Jamie Dimon clings to outdated business model

No surprise that Dimon defends the status quo, bigger is better and the banking department store model is best (Reuters). But I wonder if he reads the trends in financial services the right way. Specialist providers may well be the way of the future, especially if they make good use of technology. Payments, Fund Management, Investment Banking Advice, Securities Trading all can easily - and cheaply - provided by standalone providers. One only has to wonder why there are still so many bank branches on the High Streets. The only - and probably the real - reason that gives JP Morgan and other super large banks an edge is the (sad) fact that customers - and unfortunately politicians and the regulatory minions - consider them too-big-too-fail. That still pushes clients their way that would otherwise consider cheaper and more nimble competitors. The growth of new product providers is therefore stunted which gives the large banks the opportunity to cling to their outdated business model.

Single Capacity to protect counterparties - notes on Goldman/LIA dispute

Not a question of being smarter, though that may well be the case. It is a question of morality - or lack thereof. When firms are feted as being the 'most powerful' investment bank this may go into the head of staff and senior management. That success is only measured by the size of the pay packet shows that morality is unlikely to be top of the priorities in the organisation. The setup of financial markets invites problematic relationships between firms and their customers (client would be an inappropriate term though it is used ad nauseam by staffers). A lawyer is smarter than the average user of legal services, but only in this narrow field of expertise. No one would need a lawyer unless he has an informational advantage, i.e. knows the law better than the client (here the term can be applied with justification). Goldman and other financial service providers WILL know more than the client, that is their job. But the (moral) imperative is not to abuse this advantage. This particular case will make its way through the courts but it appears from the outside that the Libyans were in all likelihood even more in need of being protected as a client and not just considered a counterparty in an equal exchange. A system of single-capacity, splitting market making and 'advice' would go some way in preventing similar scenarios. It would not automatically eliminate conflicts of interest, maybe a code of practice for the protection of customers would also be appropriate. Self-styled 'Business principles' devised by the firms themselves are not sufficient.
Goldman Sachs profit on disputed LIA trades back in focus (Financial Times)

QE - should you laugh or cry?

More and more desperate calls for all-out QE in the Eurozone make me laugh and cry at the same time. Laugh because it is not very likely that the hoped-for revival of the economies in the weak member states of the zone will happen. One has to look at the micro-economic aspect of the problem: why would any business invest/hire just because the rate of borrowing has declined by some small fraction? Given high tax rates - and they are going up all the time, openly or in stealth fashion (think 'fees' and 'charges' by public bodies) it should be expected that the entrepreneurial class will cut back on its work load. Why not take it easy if the larger part (60, 70pct if one adds in tax on taxed income, i.e. VAT, stamp duties etc etc) of additional income is confiscated by a parasitic caste of politicians, bureaucrats and their favoured beneficiaries? And why would I cry? Because the chances that the march into ever-higher control of our lives via the permanent avalanche of ill-thought-out legislation and higher taxation/spending is not going to be reversed anytime soon.

Does Bini Smaghi pass the competency test?

Lorenzo Bini Smaghi may have many (too many?) fine qualifications, but he is basically an academic and bureaucrat who never in his life made a loan or traded a security. So it is not clear whether he would pass the newly-introduced tests that are now de rigueur under the UK 'senior persons regime'. It may well be that he would not want to undergo this water-boarding by anonymous and unaccountable regulators - understandably so as it is nothing but a new version of a black-balling that belongs to a long-gone area. But if he is seen as competent enough to supervise one of the largest banks in Europe one wonders what all the ink and paper worth on banking regulation has really been wasted for.
Regulators must check all senior bankers (Daily Telegraph)

Being a 'Global' Bank brings extra Risks

One has to wonder if being a 'Global' Bank is really an intelligent business proposition. It requires Superman/woman to manage far-flung empires and activities that can span more disciplines than any normal human can realistically be expected to fully understand. And a particular risk factor are differences in business culture that senior management - be it located in New York, London, Frankfurt, Zurich or Tokyo - can hardly be expected to appreciate to the extent that would be required. Deutsche Bank lending money to build another hotel/casino in Las Vegas? Citigroup lending money secured by warehouse receipts in Chinese Ports? An Austrian Bank lending money to a steel business in Russia? Do these activities make sense or would concentration on a geographical area one understands and is familiar with be more profitable in the long run?

