The Financial Services Club's Blog

City of London burns down, costing $100 billion

Whilst I was away, no-one seemed to bother reporting that the City of London had burnt down:

Maybe that's because it didn't ... but it did 343 years ago in 1666.

The Great Fire of London raged from September 2nd to 5th and destroyed most of the City.  According to insurers Royal & Sun Alliance (RSA), the equivalent Fire today would cause around $100 billion (£65 billion) of damage.

Shoot ... that's almost a quarter of a subprime crisis or a peanut in a derivatives default pool.

Can regulators really regulate?

I blogged a while ago about David Doyle, expert on all things in finance with a Brussels flavour.

David and I regularly tag-team on MiFID and the PSD, and in the wider context of Europe's Financial Services Action Plan.

In particular, he has an inside track on all this stuff and presented the latest updates on Europe's Directives at the Financial Services Club Ireland last week.

What struck me as David outlined the massive change agenda in plan, is that the process of drafting regulations is fine ... but can any of this work?

Answer: probably not.

First, there are all the local regulations, such as Faster Payments in the UK.

Then there are the national implementations of European regulations already in play, such as the PSD.

These all have slight variations in that every country’s policymakers have a different view of how the PSD impacts their national banking structures. In France, it means direct debit charges have to be slashed by a third whilst, for most countries, it just means adding on some bells and whistles.

For example the FSA’s approach, published in March, splits responsibilities between the FSA, the Office of Fair Trading and the Financial Ombudsman. However, it also tries to explain how to interpret every aspect of the PSD.

Ruth Wanderhofer, Vice President for Cash Management in Europe within Citibank's Global Transaction Services Division, claims this is bad.  Speaking at this year’s European Banking Forum, Ruth stated that “the PSD is very complex and can be interpreted and read in so many different ways every day that you don’t necessarily want a supervisor to write down what it is supposed to be meaning”, especially as the FSA's interpretations go “far beyond the scope of the PSD”.

Then there is the EU process of evolving regulations for Capital Adequacy and Solvency II, UCITS IV, Retail Investment Products, Market Abuse and more.

Finally, there is now the global agenda of the G20 to create consistent supervision across regions as well as within regions. So far, this has been an aggressive agenda in the EU covering:

October 2008
Commission appoints ad hoc high-level group on financial supervision, chaired by Jacques de Larosière

15 November 2008
G20 summit in Washington agrees five-point action plan to reform global financial markets

25 February 2009
De Larosière groups hands in report.

5 March 2009
Commission tables proposal for G20

19-20 March 2009
EU summit endorses common position for G20

2-3 April 2009
G20 summit in London.

April 2009
Commission to present measures on hedge funds, private equity, retail investment products and remuneration in financial services.

By end of May 2009
Commission to present European financial supervision package.

June 2009
Expected agreement on follow-up to De Larosière report;
Commission plans to present a White Paper on Tools for Early Intervention to Prevent Crises, and legislative proposals to increase the quality and the quantity of prudential capital; and Legislative proposal from the Commission on hedge funds and private equity.

Before end 2009
EU expected to finalise approval of financial regulation measures

This is also a very broad agenda.

As David made clear last week, the Commission is taking a 'safety first approach' to regulating capital markets and market actors, filling in the gaps where European or national regulations are insufficient or incomplete. In particular, these will be created for:

Credit rating agencies (April 2009)

Hedge funds and private equity: to include private equity and other systemically important market players (April 2009).

Crisis prevention: A White Paper on tools for early intervention to prevent a crisis (June 2009).

Derivatives: A report on derivatives and other complex structured products will provide a basis for Commission initiatives to increase transparency and ensure financial stability (June 2009).

Prudential capital: Legislative proposals to increase the quality and quantity of trading-book activities and tackle complex securitisation (Due: June 2009), and to address liquidity risk and excessive leverage (Autumn 2009).

Along with a rolling program to update and create a far more consistent approach to global and European supervisory rules.

But I just cannot see all of this working, and beg the question: can regulators really regulate such a broad and aggressive agenda, or are they smoking dope?

