Subsidised Bank lending problematic

This headline (Government scheme to boost lending to small firms 'could lead to abuse by banks and plunging rates for savers', Daily Mail) points to a serious flaw in all schemes that are designed to boost bank lending. Apart from a command-and-control economy where governments direct banks to lend to specific sectors or companies the use of subsidies (including those from supranational entities like the EIB or World Bank) open the door for abuse. The application process is convoluted and not transparent in most cases and it is far from clear that in the end it is not more important who knows the bank manager well - or is politically well connected - than the viability of the project for which the loan is proposed to be used.

UBS hit by loss on Facebook IPO

This headline says it all. The hottest (or most hyped, depending on your point of view) new issue deal of the year, maybe decade, and one of the investment banks involved in the deal has to declare a $356 million loss related to the transaction. As I am never tired to repeat: Investment Banking is a simple business - if you do not make it complicated!

Asian Financial Centers - Opportunity or Threat?

To predict that Asian economies - and financial centers - will see more growth than Europe or the USA will come as no surprise to anyone. But the use of words such as 'power shift' sounds alarmist as the expression carries an undertone of threat. Quite to the contrary, the growth of these Centers will create numerous opportunities for older centers - in particular those in Europe, and especially for the dominant center in London.

Libor Manipulation: A Victimless Crime?

After having received a lot of criticism for my earlier post on the subject I am glad to find voices that also 'query the effect of Libor manipulation'.

The latest Idiocy from Brussels (via Paris)

Control freaks in Brussels and various capitals in 'democratic' Europe are having a field day planning ever-more convoluted regulations. The latest example are the "Guidelines on sound remuneration policies under the AIFMD" that have just been released for 'consultation' by the Paris-based ESMA. The perfect antidote for those suffering from sleepless nights. I did not expect much before opening the document but 104 (!!) pages surpassed my expectations by a wide margin. Anyone wants to comment? Does the political class really push Europe down to second-class economic status?

Libor Manipulation: each coin has two sides

I am not condoning manipulative behaviour by any of the banks that contributed to setting London Interbank rates. But to all those confessing to be 'shocked' I would like to say that they should see things in perspective. For everyone who is charged too high an interest-rate as a consequence of manipulation there is another party who can enjoy a lower interest rate. Even among those banks contributing to the daily fixing there will be losers and winners on any given day. It is highly unlikely that they all would be positioned the same way. The way the rates are set (smoothed averages of the rates submitted by all 16 banks) also prevents that rates are too far out of line with the 'true' market rates. Inverted comma due to the fact that one can dispute what a market rate for Libor is as it moves up and down all the time and is not necessarily set in stone. Different customers get charged different rates, it is after all a free market rate.
In conclusion one may say yes, there was manipulation. But was there really a lot of damage done? and who lost/won, and by how much? The bloodhounds in politics, the media and self-declared experts will have a field day, as will have lawyers on both sides of the Atlantic. There will be wholesale condemnation of greedy bankers but very little forensic work. And above all this will be another triumph for the compensation culture. One group will escape without any punishment: the regulators who have once more found to be sleeping at the wheel!

UK Establishment: Bent on destroying Banks

While the Euro Crisis rages and serves as a useful decoy one development is largely unnoticed by the Commentariat: the war that the UK Establishment - political parties and some parts of the media - wage against the banking system that they claim to protect from intrusive regulation from abroad.
Certainly there may have been cases of mis-selling of payment protection or swaps but to rule that all such transactions were executed in bad faith by the banks that sold the protects is going too far, not just a step but a mile! The payment protection bandwaggon is in full swing, all customers can claim full refunds even if they were fully aware of the limitations of the product. The campaign to allow untold numbers of commercial clients who went into swap transactions to hedge against (mostly interest rate) risk is in full swing and probably will also provide a let-off for those who argue (with the benefit of hindsight) that the derivative deals landed them with losses. Basically one could apply a similar argument to all insurance products that have been sold and where there was no subsequent claim. Were the premiums not wasted and in effect a 'loss' for the buyer of the insurance? As there is no free lunch the shareholders of the banks as well as the majority of bank customers will be the ultimate victims of this totally unjustified witch hunt that is perpetrated against the banks.

Bank Bailouts for ever?

As long as there is no radical reform of the banking system we may well have to endure bank bailouts for a very long time and this prediction by a senior economist may well come true. (CNBC)

While Rome burns the EU's Almunia plays in his little Sandbox

One could not make this up, but while the EU's house is on the edge of a major conflagration the useless Nannycrat Joaquin Almunia, in his role as the EU's competition commissioner, continues his fight to destabilise Germany's banking system by imposing untimely conditions for the 'restructuring' of Bayerische Landesbank. At a time when it should be 'all hands on deck' to get the economies going and allow banks to lend money this career politicians picks senseless fights at the ultimate expense of the citizens - who had no say in his selection for office. Careful perusal of his CV left me with the impression that he has not done a single day's work outside the sheltered realm of politics.

Jamie Dimon: From Saint to Villain

Since news about the trading loss in JP Morgan's Chief Investment Office broke in April there has been any number of commentators who vilify Jamie Dimon, JP Morgan's CEO. But most of them forget that investment is never a sure-fire bet. One has to take losses from time to time, there is no one-way street otherwise we would all be millionaires. I would guess that there has not been a single commentator who really has seen the full history of these trades and as a consequence no one is really qualified to pass judgement. For a large institution like JPM the only thing that counts at the end of the day, quarter and year is the overall P&L. If positions were under water during any period that is a professional hazard and needs to be managed properly. But many years, decades even, of investing have taught me that the really skilled investor shines when he has to nurse a loss-making position back to profit. Those who unleashed the attack dogs in the Media and in Politics are to a large extent the same ones who fell for the cult of the imperial CEO - and thought he could walk on water.