Succession planning at Santander - an example to follow

Yesterday's announcement of the death of Emilio Botin, the man behind the immense growth of Banco Santander over the past decades, highlights the need to prepare for the smooth handover of leadership. While Santander may appear to be a special case - the succession is clarified on the next day - every business should be able to replace key personnel without delay. This applies not only to CEO roles but all managerial positions in the organisation. Internal promotions should be the rule as they boost morale and team spirit and usually are cheaper and quicker to realise.

Regulators know no shame when they are after taxpayer's money

European Commission to investigate possibility of levy to fund EIOPA (IPE)The EU is particulary shameless as there is no proper supervision by any real government and the pretend-parliament is just a resting place for party hacks.

7-Yr Bonus Clawback? You must be joking!

That is what a former Wimbledon Champion would probably say to the psychopathic politicians and regulators (including reckless Bank of England officials busy stealing from Savers). How anyone can be expected to work for seven long years and not be sure that the hard-earned money will be his for good is beyond me. Anyone contemplating a career in banking in the UK should have his head examined. Meanwhile our politicians are busy cleaning up the problems they or their predecessors created, safe in the knowledge that however big the waste of money they will NEVER be asked to compensate the taxpayer.

Why UK's new bonus regime could be the world's toughest (CNBC)

Regulatory Nightmare is here and now!

I quite often said that the control freaks in charge of our lives - i.e. psychopathic politicians - will not be satisfied with extending ever-more intrusive regulation into all aspects of society. In the realm of banking and finance that would mean that - in addition of the armies of 'compliance' staff that is an expensive millstone around the necks of savers and investors - there would ultimately have to be one 'Kommissar' next to each productive employee. Ultimately the whole economic system would atrophy under this burden - the direction is clear for anyone who has seen the 'success' of the Cuban economic model.
U.S. Seeks Eyes Inside Banks' Offices (Wall Street Journal)

European Bond Markets have come full Circle

A few years ago (2005) we warned that anyone continuing to hold Italian government bonds yielding a measly 15 basis points more then German Bunds would be reckless. Now it is time to put out the warning again. While conditions may not yet be as extreme as in those days it is only prudent to consider an exit and take what is effectively a free option. Unless you believe in full political and fiscal union in the Eurozone this prepares you for the next (inevitable?) economic and financial storm.

TLTRO - a can of worms

Last week's announcement by the head of the ECB, Don Draghi, that the Eurocrats will pump up to € 400 billion into a 'targetted' long-term refinancing operation immediately makes me curious about how exactly this new bureaucratic monster is supposed to operate.
Leaving aside the question whether or not this new confetti money will do much good to the real economy in the Eurozone area there is a number of problems even a cursory look at the scheme brings to mind. So when one member of the Commentariat calls the TLTRO the "Star of the Show" (Gilles Moec, Deutsche Bank) we would warn him to be less star-struck and more dispassionate. But maybe his employer really does need this shot in the arm (or gift from heaven, maybe that is the star Moec refers to)?
So I cannot wait for the full details to be published. A few critical points that need answers: Who shall be the beneficiaries of the additional lending? Giant Buy-out funds speculating on ever-rising share prices certainly will not be among them though there is a displacement effect as banks may well use the TLTRO money to fund one group of clients and therefore have more money available to property, buy-out groups and companies seeking to finance M+A deals.
And what exactly counts as a small (and possibly mid-sized) borrower? And who is going to monitor that the TLTRO money really goes into ADDITIONAL lending to this privileged group of clients. And what if most or all of the lending is done in 'stable' economies such as Germany or Austria?
One thing is certain - programs such as these will inevitably lead to additional jobs for the boys and increase the ever-expanding number of bureaucrats working for the ECB, the local Central Banks and favored 'Consultants' charging exorbitant fees that are ultimately paid by savers and taxpayers who as usual have no say in these dirigist extravaganzas.

