The FinanSer

Interesting quote on investing

Paul Kedrosky, one of my favourite bloggers, picked out  a quote from Andy Rappaport of August Capital about social investing -- the idea that you can do good via investing in ethical funds.  Andy says:   

"A lot of socially responsible funds have this idea that they’ll provide a social return, but you’ll have to accept a below-average financial return. I disagree. Once you give a business an opportunity to make a below-average return, you make it more likely it will."

It kind of reminded me of one of my favourite quotations from Orson Welles, playing Harry Lime in the Third Man:

"In Italy, for thirty years under the Borgias, they had warfare, terror, murder, and bloodshed; but they produced Michelangelo, Leonardo da Vinci, and the Renaissance.

"In Switzerland they had brotherly love, they had five hundred years of democracy and peace, and what did that produce?

"The cuckoo clock."

You need friction and struggle to create genius and heroism.

It is risk versus reward ... the more you risk, the greater the rewards.

They shoot bankers don't they?

There’s a fascinating roundtable discussion in Prospect Magazine this month.

The discussion features:

• Jonathan Ford, Deputy Editor of Prospect and Chair of the discussion;
• Anatole Kaletsky, Economic Commentator and Associate Editor of the Times;
• George Soros, Chairman of Soros Fund Management;
• Mark Hannam, an independent who has previously worked for the Bank of England, Citibank and Barclays;
• Martin Wolf, Chief Economics Commentator at the Financial Times; and
• Sir John Gieve, Deputy Governor for Financial Stability at the Bank of England who stepped down shortly after this discussion took place.*

In light of Sir John Gieve’s departure, George Soros’s regular and outspoken depressing comments about the credit crunch, and the regular Economists’ Forum in the Financial Times led by Martin Wolf, this was bound to be an interesting dialogue.

It was, with George Soros saying we should shoot the directors of Bear Stearns and Citigroup.

Read more ...

Zimbabwe keeps going thanks to remittances

According to a press release from the International Association of Money Transfer Networks, Zimbabwe's economy keeps going thanks to mobile remittances, even with an economy where inflation is currently running at two million percent and is expected to reach six million percent by the end of June.

Less than 10% of the population is employed and a huge food crisis looms ahead.

The answer is that the remittance market has been the lifeline for thousands in Zimbabwe.

A remittance company operating in Zimbabwe says that up to US$1.5m a day moves into the country in remittances. Western Union is the principal company but can only operate with the blessing of the Reserve Bank. The rest operate on the 'parallel' market, meaning the financial market running at the true value of the Zimbabwean dollar, rather than the declared Government rate of exchange, which today is running at 50% of the market rate.

The parallel market has been allowed informally by the Government to function being a useful source of badly needed foreign exchange. Remittance operators sell their foreign exchange to the Reserve Bank in exchange for Zimbabwe dollars at exceptionally good rates - in effect colluding with those who seek to destroy them.

Not surprisingly normal money transfer channels have suffered - as huge swathes of regular clients have moved to the unregulated systems. Apart from the fact they get a better rate of exchange, under the normal KYC rules they have also been fearful that their identities would be passed to the Government which at a time of intimidation and retribution could bring danger to themselves and their families.

Digital Identities? We haven't got a clue!

Today is a day that’s all about authentication, identification and verification.

First, I have been asked to make a speech at a payments conference all about how to minimise risk; and, second, we have a meeting of the Financial Services Club this evening, in the form of an Oxford Society style Debate with the motion: “This house believes our current authentication and identification systems are good enough”.

I’ll report on the latter topic tomorrow, but thought I would write a summary of my speech just to see how it plays out.

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Banks versus Consumers - who wins?

Front Page of Business Week today: Banks versus Consumers - who wins?

The focus is upon credit cards and debt collections and, with American credit-card debt hitting a record high of $957 billion in Q1 2008, up 8% from the previous year, according to Federal Reserve data, this is a growing market.   One of the market leaders in debt collections is the National Arbitration Forum (NAF), used by many banks to chase up delinquent accounts.

