Investment Banking: tough to make it pay

A quick glance at the stock price history of Deutsche Bank illustrates how difficult it is to make sustainable profits out of investment banking. Since the early 1990s the share price has only made moderate gains. So news that the bank may soon ask shareholders to support a Euro 9.8 billion capital raising leads one to ask how the management will create value to justify this capital increase. In retrospect it appears that even a leading position in investment banking does not guarantee the profits that management has repeatedly promised its shareholders. We also foresee problems in making the planned acquisition of Deutsche Postbank a very profitable investment as most of its 5 million customers belong to the less-affluent parts of society or keep their account at the bank only in order to facilitate simple payment transactions.

FSA fines Goldman Sachs $31 million

The way the FSA arrives at the amount of fines levied is shrouded in mystery. Only dictatorships like the good old USSR and the like were allowed to operate in this fashion. London as a place to do business is on a very slippery slope and it should be remembered that its pre-eminence has only been achieved over the past 20 or so years. Before that finance was a cottage industry at best. People are highly mobile, communication is much better than 20 years ago and decamping to friendlier shores should not be too difficult - especially when half the top professionals are foreigners anyway. The backoffice can safely be handled in places like India.

Masters of the Universe: Memento Mori!

The report of a senior derivatives trader jumping to his death after snorting cocaine should be a warning sign to the 'Masters of the Universe' that fill the ranks of banks and investing institutions. Given the extraordinary sums that many of them earn it is easy for them to lose touch with reality and believe in their superiority while at the same time forgetting that their good fortune is partly only  due to the confluence of several factors that contributed to the enormous increase in the profitability of the sector during the past 20 years. Just to put it in perspective: in the late 1970s the average equity stake of Goldman Sachs partner was still less than $ 1 million! But this did not hinder them to give an excellent professional service to their clients and to enjoy a social prestige on a par with the best professionals in medicine, law or any other profession.