Forced Ranking: UBS falls for Management Fad

The 'forced ranking' human resource management tool introduced by CEO Oswald Gruebel at UBS has created bad blood among employees at the bank. The instrument that can at best be called controversial (and inhuman at worst) has attracted massive criticism as a quick Google Search will demonstrate. Top of the list are negative references and it can only be seen as a sign of desperation that a company that traces its roots back over more than one century finds itself compelled to reach out for such a measure in order to improve its inadequate - and at times catastrophic - performance. It is quite difficult to understand why a CEO who has always led from the front - Gruebel started out as a bond trader and was for a while the star of the nascent Eurobond market - would fall for a concept that has been abandoned by other companies. The cost-income ratio in the investment bank may well be too high at 80% but it would be better to cut the fat in one fell swoop rather than drag out the agony. Regular reviews are in any case now an over-hyped fad that waste much employee time, create bad blood and serve only to boost the sense of self-importance in the human resource departments.

Andrew Smithers on Banking Equity Ratios, Competition and Pay

We heartily recommend Andrew Smither's latest comments on the failure of banking regulation. Smithers argues that higher capital ratios would limit public subsidy to banks and pose no threat to lending volumes - if anything, banks would lend more than under the ill-considered Basel III capital ratios that come into effect in 2018.

Raiffeisen buys 70 pct of Polbank - valuation more realistic than pre-crunch

News that the Austrian Raiffeisen International buys a 70 pct stake in the aptly named Polbank in Poland confirms that the market for banking assets in the emerging markets is still decoupled from the market valuations in many developed markets. The price paid to the former holder of the stake, the Greek Eurobank EFG, represents around 12.7 pct of Polbanks balance sheet of Euro 5.5 billion (per Sept 2010). This is a much less aggressive valuation than those seen applied to banks in Eastern Europe a few years ago but still puts a lot of hope into the possibilities of reaping economies of scale from merging the business with Raiffeisen's existing network in Poland.

Tax burden in UK becomes problematic

A simple calculation in the sports section of a British newspaper came to the conclusion that a football player who would move to England on a total compensation of Euro 3 million would take home only around half that amount after the deduction of all taxes. In Switzerland his take-home pay would be nearly 2.4 million. Obviously this also has clear implications for Britain's standing as a global financial centre. With discrepancies as large as this the decline in London's relative attractiveness - especially for foreign professionals - becomes evident.

Smaller players will win market share in Investment Banking

We agree with Chris Whalen, MD of Institutional Risk Analytics, when he predicts that smaller firms will gain market share in investment banking and fill in the gaps left by the demise of several large firms during the Credit Crunch. Regulation will also to a certain extent clip the wings of the dominant firms and force them to reduce their activities in certain business segments.

Regulation runs amok

A 'Discussion Paper' published by the Swiss regulator FINMA on the subject of regulating the marketing of financial products to private clients runs to 132 pages. It is a classic example to the regulatory overkill that threatens the financial service sector, increases costs for the end-investor and - due to its complexity - will hardly achieve its stated goal, the provision of better and cheaper financial products to the retail investor. More and more prescriptive regulation means that ultimately behind each productive worker there will have to be a 'Commissar' (Compliance Officer) and an army of lawyers and assorted busybodies. No action will be taken before they get the Okay from the compliance department. And of course, the compliance department will have to be supervised in turn and so on ad infinitum. Final destination is an economic system that is close to the Stalinism of the old Soviet Union.

Morgan Stanley may try to offload Hedge Fund stake - a warning

Rumors about Morgan Stanley's efforts to offload its stake in the hedge fund firm Frontpoint should be seen as a warning for potential investors in hedge fund businesses. Often these firms are dependent on one or a small handful of managers. If any troublesome news hits the business the value of the firm may evaporate very quickly. Potential acquisitions in the field should only be undertaken in an extremely cautious way and structured so that it is not just a win-win proposition for the selling insiders.

Who is Steven Maijoor?

