The Financial Services Club's Blog

The Great Election Debate

So we had the third and final leadership debate last night before the UK goes to the polls to vote for a hung Parliament (the most likely result). The debate is between the David Cameron for the Conservatives (leading the polls), Gordon Brown for Labour (rather gaff-prone this week) and Nick Clegg for the Liberal-Democrats (until last month, ‘who?’).

Now I’m not going to talk a lot about politics in this blog – it’s not my place – but there was a big spat about banks last night. From the Wall Street Journal’s live blog of the event:

The banks: Cameron up first, and trots out his rehearsed pitch fairly cleanly - promises changes to regulation, backs Obama etc. Banks should serve the people, not the other way round.

Clegg says no bonuses to directors of banks and a ban on all cash bonuses above £2500 (that sound you can hear in the distance is bankers heading at high speed for Heathrow airport). Again, goes too hysterical; needs to go back to his style of the first debate.

Brown then explains the history of the financial crisis in thirty seconds (oddly leaves out pre-crisis fixation with cheap money policy and narrow inflation targeting on both sides of the Atlantic) ...

Brown says the Tories are pro-banker, always were.Cameron tries to turn it around. He wants a bank levy. But does he want lower taxes for all businesses? "You're damn right I do."Somewhat confusing... increased taxes for banks, but lower taxes for all businesses. Err... banks are businesses.

Just to be clear on what’s going on here: Gordon Brown has been a strong supporter of the City, Fred Goodwin and the banking markets throughout his leadership.

I’ve mentioned this before but, just to re-emphasise the point, here’s an excerpt from Gordon Brown’s Mansion House speech of June 2006:

London has enjoyed one of its most successful years ever, for which I congratulate all of you here on your leadership skills and entrepreneurship.

Financial services are now 7 per cent of our economy. Financial and business services as much as 10 per cent. A larger share of our economy than they are in any other major economy, contributing £19 billion of net exports to our balance of payments, a success all the more remarkable because while New York and Tokyo rely for business on their large domestic base, London's international ranking is founded on a large and expanding global market.

London is now the home and natural location for 20 per cent of all cross border lending: 30 per cent of world foreign exchange turnover, 40 per cent of over-the-counter derivatives trades, 70 per cent of the global secondary bond market.

Gordon Brown was in love with the City and the City was in love with him. In fact, for UK banking, a Labour majority would be no bad thing as ‘better the devil you know’ and all that.

Meanwhile, Cameron’s claims that they are not the banker’s party falls flat when you look at who funds their Party. This week’s Private Eye:

“Goldman bankers are Tory funders as well as government advisers. Simon Robertson, a major Goldman banker until 2005, has given the Tories £325,000 since 2004. Richard Sharp, a leading Goldman director until 2006, gave Kensington & Chelsea Tories thousands while working at the bank, and has given Conservative Central Office £220,000 since 2006. Christopher French, head of ‘wealth management’ at Goldman Sachs, gave the Conservatives £50,000 in 2008. Hugh Sloane and George Robinson have given them £317,000 and £150,000 respectively. Their hedge fund, Sloane Robinson, ran one of its funds in partnership with Goldman Sachs which ‘also provides the partnership with financing lines and short selling facilities’.”

And this is the Party that called Gordon Brown to task last week for working with Goldman Sachs, and is now “lashing out at the people he was very happy to work with over the last 13 years as both Chancellor and Prime Minister.”

Meanwhile, the sunny side of the street where Vince Cable, Shadow Chancellor for the Liberal Democrats, walks has also been sullied. From the Times:

“In 2006, addressing the spring lunch of the Association of Foreign Banks in London, he praised the City’s achievements and warned of the dangers of ‘the current clamour for regulation of financial products’. He favoured ‘a lighter touch’ for City regulation.”

All in all, it makes it easy for me to know who I’m voting for this year...

And the best bank brand in the world is ... Chinese

Fascinating report in the FT this week about Global Brands, with the financial sector bouncing back the strongest of all. MasterCard and Visa led the financial pack, although Goldman Sachs saw a 25% growth in brand value over the last year ... I wonder how much they lost this year?

Anyways, considering banks had the worst results ever last year and lost all brand momentum, it’s no surprise I guess to see they’ve bounced back this year, and even beat beer as a sector for brand improvements:

Year-on-year growth in 17 categories
Category                      Brand value growth (%)

Financial Institutions             12%
Beer                                     10%
Technology                            6%
Fast Food                              1%
Retail                                   -1%
Soft Drinks                           -1%
Mobile Networks                   -1%
Bottled Water                       -2%
Gaming Consoles                  -3%
Spirits                                 -3%
Luxury                                 -3%
Apparel                                -4%
Personal Care                       -4%
Coffee                                 -6%
Insurance                             -7%
Cars                                   -15%

Source: Millward Brown Optimor (including data from BrandZ, Datamonitor and Bloomberg)

Strange how and why insurance is languishing down the bottom though ... maybe it's their lack of ability to cover Toyota's these days, which is why the car sector sits at rock bottom.

All in all, a big contrast between this and the Harris Interactive Reputation Survey I blogged about earlier this month ... so brands and reputation have nothing to do with each other, do they?

What surprised me is the list of the top 10 brands in our sector (doubleclick picture to enlarge):

Wow! ICBC from China, the #1 bank brand in the world!

In fact, they’re the 11th best brand in the world, just behind Google and Apple:

A great report from the FT again, and well worth a read if you have the time ...

