100 percent mortgages - AGAIN!!

Do some Bank Managers never learn their lesson? One of the banks that was in the middle of the sub-prime crisis has reportedly started to offer 100 per cent mortgages again. The offer by HBOS - which is now part of Lloyds-TSB - may only be available to existing customers who have reached the end of their deal and find their equity wiped out. So HBOS may not have much choice but it still leaves a sour taste in the mouth.

Less Credit and more Equity is the way forward

Contrary to many commentators we do not think that the solution to the present economic crisis lies in restoring lending to unsustainable levels. If anything, business will have to de-leverage and the source of finance will have to be equity capital. In this context it would be useful to device a mechanism that prevents 'Private' Equity Capital from financing 'pass-the-parcel' transactions. Venture Capital should again be what it was originally designed for: a source of risk capital for new and growing enterprises.

Russian oligarchs and Western homeowners

BarCap's Rudloff calls for end to debt 'war' in Russia (FT, 21 April 2009). Many homeowners facing foreclosure would like to get veteran investment banker Hans-Joerg Rudloff on their side as well. Today he urges borrowers and creditors in Russia 'to forget about trying to enforce claims through legal action and focus on the effective restructuring of debts and assets'. We do not think that oligarchs merit a more charitable attitude than homeowners and if anything would have thought that the current crisis gives an opportunity to redistribute assets to more disserving owners.

Bank of England Governor in a swipe at the FSA

I think this short quote from Mervyn King's speech to bankers speaks for itself: 'A system in which it is easier for a large bank to expand and then destroy its balance sheet than for an individual to open a bank account has lost focus'

Danger of trying to buy market share

A short press article ('As Merrill Lynch sputtered, it made a big bet on Brazil', Wall St Journal, 10 March 2009) reminded us of the danger of trying to buy market share in any business by throwing money at top people working for the competition.
Not only is it far from certain that the executives lured away will flourish in a different business culture at the new employer. If their recruitment can only be effected at high - or even exorbitant - compensation levels it may also be an indicator that the business one tries to enter has already reached a peak and may no longer offer the growth prospects one is looking for.
Selective hiring of top individuals at top compensation levels may be worthwhile in isolated cases. However, employers should take great care before committing themselves to a large financial outlay and conduct extra due diligence rather than getting carried away or 'falling in love' with prospective candidates.

Banking Secrecy - Enemy Number One or convenient scapegoat?

During the recent past politicians and lobbies of all persuasions seen to have found a new 'Enemy Number One' - Banking Secrecy and linked to this Tax Havens large and small.
Politicians and their paid servants, the regulators, have failed miserably to prepare for the current global financial crisis. For example, the Bank of International Settlements has spent roughly 10 years to produce a report of nearly 1000 (!) pages but this Basel II framework did nothing to prevent the debacle that has afflicted major banks around the world.
So it appears to be nothing more than a desperate search for scapegoats when politicians attack banking secrecy and tax havens. They are not the cause of the current crisis!
Not so long ago there was a time when anyone could walk into a Bank in Austria and open a bank account without presenting any form of documentation. No one asked what their name or address was. You paid in your money and you received a bearer passbook that was the only document you needed to claim back your money. In his teenage years the author even opened a number of passbooks on the same day. That way he pocketed a small amount of money that the banks put into new passbooks as a reward for opening the account.
Was crime any higher as a consequence of lax banking regulation? Was corruption rampant? Not at all. Since the (US inspired) crusade against banking secrecy gathered speed both crime and corruption have - if anything - increased. The world certainly does not seem to be a safer place.
Ironically, much crime and corruption can be traced back to ill-conceived legislation: the war on drugs, arbitrary taxes (tobacco, alcohol), questionable regulations and subsidies (agriculture, trade tariffs, soon to be exceeded by fraudulent carbon trading), limits on prostitution. All these laws and regulations may be well-intentioned but they provide a fertile field for criminal activity and usually are counterproductive as well as costly to the taxpayer and citizen (who most of the time get no say on respective laws).
If countries want to close down tax loopholes they can avail themselves of a solution that is easy to administer and leaves the precious privacy of all citizens untouched: Legislators can decide to impose taxes at source. If politicians are really only interested in reducing the amount of tax that in unpaid this solution should be suffice. Anything more intrusive indicates that the authorities are really interested in invading the private sphere of the individual and increase the control that the state already has over the citizen's lives.

Danger of trying to buy market share

A short press article ('As Merrill Lynch sputtered, it made a big bet on Brazil', Wall St Journal, 10 March 2009) reminded us of the danger of trying to buy market share in any business by throwing money at top people working for the competition. Not only is it far from certain that the executives lured away will flourish in a different business culture at the new employer. If their recruitment can only be effected at high - or even exorbitant - compensation levels it may also be an indicator that the business one tries to enter has already reached a peak and may no longer offer the growth prospects one is looking for.Selective hiring of top individuals at top compensation levels may be worthwhile in isolated cases. However, employers should take great care before committing themselves to a large financial outlay and conduct extra due diligence rather than getting carried away or 'falling in love' with prospective candidates.

Lloyds-TSB: Failure to heed the warning signs

Management has stubbornly refused to call off the acquisition of HBOS. The warning was on the wall in CAPITAL LETTERS and for all to see. We understand that leading a large organisation is a lonely job but that does not mean that executives have to be pig-headed to the extent that they doom their companies as Fred Goodwin had nearly managed to do. The defacto demise of RBS as a free-standing business should have been warning enough and no one can claim that the extent of the decline in financial markets and the world's economies could not have been foreseen last autumn. For an excellent analysis of this debacle read 'Brown cannot shirk the blame for Lloyds' (The Times, 9 Mar 2008). It is difficult to see how the Chief Executive and Chairman can remain in their posts.

Shall we 'modify' away Wilbur Ross' wealth?

Shall we 'modify' away Wilbur Ross' wealth?
During the past few weeks the chorus of experts in politics, academia and business has become noisier by the day. Everyone tries to peddle his own personal solution to the credit crisis. What is being lost more and more is any sense of personal responsibility and accountability. Each and Everyone seems to be entitled to be bailed out by 'society' or the 'community' (especially the 'international community').
Today the American 'Billionaire' investor Wilbur Ross contributed his 5-cents worth of wisdom on CNBC by suggesting that it should be made possible to 'modify' the terms of all residential mortgages in the USA. Effectively he is suggesting that either the taxpayer or - more likely - the mortgage creditors gift a cheque to the homeowner (more likely only those that the rulers consider worthy of public largesse).
One has to wonder what Mr. Ross would think if the legislators and other experts would hatch the idea that his wealth could be used to compensate the losers in the credit crunch? This idea may sound outlandish at first but there is no material difference to the idea of taking away agreed interest payments from those who lent through mortgages in good faith.

Madoff - could he have done it alone?

What is the similarity between the Fritzl case in Austria and the Madoff scam? In both cases it is extremely unlikely that those close to the perpetrator were ignorant of what was going on around them.