The regulatory vampire squid that is being created by an EU officialdom that is several stages removed from any democratic control is likely to nominate a professor with only the scantiest first-hand experience in the financial markets to be the head of the European Securities and Markets Authority. Bureaucracies such as the one created to 'regulate' the financial system in the EU have as their primary aim the expansion of their own powers and the creation of jobs for those working for them. If the EU and its member governments would really have wanted to improve the functioning of the financial system they would have had ample time to design a better legal framework during the past two years. Are we on an inevitable path towards a situation where there will be more regulators and compliance officers working in finance than wealth-producing professionals? In that case, we should have a good look at the banking and insurance system as it was during the good old days of the Soviet Union in order to prepare ourselves.

Credit Suisse Compensation Plan - Incentive or Disincentive?

While the new compensation structure that has just been announced may at first sight appear to be a step in the right direction it raises a number of questions: relying on the return on equity may be an incentive to increase leverage (and risk) in order to achieve a superior ROE. Making payouts over a number of years could lead to employees just marking time in order to cash in the awards. Depressed share prices and/or a low return on equity may punish hard-working employees that have no influence over either of these two yardsticks. At the same time top management is free to award itself levels of compensation that are high enough to shelter them from the negative fall-out from these two factors, thus creating an unhealthy 'them and us' atmosphere that is not conducive of good team-work.
One unintended effect of complicated and onerous compensation structures dreamt up by the big investment banks may well be that smaller competitors will become a more attractive employer. Younger employees in particular will not be able to spend these 'awards' to support a young and growing family when you need cash for housing, education and other pressing needs.

Open letter to members of the UK Treasury Select Committee

With reference to today's hearing I would like to point out that compensation for Bankers cannot be seen in isolation. Pay for staff in other sectors of the financial services industry - especially in the so-called 'Private' Equity business as well as in Hedge Funds - exerts a strong influence on pay levels in (investment) banking and the securities business. In addition, the problem of spiralling compensation for (top) executives in general industry and business is far from being resolved and also influences the general atmosphere with respect to control (or lack of control) of senior executive pay.

Central Clearing: Solution or Problem?

Pushing more business onto central clearing systems is not the ultimate solution in the search for a more stable financial system. The question remains the same: Would the system be able to deal with a (near instantaneous) change of 20 or 30 pct of asset prices? Only then could one be reasonably sure that a market panic could not topple the financial system. But that would require a substantial increase in margin rates and a corresponding reduction in the amount of leverage available to all market participants.

M+A: Success ratio lower than at Russian Roulette

The statement may seem to be a bit extreme but anyone contemplating a Merger or Acquisition would do well to keep this warning in mind. All too often senior management falls in love with an idea or is egged on by advisers who are paid on completion only and therefore have no real stake in the ultimate success of the transaction.

Compensation gravy train: one train in the UK that you can rely on!

A woman has been awarded half a million pounds in a series of compensation payments after accusing four public sector employers of discrimination, unfair dismissal or sexual harassment (Daily Telegraph, 11 Nov 2010). While a disproportionate amount of claims are settled in the Public sector the financial sector is also vulnerable to the frightening rise in red tape and social engineering created with little regard to the realities of private business.

Patchy hiring to follow frenzy at European banks says Reuters

The real test of management will come when business volumes have declined so much that present staffing levels can no longer be justified. Those companies that have hired wisely and responsibly will have to do much less pruning than those that adhere to a irresponsible 'hire and fire' philosophy of human capital (mis)management.

Tulips anyone?

That comes to mind when reading about the frenzied trading in today's story stocks such as Facebook, Twitter and Linkedin. Which bank will it be that is left holding the bag financing a speculative hot-shot when the whole bubble bursts?

Deutsche Bank: rated most exposed by Japanese Regulator

While Deutsche Bank has performed admirably (at least on a comparative basis) during the financial Crash we kept being concerned about the slender margin of safety that is provided by the equity capital basis. DB may be less exposed to sovereign loans in the Eurozone and corporate loans may also be a lower part of its portfolio than in other institutions but that means that the bank is more exposed to financial assets and counter party credits. And the purchase of supposedly 'safe' businesses such as Deutsche Postbank and Oppenheim are by no means guaranteed to provide the high returns that management continues to aim for. News that Deutsche Bank is the lucky (?) owner of the most recent addition to the Las Vegas hotel scene does little to inspire confidence in the bank's risk management skills. Maybe the bank should pay its bonuses in the form of free hotel vouchers until the full extent of its exposure has been recouped.