It took us ten years to develop the European Financial Services Action Plan, and where did we get to? A vast array of Directives which some countries implement and some do not. These Directives have attacked the simplistic areas of retail financial products, insurance, payments and investing. Now, with the credit crisis and the realisation of the complexity of global derivatives, we are tackling the complex financial areas of exotic options, futures, clearing and settlement.

So how does this work?

How can a regulator create global, regional and national rules that are all harmonised, consistent, integrated and cooperative?

What happens when countries, such as Costa Rica, opt out?

These are all the tough questions for the regulators and policymakers to answer but, my own view … no matter how much regulation the governments of the world draft and create to address this crisis and harmonise rules:

(a) can they be implemented
(b) can they be enforced?
(c) are they truly global and how do you deal with countries that are non-cooperative?
(d) are they water-tight or can market operators wriggle around them?

… and more.

Not throwing rocks or anything, as we do need regulatory enforcement, but I would suggest that:

(a) it is still light-touch, as detail will constrain implementation
(b) it is enforced via regional and global co-operation of the G20
(c) the G20 and United Nations sanction nations that are uncooperative
(d) if it is light touch, then it is not water-tight but should be clear enough that any non-compliant market operator is hounded out of the markets by other market operators being whistleblowers about their bad behaviours.

Whoops.

Did I say that they should be whistleblowers?

Hound out the non-compliant market operators?

No way.

After all, the role of most market makers is to find ways to create risk to make money, not to be compliant with the rules.

I guess the answer really needs to be that the regulators and policymakers are clued up enough about the complexity of these markets that they can slap down any non-compliant performers before they create another bubble such as the leveraged debt of the credit default swaps markets.

And how do they do that?

By being intimate with all market operations from the simple to the complex, not just the way they’ve behaved to date which is to hire administrators who can draft rules about the simple stuff.

Postnote:

David's presentation is available to Club members, including remote online members. 

The Financial Services Club also runs a European Financial Regulatory Advisory Group who provide clients with in-depth knowledge of the European Reglatory landscape and draft Directives.  If you are interested in such services, let me know.

Webby Awards: Financial Nominees 2009

The 13th Annual Webby Awards nominees have just been announced, with Awards presented in June. 

The Webbies recognise the best internet sites globally, and there are 70 categories to choose from ... far too many to checkout, so checkout the ones that interest us:

Banking and Bill Paying

Billeo by Billeo;
Rudder by Rudder Inc;
Rabobank's Schoneleij by RAPP; and
Xero as well as Xero's Marketing Site, by Xero.

Financial Services

BillShrink by BillShrink
Lending Club from Lending Club Corp
Mint by Mint
Portfolio by Conde Nast Portfolio
Wikinvest by Wikinvest

Insurance

Allstate Garage by Domani Studios
Blue Shield of California "Uncovered" Microsite by TAXI, Inc. (New York)
Compare the Meerkat by VCCP Digital (this is my favourite)
NWMutual "Let Your Worries Go" by Firstborn
PEMCO Insurance - We're a Lot Like You by DNA Brand Mechanics

Of course, my attention was immediately drawn to the "Weird" websites section, with nominees:

CrappyCat by TVM Studio INC.
Cute Overload by Cute Labs LLC
FAIL Blog by Pet Holdings Inc
Jason Nelson's Digital Oddities by Secret Technology
Sad Guys On Trading Floors by Sad Guys

It's gotta be won by the last one:

Trust me, I'm a Banker

I said I’d been thinking about trust, and this is down to a couple of marketing surveys on the subject.

First, there’s the Global Trustometer from Edelman. I’ve been a follower of this for years. You can see summary results at Edelman’s website.

For quite a few years, even during the good times, Edelman found that bank and finance brands are trust challenged. Equally, they find very different attitudes between Asian, European and American brand views.

For example, I remember a few years ago that European consumers voted the World Wildlife Fund, Greenpeace and Oxfam as their most trusted brand names whilst Americans had Johnson & Johnson, Microsoft and Ford as their top names.