Bond business - down but not out

My prognosis for interest rates, esp bond rates, for the next few years gives a high probability that rates will meander around a relatively low base level. So the view that the bond trading business will be less profitable from now on is quite justified. But one has to remember that volumes during the previous 5-10 years were abnormally high. Declining and/or volatile interest rates are manna for bond traders. In addition, many innovations - some useful, some less so - in the bond market created new business opportunities. But there are no new products on the horizon, and some 'innovations' turned out to be duds. But taking all this into consideration, given the enormous volume of outstanding bonds and the large number of investors and issuers in a globalised bond market one can expect a good but down-sized bond market business from now on.

US blackmails banks - EU useless

The US 'authorities' (if you can name them as such as the country becomes more and more ruled by out-of-control lobbies and zealots) prepare another drive-by shooting aimed at a foreign bank. This time it is the turn of French BNP-Paribas. The 'crime' was that the bank supposedly conducted business with a peaceful country as that is the only way one can describe Iran. Or can anyone point to an occasion where the country has been the aggressor and not the victim (do I need to mention BP, or Mossadegh?). So it is with growing anger that one watches the spectacle of a useless Eurocracy that drowns Europe in more and more intrusive and expensive regulation but is afraid (incapable? lazy?) to put a serious warning shot in the direction of the United States demanding that the extra-territorial reach of its 'laws' be stopped immediately. Europe - or at least its citizens - have no quarrel with Iran and do no longer want to support unaccountable lobbies and the policies they have imposed on the US government.
PS: Cleptocrats in the US have just upped the ante - $10 billion, and rising? Basically it is the behavior of the typical criminal, grab what you can get away with, only this time it is the government (or the shady lobbies that push idiotic and counterproductive foreign policies on a hapless majority).

QE ineffectual and criminal

Barclays: how not to manage a business

Announcing that the number of jobs in the investment banking unit will be cut by 25 per cent over the next three years is as bad a decision as can be. Firstly it sends a clear signal to anyone who can get a job elsewhere to do so as soon as feasible. The remaining staff will be spending most of their time second-guessing where and when the next cuts will be made. Even worse, the instinct for survival will make it essential that each and every one tries to protect his employment by trying to put the knife into his or her colleagues' back. Above all it is not even clear why a down-sized and provincial version of Barclays - not dissimilar to a building society or - shock horror! - the Co-op bank, will be more successful in the long run. Is there something JP Morgan or Bankamerica know that Jenkins and the regulatory/political cabal here in the UK don't know? But never mind, Shipping, Car Manufacturing, Textiles, Steel Making etc were successfully destroyed by the Powers-that-be, so it matters little if British Banking is blow-torched as well. Makes it so much easier for other financial centres - in the EU and further away - to eat the City's lunch.

London - what would be effect of 'Brexit'?

When senior banking figures warn that London's position as preeminent financial centre would be at risk from any British exit from the EU must be taken seriously. But at the same time one should not overlook the other side of the argument. Language and legal traditions aside the first question that comes to mind is the following: where would all the banks that are supposed to leave move to? A battle royal would ensue between the obvious candidates, Frankfurt and Paris. But some banks might also consider Amsterdam or Brussels, and the main European banks might find it unnecessary to maintain a major location outside their home country. If it ever comes to the question of 'Brexit' the main deciding factor might well be what the regulatory and tax regimes look like in the UK and the various possible alternatives inside the EU.

