending to keep to this horizon. In the world of markets and investment a year is already a very long time but planning over three years can only be called wishful thinking - apart from the tremendous uncertainty that it would create in the whole organisation. That three former Merrill Lynch staffers now seem to pull the strings in the key Global Markets division also raises a big question mark. We all know the fate of the once mighty Merrill Lynch after it went through numerous revamps over a period of several decades.

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.

Wall Street 'Eat-what-you-kill' System

The claim by the ex-Goldman Sachs staffer Greg Smith should not surprise anyone. Business by definition features an inherent conflict between seller and buyer. While one looks to achieve the highest price possible the buyer wants the exact opposite. Competition (and a dose of ethics) provide the safety valve against the exploitation of customers. The egregious margins achieved in other sectors of the economy - luxury goods for example - could easily also be accused of 'eating and killing' the customers. The lesson that should be learned by all investors - be they small or large individual investors or 'sophisticated' institutions - is that 'buyer beware' is essential when considering to enter into financial transactions, - especially when the other side possibly has an information advantage and is incentivised to exact the maximum possible gain from the counter party.

Citigroup: Shock about exit of CEO

That some employees at Citigroup may be in shock (Financial Times) about the sudden departure of the CEO speaks volumes about the fact that the role of the CEO in today's corporation is vastly exaggerated. While no one would deny that the decision of the leader is critical it does not mean that this is necessarily a good thing as many examples in business (and history) show. Relying on the judgement and predelictions of a single person creates risks that would be mitigated in a more collegial system of leadership.

Goldman: Internal Probe on 'Muppets' draws a Blank

We are not surprised (Financial Times). Who would commit the word to email or voice mail, let alone a printed document? That person really would deserve to be fired - not for the word but for sheer stupidity. But the problem is this: Investment Banking and Securities Dealing are full of products where the interests of the firm and the customer (we avoid the word client on purpose) are directly opposed. But this is the case in almost all businesses. The vendor wants a high price, the customer a low price. A healthy amount of competition therefore is necessary to make sure that customers get the best service. However, this also requires customers that are intelligent and diligent enough to make sure that their interests are served, i.e. do not get taken in by fancy brochures, the image portrayed by the salesman or invitations to ball games and fancy restaurants. One should always be on one's guard when confronted by sales patter but at the same time no firm will be able to survive if it does not control the urge to take advantage of its customers. This requires more than a nicely formulated 'code of conduct'. It requires constant effort from the top of the organisation down through the ranks. It certainly does not help things if top managers of financial firms pay themselves a king's ransom that is disproportionately large in comparison to the pay that those lower down the hierarchy get paid.

Bear Stearns Deal: I am a big boy says Dimon

You may well be a big boy many a JP Morgan Shareholder may think. But the revelation that the deal may have possibly cost JP Morgan $5 to $10 billion demonstrates that Mergers and Acquisitions are a dangerous game that more often than not destroys value for the acquirer as many academic studies document. Apart from the business aspect there is also the fact that corporate governance is not properly functioning with respect to dealmaking. Shareholders (and not only those on the acquiring side) have too little say and are not able to scrutinise the terms of the deals before they are agreed.

CEO sets the tone for any business

We agree with this statement (Who's the Best on Wall Street: Risk Management Report Card - CNBC) but want to add that the development and empowering of a team of senior managers (and good succession planning for all these positions) is as important in fostering a strong culture in any business, large or small.

Unexpected consequences of regulation

Forcing ING to sell assets may lead to a reduction in competion in the UK savings market. Well done Brussels! Your bureaucrats never disappoint. (Daily Mail)

Financial Transaction Tax: Ideology wins over Reason

No surprise that the tax-and-spend zealots have won a victory (Reuters) on the issue of the Financial Transaction Tax (FTA). Politics is forever dominated by those who either want to control other people's lives and behaviour (Stalin and Hitler are extreme examples, but history is full of prominent examples, not a few of them have earned themselves the additional title 'Great') or those who want to benefit from the sweat and effort of their fellow human beings (Slavery being the extreme example there). The proponents of the FTA are a confused bunch where the common denominator is (1) a lack (or unwillingness) of understanding of economics and finance, (2) the desire to spend other people's money and (3) the desire to legislate in an arbitrary, discriminatory and undemocratic fashion. The fact that in the case of the FTA a tax is levied on a particular activity puts the intelligence coefficient behind this tax on a par with the medieval window tax. Basically all taxes directed at specific human activities should be kept to an absolute minimum as they are an effort to constrain the free choice of the citizens. This means that any discussion of the FTA's technical merits are an implicit admission that such arbitrary legislation is acceptable. In addition, tax legislation in most (pseudo)democracies following the 'Westminster Model' is undemocratic and not subject to the agreement of the citizens - for a discussion of this aspect readers are referred to have a look at www.dirdem.org. Please get in touch if you are interested to support our campaign for direct democracy. In the meantime we will watch with interest the impact of the FTA and financial markets - who will win, who will lose - and how long the machinations of the Euro-Clique can continue until their whole bureaucratic edifice implodes.

Investment Management to the Rescue?

Many banks now think that a renewed focus on asset management will allow them to replenish their depleted earnings as investment banking income continues to be under pressure from difficult trading markets and uncertain economies. (see Wunderwaffe Asset Management?) While asset management certainly is a (very) profitable business if managed correctly it is also a business that requires management skills that are not always in abundant supply in many financial service firms. This applies to banking and insurance behemoths but also to small boutiques. While the larger bureaucratic organisations can easilty be stiffled by too much politics, rigid hierarchies and the lack of focus due to a multitude of business lines the smaller firms are not immune to infighting among senior management and often are overly dependent on an autocratic founder or dominant shareholder.