UBS dress code memo

UBS was (and is?) known for fast-tracking officers of the Swiss Army Militia through its management ranks. We are not sure that the 'new UBS' (post SBC 'Merger') adheres to the same management principles. But given the fact that banks worldwide are inundated with more or less sensible regulations it is amazing that someone in the - still vast - bureaucracy of a large bank finds the time to devise such a detailed prescriptive paper. Rulebooks such as this tome certainly would not surprise anyone if it would be given to fresh recruits in an army barrack. I wonder what it does to promote morale at the workplace?

Deutsche Boerse: another Euro 450 mio written off on ISE

In 2007 the German Stock Exchange (Deutsche Boerse) acquired the International Stock Exchange ISE for more than Euro 2 billion. This write-off follows a provision of Euro 420 million in the last quarter of 2009. Acquisitions are minefields for the unwary and should only undertaken after careful analysis and after consulting advisers that give objective advice based on long financial and markets experience.

Secretive Banking Elite rules Trading in Derivatives?

A New York Times report highlights the lack of official supervision of trading in derivatives. In no industry would it be allowed that the dominating participants collude setting market rules without being subject to impartial outside regulation - be it from consumers or government authorities. When the market in OTC derivatives started it was a tiny cottage industry and supervision was unnecessary. Now the amounts involved are so enormous - multiples of the whole planet's GDP - that leaving the task of supervision to a few market insiders is no longer practical. One can only hope that the top officials of the financial firms concerned realize that - in the interest of society as well as their own - a new regulatory framework is urgently required. Putting the majority of the trading onto exchanges will alleviate the risks of a catastrophic market failure but this will in itself not be enough. The central clearing houses in turn will have to be made as secure as possible and only a substantial increase in margin that has to be posted by ALL market participants will ensure a safe market environment.

Goldman Sachs in controversy about CDS trade

We have for a long time called for more effective regulation of the market in credit derivatives. Therefore we are not surprised when details about Goldman's involvement in some controversial trades were disclosed by Carl Levin, chairman of the Senate permanent sub-committee on investigations.

Deutsche Bank set to leave Postbank alone after merger

We were never sure if the frugal customers of Deutsche Postbank really will make a large impact on Deutsche Bank's profitability. The headline makes us wonder even more. What is the point of buying the bank when it will be managed with such a light touch?

Extensive interpretation of race discrimination by UK courts

It is no secret that nationals from countries where their employer is domiciled often do - or at least appear to - get preferential treatment from their respective employers. This applies to banks and other financial institutions irrespective of their country of origin. This may well be considered unfair by some observers but could on the other hand be justified to some extent. How many Europeans working for a Japanese bank for example are fully conversant with the Japanese Language? And in the future we will have a tough time to find many seasoned professionals able to express themselves fluently in Mandarin, Russian or Arabic. So we noticed with quite some bewilderment that an English court can use legislation intended to fight race discrimination when sitting in judgement about an compensation claim by an English employee working for a French bank here in London. If the Gold Standard would have to be applied in every decision concerning promotion it would mean that in nearly every case the employee who loses out would have a case to sue. In addition, who determines which employee merits promotion more? Should every decision have to be submitted to a court or tribunal before it becomes effective? Politicians, the Courts and pressure groups all combine to make the UK a less efficient and less inviting place to locate a business and court cases such as this one are the worst possible advertisement for UK Plc.

Goldman to write down stake in CMC Markets

News that Goldma Sachs is to write down the value of its £140 million minority stake in CMC Markets is proof for the fact that even the most savvy acquirers sometimes succumb to hype and a good story. Over the years we have seen numerous instances when a gullible financial press has reported valuations of businesses about to be floated that were inspired more by the aspirations of the selling shareholders and their advisers rather than by thorough analysis of the underlying values of the business. Numerous academic studies have demonstrated that at best half of all acquisitions are successful and any firm contemplating strategic transactions would be well advised to consult advisers that are not driven by fees but have the interest of the client at heart.