Absurd Asset Quality Review

Every bank is bust if all depositors want their money back at the same time - unless a thorough reform (which we support) has mandated a strict maturity match (Disregarded by the Solons in Brussels, Frankfurt etc). It is also always possible to find a scenario that results in a bank failing a stress test - how about a Mega Earthquake in Yellowstone? an escalation of the Ukraine conflict or a nuclear exchange somewhere else? So to employ 25 Deloitte staffers to check more than half (which half?) of all loans at Austria's Raiffeisen Landesbank Oberoesterreich (12/13 Balance Sheet € 40 Bio) seems to be an expensive waste of money. The depositors/borrowers/equity owners have to pay the hefty fee of € 4.5 Mio for this extravaganza. It remains to be seen how 'expert' the Deloitte people are. Can we assume that they are banking experts? or just box tickers? Will these commissars really be able to properly assess each and every borrower? Are they just recent school leavers and Deloitte charges full whack for their (questionable) services? Was there a proper tender process when the contract was given to Deloitte? As the team will stay at RLB for a full five (!) months each of the 25 will be charged to the bank at a fee of approx. € 40,000 per month (!!). Talking of overpaid bankers! Now multiply all these shenanigans by a massive number - the same game is being played all over Europe, without a single citizen having had a chance to have a say - and you can see what massive amount of wealth destruction is being conducted at the behest of unelected politicians and their minions in the regulatory and central banking institutions. And the taxpayer is still not off the hook when the next disaster hits the financial industry!

Celebrity Fund Managers can be an Achilles Heel

Relying on Celebrity Fund Managers can be risky even for the most prominent Fund Management House. Recent changes at Pimco are just the latest in a series of defections by high-profile managers.

Banking Stress Tests of limited value

Every bank can be shown to fail under certain assumptions. For example a 50 percent drop in property and/or share prices, a steep increase in interest rates etc. So you can always design stress tests that result in a positive or negative result, depending on the scenario you choose.

Succession Planning often neglected

A new study released by Stanford Business School highlights the cavalier attitude that many organisations take when planning for the eventual replacement of their executives. While we are happy to assist any client in his search for alternatives we think that the first stop in any well-managed company should be their own pool of seasoned and well-trained managers.

Monitoring Employee behaviour - a tricky problem

Despite the rapidly rising number of compliance officers and the tide of regulatory legislation the age-old problem of supervising employee behaviour keeps posing serious challenges to top management of banks and fund management firms. Surely the solution cannot be to put one compliance officer behind each and every trader or fund manager. And who would oversee these compliance officers? and so on....
Only management and an enterprise culture that are dedicated to maintain high standards of conduct can assure that incidents such as this one at are prevented. All-too often management is too far removed from the front line business, occupied with internal politics or simply not stable enough due to constant re-organisation (aided by clueless and inexperienced 'Consultants').

Superbanks - too large to fail, and too large to manage?

Bank managements often argue that losses in far-away subsidiaries could not easily have been foreseen by top management. Such may be the case when Citigroup tries to explain loan losses that may have occurred in its business in Mexico. But is this really a valid excuse? A loss of $ 400 million is quite substantial, even when measured against the bank's total assets of approximately $1.9 trillion. The loss/exposure admittedly is only 0.2 percent of total assets but seen in a different way this would mean that the bank has about 4500 loans (if they would all be the same size). Any organisation should be able to set up a management structure that can cope with this number of transactions. The management pyramid would only about three layers if each senior loan officer is in charge of about 50 loans. Impossible in this age of instant communication? Not in my opinion, one would not even need (expensive) MBA's or PhD's, just honest hardworking employees with a good pinch of common sense.

J.P. Morgan to pay $2 billion over Madoff case

Not sure if one should cry or laugh when reading headlines such as this one. How did the parties to this shameful deal arrive at the number? Did it get picked out of thin air? Is there any real proof of culpability? Since when is it a crime to conduct one's business prudently? If the regulators did not spot the Madoff fraud have they received any punishment? And why is JP Morgan management agreeing to this 'settlement' (which leaves the question where the money goes, is it just used to plug the hole in the government's budget?)

P.S.: it is gratifying to read that a 'portion' of the $2 billion penalty will be earmarked for victims of the Madoff fraud. How generous, and the state appropriates the majority of the loot for itself. Why don't the regulators make a contribution to the victims as well? I guess the only reason why regulators do not throw the book at specific JP Morgan executives is that they want to avoid questions over why they are spared jail after such a major cock-up as the failure to detect the Madoff fraud in good time.

