Assuming a Meteorite hits New York

all banks in the USA may see their ratings downgraded. That seems to be the logic behind the thinking that causes Tom Brown to decry the latest 'nonsense from the rating agencies'. Banking as it is conducted at present will always pose a certain amount of risk - only 'limited purpose banking' that turns banks into a sort of mutual fund would avoid any risk of failure. As a consequence, war games based on worst case scenarios may be of intellectual interest but they also undermine the credibility of rating agencies.

UBS appoints ex Bear Stearns CFO to senior role

One can only wonder, and wonder and wonder again about the Personnel Policy (if you can call it that) at UBS. Just last week someone still working there said that the people around him change constantly, there is an annual turnover rate of 70 pct. Now the firm pins its hopes on Sam Molinaro, and he is based in far away New York. Given the fate of his last employer and how long he was away from the major league - can this be any help for the once proud ship UBS? Does the bank have nobody in its ranks who could to this job?

Toxic Mix - Politics and Consultants

Royal Bank of Scotland (RBS) had enough problems at its hands before a young and inexperienced politician and a consulting firm made its life near-impossible. Running a bank after a near-death experience due to overreach by its previous CEO and board (some members inexplicably still have not been purged) is a tough assignment. When a chancellor with hardly any real business experience outside the charmed circle of lobbies and professional party politics tries to micro-manage a business the task becomes impossible - especially when nimble competitors do not face similar constraints. And giving a consulting firm carte blanche to meddle in this situation cannot help much to safeguard the ailing ship RBS. Staff of the consulting firms often are quite young and have no practical business experience worth mentioning. Even senior consultants often have moved up the consulting ranks and have similar deficiencies with respect to real business life. If anything, they might be busy trying to jump ship to a position on 'the other side of the fence'. Quite a number of senior positions in Financial Institutions are held by former Consultants and we are polite enough to describe their track record as 'mixed' at best.

Compensation under control?

Despite our recent positive comment on Barclays Bank we have to put out a critical comment about the compensation practices at the leading (only?) British Investment Bank. It is risible that compensation increases by 2 pct during 2011 when total headcount drops by 6000 over the year. It means that 'cheap' bank and support staff was 'cut' while expensive staff in 'Wealth Management' and Investment Banking was added. This may be an explanation but it should not be an excuse for lax oversight.

Goldman Spin Master to retire

Goldman's public image suffered a few scratches during the past few years. So when we spotted that the firm's PR supremo was leaving after 12 years with the firm we were reminded of the time when (investment) banks and many other businesses got by without spin masters, and a happy time it was. After all, all that really counts is how well you work for your clients (or should one only say customers these days?). They pay the bills and word of mouth does the rest. Which CFO would really allocate a piece of business according to the size of a corporate image ad in the latest edition of Euromoney (or the FT). Good PR means to answer the hard questions in a straightforward way, and most importantly, do business the honest way. If that is not evident to the outside world than the best PR campaign is only wasted money.

Barclays does not 'fall short'

As some in the Media and Analyst community may want you to believe. I am the first to be sceptical when banks make grandiose announcements about the goals they try to achieve. But succeeding in investment banking is a game where those who last the course will win out in the end. Nervous prodding by analysts and media should not divert management's attention too much. The way the competitive landscape has unfolded over the past few years should allow Barclays to slowly but steadily up the rankings. Profitability is under pressure at all banks and no one can be sure what the new banking world will look like in a few years. On a more mundane scale, even the refurbished branches of the bank look great when compared to the competition here in the UK.

Are Bankers really overpaid?

Are all bankers overpaid? This seems to be the conclusion when reading the news on a daily basis. But reports that hundreds of headteachers in London’s schools are now receiving annual pay packages of more than £100’000 indicate that generalisations are inappropriate. Heads enjoy generous holidays, there is very high job security and there is no competitive pressure. They also have managed to escape teaching duties to a large extent. One wonders how they fill their days given that personnel turnover in most school is also relatively modest. The main problem with banker's pay is the fact that senior bankers - CEO's and the top level of management - benefit to a large extent from weak corporate governance that is endemic in all public companies. But this problem should not be used to target bankers in general.

How to avoid employment tribunals - better people management

It may well be too easy in the UK to launch an appeal to an employment tribunal but it usually takes two to tango and without passing judgement about an ongoing case I want to argue that cases such as this one underline the need for careful staff assessments before and after hiring a person. All-too-often personnel decisions are based on academic achievement or (especially in finance) the numbers in terms of P&L. The qualitative aspects of management are easily neglected in a pressured enviroment and personality clashes can quickly escalate out of control.

UBS - curious selection of new board members

What is the 'politically correct' composition of a company board? We are not sure that board members are more than an in-house management consultancy. They certainly are far removed from the real owners of the company and even the fiduciaries in the asset management world have little say in the affairs of a board. But news that UBS has appointed two women to its board - one an academic economist and the other one a lawyer - raises some questions. Given the appalling track record of economists (you all know the many jokes about economists, as for example: An economist is a trained professional paid to guess wrong about the economy) one can not be too hopeful about these latest appointments. Don't forget the lawyers though: Q: Why won't sharks attack lawyers? A: Professional courtesy. Maybe selection by eye colour would be more effective. There may be a good cause for more women on company boards but we doubt that giving in those who expect miracles from this will be proven to be right in the long run. Whether or not a bank run by economists (Axel Weber, the incoming Chairman of UBS is another one) only time will tell.

Credit Traders accused of manipulating valuations

During the court case in which former senior credit traders of Credit Suisse are accused of manipulating the valuations of their trading books the revealing statement by one of them caught my eye: When a data-entry employee asked one of the accused “What sort of P&L do you need today?”  the trader responded that all books should end the day ‘up’ by $35 million” and the prosecution claimed that later one of the traders “artificially increased the prices of several ABN1 positions” to meet the trader's profit target. (Bloomberg BusinessWeek). This confirms our suspicion that the controls in many investment firms are woefully inadequate.