Loan Losses incurred by Banks

One has to wonder how banks manage to incur horrendous loan losses in the first place. While it is sometimes said that the only safe loans are extended to borrowers who do not need them it should be foremost on any banker's minds to make sure that loans can be repaid.
Apart for cases of fraudulent collusion between lender and borrower (unfortunately not as rare as naive observers assume) the source of loan losses is larger than can be explained with excuses such as 'unfortunate business conditions'.
A good example is the case of the staid Banque Cantonale de Geneve which in my opinion is straying too far from its area of competence. Financing a commodity trade involving Nigerian transactions is not something you expect a Swiss Cantonal Bank to get involved in. Forensic investigation into cases of loan write-offs would in most cases demonstrate that simple rules of common sense were absent in the decision making, - not only by the bank officers directly involved but all the way up the hierarchy of the institution.

FCA Interim Report on Fund Management

It is always reassuring that the cast of thousands employed in the recently-established regulatory silos are put to good use. Even if it is mostly confined to produce volumes of paper that unfortunates in the businesses that they are regulating are forced to plough through.

Does the Fund Management Industry need more 'oversight'? Maybe, but to a certain extent any imperfections are also the result of misguided legislation introduced by a succession of governments (and increasingly so by a EU and its assorted bureaucracies).

But what benefit will it bring to raise the fiduciary bar from a general obligation "to treat customers fairly" to a new requirement "to act in the best interests of investors"? No doubt that legions of (expensive) lawyers find this picking of words will go a long way to pay for their kids' school fees.

Even more expensive (for the investors, for as they will ultimately have to pick up the tab for this new boondoggle) would be the introduction of an "Independence Governance Board".  It will be most welcome to myriad retired professionals that will be employed to produce annual reports of the issues they have raised and management's response.

How the introduction of an all-inclusive charge could work in practice does not seem to be of major concern to the paper-pushers at the FCA. Trading in securities is still not free, even in the age of online dealing and wafer-thin commissions.

Professional/Institutional Investors are already more than able to analyse the performance and cost of investment propositions.

The FCA report is more relevant for the retail investor who may find it difficult to pick the right investment fund when there are many more funds than equities to choose from. So investors tend to rely on intermediaries - Private Bankers and IFA mostly - that do the selecting and monitoring for them. Maybe more transparency would be needed in that space? How many Private Banks publish their performance and fee schedules on a regular basis?

Asset Management Market Study, Interim Report, FCA

European Bank Troubles

Don't blame Politicians or Central Banks. Of course they must share the blame, but what about Top Management taking their eye off the ball, antiquated and hierarchical business structures, poor control over lending decisions, poor acquisition strategy and execution? Low or negative interest rates are a burden, but no one stops banks from charging interest rates that give them a positive margin - credit cards and small business loans are anything but cheap! And if you cannot use deposits then just charge customers penal interest rates, you owe them nothing, put the blame on thieving Central Banks and their paymasters in Politics!

Brexit - Impact on London Financial Centre

Merchants of doom are let loose by the result of the Out side winning the EU Referendum in the UK. All sorts of comments are made by objective and less objective parties. The surprise referendum result shocked quite a few and as the Remain side was expecting a win the resulting reaction was also emotionally charged. And many in the business and financial community favored staying in the EU. That our 'friends' on the other side of the Channel are fighting to get as much of the financial business as they can should surprise no one. One only wonders why they are so keen on activities that the political and cultural 'Elites' on the Continent seem to keen to despise in any case.

But how much business is going to move away from London?

The Brexit impact will be crucially dependent on the skill with with the Exit negotiations are handled by the British Officials.

Leave London? Cut your nose to spite your face!

Talk about major financial institutions leaving the City of London in the wake of the Brexit Vote do not throw a good light on the leadership (if one can call it that) of these firms. Most of them are already well represented in the other major financial centres in Europe. Coverage of local clients is handled by these branches and there is no reason to shift major resources to places like Madrid, Milan or Amsterdam, not even to Frankfurt or Paris (why would it be more efficient to cover France from Frankfurt if the major European hub is installed there?).