Nothing can surprise me with respect to the ever-increasing reach that the 'authorities' give the interpretation of the ill-fated and useless money laundering laws. Soon the £5 loan that a schoolchild receives from a granny will have to be reported as 'suspicious' by anyone who has knowledge of it, for who but the 'regulators' can (with hindsight) determine what is suspicious or not? Already anyone trying to open a bank account (or even access a long-forgotten one) is basically treated as a potential criminal these days. And all this wasteful effort is expended in order to undo the results of bad laws imposed by an undemocratic process.

ECB Banking Review - Moving Deckchairs on the Titanic

More costs borne by shareholders, savers and taxpayers, more jobs for the boys - happy to be an Eurocrat in this age - and still no change to the basic rules of the banking game. Happy New Year 2014!

Mentoring and Coaching - a simple model

While some experts try to make things complicated busy market professionals need simple solutions when they reach out for independent advice about how to manage their careers. For most successful executives the most significant barrier to effective mentoring and coaching is the illusion that any outside help is superfluous. After this somewhat arrogant attitude is overcome it quickly becomes obvious even to the most self-confident person that adding another perspective can be a useful tool to overcome any personal or professional issue that arises at work.

Summers regurgitates tired old macro cliches

Guessing what the 'correct' or 'true' natural interest rate is may be a worthwhile passe temps for tenured university professors like Larry Summers but it is of little use to explain/solve the pressing economic problems of our time. Such as Unemployment or Inequality. Both have little to do with macro economic mumbo jumbo but a lot with poorly designed policies and laws.

More Women on Boards

Hector Sants may have benefited from Coaching

News that another senior finance professional - this time Hector Sants, Barclays Bank's Head of compliance - needs to take time off to avoid burn-out, highlights the pressure that staff at all levels are facing these days. This burden gets progressively stronger the more an executive moves up the ranks of the organisation. 

20-25 years ago hardly anyone in the financial markets had ever heard or seen a compliance manual, let alone a compliance officer. And the markets functioned quite well. Now the rulebooks run to thousands of pages - and are constantly 'updated' and expanded with new rules - everything is up to interpretation and everyone wants to cover his backside. No wonder that people like Sants feel the stress (ironically he helped create many of these rules!).

Another problem facing senior managers is the fact that their jobs can be quite lonely ones where they are constantly under pressure from two sides - aspiring subordinates keen to get their job or pressure from their own supervisor who wants to squeeze out a better performance from their reports.

More Swaps, more Risks

Glad to see that another swap market (Chinese Yuan) seems to be in rude health, but nearly all swaps are facilitated by a bank acting as counterparty - and are these risks not contrary to what current regulatory efforts want to achieve? If some regulators advocate a move to a leverage ratio of 10 where does that leave the gazillions of over-the-counter swaps?

Government Mis-Selling Scandal

Having been on the receiving end of many a sales call trying to convince me of the necessity of buying identity theft protection for my credit cards,I can say that the present hysteria about this issue here in the UK can only be called a modern version of the witch hunt. Given that this dark period is but a few hundred years away it is remarkable that not much has changed in human nature - certainly not in the nature of those who want to bully and nanny the citizen.
Condemning banks in blanket fashion to 'compensate' those who were supposedly mis-sold protection products goes against all notions of legal due process. Only slightly worse is the silence of the guardians of our investment monies who should scream bloody murder as the companies they invest on our behalf get fleeced by regulators. Where is the Governance army hiding when it is really needed?
Government can play a role in protecting the consumer, as can all the worthy or unworthy organisations who claim to have the consumer's interest at heart. But let them issue warnings, educate the public so that people can make decisions that are (hopefully) protecting their own interest. Nobody forced me to buy any product, suitable or unsuitable. And maybe some people might have benefitted from the protection they bought. Who speaks up for them?

CMI should know better - no point in meaningless comparisons

When the Chartered Management Institute (CMI) proclaims that women on average receive a lower bonus than men one has to wonder what purpose this Institute really serves. Without detailed forensic comparison on a job-by-job basis this discovery - if you want to call it that - is meaningless and can only be considered an effort to get a bit of publicity.