 

Want to know the latest on SEPA?

If you're wondering what's happening with SEPA (the Single Euro Payments Area) then this interview with Gilbert Lichter, Secretary General of the Euro Banking Association (EBA) and CEO of EBA Clearing, provides a good overview of the latest and greatest:

Gilbert Lichter from Chris Skinner on Vimeo.

The interview took place after our recent FSClub meeting with Gilbert.

Things worth reading: 30th April 2010

Things we're reading today include ...

People

Gartmore reinstates fund manager who breached internal rules - The Independent
Gartmore reinstates star fund manager Guillaume Rambourg - The Telegraph
Lloyds whistleblower Andrew Constantine loses £1m unfair dismissal case - The Telegraph
Bank boss 'warned of tough times' - BBC
RBS chief says 'bankers overpaid' - BBC
Investors rebel against bank chief’s colonial pile - The Times

Companies

Santander sails on despite concerns over Spanish debt - The Independent
Santander boosts mortgage share - The Independent
China Construction Bank set for Asia's biggest ever rights issue - The Times
Nasdaq OMX to close European MTF - Financial Times

Markets

Banks slated over client gripes - BBC
British banks tight-lipped on exposure to PIGS debt - The Independent
FSA role in vetting directors 'intrusive' - Financial Times
Millions 'writing down their Pin' - BBC
Europe’s economy is the sick man of the world - The Times
Hong Kong cracks down on insider trading - Financial Times

 

Joseph Stiglitz: Poster Boy

Just back from a short haul flight to Spain.  Reading the BA Business Mag, I stumbled across this  (doubleclick photo to see the full-size picture):

Yes, it's Joseph Stiglitz: Poster Boy!

Actually, it's the Nobel prize winner Joseph Stiglitz, economist and professor at Columbia University.

In a short interview, he talks about life and views of the world and the financial crisis, with a key section on the bank bailout:

You’re very critical of the bank bailouts worldwide and particularly in the US. Why?

The main reason is that the bailout failed to do what it was supposed to do, which is rekindle lending. It gave money unnecessarily to the banks without getting anything in return, the result of which is that we have a much bigger national debt than we otherwise would have had, if we’d done it better. And we didn’t have any vision of where we wanted the financial system to go, so we’ve wound up with a more distorted financial system with more weight on the gambling institutions and less weight on the institutions that actually create a better economy. Because we bailed out the banks, and not just the banks but the bankers, shareholders and bondholders, we enhanced the problem of moral hazard — we created a system of ersatz capitalism where we socialised the losses and privatised the gains.

Read the full interview here.

What’s on a treasurer’s mind?

We had a great session at the FSClub the other day, discussing the views of the corporate client and their relationship with the bank. The panel consisted of a representative for corporate treasurers; a former head of treasury ops for a major technology vendor; and the head of epayments for a large, global bank.

The corporate treasury representative kicked off the evening by discussing the key challenges for a treasurer. These are roughly summarised by:

• Access to credit: the relationship between the corporate borrower and their bank has fundamentally changed as the bank now looks very carefully at who is asking for how much and what they are going to use it for;

• Regulations: as the uncertainty over Basel III and OTC derivatives regulations are in flux and this could clearly change a treasurer’s portfolio of investments;

• Pensions: where the resources, management and overall structure of the portfolio is being challenged, and the trustees are nervous of reactions of the fund;

• Value-add: both of the treasurer and the treasurer’s bank – the corporation is looking for value-add from treasury functions and this means a clear focus upon processes, technology, employees and customer relationships

He summed up all of the above by making it clear that treasury and treasurers have a real issue right now, which is that they cannot see the lay of the land for the future.

I asked him if the issue of access to credit was down to the banks tightening up so much that they wouldn’t lend, or if businesses just don’t want loans, which is what quite a few banks claim.

His view was that it’s ok if you’re a FTSE100 firm and need to borrow, as the banks don’t want to upset those relationships, but that it’s far harder if you’re outside the FTSE100. Sounded like the old adage of those who owe the bank £1,000 have a problem but those who owe the bank £1 million mean the bank has the problem.

The banker followed by stating that this is the ‘year of disruption’ as focus moves from Western economies to Eastern economies, and that the corporate supply chain would be radically altered as firms re-engineer for dealings with Asian economies, and China in particular.

For these reasons, risk is becoming increasingly important as a factor and this is why firms are moving away from the open account style of trading popularised in the early 2000s to refocus around bank licensed relationships and letters of credit.

He also felt that regulators have a real challenge here as “generals fight the war they fought before”. In other words, regulators have zero foresight, only hindsight, and that is their dilemma.

The banker went on to talk about SWIFT and the fact that the level playing field has also been disrupted.

In this context, it related to SWIFT’s post-9/11 subpoena by the US authorities to disclose any messages that might relate to terrorism. How is SWIFT meant to delineate between those that might relate to terrorism and those that do not? It’s impossible. But this means that the EU cannot agree with the USA on the information sharing rights and access to SWIFT messaging. As a result, SWIFT has to take an increasingly regionally focused approach to financial markets, rather than a global approach.

It made me wonder whether this meant that SWIFT’s role is diminished.

Strangely enough, maybe not, as the banker went on to discuss the increasingly internationalised way of doing business and the fact that the internet and, more importantly, mobile internet is making this even more the case.