The article then goes into a few statistics:

• NAF handled 33,933 collection arbitrations in California, from January 2003 through March, 2007; of the 18,075 that weren't dropped by creditors, otherwise dismissed, or settled, consumers won just 30, or 0.002%, of these cases; 
• NAF employs 1,700 freelance arbitrators - mostly moonlighting lawyers and retired judges - who handle some 200,000 cases a year, most of them concerning consumer debt; and
• NAF’s presentation to clients tells them that, in cases in which an award or order is granted, 93.7% are decided without consumers ever responding and that only 0.3% of consumers ask for a hearing (the rest just tussle through the debate via mail).

As a result NAF is becoming the target of a legal action with consumers claiming that rather than arbitrating, they are purely acting on behalf of banks. For example, 1,400 Virginia residents claimed that they had been promised, in writing, that they could appear at hearings before an NAF arbitrator but that the law firm representing NAF, Wolpoff & Abramson, failed to arrange the hearings. The case was settled in favour of the residents.

Interesting article.

The fragmentation of everything

In the theme of dialogue about our changing world, the conversations continued with my USA friends about how hard it is to get the marketing right these days. They lamented the fact that their marketing team are so traditional that they still wait until the brochure is perfect for mailing before posting details on the internet.

The problem with this is that the internet costs you nothing, and you can post anything immediately, and then change and evolve it in real time. Who needs brochures?

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America is dead, long live America

In the eight years since George W Bush came to office, America has suffered 9/11, a costly war in Iraq, a period of economic growth that has come to a plateau and surprisingly speedy end, and a business climate where the next wave of growth is unclear.

America is a former superpower. This power is no more.

But, before you think this is another America-bashing column, let’s just take stock.

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What is financial inclusion?

The European Commission is running a conference this week about financial inclusion and the unbanked. According to the Commission, almost half of all of the citizens of the EU10 – Poland, Hungary, Czech Republic, Slovakia and other recent joiners, but not Bulgaria and Romania – have no bank account.

According to their research, 47% of the EU10 adult population are unbanked, compared with only 10% in the EU15 (France, Germany, Italy, Spain, UK …).

The conference is all about establishing rights for citizens to get basic financial matters covered, such as a "right of all citizens to a transaction bank account" and "a defined minimum package of transaction bank services".

Read more ...

Credit crisis causes hedge fund mogul to sell home

It shows how bad times are when even hedge fund guru's have to sell their home.

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MiFID's new MTF's start to bite

LSE reported a 52% rise in annual operating profits today, primarily related to trading which, thanks to bulk discounting to market makers, has doubled in the past year. Combine this with their acquisition of the Milan Borsa Italiana and LSE’s Earnings Before Interest and Tax (EBIT) reached £265.2m ($520 million) for the year to March 31st, up from £174.2 million ($340 million) a year ago.

These results might be even better if the LSE had their own integrated clearer rather than using LCH.Clearnet, as margins should improve.  This is one thing they may change this year, through the acquisition of Borsa Italiana which gives them a clearing operation as part of the deal.

Meanwhile, LSE's shares are trading on a price/earnings ratio of 17.9, which is slightly behind Deutsche Bourse at 19 and way behind the Chicago Mercantile Exchange (CME) at 33.4.

However, the good times are going bad and, if I were them, I would be worried.

Read more ...

SWFs and Citigroup - Unethical or just Flash Players?

Another excellent collection of folks at the annual Gateway conference, a meeting of British American Business leaders.

Sir Wim Bischoff, Chairman of Citigroup, gave the keynote speech all about the impact of Sovereign Wealth Funds (SWF). Although they have been around for decades, it has only been the recent experiences with Middle Eastern, Chinese, Russian and other nation's funds buying big chunks of foreign businesses, that this has really appeared above the radar.

Bearing in mind their lack of transparency and potential threat to national interests, the idea of Chinese or Russian funds buying up large swathes of American and British businesses is something that many are wary of, and Sir Wim asked the question: should we be?

Read more ...

Today is Europe Day, and are we proud (Part 2)?

The EU has an anthem. 

It is Beethoven's Ode to Joy, with the lyrics removed.

The original German chorus has been removed to respect the fact that we don’t have a common language in Europe, yet.

Strange that, as I thought that most us speak a version of English.  For example, the French Eurovision song contest entry this year has most of its verses in English.

Mon dieu! C'est le monde merde!

Ah well, at least it's not an Irish Turkey.

Maybe we shouldn't be so proud after all?

RBS: friend or foe of the Corporate?