FATCA - Testimony to EU Incompetence

While no one can blame the US for perpetrating legislative overreach as long as it gets away with it the oppressive FATCA legislation would never have happened if the (unelected) bureaucrats in the EU would have taken sufficient time off dining at taxpayer's expense in the expensive restaurants offered by Brussels. A discreet threat of the imposition of a countervailing duty on the activities of US financial institutions in the EU should have put a stop on this legislation at an early stage. Would the US really have pushed the button and chosen the nuclear option of total financial war with the EU? I doubt it. Unfortunately the senior brass in the financial sector here in Europe has also missed an opportunity to push against this unnecessary regulatory burden which leads to the conclusion that only a reform of democratic structures in the EU and its member countries can lead to a better defence of civil liberties. See www.dirdem.org if you want to support me on this.

Co-op Bank: Slaughter of the Innocents?

Talk of bailing-in holders of certain bonds demonstrates that investors and depositors in European Banks are well-advised to be ultra cautious and not rely too much on reassurances uttered by regulators and their political paymasters. It beggars belief that after the chaotic 'resolution' of the debt crisis in Cyprus there is even talk of applying a hair-cut to the value of certain bonds issued by the Co-op bank. Most of those looking at losses would be retail investors, the most vulnerable and least sophisticated participants in the financial markets. Before their investments are impaired it would be appropriate to seize the full equity value of the bank - and one would hope that there is one.

Apart from this glaring injustice this episode is another sad illustration about the danger inherent in Merger transactions. The list of desasters is a long one, Bankamerica/Countrywide and Merrill Lynch, Commerzbank/Dresdner Bank, Lloyds TSB'HBOS to name the most prominent one

Hester to leave RBS by 'mutual agreement'

Replacing the CEO? No problem, George Osborne can try his hand on running a real business, and his friend/buddy Cameron can fill the role of Investor Relations/Press chief. At least they will provide good entertainment on the SS Royal Bank of Scotland (soon to be England?). And no, we take no placement fee as we want to help the taxpayer - on second thought, did Hester not have five years to groom a successor? Any properly run organisation should have at least one credible replacement for each senior executive position. After all, that should be the priority of the CEO and a functioning board.

Bureaucrats to run UK Financial Sector

The Great, the Good and the Not-so-Good are slowly taking over the running of the UK Financial Sector. After all, it the Establishment managed to run the UK Automobile Industry into the ground, why not give it a try in another sector that (still) is a leading participant in a global industry? I warned some time ago that to give regulators (and indirectly politicians who pull the strings in our cherished pseudo-democracy) unfettered control over senior appointments in Banking, Insurance and Fund Management would make it very difficult - and certainly frustrating - to manage any of these businesses. An recent illustration is provided by the fact that two candidates for the position of Chief Financial Offices at Legal & General were rejected by the Commissariat, formerly known as FSA, now split into two units, presumably to provide more jobs for second-rate pen pushers. The explanation, that candidates did not show sufficient familiarity with insurance, does not convince. Since when did a CFO of an engineering company have to show familiarity with the intricacies of machinery design? This is just another drop on the stone of bad news that will lead to a mass exodus of financial service firms once a certain pain threshold is passed.

EU Bonus Cap - Welfare for all is ultimate destination!

One may agree with this policy (EU casts wider net for Bank Bonuses, CNBC) or not - but there will be many side-effects, intended or not. Staff will migrate to other sectors, in particular private equity and hedge funds, also traditional long-only fund managers. If politicians then want to extend pay caps the next stop for professionals will be the general corporate sector. That would mean that eventually ALL business compensation will have to be controlled - by politicians with only the slightest democratic legitimacy (Has anyone anywhere had a chance to vote for these measures? Does anyone even know his 'representatives' in the national or European Parliaments?). All this and the question of migration to areas outside the control of Eurocracy is completely left open. We might as well hand all our salary to politicians and just receive vouchers for our daily need - Welfare for all is the destination!