Mobile internet banking is enabling many new international organisations to launch so that the old days may have been one of an Asian cash business, a European cash business and an American cash business, but it’s now a Global cash business.

Corporates are expanding globally but, in many cases, they are not big enough to split the world up into the regional structures required and expect the bank to do that for them. This means that there is an increasing focus upon the quality of bank’s service and client engagement.

The former treasury head then had their chance to respond, and said that the top of mind matters for treasury varied by company size and region; whether they were cash rich or exposed to net debt; how they fitted into the supply chain; and whether they were a retailer, manufacturer or producer.

The core question for all of them however is: can I access credit, liquidity, capital, etc. For these reasons, all of them need a good sight of their cash positions and a good feeling about the strength of their banking partner(s).

Her view is that it is still very difficult for a global corporate to find a single global bank relationship for these reasons, as no single bank has a global position or platform that is adequate in every geography. The question however is how many relationships do you therefore have to have: ten, twenty, thirty...

She believes that treasurers will have as many relationships as required to be effective but will then use technology for virtual consolidation to provide that cash positioning dashboard on a globalised basis. In this context, being bank agnostic is the key.

She also believes that the move towards open account trading is inevitable, unlike the banker, and that the procure2pay process will be reengineered to reflect this.

The question then is what are the right timings for netting, pooling and positioning: end-of-day, intraday or real time?

Of course, I would say real-time.

The evening then went into an open Q&A, with a wide range of topics covered from the role of technology to the future of SWIFT; supply chain processes to working capital reengineered; the role of social media to the role of the EACT and EU; the bank relationship and standards to the corporate relationships and TWIST; and more.

All great stuff that could form a blog entry of several thousand words but, at just over a thousand, this will doodle-do.

All in all, an event that looks like it will become a stable Club meeting for years to come.

Oh yes, and what’s on a treasurer’s mind?

Things worth reading: 29th April 2010

Things we're reading today include ...

As if we can forget the Goldman rap:

'Disconnect' between Goldman and the public - Financial Times
Goldman's Fabrice Tourre admits lack of accuracy in Senate grilling - The Telegraph
If you were thinking the pressure was off, Goldman chief tells staff, think again - The Times
Eurozone edges closer to endgame as Greek contagion hits Portugal - The Independent
Lloyds gallops back into the black - The Telegraph
RBS shareholders back executive pay at AGM - The Telegraph
Nasdaq OMX to close European arm - Financial Times
Supervision of trading desks worries SEC - Financial Times
Hong Kong cracks down on inside trading - Financial Times

UK banks: over £1 trillion of maturing debt

Earlier this week Adrian Coles, Director-General of the Building Societies Association, gave a fascinating presentation to the Financial Services Club Scotland on the state of the UK's Building Societies sector.  

The presentation didn't actually say too much about Building Societies but was more of a reflection of where we are with the mortgage and savings markets in the UK, and a sad story he told.

Rather than writing down Adrian's presentation in full, it's probably easier to share a few hand-picked slides which tell the tale.

First, here's the gross and net UK lending figures for the past decade:

 

 

EEK!!  Net Lending is the lowest it's ever been.

No wonder house sales are so tepid ...

 

But what was really worrying is that Adrian had picked on two of the Bank of England's Financial Stability Report Charts to illustrate that the situation isn't going to get any better.

The first is the maturing funds of UK banks' wholesale liabilities, by instrument and year of maturation:

This was in the June 2009 chart section of the Bank of England's report, and shows the ballooning debt maturity mountain peaking in 2011.  In other words, banks' stringent lending conditions will probably remain in place until that debt bubble bursts.

Interestingly, this chart was dropped in the December 2009 Financial Stability Report, but is just as well illustrated by Chart 2.19:

[CGS and SLS are the Credit Guarantee Scheme and Special Liquidity Scheme introduced by the current government as our equivalent of TARP]

The figures speak for themselves.

UK banks need to cover £1 trillion of maturing debt over the next four years, including the re-securitisation of £250 billion worth of Residential Mortgage-Backed Securities ... don't expect another house price boom in Britain for a while.

 

Note: Adrian's presentation is available in full to all Financial Services Club members

 

Things worth reading: 28th April 2010

Things we're reading today include ...

Companies

Lloyds is back in the black – but hold the celebrations - The Independent
So when will the taxpayers get their £20bn back? - The Independent
Irish government to more than double stake in Bank of Ireland - The Telegraph
Deutsche profits hit €2.8bn after record return at investment bank - The Independent
Deutsche Bank faces class action over sub-prime securities - The Telegraph
FSA fines Commerzbank £595,000 over inaccurate trade reports - The Times
HSBC chief: London and New York are 'yesterday's news' in the new world of finance - The Telegraph
Goldman boss Lloyd Blankfein denies moral obligation towards clients - The Telegraph

Markets

Banks slated over customer gripes - BBC
The world says they are guilty – yet bankers protest their innocence - The Independent
The Politics of Banking - The Times

Regulations

Why cautious reform is the risky option - Financial Times
Sir John Gieve warns politicians' obession with regulating banks threatens the recovery - The Telegraph
EU turns spotlight on Big Four auditors - The Telegraph
Barack Obama loses first vote on bank bill - The Telegraph

 

Why identity management is so complicated

It fascinates me when we talk about ‘identity’ that we always seem to think of identity management as being a single thing ... but it’s not.

First, there’s the use of identity for identification; second for authentication; third, for verification; and fourth for fulfilment.