After being at the Association of Corporate Treasurers annual bash last week, sponsored by Royal Bank of Scotland, I got home and found a note from NatWest, the UK subsidiary of Royal Bank of Scotland, saying that there had been changes to the charges on my business account. 

It didn't explain why all the charges were going up, but just had the line:

"We have revised your business tariff.  Please refer to the enclosed charging leaflet which details your tariff which will apply from 2 June 2008."

No please's or thank you's.  Just tough.  Like it or lump it. 

No wonder banks are viewed as disconnected.

So I looked at the leaflet for the new charges, and here's a selection of the changes:                                 

                                                         Old Charge      New Charge
BACS direct debits                                     38p                    40p
BACS files processed                               £4.40                  £5.00
Standing Orders                                        40p                     45p
Cash withdrawn / paid in at branches     57p per £100      63p per £100
Autopay services                                       28p                     45p
Minimum charge per month                       Free                    £10

I wondered why they did not explain, justify or discuss why there were all of these sudden increases.  After all, to just be told "We're putting up your charges, tough" is quite annoying.

And the letter wasn't even from my Business Account Relationship Manager, but from some chap called Steve Pateman, CEO, UK Business Banking. 

Then I found the answer in today's Financial Times, which has a headline stating that RBS are trying to end free corporate banking as a new policy. They say this will affect just a few thousand 'legacy' customers. 

Funny that.  I only opened my account in 2003 and did not think I was a legacy after only five years.

So why would RBS do something that could be so potentially damaging to 'thousands' of corporate accounts?

Could it be that they hope most corporates do not care or change their account?  Or could it be that they are trying to make up for RBS's poor results, the ABN AMRO acquisition, subprime losses, their depressed share price, Fred's ego and a £12 billion rights issue ... surely not, as that would just be mean wouldn't it?

Disconnected banking in a connected world

Since technology first appeared in the financial world, we have worked harder and harder to use automation to reduce costs and increase efficiency. We successfully made the back office a processing machine, whilst trying hard to create a front office where customers serve themselves.

Well, we have succeeded.

We have managed to get customers out of branches and transform them into data entry clerks, who serve themselves through ATMs and the internet.

However, what this has resulted in, is disconnected banks. Banks have disconnected from relationships, and are perceived to be ‘faceless’ and ‘remote’.

Are we really disconnected banks?

Read more ...

People think more about money than sex

A recent quote was on a UK poster. The quote was from Jeremy Clarkson, the biggest bloke (translates into yob, lout, brute) in Britain, and it said: “money and rumpy-pumpy are the twin engines powering everything we do”.

... in other words, money and sex make the world go around.

Now, there is some truth in this phrase, as I’ve blogged before, and this is why the psychology of money is a critical discipline that banks possibly undervalue or even misunderstand.

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I wish banks had never invented the one thing they give us for free

This was a comment I made during a panel at the ACT Conference in Edinburgh, where I joined esteemed speakers in a BBC Question Time style debate, chaired by Andrew Neil, the political journalist and writer.

The other speakers on the panel were:

• Angela Knight CBE, CEO, British Bankers’ Association; 
• Robert Waugh, Head of UK Equities, Scottish Widows; 
• Sahar Hashemi, Co-Founder, Coffee Republic; and 
• Trevor Williams, Chief Economist, Lloyds TSB.

Questions included:

• “Are business ready for stagflation – the nightmare of low growth and high inflation?”
• “Should the UK take advantage of the weakness of sterling today and join the euro?”
• “Dubai, Mumbai, Shanghai, Goodbye? Will China and other economies offset recession in the USA?”
• “After China’s success, which countries would you look to invest in next?”
• “Will the turmoil in the credit markets spread to the equities markets?”
• “Can the panel name any organisation or institution that they think is responsible for this crisis?”
• “Can anyone on the panel name one bank product that they wish had never been invented?”

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James Wolfensohn's vision of 2050

The ACT summit in Edinburgh has had a wide range of speakers of variable quality. However, today’s keynote is one that most people take note of: James Wolfensohn.

Wolfensohn is well-known for an illustrious career, including close work with Paul Volcker, the former chairman of the Federal Reserve, and a tenure as President of the World Bank.