I’m sure the US view may have changed a bit after Vista and the auto bailout, but Europeans are still tree-huggers and fluffy-bunny lovers.

Anyways, the 2009 Edelman survey, its tenth, is based upon a thirty minute telephone survey with 4,475 people in 20 countries between November 5th and December 14th 2008.

These interviews comprised 1,075 people aged 25 to 34, and 3,400 people aged between 35 and 64.

Globally, 62% of people trust companies less now than they did a year ago, with this drop the most marked in the USA, falling from 58% of American consumers trusting business to do what is right in 2008 to only 38% in 2009.

Funnily enough, trust in government to do what is right stayed pretty much on track globally.

Although the Swedish, Americans, Mexicans and Indians trusted their governments less, these were offset by the Brits, Germans, Dutch, Polish, Brazilians and Canadians who all trust their governments more.

Companies headquartered in Sweden, Germany and Canada are trusted more than any other, whilst Chinese and Russian firms are trusted the least.

Now to the crunch (not the credit crunch!).

Trust in banking.

Unsurprisingly, it’s down.

It’s down more than any other industry.

It’s down 11% globally, from 56% to 45%, only just above Media and Insurance.

Ah well, at least banks are more trusted than sponsored links and payout avoiders (not my view but the masses maybe?).

In America, trust in banks dropped a massive 33% from 69% to 36% of consumers believe that banks can be trusted to do what is right. In the UK, France and Germany, bank trust dipped from 41% to 27%, again the biggest drop ever.

What may be surprising is that trust in the banking sector in emerging economies was up from 72% to 84% in China and from 52% to 59% in Brazil.

Trust in articles in business papers, along with analyst's stock reports, have been blown off their most trusted mantle, whilst blogs appear on the trust scale for the first time this year.

Now, that’s good news isn’t it?

Similarly, the only person to gain more trust this year is an academic or expert on an industry.

Also good news for some.

There’s a load more in the Edelman survey so I commend you to download and read it.

Meanwhile, for the UK folks, there’s also the Trustometer from Marketing Week.

Now in its ninth year, Marketing Week with Reader’s Digest produces a view on whose brands are most trusted in the UK.

Reader's Digest (RD) claim to represent Middle England with 650,000 readers spread over a wide variety of the population:

                         Men     Women    Chief Income    Main Shopper     Working 
                                                       Earners
GB Population        49%        51%            58%                  66%                55%
Reader’s Digest      47%        53%            62%                  71%                51%

                         ABC1     <35     35-54     55+     Presence of 
                                                                    School Age Children
GB Population       51%      34%     35%     32%         24%
Reader’s Digest     60%      17%     37%     46%         23%

So the results are interesting.

According to the survey, the most trusted brands in Britain for financial services are:

Bank/BuildingSociety       Lloyds TSB
Credit Card                      Barclaycard
Insurance Company         Direct Line
Mortgage Lender             Nationwide Building Society

Noteworthy above is that Halifax had won the mortgage lender category since the survey launched nine years ago, but not this year as they are eclipsed by the Nationwide Building Society.

That's interesting as Lloyds TSB, the most trusted bank/building society, just took over Halifax.

Ah well, I guess Lloyds still did well, as it won the most trusted bank and, in a year that we've seen over here, that's some going.  Mind you, Lloyds has apparently dominated this space since the survey began, which makes me question the RD readership figures.

For example, Lloyds most loyal customer base are seniors who also happen to be the typical readers of RD.  The median age of an American RD reader is 52 and I reckon that's who voted in this survey.  Not Americans, but readers with an average of around 52 years old.

Anyway, it still makes interesting reading as you may think that only a few people could name a trust bank brand after the events of last year, and yet 89% of respondents named one.

Marketing Week comments: “perhaps this demonstrates the distinction between how people perceive the dismal economic outlook overall, against their ongoing personal experience of banks as day-to-day service providers of financial services, with whom many have had long-term relationships.”

True.

Meanwhile, the fact that Barclaycard wins in the credit card sector may reflect its independence.