Then there are the many instances of providing and proving identification: at a bank, at an airport or border control, at a vehicle hire firm or other high cost rental, when opening a telephone account or similar service, when picking up tickets for a concert, etc.

Finally, there are the many reasons for needing identity checks, from tracking money laundering and politically exposed persons (PEPs) to fraud and identity theft issues to just checking that you are who you say you are.

Although these all sound the same, they have distinct differences and is the reason why there are so many identity solutions out there. Generally, such solutions fall into a catchment of being for an anti-fraud focus or for a verification process, with the process being based upon:

• Something you know, such as a PIN, Password or Personal Fact
• Something you have, such as Card, Token or Telephone
• Something you are, such as a Fingerprint, Voice or other Biometric
• Somewhere you are, based upon GPS location or similar proximity analysis
• Some way you behave, such as your general activities, channel usage and location

Obviously the five areas above are also inter-connected, as you could use a PIN, Biometric and Telephone along with location services to verify a user based upon five-factor authentication rather than two. But we don’t do that today, and some banks struggle with even one factor authentication.

You cannot be serious I hear you cry, but no, it’s true.

Ring your bank and pretend to be someone else.

I’ve done it.

I had to pretend to be my father-in-law and it was easy once you got the bravado together to claim to be someone you’re not.

So the question of identity for authentication and verification is still not good enough.

What are the potential solutions out there?

Generally, further variations on the above.

For example, I recently went to a presentation by a number of firms that use the words identity in their company name. Both firms were focused upon improving password security by offering easier password access and control.

I then got a call from another firm with identity in their name, and they wanted to talk to me about biometrics.

A third firm offered to provide mobile-based authentication services.

So let’s look at these variations in a little more depth.

First, the something we have.

This is the most basic form of identification – a document, validated by an authority, that says: “yes, it’s you”.

Often a card and sometimes a card with your photograph on it, this identification has been around since the war.

The trouble with this form of identity is that it can be forged, copied, stolen and easily used by another card holder.

Therefore, we introduced the something you know.

The idea here is that there is a secret code that goes with the card to show that not only is the person presenting the card the owner, but they can prove it.

The most common something you know is a Personal Identification Code, or PIN.

PINs are generally allocated by the bank but can be changed to whatever you want.

Although secure therefore, it’s easy to second guess or, due to Chip & PIN, shoulder-surf and steal.

Equally, PINs can be hacked and compromised via intelligent machine-in-the-middle attacks and so banks introduced a four-digit PIN password enhancement by asking things like date of birth and mother’s maiden name.

It soon became obvious that criminals could find out such information from public record and so we are now in a world of much more complex codes and secrets.

For example, GrIDsure offer a pattern-based PIN so that criminals cannot predict your PIN numbers. Equally, RSA security offer lots of tokens and keys to generate one-time passwords on top of basic identity information, to ensure that a criminal is foiled.

Unfortunately, in the latter case, many of these efforts just add to the effort required for the customer every time they are trying to make a payment or access the bank service. For example, we have the Chip Authentication Program (CAP) and Personal Card Readers (PCR) in the UK for online payments processing.

The trouble is that you have to have the terminals with you and, even if you do, people use them so infrequently that they often forget the process. As a result, their use of online payments falls whilst PayPal goes from strength to strength.

The reason?

PayPal is simple, easy and convenient, but PCRs are not.

Equally, what is really interesting in the two instances above, is that these things are already being side-tracked by the mobile telephone, which offers something you have that is unique – your SIM card and telephone number – along with an interactive dialogue for access to PINs and One-Time Passwords.

In addition, it offers an easy way to track where you are, and hence can be a good way of triangulating information for a bank. For example, if someone tries to withdraw cash or make a payment in New York when their mobile telephone GPS signal is being picked up in San Francisco, the bank could immediately question such transactions.

Therefore, I wholly expect the mobile telephone to become the key to most forms of identification.

The mobile can even play directly into the biometrics field, thanks to fingerprint recognition and even apps under discussion that will use the mobile telephone’s camera for iris or face recognition.  In particular, the work of Voice Commerce to create voice biometric payments is of interest here. 

Voice Commerce is now a PSD-approved Payments Institution and Visa Partner, all based upon mobile voice biometric services.

So where does that take us?

The mobile telephone becomes the unique identity management system for future financial services?

Sure, it provides a clear capability to track behaviour and location, along with easy verification and validation of something you have and something you know and potentially something you are.

But is that it?

What happens if you lost the telephone?
What happens if you forget the codes or passwords?
Is Voice Biometrics really ready for prime time?
What I am really asking is: what is the process on the other end of the telephone that’s required?

This still therefore mandates a clear bank identity management system, shared across multiple institutions, which can allow the user to access finance with just a single sign-on rather than multiple sign-ons.

That’s the thought for next generation financial services. A simple multibank, cross-border identity system that can work easily and simply and conveniently behind the mobile bank interface.

Hmmmm ... I wonder what system that could be?

Whichever system it is has to have a number of key features.

First, it will not just be a technology solution, as there must be clear and recognised policy, legal and operational rules which allow the shceme to operate across bordres and banks.

Second, an identity scheme cannot just be a “number”. Numbers are too easy to break, and you therefore must have a name specified and associated with the number in order for the identity management system to allow transactions to be truly non repudiable, as in legal.

Third, solutions have to be massively scalable, which means cloud-based today.