Wolfensohn is a sharp cookie, and began by talking about how the world must look forward and how rapidly the world is changing.  He reflected upon the fact that we must escape our short-termism, and think longer-term. The Northern Rock's, Bear Stearns and UBS’s of this world will soon be forgotten and written into history. China, India, Africa and America will always be here.

On this note, we need to think about the future of the world and the fact that, by 2050, there wlll be another three billion people on the planet. That’s one extra human for every two around today, or a 50% hike over today’s numbers in other words.

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Government websites hacked so that they install malware

Two interesting stories on hacking this week.  The first is a joke and the second is worrisome.

The joke is that we have a race here in London.  The race is to see who can win the vote for Mayor of London this Thursday: Ken Livingstone (Labour) or Boris Johnson (Conservative). 

Sorry, that's not the joke.   

The joke is that the official blog of Harriet Harman (Deputy Leader of the Labour Party) has had to close down after a fake blogger hacked her website and put notices up that she had left the Labour Party and joined the Conservatives.  She's defected because she wants to support Boris and not Ken. 

Oh dear!

How did they hack her official blog?

Username: Harriet
Password: Harman

What a doozey!

Then there's the story that America's Department of Homeland Security, the United Nations and the UK Civil Service websites have all been hacked through SQL infections. These infections mean that when a visitor goes to the site,they are redirected to another website which tries to install malware on their system.

Watch out, watch out, there's a Trojan about.

No more sex and drugs and rock 'n' roll

The best story of the week is the leaked email from Der Spiegel of Deutsche Bank's instructions to employees to give up their sex and drugs and rock 'n' roll.

As the credit crunch hits, no more market excesses are allowed, with Deutsche's staff to shave and shower at airports (instead of booking into hotels), travel by second class train (instead of gold plated limousines) and stop billing lap dancers as restaurant meals (and eat proper meals instead).

Ah well ... at least the crisis has crunched their credits a little bit :)

With zero charges and zero spread, how is a bank meant to make money?

With Faster Payments going live on 27th May, the question the banks are really struggling with is how to make money.

FPS means that banks no longer make money on their float, as we are talking D. Not D+1, 2 or 3 or more. Just D, as in Just Do It and Do It Now.  FPS means that payments are processed in fifteen seconds by the processor, and the end-to-end cycle to process a payment from origination to receipt and confirmation will average around two hours.

Like SEPA, it means a massive investment for negative returns for most banks. The reason I say that it is like SEPA is that Eurozone banks will no longer be making margin on cross-border processing.

Then there was the news yesterday that UK banks have lost their test case on overdraft charging. It is already estimated that UK banks have returned over £750 million in “unfair charges” to retail customers. This announcement may not only result in billions more being returned, but also fundamentally challenges the fee structures for UK banking.

Add on to this the fact that banks no longer claim to be making money from the spread of buy and sell prices due to MiFID’s transparency of trade reporting and best execution*, and you have to ask yourself: how is a bank to make money these days?

Maybe through diversification?

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Mind the GAAP? No, scrap the GAAP

The Generally Accepted Accounting Principles (GAAP) used across the USA for financial reporting appear to be fatally flawed. As a result, America is scrapping GAAP to move towards the International Financial Reporting Standards (IFRS)  used around the rest of the world. The question is how fast can this be achieved?

Part of the reason for the urgency of scrapping GAAP is that many believe the GAAP methods contributed heavily towards the subprime credit crisis. This is down to the fact that American banks used insurance services to manage debt exposures and move them off-balance sheet.

Read more ...

FSA fines outsourcing firm a million dollars

Under our radar, as it is in the pensions markets, but something very noteworthy occurred last week.  The FSA attacked the outsourcing and Third Party Administration Markets by fining Liberata over a million dollars for failures in its systems and controls for managing and issuing pensions policies.

Margaret Cole, Director of Enforcement at the FSA and who I quoted last week as someone keen to make a mark, said:

"The failings by Liberata were particularly serious because they put policyholders at risk of not receiving important information about their savings and pensions products. This resulted in customers not being treated fairly.

"The fine we have imposed on Liberata acts as a clear signal to firms to ensure that there are appropriate systems and controls around processes and, where there are problems, that such problems are identified and resolved swiftly. Firms which fail to do this should be in no doubt that they run the risk of enforcement action."

The fine represents a substantial chunk of Liberata's £5.9 million of profits in 2007.

