Now John Mack, Morgan Stanley chairman, has undercut much of the banking industry’s attempts to justify big bonuses at a time of economic pain largely caused by the financial sector.
All through the current bank earnings season, banks have sought to defend bonuses by saying the ratio of compensation to overall revenues has been cut back. That might be true, but in absolute terms bonuses rose sharply on Wall Street while people were losing jobs on Main Street.
“I still don’t think the industry gets it,” Bloomberg reported the veteran banker as saying yesterday during an appearance in Charlotte, North Carolina (hat tip Huffington Post). “The issue is not structure, it is amount.” Read more
By Maija Palmer, writing on the FT’s tech blog
It was only a matter of time before Brussels began looking at an antitrust complaint against Google. Murmurings of discontent about the dominant search engine have been going on for several years now, and recently there have been a rash of smaller cases against the company.
Three particular cases are being considered by the European Commission. A complaint by Foundem, a UK vertical search company, one from ejustice.fr, a French legal search site, and a complaint made initially in Germany by Ciao!, a vertical search site recently bought by Microsoft. Read more
Four down, more to come? The decision by Eric Daniels, Lloyds chief executive, to waive his bonus must have been inevitable after his peers Stephen Hester at RBS and John Varley and Bob Diamond at Barclays gave way and surrendered their payouts. The top bankers have taken a hit for the team.
These sacrifices should not be considered too cynically even if the alternative was public infamy. A multi-million pound hit to the bank account must hurt even the richest banker. But the trouble is that the pay restraint should have reached further down the ranks. Read more
Toyota’s woes are seen as a chance for other Asian carmakers such as Honda and Hyundai and maybe even the US Big Three.
But the biggest beneficiary in the long run might be European: Volkswagen. Read more
Whoever is advising Akio Toyoda, Toyota chief executive, on PR has not exactly covered themselves in glory. Toyota has widely been seen to be slow in responding to the unfolding safety disaster. That view is only going to be compounded by news that Mr Toyoda does not plan to appear before US congressional committees investigating the defects that have led the troubled Japanese automakers to recall of millions of vehicles. Mr Toyoda said Yoshimi Inaba, head of Toyota’s US business, would represent the company at the hearings.
This can only end badly for Toyota. It gives a bad impression that Toyota’s top management are ducking the issue or not taking it seriously enough or trying to hide something. Worse, it is an untenable position. If Mr Toyoda seeks to dodge the hearings, such will be the public backlash that he will inevitably be forced to backtrack and go to the hearings. If Toyota is serious about rebuilding its franchise in the US, Mr Toyoda has no alternative. He must go to Washington.
Barclays, expected to lead the ranks as Europe’s most profitable bank with an estimated £10bn of net income when it reports results next week, is a shining example of how to stay upright when all about you are flailing. Here are the golden rules:
1. Participate in auctions for banks if you must, but avoid succeeding – especially when said transaction takes place on the cusp of the mother of all financial crises
2. Ditto for distressed US banks
3. Just say no to state aid
4. When disposing of toxic assets remember the old tricks are the best: sivs fell into disrepute, but with a new name and sounder financing they are a useful tool for magicking assets off the balance sheet
5. Keep on banking Read more
Everything happens in private equity in slow motion compared with public markets. The cycles of accountability are so extended. It takes a long time to raise funds, invest and then realise profits or losses that the deal disasters can take years to emerge. Read more
China has officially ousted Germany as factory of the world. Cue angst in Berlin, cheering in the streets of Tiananmen Square?
Not a bit of it. All the data really tells us is that the world isn’t flat and manufacturing is fluid: so long as ships ply the seas, goods can be made wherever labour and factory space is cheapest. And there is no getting round it: China is cheap and, wage inflation notwithstanding, managing to make its exports cheaper still. Read more
Should we care about the resignation of Hector Sants as chief executive of the UK’s Financial Services Authority?