Fourth, it must be capable of supporting multiple applications across multiple geographies and multiple industry silo’s.

And, whilst achieving all of the above, it needs to be simple to use but unbreakable.

Now that’s not so difficult is it?

Things worth reading: 27th April 2010

Things we're reading today include ...

Companies

Barclays vs Lehman: Clash of the titans - The Telegraph
Lehman liquidators in Asia defy legal action - Financial Times
Testimony of Goldman chief Lloyd Blankfein to the Senate on April 27: the text in full - The Telegraph
Goldman boss Lloyd Blankfein admits bank should listen to public opinion - The Telegraph
RBS will urge shareholders to 'trust us' after pay climbdown - The Independent
Bank of Ireland plans to raise €3.4bn from investors - The Independent
First-time buyers know that every little helps, but does Tesco? - The Times

Regulations

Wall Street banks to be forced to hive off swaps and derivatives desks - The Telegraph
Warren Buffett lobbies for exemption on derivatives as US financial reform nears - The Telegraph
New Basel rules must address past shortfalls - Financial Times

Markets

Affordable financial advice for all - Financial Times
Debt domino could topple recovery hope - The Times
Who's next? Markets hunting for PIGS - The Independent

 

Spanish Banks leading in innovation - now the iPad Bank (UPDATE)

It surprises me how often I find Spanish banks surprise me.

First, BBVA launch the first really cool Bank 2.0 apps two years ago.

Then Caja Navarra launches a fantastic hybrid Zopa-Bank styled P2P lending service.

More recently, Santander created a really interesting head office campus full of robots.

And now Banco Sabadell is one of the first, if not the first bank to launch an iPad banking service.

My good friend Pol Navarro, Director for Innovation at Banco Sabadell, tells me that they decided to do this because: “since we launched our mobile portal, at the end of 2009, we've seen a tremendous usage from iPhone users - about 60% of access - so we decided to develop a specific app for the iPhone/iPad.”

Certainly, that seems to be indicative of a core focus upon the customer as, in just three months since its launch, Banco Sabadell’s Mobile Service (BSMS) is being used by more than 13,500 customers of the bank and is expected to exceed their target of 35,000 customers this year.*

According to the bank’s blog – yes, they have a blog! – the “new version of BS Mobile for iPhone IPAD and includes all operations currently available in the BS Mobile service (consulting accounts and cards, transfers and transfers, purchase / sale of securities, signature files, etc. ..) for both the segment private customers and companies, taking advantage of new capabilities for interaction and usability that Apple devices offer and improving current features:

Tracking all current procedures of the customer (card applications, loans, etc ...) to give the best customer service and information wherever you are.

• Higher quality maps and greater precision in the location of offices and ATMs, as well as Street View.
• New presentation of the application, Touch and more intuitive.
• Ability to save favourite operations and menu customization operations.
• Keyboard shortcuts to the operations of accounts, cards, data transfers and your personal manager.
• Option to call me back for easy access to the Contact Center.”

UPDATE: New and improved video

In addition, Pol tells me that they “think that the iPad has its own space, for consuming digital content online/offline (airplanes, garden, home, etc.) ... the iPad version, has some specific functions, adapted to the terminal’s screen size, user interaction, maps navigation, etc.”

They are also developing the iPad further: “for example, product simulation of loans and mortgages, investment portfolios, video calls with your sales rep, etc. Also this kind of gadget can be used internally, for sales rep, private banking advisors, etc. We are just investigating in this side.”

All in all, Spanish banks never fail to impress me with their first mover experiments in social and mobile finance.

Definitely not a case of mañana my friend.

* Banco Sabadell has €82 billion in assets with 1,190 domestic branches and 9,466 staff

Things worth reading: 26th April 2010

Things we're reading today include ...

Story of the Day:

SEC staff surfed web for porn while Wall Street burned - The Telegraph

 

Goldman Sachs and that email trail

Detailed in emails, how Goldman lost a fortune and then made it back - The Independent
Goldman in crash profit boasts - BBC
Rise and fall of a $1bn Goldman Sachs monster 'Frankenstein' - The Times
What the trader said: 'In the middle of complex trades without understanding them' - The Independent
E-mails detail role of rating agencies in crisis - Financial Times
Wall St banks scrutinise pre-crisis CDOs - Financial Times

Companies

Barclays set to announce £2bn profits - The Telegraph
Barclays boss called to US court over Lehmans - The Times
Lehman liquidators in Asia defy legal action - Financial Times
RBS bows to shareholder pressure over bonuses - The Telegraph

Markets

John Paulson's donations to Carla Bruni could embarrass Nicolas Sarkozy - The Telegraph
Liquidity surge threatens Asia credit crunch - The Times

 

The Finanser's Week: 19th April - 25th April 2010

The biggest news stories of the week include ...

• IMF in 'radical' bank tax plans - BBC
• Brussels backs tougher US line on derivatives - Financial Times
• US to shine light on derivatives trading - The Telegraph
• Don’t fight us on bank reforms, Obama tells lions of Wall Street - The Times
• Wall St regulator charges Goldman Sachs with fraud - The Independent
• Goldman and SEC: The main arguments - Financial Times
• FSA begins investigation into Goldman fraud claims - The Times
• Senate sends for Fabrice Tourre, the banker at heart of Goldman ‘fraud’ - The Times
• Goldman's Blankfein to testify alongside trader - The Independent
• Dick Fuld: Lehman Brothers was ‘risk averse’ - The Times
• Visa buys Cybersource in e-commerce push - Financial Times

And our biggest stories of the week are ...