The magazine notes that the Barclaycard won the top spot for the second year running, sitting comfortably ahead of Capital One, which is in fourth position, and Visa and MasterCard, who are second and third, even though you can’t have a Barclaycard without one of those brands on it!

Maybe they won because of their great ad for contactless cards, which has also been a viral hit.

The other interesting point is that Norwich Union has been knocked off top spot for the first time since 2004 by Direct Line in the insurance category.

Could this be the result of a strange name change?

Proof that (UK) banks miss out on new media

Building on yesterday's comments about UK banks missing out on new media, if you want proof you only need to look at Revolution's annual awards for 2009.

Revolution Magazine is one of my favourite monthly reads, as it's all about innovation online. 

Each year their awards ceremony recognises the best of British internet marketing across a range of categories, from best use of search engines to email, from mobile to websites, from using virals to much more.

This year's Awards magazine landed on my doorstep today and I counted 48 nominations in 8 cross-industry categories.

8 winners, 9 highly commended companies and 31 shortlisted organisations.

All industries represented, and all selected for being good online.

Guess what?

Not one bank.

None of the cross-industry categories has a single bank recognised or even shortlisted.

There are four financial firms in the 48, although not one winner.

And the four financial entrants were:

• More Th>n Business, shortlisted for best B2B campaign;
• Tesco Personal Finance, shortlisted for best use of search;
• Experian, shortlisted for best use of email; and
• Swiftcover mobile, shortliested for best use of mobile.

There was also a specific category for best Financial Services use of the web.

That one was won by an insurance company, the Prudential, for their targeting of retirement planning through an interactive service. 

A bank doesn't even win in their own industry!

Barclays were highly commended for their student campaign, and NatWest was shortlisted for their personal banking website. 

Illustration: Barclays launched a movie competition on YouTube for students in October 2007.  The competition was to make a video of a famous movie scene to win free access to the cinema for a year.

With the competition finished, I went and had a look at Barclays Student Group on YouTube, and it has 7 videos, five of which were made by Barclays and two are older videos that students entered.

I applaud Barclays for trying, but if that's the best in our industry ...

Compare these with the two 'leaders' of Nike who won the innovation award, and Orange who won the Grand Prix prize, and it's like comparing the Model T Ford with the latest Formula 1 Racing vehicles.

I know I'm having a rant but it's a poor show when banking, a business based upon bits and bytes, doesn't have a clue how to use bits and bytes to grow business and reach customers.

Thank gawd banks overseas have some clue.

For example, the Financial Brand posted a great insight yesterday entitled: "Differentiation: the key to branding".  The message? 

"You must be different. If you can’t actually be different, at least look different. Differentiation — even if only achieved on a cosmetic and superficial level — will at least get you noticed, and that’s the first step on the way to building a strong brand."

Ten comments had been posted so far, and one is from Fernando Egido Egaña who says:

"At CAN (Caja Navarra, Spain, a truly innovative bank) we think that Implemented differentiation leads to more different results: economic ones and more far-reaching ones. We have developed a new business model called Civic Banking. Based on the promotion of (new and extended) rights, we want to be leaders in civic finances, so that CAN becomes a benchmark for social and financial innovation.  Take a look to our website http://www.cajanavarra.es/en where you will find more information about us."

So I took a look at their website, and Fernando is right:

The CAN site is a good, informative website.  It's multilingual, interactive and instructive.  And it has a strong message about why CAN is worth dealing with through a strong focus upon connection with community.

Like other Spanish Banks, such as BBVA, I see innovations in new media in parts of Europe.

Why not in the UK, which is one of the most wired countries in the EU?

Compare the Meerkat: a Top Marketing Campaign

My family are totally in love with the new marketing campaign in the UK for Compare the Market, a comparasite that allows you to compare insurances, loans, mortgages and other financial products across a broad range of providers. 

They recently launched these TV ads:

The ads are really fun and use a cute, furry animal to get the point across - that's bound to work.

The humour is spot on too as Aleksandr, the Russian Meerkat who stars in the ad, runs a website called Compare the Meerkat, where you can compare Meerkats with each other. 