Some simple rules for banking reform - and no need for a PhD either!

One aspect of banking reform that has been completely neglected would be the requirement to match the maturities of assets and liabilities more closely. While 100 pct will never be practical there should be tight guidelines. Bands of maturities on both sides of the balance sheet should be closely matched to about 90 per cent. Large banks, and in particular trading firms, should not be able to roll a mountain of short term debt to finance highly speculative positions and hope for the best - or the next taxpayer-funded bailout. The huge interbank market is also ripe for more regulation. There simply is no need for a fragile house of cards of interbank positions on which to build a proper lending business. A small amount of interbank lending is always required to smooth positions but every bank should mostly rely on deposits from its own customers (and matched as to liquidity). These rules are simple to monitor, no PHD or even MBA is needed, just sound people with common sense and a health work ethic (in contrast to a bonus ethic)

Regulatory costs out of control

A quick look at numbers released by Brewin Dolphin, a wealth manager in the UK, confirms our fears that regulatory costs have exploded well out of control and that the supposed beneficiary, the ordinary investor and saver, has very little to show for it. At Brewin regulatory costs have now reached 6 percent of turnover, totalling around £15 million. When put in relation to pre-tax profits of £31.4 million or assets under management/advice of £23.2 billion one can see that bureaucracy is just another tax where most of the proceeds go towards paying the running costs of the self-serving bureaucracy (4000 paper-pushers by now and rising rapidly).

FSA vetting procedures - deepening bureaucratic morass

An interesting side-effect of the FSA's vetting procedures for senior banking executives is highlighted in the Financial Times: the widely-applauded push for more female board members may be hindered as the vetting procedures tend to favor experienced males, especially those with an accounting or audit background. As it is difficult to find many senior women with that kind of background companies may struggle to fill vacancies with women candidates. In addition, candidates may be deterred from putting themselves forward and submit themselves to the FSA vetting regime. We are not really of the opinion that favoring women during a search is the right way to go - just the other day an old colleague from Goldman Sachs mentioned to me that any woman aspiring for a more senior role there must make a hard choice between domestic and professional life with any one going to pursue her career in earnest likely to have the backing of a house husband. But on a wider front one has to ask why would any experienced professional want to undergo the humiliation of being 'vetted' by paper-pushers at the FSA that have achieved less and are less capable? Any person worth his salt in Moscow, Tokyo, Hong Kong or New York is well advised to stay where he/she is and say 'thanks but no thanks' to any job offer here in London. And that is without even mentioning the weather, taxes or public transport.

No improvement in pay practices at banks - study

An study commissioned by the Council of Institutional Investors comes to the conclusion that changes to pay practices at major banks in the USA have lead to a deterioration rather than the intended improvement in incentives.

Lehman bankruptcy administration costs reach $1 billion mark

Regulators worldwide can be congratulated for contributing so generously to the fortunes of lawyers, accountants and assorted advisers who reap this windfall at the expense of savers and investors. A special thank you must be reserved for Hank Paulson was instrumental in orchestrating this signature disaster during the Credit Crunch.

Kafka alive and well in US Government

The absurd consequences of the obsession with fighting symptoms rather than causes and increasing the reach of government and civil servants at all costs is demonstrated by news (Wall Street Journal, 20 Nov 2010) that major US banks are intimidated enough to refuse to conduct business with a large number of foreign embassies in the USA. In countries such as the UK opening a bank account is a major burden for consumers and achieves no demonstrable benefit in terms of fighting crime or terrorism. The costs of complying with regulations that become more complicated by the day is immense, not only in direct costs related to the governmental enforcement agencies but also in terms of additional staffing in financial service firms.

Troubled Borrowers should not be treated too leniently

One of my favourite City Commentators, Anthony Hilton, writes in his Evening Standard column that it would be in EMI's interest that Terra Firma and Citigroup 'talk' to resolve their dispute. But all too often these negotiations are a win-win situation for the over-leveraged borrowers. Any concession by the lender is in effect a gift as the really logical situation would be a write-off of the equity and the transfer of ownership to the lenders. This would also be beneficial from a societal point of view as it would redistribute wealth in a more equitable way, preventing capitalism from becoming a one-way bet for the borrowers. 