The top four bank technologies for 2010

I should be in Bahrain this week chairing a conference, but have missed it due to the volcanic ash across Europe. The theme of this year’s conference is all around “innovation amidst regulation”, with a number of technologies that we see as key to addressing the regulatory and innovatory requirements of the 2010s.  Specifically, there are four technology areas handpicked for focus: Mobile Services; Social Media; Cloud Computing; and Low Latency.  These four technology buckets are top of mind for 2010.  What are the implications?

The World of Me (Part Two)

Building on the World of Me post last week, I’ve just found out how powerful the tools are that are at our disposal today.  This is due to my efforts to be virtually at a conference in Bahrain which I cannot attend due to flights being grounded this week (Iceland has had a volcanic eruption).

Branches are dead, the future is social (Part Two)

My keynote in Bahrain this week was going to be a variation of the presentation.  Due to being unable to fly to Bahrain, I made a video file for the conference.  Here is that video.

PayPal, Microsoft and Google's visions of the future

Today seems to be a day about future trends.  For example, I stumbled across a great discussion and visualisation about the future of the payments and the internet in videos made by PayPal and Microsoft, along with this interview with Google CEO Eric Schmidt.

And here's some commercial payments news

I sometimes get unusual things in the email – no comments thanks – such as the full post-conference write up of a cards and commercial payments conference in the USA last month.  This included commentary on prepaid cards, einvoicing, commercial cards usage and more, so I picked out the best quotes and notes that caught my attention.

Your soul is mine

Gamestation, a UK videogames firm, discovered that more than 88% of the public don't read the terms and conditions of a website before they make a purchase online.  As a result, they inserted a clause in their terms and conditions stating that the customer grants the retailer the right to 'claim their immortal soul' to see how many signed up regardless.

Not the most diplomatic poster

Just spotted this poster on the London Underground and think it's probably not very diplomatic at the moment ...

The real banking crisis ...

Another item spotted whilst on the Underground this week, and this one did make me laugh (although it shouldn't have) ...

Goldman Sachs ... or Sack Goldmans?

There are so many articles and analysis into Goldman Sachs practices at the moment that I’m not going to write a lengthy analysis to add to all of these, but have picked a few of the best articles at the end of this blog entry.  What I would like to say is that the Goldman Sachs area of this blog shows that the SEC’s actions announced last Friday could be easily anticipated.

Why the G20 will disagree with the IMF reforms

I don’t know if any of you read the IMF report recommending two new bank taxes.  If you haven't, then I can recommend it, particularly for the detailed charts outlining which of the G20 nations had the most and least exposure to the crisis.  Find out more about which nations are winning and losing.

Cover payments - a real pain?

A press release landed in my inbox today with the title: "SWIFT's MT202 COV Led to More Work, Data Quality Concerns - Dow Jones Survey".  The release is all about a small survey by Dow Jones of payments and compliance managers who say: "yes, MT202 COV is a pain".

 

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PayPal, Microsoft and Google's visions of the future

Today seems to be a day about future trends.

For example, I stumbled across a great discussion about the future of the internet with Google CEO Eric Schmidt:

This is a 45 minute interview with Mr. Schmidt at a Gartner Symposium in the USA last year.

Key comments from the interview, identified by Read-Write Web, include:

• Five years from now the internet will be dominated by Chinese-language content.

• Today's teenagers are the model of how the web will work in five years - they jump from app to app to app seamlessly.

• Five years is a factor of ten in Moore's Law, meaning that computers will be capable of far more by that time than they are today.

• Within five years there will be broadband well above 100MB in performance - and distribution distinctions between TV, radio and the web will go away.

• "We're starting to make significant money off of Youtube", content will move towards more video.

• "Real time information is just as valuable as all the other information, we want it included in our search results."

• There are many companies beyond Twitter and Facebook doing real time.

• "We can index real-time info now - but how do we rank it?"

• It's because of this fundamental shift towards user-generated information that people will listen more to other people than to traditional sources. Learning how to rank that "is the great challenge of the age." Schmidt believes Google can solve that problem.

This stumble was followed by an email from FSClub friend Milos Hoschek who sent me a link to this video of PayPal's vision for the future:

Fantastic.  Everywhere you go, you pay with PayPal.

What happened to Visa and MasterCard I wonder?

It reminds me much of a video made by AT&T in the 1990's:

Recognise the voice?  Here's a clue:

Anyways, strong American male cheesy voice-overs are the de facto standard for technology future focused videos, as evidenced by this one from Microsoft:

Something slightly wrong about that?

Your soul is mine

I know that many of you will have read the story already but, just in case, it is worth posting here for posterity and for the record. 

LONDON, ENGLAND, April 03, 2010 /24-7PressRelease/ --

Gamestation has discovered that more than 88% of the British public do not read the terms and conditions of a website before they make a purchase online.

As a result of the research, Gamestation has announced that on April 1st, in a test of its customers, it will include a clause in the terms and conditions stating that the customer grants the retailer the right to 'claim their immortal soul'. The online customer will be offered the opportunity to opt out of forgoing their soul by ticking a box in the small print. As a reward for their vigilance, they will receive a GBP5 discount voucher.

Result?

