Andrew Hill

Credit to Jamie Dimon for attempting to see the wood for the trees by felling some of the trees. The JPMorgan chief executive’s memo to staff makes clear that “simplifying [its] business” and “refocusing [its] priorities” is, well, a priority.

But what Mr Dimon is attempting is arguably the most complicated task known to managers of large multinationals, whether they sell food or financial services. It is dangerous to imply, as he does, that the goal of simplification can be achieved, once and for all, by “recognising our problems, rolling up our sleeves and fixing them”. Read more

Michael Skapinker

If ousted Danske Bank chief executive Eivind Kolding’s controversial advertising campaign persuaded any customers to take their accounts elsewhere, that is some achievement. Bank customers are reluctant to change banks regardless of what the advertising says.

I may be an extreme case – I have been with the same bank for 35 years – but international studies suggest I am not unusual. A worldwide survey last year by EY, the professional services firm, found that just a third of customers had ever changed their main bank.

Of course, Mr Kolding’s aim was to persuade customers to put their money in his bank rather than to take it out. The problem was that the Danske Bank ad (“A new normal demands news standards”), which featured, among other things, street rioters, Occupy campaigners and crumbling icebergs, was a category error. Read more

Andrew Hill

British bank customers are hearing a lot about a 19th-century Scottish cleric called Henry Duncan, who opened the world’s first savings bank in 1810, from Lloyds Banking Group and TSB, the latest descendant of the good vicar’s pioneering idea.

But the origins of “new TSB” are less inspiring than those of its ancestor. It is the brand attached to bank branches the European Commission has forced Lloyds to separate out as a condition of the group’s post-crisis government bailout. In due course, Lloyds is expected to float TSB on the stock market. Read more

When Goldman Sachs bought the commodity trading house J Aron in 1981, it also took on Lloyd Blankfein, then a salesman of silver coins. Thirty-two years later, Mr Blankfein is Goldman’s chairman and chief executive and the bank owns, among other commodity assets, some aluminium warehouses near the ailing city of Detroit.

Andrew Hill

I’m intrigued by the possibility that the civil trial of Fabrice Tourre, the former Goldman Sachs banker, may hinge on whether an email to his girlfriend was a love letter or an injudicious admission that he was misleading investors about the complex mortgage-related securities he was selling.

The lead attorney for the Securities and Exchange Commission said at the opening of the civil hearing on Monday that it was the latter. Mr Tourre’s lawyer asked the jury to put the language of the communication down to “youthful arrogance” and said it was “an old-fashioned love letter” to his girlfriend, who was a Goldman co-worker. Read more

After the 2008 financial crisis, the banking industry initially acted like a cartoon character who shoots over a cliff-edge at high speed and keeps going for a while before falling. Five years on, they are lying on the ground – and will never be allowed to return to their fast-paced ways.

Andrew Hill

“Fashionable management school theory appears to have lent undeserved credibility to some chaotic systems.”

This line leapt out from the 571-page UK parliamentary review of banking published on Wednesday. It’s in the conclusion to the passage criticising the way in which banks applied the “three lines of defence” risk control framework – line managers, risk controllers and compliance staff, and internal audit. Read more

Andrew Hill

If I were Charlotte Hogg, newly appointed as the Bank of England’s first chief operating officer, I would be a little worried.

It’s not that the UK’s central bank doesn’t need an extra pair of operational hands at the top. The possibility that future governors would be overloaded was one of my principal concerns about the BoE takeover of a large chunk of the now-defunct Financial Services Authority, so Mark Carney, governor-designate, has made the right move.

But chief operating officers are, as I’ve written before, eminently dispensable and their roles are usually difficult to define. Read more

Andrew Hill

You’re about to hear a lot more about “good banks” and “bad banks”. The report from the parliamentary banking standards commission, due on Friday, and Stephen Hester’s departure from Royal Bank of Scotland will reignite questions such as whether RBS should be split into “good” and “bad” operations (Mr Hester opposed this).

Running in parallel is a philosophical debate about how you ensure banks are “good” – in the sense of having a strong, positive purpose.