From a business point of view, banks must look after their profits, this benefits not only their shareholders but also taxpayers as any capital cushion they build up will also reduce the amount of any future bailout that may be required.

Staff Performance Reviews under Fire

A recent article in the Wall Street Journal takes aim at staff performance reviews. Temple Associates has long argued that the present performance review system is a ritual and platform for political power plays - especially in large, bureaucratic organisations. In addition, the secretive and arbitrary way that bonuses are awarded does little to alleviate this problem. While well-intentioned, making awards too dependent on subjective opinions (even worse on a 360 degree basis) would often turn out to be ludicrously discriminative if it would be brought out into the open - or even subjected to legal test. While maligned by regulators making performance-based pay dependent on numbers would be a more objective and less controversial way of establishing fairness. In addition, company-wide bonus schemes on an equal percentage basis could be administered for all employees. This would allow to incentivise those employees who work in areas where performance cannot be assessed based on numbers alone.

Pitfalls of Acquisitions

The 2005 takeover of Eurohypo by Commerzbank is just another example in a long list of acquisitions that led to disastrous consequences for the acquiring party. While not many people could have predicted the Credit Crunch at that time it confirms the conclusion of many studies that say that at least half of all acquisitions are not successful. Utmost due diligence is therefore the order of the day when undertaking M+A projects. Unfortunately, too many deals are driven by egos - especially those of CEO's who brush aside all concerns - quite often even those voiced by their internal strategy and planning departments.

Bankers need to find bonus accord?

That seems to be the opinion of Mark Kleinman (FT). But quite apart from the legal aspect of companies coming together on a sensitive subject I would be sceptical about the success chances for any such accord. As long as economic pressures lead to competition for the services of quality professionals there will be upward pressure on the compensation packages for those most in demand. Salaries (and employment numbers) among the run-of-the-mill employees may well be under downward pressure at the same time but top performers should remain well bid for. This trend is exacerbated by the fact that alternative investment managers in the hedge fund and private equity sectors are continuing to benefit from an extremely lax regulatory environment that gives them a leg-up when competing for staff with banks, traditional fund managers as well as industry and commerce in general.

How to protect bankers from themselves

The story of then 34-year old Moses Stern who - despite having no experience in the real estate business - obtained a $126 million loan from Citigroup to buy a chain of shopping malls demonstrates that bank regulations are needed to protect bankers from themselves. Bank Lending must be made subject to much stricter regulation with respect to loan-to-value limits and the quality and amount of underlying collateral. If there can be margin rules for share buying there is no reason that similar rules cannot be applied to lending - especially in property lending which seems to be to bankers what drugs are to drug addicts. Property lending appears to be easy as there are no tricky judgements to be made about the value of a business and bankers can push up the lending volume quite easily.

BBVA acquires 24.9 % stake in Turkey's Garanti Bank

While the price may appear to be high compared to still depressed share prices in most banks it is not a dramatic premium compared to prices paid for banks in emerging markets during the pre-crunch euphoria when they were way above intrinsic value.

Basel III - 'Dangerous Nonsense' - discriminates against small banks

A report by the respected Austrian lawyer Gerhard Wildmoser comes to the conclusion that the new Basel III regulations favor big banks at the expense of smaller - and often much more conservative - banks. The key causes of the Credit Crunch - the careless attitude to customer's deposits, the purchase of questionable assets and the reliance on the state as a lender of last resort - would not even be addressed by the new regulations. In my view, the unelected bureaucrats and lobbying dominated by 'Too-big-to-fail' banks and their assorted 'research institutions' is on course to score another magnificent own-goal at the expense of taxpayers and citizens in general.

UBS wants to take more risks says CEO Gruebel

Oswald Gruebel, himself a trader by background, says that UBS wants to take more risk in order to increase profits from Investment Banking. It remains to be seen how that strategy blends with the regulatory desire to reduce proprietary trading in banking. But risk in investment banking does not only mean positions (punts) taken by traders in bonds, equities, forex and commodities. It can also mean higher risk by lending (for higher margins) in commercial and investment banking. As such it is often disguised (even from the bank's management) and potentially more dangerous for that reason. But all banking is to some extent depending on taking (intelligent) risk and the change in strategy therefore is not necessarily an imprudent one. Execution and attention to detail - as always - is the key. On the other hand one would think that a truly global franchise such as UBS should make enough money from client-related business alone so that excessive risk taking is no longer required for the achievement of a satisfactory return on capital.