90% of customers agreed to the terms and conditions without reading them (either that or they were happy to surrender their souls).  They then received an email  stating: “Little did you realise that upon your last purchase from Gamestation.co.uk you also granted us a right to claim your humanity [...] To avoid future fatalities, always check the terms and conditions.”

 

Things worth reading: 23rd April 2010

Things we're reading today include ...

Goldman Sachs

Goldman says buy the pound as there's little to fear from a hung Parliament - The Telegraph
Blackstone chief defends Goldman ethics - Financial Times
Etonian banker in Goldman scandal - The Telegraph
Goldman's Blankfein to testify alongside trader - The Independent

Companies

Credit Suisse pays £1.4bn in bonuses - The Telegraph
Credit Suisse reveals 2 per cent profit rise - The Times
Shareholders warn Lloyds on pay policies - The Independent
ABI concerns about Lloyds bonuses - The Telegraph
Daniels (Lloyds CEO) is proving to be the great survivor - The Telegraph
BofA to sell private equity portfolio to Axa - Financial Times

Regulators

FSA is 'losing' war on insider dealing - The Telegraph
Senate inquiry faults ratings agencies - Financial Times
E-mails detail role of ratings firms in crisis - Financial Times
Derivatives dealers voice support for clearing - Financial Times
US to shine light on derivatives trading - The Telegraph
Don’t fight us on bank reforms, Obama tells lions of Wall Street - The Times

Markets

City bonuses to hit £6.8bn, CEBR says - The Telegraph
Move towards single Asean exchange - Financial Times
Greek crisis worsens after budget deficit grows - The Times

 

Why the G20 will disagree with the IMF reforms

I don’t know if any of you read the IMF report recommending two new bank taxes:

• a bank levy based upon the risk banks represent, called a Financial Stability Contribution (FSC); and
• a straight tax on profits and bonuses called the Financial Activities Tax (FAT).

If you haven't, then I can recommend it's worth a skim.  For example, they reject the Tobin Tax / Robin Hood Tax idea, saying that this would just get passed on to customers by the banks. 

However, the fact that they support the idea of a levy and a tax – a double whammy – could have bankers worried ... except that bankers are pretty clever at tax avoidance and Canada and Japan have said they won’t implement these plans so it’s a G18 agreement right now, or less.

In my view, the document is also flawed.  Here's why.

The document itself is just for discussion for the G20 Ministers meeting this week, with the aim of agreeing something in June.  It was leaked by Robert Peston over at the BBC, and has created a fair bit of mileage for him with two blog entries: IMF wants two big new taxes on banks and How much would IMF bank taxes raise?

Robert's estimate for the latter is about £5 - £10 billion ($7.5 to $15 billion) per annum.

The leak has also sparked a whole range of other headlines, including:

Leaked IMF document urges two new taxes for banks - The Times
IMF recommends double tax whammy on the world's banks - The Independent
IMF urges double tax hit on banks to refund taxpayers - The Telegraph
IMF warns over sovereign debt - The Independent
Post-crisis banks must refinance $5 trillion - The Times

And here’s the document itself (Download IMF G20 Document, 57 page pdf).

All well and good.

Now the actual content is debatable and not set in stone.

As I said, it’s for discussion.

But it does contain some really interesting appendices which are noteworthy as useful research materials, covering diverse subjects from each country’s proposals for reform to their contributions to the bank crisis to date.

For example, here are the amounts announced or pledged for financial sector support so far, as a percentage of 2009’s GDP (doube-click chart to see a bigger version):

What this shows is that for the ‘advanced economies’ – think USA, UK, France, Germany, Japan et al – the cost has been 6.2% of GDP in direct support and a further 10.9% in guarantees.

The total of columns A to E represents 29.8% of advanced economies’ GDP in 2009.

That compares with 1.8% in the emerging economies – think the BRICs, Indonesia, et al. 

Mind you, they then go on to say that “for the advanced G-20 economies, the average amount utilized for capital injection was 2 percent of GDP, that is $639 billion, or just over half the pledged amounts. France, Germany, the USA and the UK accounted for over 90 percent of this. For the advanced G-20 economies, the utilized amount for asset purchases was around 1.4 percent of GDP, less than two-thirds of the pledged amount. Similarly, the uptake of guarantees has been markedly less than pledged.”

This is why the report reckons that the global financial crisis has cost about $533 billion less than originally estimated, and is now just a mere $2.28 trillion when all is said and done.

Now how much is $1 trillion again?

Thanks Mint.

So yes it’s still a lot, but it’s half a trillion dollars less than before.

Phew!

Now who’s the daddy when it comes to global bailouts and guarantees:

Wow, the UK wins!

We’re number one, we’re number one, we’re number wohohohohone.

Wait a minute.

That means we’re #1 in global bailouts of banks.

Hmmm ... not sure if we should be so thrilled with that accolade and maybe this is why Gordon Brown is so keen on the idea of a Tobin Tax or a Robin Hood Tax or a Financial Activities Tax or ... well, any tax really to help with our debt mountain to be honest ...

Source: the Daily Mail

... as the burden of national debt amongst the G7 nations is at a 60-year high, with the UK’s Treasury planning to increase national debt by over £560 billion between now and 2015. That’s about $800 billion or almost a trillion (how much is a trillion again?).

Meanwhile, the emerging economies paint a very different picture:

Apart from Russia, this crisis has cost the key future economies of the world urrmmmm ... nothing.