No disrespect to Mr Sants, but the City watchdog has been a lame duck regulator since the Tories made it clear they would break up the FSA if they win the UK general election in May – which they are likely to. Mr Sants will work his notice until the summer. He has made it clear, however, that he opposes the Tory plans to dismember his organisation, with the supervisory arm being folded into the Bank of England and a new agency taking over consumer protection. Both he and his chairman, Lord Turner, have apparently turned down running the former bit in a new role as a third deputy governor of the Bank. He is an experienced and qualified banker who will no doubt find an interesting new job. So this is not a personal tragedy. Read more
Hector Sants has resigned as head of the UK’s Financial Services Authority. Brooke Masters, the FT’s chief regulation correspondent, talks about the future of regulation in the UK.
In the old days, it was called PR. Now it is the narrative. A big theme in business culture in recent years has been the rise of corporate narrative – the push by companies to shape the story of their business and culture for internal and external audiences. It is a corporate recognition of the old Gabriel Garcia Márquez line that: “What matters in life is not what happens to you but what you remember and how you remember it.” Read more
Louise Lucas blogs for the Financial Times on the impact of Toyota’s woes on its rivals, such as GM, Ford and VW. Read more
The world’s top 10 pharmaceutical companies spend around $50bn a year on research & development…but have very little to show for it.
The cost of bringing a new drug from the laboratory to market has risen to around $1bn and, in an influential study released last year, McKinsey estimated that the industry’s return on R&D over the past decade has averaged just 7 per cent, below its cost of capital. It is startling that companies boasting operating margins of 30 per cent or more are actually destroying value in their core activity. No wonder the sector has been de-rated so substantially over the past 10 years. Read more
There has been a lot of hand-wringing in the UK about the future of Cadbury under Kraft Foods, which is currently raising debt to fund its $19bn acquisition of the chocolate maker.
It is understandable that employees, in particular, are uncertain about their jobs; it is also clear that Cadbury is a name that resonates publicly in a way that glass maker Pilkington or even BAA, the airports operator, both of whom were taken over by foreign rivals, did not. But there are some simple truths that should not be drowned in all the emotion. Read more
Avatar has been declared the “future of movies” and it may be – though perhaps not quite in the way Hollywood thinks. Barely a month after launch it has generated more than $2bn in ticket sales, becoming the top-grossing film of all time. Its popularity is almost entirely down to the amazing 3-D special effects rather than a compelling plot or a roster of bankable stars, since it has neither of those. Is this the point where, once-and-for-all, technology overtakes talent as the driver of box office success? Pixar’s animated features, after all, have already shown the way. And since technology tends to get cheaper every year, while movie stars don’t, perhaps this signals a shift in the industry that puts power and profits back into the hands of the studios. This is not true of Avatar itself, of course. Reputedly, director James Cameron stands to make even more ($400m) than News Corp’s Fox ($300m), as shown in yesterday’s results. But as 3-D effects become commonplace, studio’s won’t need a James Cameron behind the camera every time.
A problem that is handled well can increase a customer’s loyalty. This is something Toyota should bear in mind as it deals with the potentially devastating recall of more than 8m cars for safety defects. Just look at last week’s healthy results from Mattel, which has recovered admirably from the “toxic toy” scandal of 2007 that forced it to pulp more than 20m products that were covered in lead paint or had bits falling off them.
What Mattel understood, from the get-go, was the need to take full responsibility and to apologise and explain, and then to keep on apologising and explaining…until consumers were sick of hearing it. Unfortunately, this goes against a deeply-held corporate instinct – applicable globally but possibly even more pronounced in Japan – to downplay problems, shift responsibility and reveal only what is absolutely necessary. Just remember how Ford and Firestone blamed each other for the exploding tires on the Ford Explorer a decade ago, a scandal that ultimately cost Ford’s then-CEO Jac Nasser his job. Read more
I am taking a break from blogging (and column-writing) for a couple of months and will return at Easter. In the meantime, this blog will be run by a guest line-up of Financial Times writers, led by Dan Bogler, our managing editor.
I look forward to resuming but I am leaving the blog in safe hands. Please continue to visit – I am sure it will be worth your while.