JP Morgan to acquire Brazilian Hedge Fund

It is not necessarily a logical consequence that banks that now are required by regulators to scale down their proprietary activities have to compensate for this by buying into hedge funds. Hopefully they do so if they expect to make a profit out of their stakes. But apart from the hefty price tags hedge fund businesses still attract, we think that adding to in-house asset management offerings runs counter to the tendency towards using 'open architecture' in asset management - and in particular with respect to the product selection for a bank's high net-worth and other retail clients.

Scandal of Lehman Bankruptcy Costs

The spiralling costs of related to the resolution of the 2008 Lehman bankruptcy can only be described as scandalous. Rather than worrying about how to make life for the banking and investing industry more difficult the regulators (in most countries) should pay attention to this little understood corner of the financial world. Similar abuse goes unchecked in ordinary bankruptcies as well were suppliers or creditors get short shrift from a dysfunctional and inbred community of 'bankruptcy professionals'. Assuming the average overall cost of a professional should be around $300,000 the costs that have been run up in the Lehman case so far ($982 million) would pay for the services of an army of just under 2000 professionals working exclusively on this case during the past 2 years. Any money squandered during this process leave investors worldwide out of pocket and therefore this is no game where no one is losing out. Where are legislators, regulators, the media or the corporate governance tribes to check the efficacy of the endless hours billed or the rates charged?

UBS - enterprise culture blamed for credit desaster

The just published report on the inquiry of events during the 2007-2009 credit crunch puts the blame for UBS' woes at the door of a lack in an appropriate enterprise culture.We are in the privileged position that we do not only work as recruitment consultants to a number of financial service firms but as business advisers we are also offering a more 'holistic' service that does not end with putting 'bums on seats'. Our own direct experience in the markets has taught us the importance not just of individual brilliance but of an enterprise culture that is not solely focused on maximising profit for the firm and/or the individual. As the products the industry offers are intangible it is all too easy to forget that pride in the work/service performed and customer satisfaction should be primary motivators. Profits should be a consequence and not the sole motivator of those working in banks, brokerage and money management businesses.

Frankfurt no serious competition for London

There hangs a question mark above London's position as the leading global financial centre. Too much regulation and taxation may well lead to a draining away of business to other centres. But one look at the way the German government handles the banking sector makes it clear that the competition is unlikely to come from European cities. News that the German coalition government is about to slowly strangle Commerzbank, one of the few major financial players left in Germany, ensures that Frankfurt will remain a regional and national financial player (at best).

Buyer's remorse over signing-on payments

I always felt that the mad scramble to sign up investment advisers or private bankers and pay them massive up-front bonuses in the hope that they will be able to convince their clients to follow them to the new employer smacked of desperation. So a report in the  Wall Street Journal ('Signing bonuses haunt Wall Street') comes as no surprise to us. In addition, this hiring practice leaves open the question whether lavish inducements are suited to ensure that the advisers will have their customer's best interests at heart when helping them with their investments.

Joaquin Almunia - what does he know about banking?

The current EU commissioner in charge of competition policy, Joaquin Almunia, is just another typical example of the career politician who more and more dominates the life of ordinary citizens in our 'democracies'. He never earned his living outside the sheltered confines of government bureaucracies and owes his whole existence to the party hierarchy in Spain. How someone with his skill-set can be expected to be in charge of a department that requires at least some basic understanding and real-life experience of business and banking is beyond me. Admittedly, things are not much better in other parts of the world but that is little consolation for Europeans who have to live with the consequences of misguided policies that ultimately threaten the viability of their economies.