Just goes to show that the services and technology community are just as exposed to the FSA's radar as the financial community, especially if you are running a bank's or insurer's back office.

Watch out, there's a fine about.

America is not in recession

Matthew Bishop, the American business editor of the Economist, talked through his views on the credit crunch at a conference I am attending in Miami.

He began by asking the audience if they thought the USA was in recession. This was using voting devices. Y’know the ones you get at conferences that are a bit like small calculators, and you are then asked a question and vote A, B, C or D.

At this conference, with over 500 bankers and treasury folks attending, the results were:

• 85% think the USA is in recession;
• 72% think USA is dragging down world economies;
• 63% think it’ll get worse in next 12 months; and
• 57% are finding it harder to get capital for the business.

Read more ...

G7 creates the Global Ivy League of Banking

The Global Ivy League is the scenario of truth for the future banking markets. More globally harmonised regulation creates less innovation, but more security, amongst the major league players who we feel we can trust. Or rather, our politicians feel we should trust.

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Where Trading and the Internet combine for Liquidity

I saw this blog from a VC in NYC today.  It's entitled: "We Need A New Path To Liquidity" and I had to read that as I thought it would be all about how to trade out of recession or something.  But no.  It's about Microsoft, Yahoo!, Google, AOL, News Corp/MySpace and all these other players dickeying about with the internet as though it was a toy.

The problem our VC friend is grappling with is the fact that internet entrepreneurs spend years building their platforms.  If they take off, they then "need a way to get paid for that effort. And those of us who finance their efforts need to get some return on our investment" and "without a path to liquidity, all the innovation that is being created by the entrepreneur/VC equation will stop happening."

OK.  So just IPO.

Ah. There's the rub.  The IPO market has apparently shut down, and so that is the issue - how do you monetize your investments when you cannot bank them anymore.

The leads him into dark pools, and Goldman Sachs' TrUE ("GS Tradable Unregistered Equity OTC Market") system.  A great blog on this from Roger Ehrenberg in May 2007, almost a year ago.  

His point is that you then do not need to IPO anymore, as these dark pools allow you tap directly into private liquid markets.

Yahoo!  lets get in there.

Worth reading the more than 150 comments as well.

G7 Leaders to meet the Bank Top 10 to fix the credit crisis

According to various reports, the seven finance ministers of the G7 have asked to meet leaders of the ten largest banks, including Citigroup and Mizuho Corporate Bank, tomorrow.  The aim is to create a strategy to deal with the widening panic over the global credit crisis.   

A Japanese Finance Ministry official said: "About 10 people from major financial institutions in the world have been invited to exchange views on what was behind the recent financial market turbulence and how best to deal with it.  It's an informal meeting, so it's not a place to ask banks to do something."

Sounds like the usual bank:goverment meeting then.

   

Microsoft's Vista is better than the Mac

Not really, but there is a lot more debate about its pro's and con's amongst the tech community, with at least some saying it is not that bad.  Not many, but a few.

I reckon that 95% of Vista users have not had the issues I have had, and are happy.  They may not have old hardware and lack the drivers.  They may not find things locking up, hanging up or just not running.  They may not have software spam filters that are incompatible with the newly included filters that Outlook 2007 and Office 2007 builds in.

So yes, there are some who love it.

Like this blogger, Preston Gralla, on Computerworld.  He says it's better because it runs more software, is safer, cheaper and more open than a Mac and, most of all, is not managed by the vindictive Steve Jobs.  Many others disagree with this opinion, with Chris Pirillo providing a very articulate rebuke.  Even Gartner have joined the bandwagon by saying "Windows is collapsing".

Most of you know my own views.  I've never owned a Mac, have always used Microsoft and just feel disillusioned with the way they've managed this roll-out, all the glitches, things not working and, overall, that Vista has been out for 15 months and it is only now that it is starting to become stable thanks to update after update.  So I'm in the 5% who are unhappy and have been kicking up a stink.  In fact, I sometimes worry that I have started to sound like a broken record, but this is important.  After all, it could determine the future shape of computing if Microsoft really did go kaput.

Regardless of all of these arguments however, the process has been a real pain for me, the others affected, Microsoft and the business world.  And to show what an own goal it has been, is demonstrated brilliantly by this advert for the Mac:

Skinner's seriously SWIFT statements

For those who haven't noticed, I've recently started blogging on SWIFT's community website. 