Commerzbank defeated in Bonus Fight

All managers involved in employee compensation will be well advised to study the implications of this protracted legal case (see here and here). When senior managers of Dresdner Bank in London tried to pacify members of staff that were unsettled by news that Commerzbank was about to make a takeover bid they did not foresee the implications of the verbal promises intended to calm the nerves of their employees. They would not have expected that two trials in the British courts would have considered their statements to be a legally binding contract that even the dramatic upheavals of the financial crisis in the later part of 2008 would not have been able to extinguish.
In a similar vein, all-too-often I find that the coordination between senior management and human resource departments leaves a lot to be desired. In addition, special deals - often verbally - are agreed with staff members that lead to further confusion and mistrust among other staff members that feel that they are discriminated against. In the case of the promises made to Dresdner Bank one could also have said (even without the benefit of hindsight!) that employment prospects during the summer/early autumn of 2008 were already less than rosy and the threatened (or feared) exodus was highly unlikely.

Scariest Part of Gold Crash?

Reads a headline but the article forgets to mention what really should scare investors, market professionals and regulators: the fact that the price of a major asset can plunge by such a large amount in a few days demonstrates the inherent fragility of financial markets. During the past 30 years the unprecedented growth of  (mostly over-the-counter) derivatives - subject to 'light-touch' supervision - has created a huge house of cards of interconnections between all financial market participants that could rapidly spiral out of control. The absurd length of time required to unwind all the liabilities from the collapse of Lehman - and the number of company 'boxes' created by that firm - shows that the current regulatory scheme is not up to the job. Proper stress-testing of banks, insurance companies, securities firms, asset managers and pension schemes would have to be much tougher and assume a shift in asset prices by multiples of the underlying assumptions that are used today, something in the order of 20-25 percent.

German Managers want banking pay limited - but not their own

A poll conducted by Handelsblatt comes to the conclusion that German Managers favour limiting pay in the banking industry but not in their own companies. How hypocritical can you be? But apart from this questionable aspect limiting pay in the banking industry would mean that only second-rate people would want to pursue a career in banking. This episode demonstrates that the question of pay - especially for senior management - cannot be tackled in specific industries but must be part of a wider solution based on sound management and moral principles.

Fed sends Minutes a Day (!) early - the real questions

In the Lobby-infested cesspool that is Washington it is no surprise to find that the Fed 'accidentally' sent copies of the latest Minutes to a select list of banks, investment managers and lobbyists. While the easy excuse is that it just is a 'fat finger' error caused by some junior staffer (an unpaid intern?) I just find this explanation less than satisfactory. As anyone who has ever sent an email message to a maillist should know a message is only sent to the recipients that are included in the list. If only this select group of recipients gets the mail it should mean that there was a sort of priority list. Otherwise all those who have signed up to get the Fed minutes delivered upon release should have seen the message at the same time. In addition, there should be a forensic audit into the trading activities of all recipient firms to find out whether they profited from this information or not.

Libor - Regulators asleep on the Watch (again)?

While I have doubts that the alleged or actual manipulations of the Libor rate-setting process really did major harm to anybody it is amazing that one large market participant was allowed to play a crucial role in the fix. Another case of regulators asleep on the watch?

Salz Report on Barclays - another Figleaf for the Establishment

The lengthy - and ridiculously expensive - Salz Report has to be seen in the long English tradition of conducting expensive and lengthy enquiries when the solution to the problem would just have taken common sense and a willingness for decisive action. Both ingredients are missing. It is not clear why there would have to be an enquiry into Barclays Bank and not into any of the other major banks, investment institutions, regulators and politicians who must certainly share a large part of the blame for problems in the financial sector - and wider economy - that have evolved during the past few years. The proverbial blind man could see that executive pay in banks - but also in investment firms and major listed companies - has spiralled out of control. It leaves a sour - not to say salty - taste in one's mouth when one sees that the costs of the report are such that the 'solution' is part of the (pay) problem. How can anyone justify that a 244 page report that any junior management consultant with his head screwed on could has put together can cost £17 million! And how much of that did go to the City 'Grandee'?

