Values in Banking

'Banks must rediscover their Victorian values' (William Rees-Mogg, The Times, 27 Oct 2008)

100% retention bonuses for Brokers

It seems strange that BofA is ready to offer substantial retention bonuses for the retail brokers at Merrill Lynch. Apart from the image-problem that this generosity might create in the present political climate one has to ask the following questions: where would all these brokers move to if they would not receive a retention bonus of this magnitude? Would clients be comfortable moving their funds in these uncertain times? Does Merrill Lynch not have any adequate no-compete clauses in its terms of employment that prevent the brokers from taking their clients with them? And if the financial advisers get these juicy retention payments, what will their customers thing most of whom probably have lost a lot of money?

Are Banks on the way to become Utilities?

This weekend's reports that some major international banks may be interested in joining the bidding for Gatwick Airport here in the UK raises an interesting question: will the regulators allow banks to put their equity capital at risk in proprietary investments that are basically unrelated to their main business?
The lesson of the past 14 months should be that banks (and their cousins, in particular the major investment banks) have strayed too far from their raison d'etre which is intermediation in the credit or securities markets.
Instead, managements have pursued a strategy of gambling their capital on ever-rising asset values in a variety of asset classes - be it in property or 'private' equity.
If the banking and securities industry is to be put on a more stable footing it will be necessary to for both sectors to behave more utilities. If banking provides the basic 'plumbing' for a market economy the similarity between the banking and utility sector should be obvious.
26-Oct-08