Each day I will post something exclusively there that has my intellectual analysis - all of my IQ of 26 therefore - behind it. 

Here's what's been blogged about so far:

The credit crisis will shift global banking focus to Asia

Corporates, as with individuals, just want relationships

Are corporates that bothered about finance?

 Why is it that innovations are created by non-banks?

Rebuilding the trust in Banking

Banks fail the SEPA sourcing challenge

Banks must avoid the cliff of doom

Feel free to have a look.

Gold goes up, Banking goes down and vice versa

I regularly use Yahoo! chatrooms to look at what people are saying about different stocks and industries, so I was intrigued to see a link to Google Finance today.

To me, it appears to be almost the same as Yahoo! Finance, and so where's the value-add?  Then I started looking at sector analysis and found the Google Finance sector analysis of financial services easier to navigate than the Yahoo! area.

Now what I was really after is some way to compare two things: Gold prices and Banking sector stocks.  My idea is a very basic one: Gold goes up when Banking goes down, and vice versa.  Although this idea has occurred to me before, and I'm sure someone has tracked this, I cannot find any proof point. 

Wherever I go - Google, Yahoo and more - not one seems to have a simple way to marry the two indices together, and certainly not over a 30-year or more cycle.

So the nearest I got is these two charts from the last five years, with Yahoo! showing banking stock tanking since January 2007 whilst, since January 2007, the price of Gold has doubled.

Any comment or view on the theory or charting welcome. 

Private Eye launches hedge fund

For regular readers of the UK comic magazine Private Eye, they have decided to launch one of the world's more interesting hedge funds.

Called the Curse of Lord Gnome Fund, it will have £200 million of funding with annual returns expected to be 20% against volatility of 8% - 10%.  The aim of the fund is to be very much an activist investor in firms that have either sued or threatened to sue the magazine.

Ian Hislop, editor of Private Eye and also the fund manager says that, “By using a multi-strategy approach, we believe the fund can significantly destabilise companies we don’t like and at the same time make lots of dosh.”

Sounds like a good idea to me.

The end of data privacy in Europe

In a shocking move to quell the issues of terrorism and money laundering in Europe, the European Commission is apparently drafting the Financial Transaction Transparency Directive (FTTD), which imposes draconian laws on all European banks to release financial data to the Commission on demand.

This follows the subpoena impact of the US Government on SWIFT and other agencies over the past few years, and the feeling that the Commission needs the same capabilities.   Equally, there is a growing resentment amongst those in Brussels at the interference of the US government in European banking activities and so they want to get their own back.

What is the FTTD? 

In effect, it is a method for the European powers to gain full access to all bank details of any monetary movements that pass through any European bank office.  This will include all direct debits, credit transfers, card payments, as well as any loan, mortgage, overdraft, cash transaction, money transfer, PayPal payment ... you name it.

Now, you may well have thought they had these powers already and, to be honest, at a country level most governments do have such powers.  But the big issue here is that this power base now moves to Brussels.

So little Johnny Brit making his payment for six cans of beer will be tracked.  Jean Franco will be liable for his purchase of vignt Gitanes.  And Jurgen Germanic will be noticed if he passes through a certain car park in Hamburg.

All under the auspices of Euro border threats.

We should speak out about this and, if you agree, then clickthrough and learn more about this awful Directive here.

Bears, banks and bail-outs ...

Interesting to see that Bear Stearns are suffering the same issue as NCR, seeing this report on 28th March:

"A senior Bear Stearns executive with 20 years' experience has been accused of defecting to rival Morgan Stanley with so many print-outs of confidential client information that the troubled bank's Boston office ran out of paper."

Should have used a USB Memory Stick ... far easier.

Equally, I was researching a project over the weekend on Basel II - yes, I am that boring - and found this fascinating discussion in the Hindu Business Line from November 2006.

James Nicholas Haigh, Managing Director and Deputy Chief Credit Officer of Private Wealth Management at Deutsche Bank, and Hans Rudolf Schutter, Executive Director for Asia and Middle East at Risk Business International Ltd, responded to the idea that the Indian government funded the Indian banking industry with the following statement:

"The government backing a bank was not a good approach as it meant that taxpayers' money was being used to pay for mistakes of bank managements."

