25 May 2011

UBS: dramatic appeal by Chief Executive Gruebel

Oswald Gruebel's dramatic appeal to the staff of UBS's US investment banking staff demonstrates the difficulty of managing today's sprawling international banking businesses. Once an operation is - rightly or wrongly - under pressure due to difficult markets or competitive weaknesses it requires near-superhuman skills to put the ship on the right course again. Investment Banking, Securities Dealing and Investment Management are basically simple businesses when one looks at their basic constituents but as I always say: it is not brain surgery, but people - and companies - who want to succeed in these businesses need a blend of a lot of different skills and it is exactly this combination that is the challenge - especially when the 'assets' of the business walk out of the door every evening.

17 May 2011

Good Management must show Empathy

If reports are true that the UBS's chief of investment banking scolded his staff for behaving like spoiled children he may well have said the truth. But if the report is also true with respect to the reaction by staff it highlights one fact: it is not only what you say that counts, it is also important how you say it. Morale - especially in a people business like investment banking - is a fickle thing and it can easily evaporate and hole a company below the water line.

16 May 2011

Bank Austria pays for costly Kazakh mistake

We were concerned about the high price that BA paid for ATF Bank in 2007 and our worries about buying an emerging market bank were proven correct. Regulators in Almaty have asked BA to inject another Euro 198 million. The lesson should be clear: never buy such risky assets in a seller's market.

Not all firms can occupy top position

When a senior executive of UBS admits that the bank may no longer aim for the top spot in the rankings of global investment banks he puts the business on a more sensible and realistic footing.
Aiming for the top may be useful to encourage ambition but it can also be destructive if carried too far. Like in sport, there can only be one winner in business and being number 2, 3 or even 10 does not automatically brand you a failure.

28 Apr 2011

Mitsubishi/Morgan Stanley JV loses big on Derivative Bet

One should have thought that the turmoil of the past few years has led managements in all securities units to batten down the hatches and keep to a strict regime of risk management in all trading activities. That two major participants in the global investment banking business have to book a loss of nearly 1 billion dollars on a trading strategy that went wrong beggars belief. The more things change, the more they seem to stay the same....

6 Apr 2011

Size matters - but not in the way the consultants think

A well-known consultant to private banks recently claimed that smaller (Swiss) Wealth Management Banks face a challenging future. The problem with this one-dimensional view is that size does not have to be a valid variable when drafting a path for the future development of any financial institution. If the small banks have no future, the middle gets squeezed and the big ones are too big, who is going to survive? The consultants have a lot of explaining to do as they can not all be right at the same time. Experience and common sense should be the guide as banks in each of these categories can prosper if they make the right decisions.

8 Mar 2011

Employment Contract: Court Judgement

An interesting document for all those interested in the intricacies and potential pitfalls of employment contracts (Source)

4 Mar 2011

CDS - Why not prohibit states issuing debt?

When a professional party politician like the MEP Markus Ferber (he is a charge on Europe's citizens since the tender age of 29!) states that prohibiting uncovered CDSs on government bonds is under serious consideration we see that one thing is certainly represented in the useless European Parliament: ignorance about financial markets! I am critical of Credit Derivatives for a number of reasons as this blog documents but prohibition by the EU and/or its member states would simply drive the business to friendlier shores. The flood of government paper in itself is a sort of uncovered short sale that can only be described as a Ponzi scheme. As the debt level inexorably rises towards a tipping point - close to or above 100 percent of GDP - the political class that is addicted to buy votes by spending other people's money becomes increasingly desperate in the search for ways to extend its spending spree a little further - at least beyond the next election.

3 Mar 2011

UBS CEO raises doubts about London

Oswald Gruebel, CEO of UBS, wants the British government to state its intentions concerning regulation and taxation that will affect the banking sector in the years to come. Gruebel states that it is very difficult to work in a constantly-changing environment and that there may be a point where it becomes preferable to de-emphasise London as a business hub. In my opinion there is a danger that the City of London may suddenly reach a critical 'tipping point' though it is not obvious if the candidates to take over a large part of the business are really an alternative. Zurich would simply not have the capacity and Frankfurt and Paris are not exactly free from regulatory overgrowth. CS may have be a special case as it has a large hub in its Swiss headquarter and the duality of two large centres pose a management problem in terms of duplication and coordination that American or Asian banks coming to Europe do not have when concentrating European activities in London.

16 Feb 2011

Arbitrary Bonus Awards - potential for contentious litigation

A recent court judgement illustrates again that arbitrary bonus awards and redundancy decisions should be avoided at all costs. Not only do they demonstrate poor judgement by the managers responsible but they also put their employers into a bad light. We have argued for a long time that it is just not good enough to make bonus or redundancy decisions on the basis of 'whose face fits in'. The secrecy surrounding bonus decisions is a contributing factor to this problem. Bringing qualitative judgements into decisions which ultimately revolve about hard numbers and money allow abusive practices to flourish. In addition, the revenue potential that an individual employee has is also dependent to a large extent on the client base he is allocated or the product he is assigned to trade (and the dealing limit he is given). It would therefore be much better if a large part of all bonus payment would be allocated on a firm-wide basis (or based on departments). In addition the much maligned percentage basis (related to profits, credits or whatever) would also put bonus decisions onto a more objective (and less contentious) basis.