These charts make it clear that NINE of the G20 nations have had no crisis. Add to this the fact that Canada’s financial system has been the most stable in the world, and Japan do not intend to implement these tax and levy options, and you realise that under half of the G20 will be keen to support any radical changes to the financial markets.

It's not as clear cut as this, as the fact that the Advanced Economies bailouts allowed the Emerging Economies to survive this crisis without their economies also imploding is a key part of the dialogue.

Another useful chart shows why the IMF has reduced the bailout numbers by $533 billion where financial markets have used far less of the pledged amounts than those offered by their respective governments:

Finally, these charts are followed by a review of each country’s bank taxation policies implemented or proposed (Appendix 2, Page 32), a review of corrective taxation and prudential policies (Appendix 3) and the current taxation policies (Appendix 4).

This last section is also particularly intriguing as it demonstrates why banking has been so critical to Gordon Brown’s policies of the past decade. For example, here’s the percentage of a country’s total tax pool raised from financial firms by country.

G20 Corporate Taxes Paid by the Financial Sector (in percent)

This makes it clear that for every country, but particularly for Italy, Turkey, Canada and the UK, the role and influence of the financial sectors on their economies and government policies is fundamental to the country and its economic and public sector health.

Without bank taxes, countries fail.

But with bank failures, countries fail.

And that is their Catch-22 and the reason why this is so hard to change.

Between domestic interests and focus, aligned with the radically different ways in which this crisis has impacted each G20 nation, it is unlikely that we shall ever see a simple agreement of policy reform now, or at the G20 meeting in Toronto in June.

UPDATE: 23rd April 07:50

Looks like the head of the IMF agrees with me:

IMF Says Financial Revamps Could Thwart Global Deal

The International Monetary Fund's managing director said he worried that rivalries among countries could thwart a global overhaul of financial regulation, as governments split over the merits of an IMF proposal to levy a new tax on the world's banks.

"The risk…is that different parts of the world will have their proposals which make sense" to them, but "which may be somewhat inconsistent," Dominque Strauss-Kahn said at a press briefing ahead of this week's meetings of financial officials from around the world.

Things worth reading: 22nd April 2010

Things we're reading today include ...

Most of today's news is about Goldman Sachs and Lehman Brothers still, although two items caught my attention particularly ...

'Robin Hood' campaigners continue to fight for levy - The Independent

Where now for the "Robin Hood" tax? The IMF is not a fan of the campaign for a transactions levy to alleviate poverty in the third world. However, this is an organisation whose structural adjustment programmes, designed to get poorer countries' economies on track, have been criticised for creating more poverty than they alleviated by the sort of people advocating the tax.

Banking virus 'has returned' - BBC

Zeus, a virus that steals online banking details from infected computer users, is more powerful than ever, warns a web security company.

Companies

Visa buys Cybersource in e-commerce push - Financial Times
Morgan Stanley bonus pool rises to $4.4bn after better-than-expected results - The Telegraph
Morgan Stanley back to black with $1.8bn profits - The Times
Northern Rock CFO leaves over FSA investigation - The Telegraph

Goldman Sachs

Goldman Sachs' results - Financial Times
Senate sends for Fabrice Tourre, the banker at heart of Goldman ‘fraud’ - The Times
Goldman's Blankfein to testify alongside trader - The Independent
Paulson & Co tells investors it was 'open' - Financial Times

Lehman Brothers

SEC 'could bring' charges over Lehman - The Telegraph
Lehman creditors seek E&Y documents - The Telegraph
Fuld criticises Lehman's investigators 'distortions' - The Independent
Barclays requests Lehman files - The Telegraph

 

Cover payments - a real pain?

A while ago, I talked about cover payments and the introduction of the changes to SWIFT MT202 message types.  A wee bit technical for the blog, but worth it as the costs of implementation of the changes were, and are, a major concern for the banks I deal with.

Today, a press release landed in my inbox.  Usually the "Delete" button is reached before I even notice the title of such releases, but this one intrigued me:

"SWIFT's MT202 COV Led to More Work, Data Quality Concerns - Dow Jones Survey"

Hmmm ... what's all this about then?  On reading, it's all about a small - just over 50 - group of bankers saying: "yes, MT202 COV is a pain".

"The majority (60 percent) of compliance and payments industry executives believe the new SWIFT cover payments rule MT202 COV raised the standard of sanctions compliance ...

... but many also credit it with increased workloads and costs as well as mounting concerns over duplicate alerts and data quality, according to surveys conducted by Dow Jones.

Roughly half (49 percent) of survey respondents experienced an increase in workload following the introduction of MT202 COV while 39 percent said their costs of compliance increased. 

The rising costs come as 51 percent of respondents expect their budgets to be stagnant over the next year.

When respondents were asked to rank their level of concern regarding key issues when screening wire transfer messages, their concern rose across the board after MT202 COV took effect. Data quality saw the biggest jump as 41 percent were “very” or “extremely” concerned about this issue before MT202 COV, but 62 percent said the same after the rule took effect.

Concern about a high number of duplicate alerts also jumped significantly as 47 percent of respondents identified this as an issue after MT202 COV took effect, compared to 30 percent before the rule was implemented.

Dow Jones conducted two surveys to measure the impact of MT202 COV, which took effect in November 2009. The first survey, conducted from Aug. 31, 2009 to Sept. 9, 2009, received 52 responses and the second survey, conducted from March 23, 2010 to April 6, 2010, received 53 responses.