I have heard this statement a thousand times in the past. 

I wonder what they would say now, after the Fed bailed out Bear Stearns, the Treasury bailed out Northern Rock, and the ECB bailed out Spain's mortgage book, and, and, and ...

'Immunity from prosecution' a major FSA weapon

It almost passed under the radar but, in light of the HBOS share drop of the other day, Alastair Darling - the UK Chancellor - announced on Thursday that anyone who snitches on their mates to the FSA about colleagues who try to manipulate share prices, will be immune from prosecution themselves.   This is seen as a powerful weapon for the FSA, as investment bankers have been reticent to say anything about such practices in the fear of getting caught out themselves. 

Now then, that Jeremy in the banking equities desk has been stopping me from getting a seven-figure bonus this year ... maybe I'll mention that to my new FSA mates down at Canary Wharf?

American Financial Regulatory Reform Announced

The New York Times published the detailed proposals for Regulatory Reform for all American financial markets, from the Treasury on Saturday.  The aim is to:

• consolidate all the regulations and authorities for everything from banking to hedge funds and private equity into three powerful overseers: a new Prudential Financial Regulator, the Federal Reserve and the SEC (currently there are five);
• merge the SEC with the Commodity Futures Trading Commission, and reduce the powers of the SEC by giving the Federal Reserve overall authority for the financial markets;
• eliminate the difference between 'banks' and 'thrifts', and close down the Office of Thrift Supervision;
• create a national regulator for insurance firms, eliminating the powers of state authorities over insurers;
• avoid any new regulations being introduced, but ensure regulatory authorities exert and implement their authority; and
• give the Federal Reserve the power to swoop into any part of the industry at any time to perform spot checks, including detailed examination of internal bookkeeping for any institution that they consider could pose a risk to the overall financial system.

The last bit is quite radical, as the Fed had no power to do this before, and there is expected to be a long and protracted debate between Democrats and Republicans, Congress and the Senate, before this passes into law in 2009.

The full text of the Executive Summary is available here.   

Reuters also reports that the US and UK have agreed a joint banking watchdog, comprising senior treasury and regulatory figures from London and Washington, to develop proposals to monitor and regulate the banking system.

Shine on you crazy Dimon

I really like Paul Kedrosky's Infectious Greed blog and, in a blaze of creative psychedelic, 1970s Floydism, he came up with this ode to Jamie:

 

Remember when you came from Banc One, you shone like the sun.
Shine on  you crazy Dimon.

Now there's a look in your eyes, like black holes in the sky.
Shine on  you crazy Dimon.

You were caught in the crossfire of Joe Lewis and lockup,
blown on the  legalese.

Come on you target for Hank's laughter,
come on you raider, you legend,  you banker, and shine!

You reached for Bear's jugular too soon, you tried for the moon.
Shine on  you crazy Dimon.

Threatened by shareholders at night, and exposed in the light.
Shine on  you crazy Dimon.

Well you wore out your welcome with fairness opinions,
rode on the  legalese.

Come on you trader, you slayer of brokers,
come on you bully, you banker,  you piker, and shine!

 

Goes with Subprime Rhapsody and all those other great banking songs.

 

Watch out for the thought police

According to the Byron review of social networking in the UK, Facebook, Bebo, MySpace and others sites are to be censored, and Google, Yahoo, MSN and others must show SAFE SEARCH in clear options from the home page.  This is because some parents do not supervise their children's use of the Internet.

Next, we intend to bring riot police into any home that accesses any undesirable websites, whether there are children in the home or not.  Sorry, that was my joke ... or was it?

Microsoft: Throw Vista Away

Following on from my comments on Vista, this one is not my comment ... but Infoworld's.  This was followed by this blog and it's worth reading the over 100 comments that follow that. 

Funnily enough, I'm now seeing 2-3 articles a day with similar sentiments.

Yep, you guessed it.  We're all going to get rolled back to XP!

LSE's 86 percent rise in SETS trading raises questions

Further to the mention of Iraq’s electronic trading exchange going live this week, the LSE has been running electronic trading since 1986, when the Big Bang moved the Exchange from open outcry to electronic trading.