Aleksandr is very annoyed that everyone keeps coming to his website thinking that it's Compare the Market.  It's nothing to do with comparing insurance and other financial products, it's about comparing Meerkats.  Totally different!

The website is part of a co-ordinated campaign and is fully integrated across Facebook and Twitter, as well as the TV ads.

A rare example of a financial marketing campaign that gets today's world.

Simples (or not)!

European Regulators scramble to plug the gaps

David Doyle, policy expert on European financial markets, discussed the latest European financial services legislative movements at the Financial Services Club yesterday.

David began with an outline of the priorities for the Czech Presidency of the European Union, which runs through to June:

• review of the Capital Requirements Directive for the capital adequacy of investment firms and credit institutions;
• negotiations of the Solvency II Directive regulating the insurance sector;
• regulation of credit rating agencies;
• a new Directive for electronic money institutions;
• review of the regulation on cross-border payments in euro;
• review of the Market Abuse Directive;
• a New Prospectus Directive;
• UCITS IV; and
• updating the International Financial Reporting Standards (IFRS).

I guess having so many priorities is not surprising, given the events of the past six months, but this list is too long and the priorities are too many. Therefore, David focused upon the changes to Solvency II and the revised Capital Requirements Directive (CRD).

These are significant changes to the original implementation of Basel II in Europe. For example, the new rules for the CRD were put forward on 1st October 2008, two weeks after Lehman Brothers collapse:

“The European Commission has put forward a revision of EU rules on capital requirements for banks that is designed to reinforce the stability of the financial system, reduce risk exposure and improve supervision of banks that operate in more than one EU country. Under the new rules, banks will be restricted in lending beyond a certain limit to any one party, while national supervisory authorities will have a better overview of the activities of cross-border banking groups. The proposal, which amends the existing Capital Requirements Directives, reflects extensive consultation with international partners, Member States and industry. It now passes to the European Parliament and the Council of Ministers for consideration.”

The critical changes include improving the:

• management of large exposures, particularly by introducing restrictions in interbank exposures;
• supervision of cross-border banking groups through a collegiate of supervisors;
• assessment of the quality of banks' capital through 'hybrid' capital rules incorporating both equity and debt elements;
• liquidity risk management: for banking groups that operate in multiple EU countries; and
• risk management for securitised products through new rules on securitised debt.

There are some major points raised here. For example:

• the concept that banks must not be allowed to lend more than 25% of the their capital;

• that regulators across all markets work together to monitor the activities of key cross-border groups and, bearing in mind that over 70% of all cross-border activities are transacted by only 45 financial institutions, this may mean more stringent regulation through both home and host oversight;

• a need to retain a minimum 5%of capital for anything that is securitised, with some still asking for this to be raised to 15%;

and more.

The thing is that this is all being fast-tracked, with the intention of sign-off in the European Parliament for the revised CRD by April 2009.

That’s fast and raises the concerns of irrational and ill-thought through regulation, rather than better regulation. However, bearing in mind that there are MEP elections in June and a new Commission selected in November, when Charlie McCreevy leaves office, and you can see why they want to get this through in time for implementation.

David proceeded to analyse developments in other areas, such as:

• the EU’s divergent policies on credit rating agencies, who will be banned from providing any advisory services as well as providing complete transparency of the models, methodologies and key assumptions on which they base their ratings;

• the Electronic Money Directive which will enforce same day payments for euro-based direct debits and credit transfers, but will not apply to mobile operators (why not?); and

• the fact that the Commission now has Hedge Funds and Private Equity in their line of sight, as well as short selling and dark pool equities trading, with a new Directive likely to target this area.

David’s analysis was wide and deep, which is the reason why I invited him to address our meeting. He concluded with the fact that there are estimated to be 123 regulatory supervisors across the EU, who will now work as a collegiate to enforce these rules under a single EU Regulatory Authority.

The single EU regulatory authority has been a challenge for a long time, and with recent developments looks increasingly likely.