No regulators slated for failure

But HBOS chiefs 'slated' for failure (Financial Times). And anyone thought that there was a proper investigation of banking problems?

Goldman Sachs Liberty Harbor - too close for comfort?

Another Cyprus Bank Robbery?

When the state loots the shareholder

State-sanctioned looting of shareholders becomes the norm in the United Kingdom. First not-so-gentle persuasion was used to force banks to compensate 'victims of mis-selling' (though how these millions were forced to buy products that they were not supposed to either want or need still is beyond me). Then all those who were at the loosing end of derivative contracts that were designed to protect them against interest rate risk were out with their begging bowls and a complicit media commentariat, lobbyists and politicians jumped on the bandwagon to punish the unloved banking sector. The latest illustration of madcap regulatory overreach is given today as the UK's FSA fines Prudential Plc 30 (in words: thirty!!!) million pounds on the spurious pretext of not having been informed in time about a possible bid for AIA. The shareholders and pensioners who are paying for this nonsense will be the ones picking up the bill that feeds the ever-rising army of paper-pushers in the regulatory Gulag that slowly strangles the financial industry in the UK - no need for the 'Troika' to aid an inept government of PR luvies.

Stalinist Incomes policy - spiteful and arbitrary

The European (Dis?) Union is on the slippery road to serfdom (Hayek) when professional agitators like Sven Giegold (read his CV carefully, you will shudder when you read it!) are given the opportunity to introduce 'laws' that arbitrarily set pay (Financial Times) for a minority of the population that he and his minions want to punish for ideological reasons. It is not possible to argue with these extremists (have a look at what 'Attac' stands for) and the only way to combat the takeover of the pseud-democratic institutions in the EU and the member states is a complete overhaul of the political system based on a radical and comprehensive form of direct democracy safeguarded by a proper bill of rights that bans discriminatory legislation. Those who do not just want to shrug their shoulders or clench their fists in their trouser pockets should contact me and take part in the democratic reform project.

UBS: Will Junk Pay motivate the troops?

I doubt it. When regulators don't regulate properly and management runs the ship aground it is not obvious why 6,500 staff should pay the penalty. Top management may be able to be paid in monopoly money as it has (hopefully) made it's pile and could happily retire even if the bonds that are being paid turn out to be worthless. But any aspiring young - or even middle-ranking - banker needs hard cash to pay to the ever-rising cost of housing, education etc. And is there ever going to be a penalty for regulators or politicians that don't do their job properly. The ECB has just announced that it will hire another 2,000 (useless) bank 'supervisors' in the near future....wish we had another Kafka to weave a novel with this subject matter.

Deutsche Bank - Vorwaerts mit Achleitner?

The write-offs published in DB's results show that despite all the market-leading positions the Bank may have in certain business segments the size of the company makes it inevitable that some major air pockets are hit in various parts of the far-flung empire. This is a problem that all banking behemoths face. Add the incentives to make more profits every quarter (and a corresponding bonus) and you have nearly guaranteed that some transactions will lead to losses. So it is problematic when an institution such as Deutsche Bank finds it necessary to put Paul Achleitner into the role of chairman of the supervisory board after he has managed to display less than excellent flair for managing the finances and investments of Allianz AG. Do I need to mention Dresdner Bank to anyone?

Derivative Trading - prone to abuse, fraud

As little - or even no - cash changes hands when transactions in derivatives (especially those conducted " Over-the-Counter") are executed they require even more oversight than transactions in securities that are cash-settled within a very short time span. Malpractice can easily be hidden from compliance and audit departments - even if these are not complicit in any misconduct or fraud. Often staff in these units are of lower status, less well paid and less well versed in the intricacies of the instruments involved. OTC derivatives are by nature traded by appointment and the correct pricing is not easy to verify - even with the best intentions of any supervisors. So it is quite easy to build in a margin for those that want to skim some money off the transactions they conduct. That the dealing community fights every proposal to bring all transactions online and onto exchanges raises doubts about the sincerity of their motives in doing so. Reports about the conditions in the dealing department of Monte dei Paschi di Siena illustrate these problems poignantly. (Reuters)