Goldman versus Matt Taibbi - PR Battle looms

Given the history of the stormy relationship between Goldman Sachs and Matt Taibbi it will be interesting to see who wins the public relations battle during the next few months. Goldman has just launched a major PR campaign to improve its public image while Taibbi's new book 'Griftopia' about how he thinks that Wall Street really works is going to be published in November. With respect to Goldman we would advise the company to spend less money on expensive ads but devote more thought on how to avoid getting business and politics mixed up in the future.

More pessimism about outlook for investment banking

Andy Kessler is always interesting to read. In his latest piece in the Wall Street Journal he makes a pessimistic prognosis for the investment banking industry. He thinks that current - and prospective - levels of business activity cannot support the present number of traders, salespeople and deal makers. While we think there is a chance that emerging markets and markets in Eastern Europe and Asia will to a certain extent help to reduce this pressure on the industry it will at best help to keep levels of employment and activity at similar levels to what they are now.

A distorted view of the banking crisis

The standard of public discourse in the United States reaches a new low when respected commentators can argue that the main culprits in the crisis that hit the US financial system were the politicians in Washington. If one wants to one can argue that EVERY citizen and institution was culpable, be they lenders, borrowers, investors, voters etc. But to pin the majority of the blame on Washington goes to far. No one ordered Dick Fuld to manage the affairs of Lehman Brothers the way he did, nor can this argument be an excuse for the egregious failure of Bear Stearns' management to see the danger signs flashing all around them - while they were happy to spend time on the golf course or playing bridge.

Should Malta and Latvia merge?

The way legislation (if you want to call it that) goes in the EU, the merger of Malta and Latvia may not be so nonsensical as it may sound at first. We got the idea from Damian Reece who writes for the Daily Telegraph. In a recent article he said that Malta and Latvia have more control over the future of the financial services industry in the United Kingdom as the British government or its citizens. Cementing this relationship would in our opinion be a sensible step to establish a new - transnational - financial powerhouse in Europe. Assuming that more and more professionals would leave the field to the EU bureaucrats and civil servants who more and more run European banks they might find easy pickings. If the two countries manage to keep their two votes in the EU institutions it should be easy to build (bribe?) a coalition that gives them free reign.

Staff could sue if discriminated by customers

If anyone has hoped that a change in government would reduce the regulatory burden in the UK the new Equality Act that comes into force on October 1 will give them a crude awakening. The Act will give workers the right to seek compensation from employers who fail to take reasonable steps to protect them from any form of discrimination by a third party. This fits in perfectly with the news that the number of claims lodged with employment tribunals in the period 2009/10 has rocketed by 56 per cent to 236,100. Lawyers must lick their fingers when they put two and two together and get ready for the next wave of discrimination claims against hapless employers. As will experts in relocation away from these green shores.

How to define Prop Trading

All market professionals know what proprietary trading positions are when they see one. But one has to doubt if regulators - or the politicians pulling their strings - are so perceptive. They also will have to write regulations that are as watertight as possible and define the term so that it fits as many conceivable real-life situations as possible. But consider this: any boring retail bank has by necessity some mismatch between the maturity of assets and liabilities. One could say that this mismatch - and even more the changes to it as market conditions/expectations evolve - constitutes proprietary trading. The lesson is that the elimination of proprietary trading will not by itself solve the problems that are inherent in a banking system that is based on the (false) premise that there will never be market panics and/or that the authorities can always contain them at no or little cost to the taxpayer.

Investment Banking Jobs in Danger?

When the prominent banking analyst Meredith Whitney predicts substantial job cuts in the investment banking industry it pays to listen. After all, in 2007 she had correctly predicted that banks would be under severe pressure when she highlighted that Citigroup was under capitalized. As we at Temple Associates work as business as well as recruitment consultants for financial services firms we look at this chilling news from two angles. Naturally we were pleased with the brisk demand for staff that we have seen during the past 6 - 12 months. As business advisers, however,  we were always sceptical about firms that hired staff 'by the dozen' and tried to expand at breakneck speed. Many of the worst perpetrators are no longer with us as their businesses lacked the cohesive culture that would have allowed them to navigate the dry patches that any investment banking business invariably goes through from time to time. More often than not the salaries that were handed out in order to entice experienced professionals to join were higher than necessary and burdened the business with excessive fixed costs.