We finished the evening with questions that focused upon principles-based versus rules-based regulations; the world after Charlie McCreevy and whether there will be big changes if a non-Northern Commissioner is selected; Davos, the G8 and the G20, and the whole challenge of domestic versus regional versus global regulatory co-ordination.

The conclusion is that regulators are scrambling to plug the gaps and issues created in recent days. Their fast-track actions may not be the right ones long-term but are the necessary ones for the short-term.

We also announced the fact that the Financial Services Club is launching a European Financial Regulatory Advisory Group.  If any of you are interested in learning more about these developments, just let me know.

David is known across Europe as a leading expert on EU financial market regulation and has an in-depth understanding and knowledge of the critical aspects we face today such as MiFID and SEPA. He is a former diplomat with over 20 years of service on mainland Europe and an EU Policy Expert on Financial Markets.

Photography: Tom Groenfeldt

Who plans for rainy days?

Reading "Britain in 2009" by the Economic & Social Research Council pointed me to an interesting article entitled "Who plans for rainy days?"

The article is from three researchers at the Universities of York and Bristol - David Abbott, Deborah Quilgars and Anwen Jones - who studied perceptions and attitudes towards money and financial planning amongst various segments of society.

Their findings prove interesting:

• Job security was closely linked to worries about people's present and future health.  Less-abled people are particularly vulnerable due to the fact that financial products such as insurance, which might provide some safety net, were often not available to them or was at an extra cost that made it hard to save and plan for the future.

• Being Christian or Muslim had some impact on people's attitudes towards money and debt. Christians felt that their faith could provide a ‘buffer' against possible risky life events whilst Muslims resist debt, or pay it off as quickly as possible.

• Gay, lesbian and bisexual people sought jobs where they would feel safer from discrimination and increase their job security. Most said they didn't believe in a ‘pink pound' and resisted pressure to over-spend as part of a so-called ‘gay lifestyle'.

• Asian men prioritise work and working hard as a way of obtaining financial security, whilst black people did not think that 'being black' had much impact upon their views. 

The research continues, with the first white paper available in full from Forum: Qualitative Social Research.

The most expensive ad ever made?

It's a recession and so what better time for an insurance firm to rename itself and spend £10 million ($15 million) on an advert.  Starring Bruce Willis, Dame Edna Everage, Ringo Starr, Elle Macpherson and Alice Cooper, the purpose of the ad is to announce that the 200-year old brand, Norwich Union, is now officially renamed Aviva. 

Norwich Union is Britain's biggest insurer and this is one of the most expensive adverts ever aired on British TV.  That is why some of us are asking why spend all of this money now, especially when Norwich Union have been part of Aviva since 2002?

According to the FAQ of the Aviva website, "although rebranding costs money, the savings we'll make by marketing one brand instead of several more than make up for it. Becoming one brand means we'll get maximum value out of our marketing budget and means we can share our learning and expertise across all our markets."

Ah, so that makes perfect sense. 

That's why you'd spend £10 million on the rebranding campaign.

And that is why you'd leave the RAC, another brand within the Aviva Group, as ... the RAC.

Makes perfect sense to me.

Or maybe it doesn't make sense.

When I blog about Wells Fargo and others using social media effectively, they get their customers to make their ads and post them on YouTube.

A £10 million TV campaign smacks of old school marketing think.

"Oh yea, let's get some big name celebs and brainwash the nation over the holidays", I hear Aviva execs shouting in the boardroom whilst hi-fiving.

Thing is, no-one's really watching.

Wouldn't they have been better getting some geeks who changed their name to Bill Gates or Elvis Presley to post their stories on YouTube and then take the best and cut them into an ad.

It would have been far more effective ... and a lot, lot cheaper.

They could have then used those savings in a tie-up with MoneySupermarket or Confused - the insurance broker comparison websites - offering cheaper premiums.

Ah, but you have to remember who the audience is ... group pension policy decision-makers in large corporations.

And maybe, just maybe, they are the ones sitting watching the box on Boxing Day.

Very hit and miss though.  I think the viral comparasite tie-up would have been far more cost-effective and then get the sales guys to take out the group pension policy decision-makers for New Year's lunches.