Scared about Brexit? - Update

Following up on my post from earlier this year (see below) I want to reply to an important point made by those arguing against Brexit. It is the future of the UK's financial service business, in particular the role of London as the major industry hub in Europe.

Of course no one can predict what the regulatory and tax landscape would be in case of the UK voting to leave the EU.

But a point by point analysis demonstrates that Armageddon is not going to happen.

End of Hedge Funds?

Gloom and Doom may work for Marc Faber but it should not overshadow rational analysis of the Hedge Fund Industry.

Employee Evaluation - when Common Sense and Human Touch go AWOL

Numerical rankings were already an idea from hell. Trying to achieve precision - am I number 6 or number 7 on the Goldman Sachs list? - is impossible. Anyone convinced of the opposite please contact me - but provide clear examples, not MBA speak that some cloned professor has published in some obscure magazine no one ever reads.
Is the new scheme - a web-based tool to give and receive performance feedback at any time - going to be a change for the better?
I have (serious) doubts. In an organisation where the motto at the top management level is 'Greed is Good' and the only personnel management tool seems to be the doctrine to weed out the 'weakest' 5 percent of the workforce in any given year the human touch and common sense approach is long gone from the organisation.
Does one have to wonder that performance and return for shareholders have been mediocre since the old partnership was killed off (by those keen to cash out at the expense of those following in their footsteps)?

BHS Pension Fund Debacle

Yesterday's headline read Green 'missed five chances to save BHS pension fund.' But the article missed the possibility that Philip Green and his (well rewarded advisers) were more than happy to 'miss' these opportunities.
They were on the inside and had all the information about the state of affairs at BHS as well as the pension fund.
It could well have been the case that all the 'opportunities' available to extricate Green from BHS would have been more expensive and therefore unattractive.
The fact that the Green camp was advised of the track record of the eventual 'buyer' shows that they can not claim to have been in any way duped or surprised about the eventual outcome.
What is really astounding is the way the pension regulator and the trustees of the pension fund behaved. It can only be described as inept (the most charitable description), in the good old tradition of just trying to be nice to everybody, we are all from the same schools, go to the same clubs and attend the same (free) hospitality at sports and entertainment events....reminds me of a former Chairman of British Airways (it may have been before BEA and BOAC combined) who climbed into the cockpit during a flight and asked the captain 'What model of airplane is this?'. Enough said, British management has improved since those days, but not in the party and state dominated 'public' sector.

DIY Pensions -like DIY Brain Surgery

The idea that the average person should be wholly/predominately responsible to save for his/her retirement is laughable. It may appeal to doctrinaire free market advocates and it certainly appeals to the providers of the many 'products' that are supposed to provide for a care-free retirement.
But much better for the state to provide a sufficient pension. Longevity and investment risks are truly shared, between all citizens and all generations. Costs are very low - no pass the parcel investment games, no expensive admin (everyone gets the same pension, higher rate taxpayers give back more than those in a low tax bracket or not liable to any income tax). This is to some extent akin to the currently debated 'Guaranteed basic income', but only applied to those already retired.

Anyone who has tried to manage his own investment portfolio will understand how difficult investing is. Even so-called professionals time and again mess up, highly acclaimed 'Masters of the Universe' in the Hedge Fund industry often produce lamentable investment returns. So pushing the masses into the investment game means they are supposed to do the equivalent of Brain Surgery on themselves.

By all means encourage people to save, but this part of their retirement provision should not benefit from overly generous tax benefits (that mostly flow to those already enjoying high incomes) and also be free from all other regulatory and bureaucratic restrictions. These additional nest-eggs can help to provide a more comfortable old age than the universal state pension will be able to provide.

48% of Americans saving for retirement are pretty sure they have no idea what they are doing (Business Insider)

Report on the Economic Well-Being of U.S. Households in 2015
(Federal Reserve)