This led to the introduction of SEAQ, the Stock Exchange Automated Quotation System, in October 1987.  SEAQ was supplanted in October 1997 with SETS, Stock Exchange Electronic Trading, for highly liquid share trading.   

Yesterday, the LSE announced their latest trading results, which showed an 86% rise in average daily trading on SETS for the last eleven months.  This is down to a mixture of market volatility, combined with algo trading and heavy discounting for volume trading. 

The average number of trades per day is now 629,000, compared with 338,000 a year ago, with the average daily value traded up 43% to £9 billion per day.      

Interestingly, with MarkitBOAT, Turquoise and Chi-x all breathing down their necks, the fact that LSE is still growing the number of professional terminals receiving LSE real time data (up 15,000 since February 2007 and 4,000 since December 2007 to 111,000 terminals) must be of particular cheer for them.

On the downside though, is the fact that the amount of money they earn for each trade, based upon trading fees, is falling fast.  The figures are now 89 pence earned per trade, compared to £1.34 last year.  This demonstrates how the LSE are being forced to offer bulk discounts to keep up with these new execution venues. 

Such discounting will, of course, increase volumes as it gets cheaper the more you do.  However, long-term, bulk volume could just as easily shift as it gets into a rate war and if volume shifts, in light of this charging policy, it will be high volume movement.

This discount for bulk policy could place LSE's future profitability in serious jeopardy therefore; or it could actually make them supercompetitive to beat off these alternative platforms.  It's all about volume, speed and value in our search for liquidity with best execution.

Hey ho, the merry-o ... or is that hey-ho the MiFID-oh!

Meanwhile, securitised derivatives trading reduced slightly to 4 million trades from 4.3 million ... I wonder why that would be?  Oh yes, a credit crisis!

 

Iraq starts Electronic Trading

This week, Iraq has moved from a trading floor with a whiteboard and magic marker pen to full electronic trading in their Stock Exchange. 

This is good news for the country and a sign of a return to stability.

Now what equities and commodities are we going to trade in ... oil?

NCR at loggerheads with HP over Banks

Oohhhhh-errrrr.   Like any good blogger I love a bit of gossip and nothing better than my old firm, NCR, getting into a spot of hot-under-the-collar bother with HP.

Apparently, lots of NCR-ers have been toddling out of Dayton, Ohio across to sunny Palo Alto, California with little USB sticks full of sensitive materials.  Now, the weenies at Dayton have gotten so angry, they could crush a grape ... or even several.

So they've filed a lawsuit to stop the latest leaver from sharing her account secrets.  The particular lady who left the Dayton lake is a senior sales person, Diane Warner, who brought in $19 million in sales from Wachovia in 2006, "including 80% of Wachovia's total ATM spend for the year."

NCR contends she was "even more involved in NCR's business strategies and analyses, such as NCR's perceived strengths and weaknesses in various business segments. This involvement focused not just on the financial solutions division, but on other market segments as well. For example, she was involved in NCR's sales and marketing efforts directed toward the U.S. Postal Service (on which NCR directly competed with HP) and from gaming industry components, such as MGM Grand Casino."

In particular, NCR contends that:
"On December 26, 2007, Warner, for the first time, attached a Maxtor external hard drive to her NCR computer and copied more than 3,000 NCR files from her computer to the external hard drive. Many of these files contained NCR's proprietary information, including files related to Wachovia, NCR's financial services division, and NCR's business practices and strategies. For example, more than 100 of these files contained sensitive Wachovia-related information. Specifically, the filed entitled 'wachoviacallplantjonwittermay' detailed NCR's busines strategies for its Wachovia account strategies and other sensitive information. she also downloaded many files related to other customers. For example, the file entitled 'HSBbidreview2007' like the other bid review files she copied, contained NCR's discount rate, net rate, and other sensitive pricing information."

Oh, you naughty, naughty little tinker Diane, you.

To be honest, reading through the lines of all of this, it could just be that NCR is still miffed over HP nicking their CEO, Mark Hurd, after the Carly show left town.   

All of this goss courtesy of the blog, the Bellwether Daily. Thank you to Bill Sloat.

 

Credit Crash: final thoughts

Ah well, I can't leave the credit crash discussion alone without a final mention of poor Mr. Jack and Mrs. Jill, the taxpaying citizens who are now left carrying the can of the debt-fuelled crash. 

With the banks being bailed out by