Derivative Timebomb - still not defused

Talk, talk, talk - that is all the regulators and their political puppet masters seem to provide with respect to the derivatives market. Could it be that they just do not understand these markets? I agree with Chris Whalen and Barry Ritholtz (see video) when they call for the repeal of the Commodities Futures Modernisation Act which carved out a largely regulation-free zone for the OTC derivatives market. Even better would be a strengthening of margin requirements across the board - anything under 20-30 percent depending on the product is not good enough. Let us remember how markets moved close to that in panics during 1987 and 2008-09.  Recent worries about the adequacy of central clearinghouses put the finger on this problem but I fear that their capital and margin requirements are not up to the task - BY A MILE!

Bureaucrats take over the Banking Industry

While there are other reasons that 'banks do not want to lend' (such as lack of suitable borrowers) the nitpicking and intrusive regulation by anonymous paper pushers and their political puppet masters is another - and growing reason - for the lack of dynamism that is evident in Europe's banking industry. And that applies not only to the sickly Euro-zone but also to the UK. Latest exhibit: the procrastination  (Boersenzeitung) with which the German Banking Supervisor BaFin handles the acquisition of BHF-Bank by Kleinwort Benson. While Germany might be good at churning out industrial products (with generous help from a misguided currency defense that simply knocks out of contention all its major European competitors) the banking skills in the country will wither away to invisibility as any entrepreneur with a little bit of nous will stay clear of this country.

Banking Union - not so necessary

Today one of my favourite economic commentators states that "banking union [is] an absolute prerequisite of a properly functioning monetary union. (Jeremy Warner, Daily Telegraph). I beg to disagree. The only reason why weak banks can undermine the solvency of the host states is the lack of a proper regulatory environment in each of the euro-zone member states. As I have pointed out again and again, we are far away from reform measures that would put the banking system on a stable footing. If these measures would be implemented there would never be a requirement to cross guarantee banking systems, nor would there be any requirement  to have a European Banking Authority.

Nonsensical 'study' of High-Speed Trading

While I am critical of some aspects of high-frequency trading - esp the speed advantage that technology provides and which undermines the principle of priority and precedence - this study by a CFTC economist does not cut the mustard. That futures trading is a zero-sum game is nothing new and that those active on a daily basis want to - and have to - make a profit should not be seen in a negative way. After all, who complains about the profits that the casino operators in Las Vegas make? Without them there would be no gaming industry. So let us have more studies, but above make them relevant. This should mean that real abuses get uncovered and the guilty punished. Oh, and what happened to those responsible for MF Global - management as well as regulators?

CFTC: Regulator fit for purpose?

The US Commodities and Futures Trading Commission certainly knows how to make a hash of their task. While major regulatory disasters such as MF Global seem to go largely unpunished and the global OTC derivatives monster escapes any noticable oversight the CFTC is busying itself with closing down the tiny betting exchange Intrade. Is it not time that the overbearing bureaucrats in Brussels once and for all tell their US counterparts that extraterritorial jurisdiction is no longer acceptable?

Swiss-Life CEO: 'We paid too much for AWD'

With better advice Swiss-Life could have saved itself a lot of money and even more bad publicity. The chances that main-stream investment banking 'advisers' talk a willing client out of any deal he wants to do is very small. Too high is the pressure to generate fees that justify a high cost base for the employing firm, too strong the desire to buy an even bigger pad in London's Westend or in the Hamptons. A cursory examination by an experienced observer would have had loud warning bells ringing at the prospect of marrying a solid but staid organisation with a gogo marketing firm lead by a high-profile entrepreneur. On paper the numbers may have made sense - especially before the eruption of the global financial crisis - but the all-important human aspect was overlooked by the blue-eyed analysts in Swiss-Life's planning and strategy team. That the CEO still thinks that acquiring AWD was the right decision is odd - to say the least.

Bank of England appointment - not so glorious

Amid the orchestrated adulation for the newly-appointed Governor of the Bank one should not gloss over the shameful fact that once again the Government has failed to find a suitable candidate among the vast number of highly educated and experienced economists and other professionals here in the UK. Add the fact that a highly excessive pension 'contribution' is made to an already high basic salary (while huge numbers of hard-working public sector employees see their pension packages cut in unilateral fashion) and one can only wonder about the mental state of the decision makers that participated in this mock selection process. With respect to Carney's achievements in Canada one has to say that managing the affairs of a small country (by population) during a global resource boom that supports its economy while the banking system is by tradition a closely controlled oligopoly cannot have been all that difficult. And the conspiracy theorists will have a field day and argue that another Goldman Sachs 'clone' has obtaining vast discretionary powers in an unelected position.

P.S. - those who still think that Carney will save the UK may wish to look at this

HP/Autonomy: Poor Due Diligence, Poor Implementation

This tale of woe again demonstrates that relying on number crunching accountants and fee-hungry deal brokers is the wrong approach to acquisitions. And when a desperate CEO (see story) is at the controls of a business this turns into a toxic cocktail. Looking at targets for acquisitions all-too-often omits the human aspect of the assets to be acquired and - even more deadly - afterwards neglects the fact that a business is the sum of its human capital and not just a number on a balance sheet. Dealing with real people all the time in our recruitment business allows us to bring this crucial aspect into play when advising on strategic transactions.

City of London a "cesspit"? - get real Wall Street Journal!

A sad day when a respected business journal gives an experienced (?) journalist space to write such a poorly-researched and one-sided article. The so-called mis-selling 'scandals' are all the product of a politically correct media hysteria - no one was forced to purchase payment protection insurance and those claiming to have been poorly advised when they entered into swap arrangements are the victim of a crass zero-interest rate policy forced on us by clueless politicians (and applauded by equally clueless economists and media pundits). Basically they bought insurance which did not pay off - would interest rates have gone up no-one would complain, much less be willing to hand his winnings back to the banks. And outright fraud? Dare we mention Mr. Madoff and numerous US-based investment scamsters onereads in the press on a regular basis? And what about the victims of the MF Global collapse?

Bill Winters - harsh critique of UK bank reform proposals

"Bank overhaul 'may leave UK rudderless' if new crisis hits" reads the headline of the report about his evidence to the Treasury Select Committee (Daily Telegraph).
We could not agree more as we have repeatedly argued that overcomplicated 'Solutions' to the problems of the banking sector are no help, and more (expensive) 'studies' even less so. A few simple solutions are glaringly obvious: higher capital ratios on interbank lending and derivatives, funding that in its majority (90%?) matches the maturity on both sides of the balance sheet. No PhD, MBA etc required to implement or monitor this.