But there is also the question of whether banks that do good are always good banks. Read more

Ravi Mattu

When US businessman Victor Kiam tried a Remington electric razor, he liked it so much he “bought the company”, and spent the rest of his life telling the rest of the world about it. But for some entrepreneurs a bad customer experience can be an equally powerful spur.
This was the case for Taavet Hinrikus and Kristo Käärmann, co-founders of London-based money transfer start-up TransferWise, which announced this week that Valar Ventures, the fund launched by PayPal co-founder Peter Thiel, had made the company his first European investment.

 Read more

Bankers were “the Praetorian guard of capitalism”, Michael Noonan, Ireland’s finance minister, said last week. Given the scarring defeat suffered by the free market’s crack troops in the financial crisis, and the curbs now applied to their pay and rations, you might expect enthusiasm to replace them in the front line to be muted.

John Gapper

The chaos over the rescue of Cyprus – under which insured bank deposits were initially threatened but have been reprieved – has raised questions about whether depositors in other eurozone countries will feel safe.

But I wonder if the bigger long-term effect will be on offshore banking centres in general, rather than the eurozone. After all, Cyprus shows that a small financial centre that becomes overwhelmed by financial difficulties cannot stand behind a banking system several times the size of its economy. Read more

Andrew Hill

HSBC’s strategic overhaul is already heading for a place in the business school curriculum. This was, after all, the group that called itself “the world’s local bank” in its advertising campaigns and once relocated its chief executive to its traditional Asian hub in Hong Kong. But current, (firmly London-based) incumbent Stuart Gulliver has more modest international ambitions. Read more

Andrew Hill

As politicians, members of the European Parliament are justifiably proud of the bonus cap they have agreed to impose on bankers. They seem to have found a politically expedient, legally watertight, electorally popular way to use their limited powers to whack high finance where it hurts. That doesn’t mean that the measure, if confirmed, won’t have potentially grave consequences.

It will increase banks’ fixed costs, weaken the link between pay and performance, accelerate the inevitable drift of financial know-how and power from Europe to Asia, and instantly conjure up a thousand more complex, lawyer-driven alternative compensation structures to get round the rules. Read more

Andrew Hill

Adam Posen’s attack on the management and culture of the Bank of England may be the strongest yet, but it is by no means the first – and won’t be the last – criticism of a persistent and dismaying lack of robust governance at the UK central bank.

What is astonishing is that despite countless warnings – three independent reviews, several newspaper editorials and sundry MPs’ warnings – the central charge that the governor is over-mighty and under-governed still stands. Read more

Andrew Hill

For a breed that is rarely found, sleeves rolled up, trying to unblock the U-bend, investment bankers are remarkably fond of plumbing metaphors. Around this time of year, they usually rush to point out just how full their “pipeline” of deals is. (One optimist told the FT this week the very size of this pipeline might itself prove to be a problem.)

The implication is that if some way could be found to clear the impediments, initial public offerings and acquisitions would come pouring out. This wishful thinking leads to some sharp-elbowed lobbying for changes to rules that supposedly deter such transactions. Bankers – and, to be fair, some entrepreneurs – would, for instance, like more flexibility to bring to market companies with a lower “free float” of shares (allowing owners to retain a larger stake). Read more

“If you see a Swiss banker jumping out of a window, follow him. There is sure to be a profit in it,” Voltaire is once said to have remarked. These days, no action by a Swiss banker should be taken on trust.

John Gapper

The $2.6bn in fines levied against HSBC and Standard Chartered indicates that what used to be regarded as these banks’ biggest virtues – their exposure to emerging markets and new growth economies – are also weaknesses.

Foreign banks have been having a tough time at the hands of US bank regulators recently, and these fines have a hint of protectionism. There is clearly a feeling that foreign banks have destabilised the US financial system and systematically breached laws.

One indication of the mood in Washington is a proposal by Daniel Tarullo, a senior Federal Reserve regulatory official, to top up capital requirements on foreign banks to ensure they are in line with domestic banks. Read more

John Gapper

The Deutsche Bank case, in which three whistleblowers have accused the bank of hiding up to $12bn in derivatives losses during the financial crisis, is complex, confusing and opaque. But the underlying principle is simple and important.

Banks used to have a lot of leeway in how to treat bad loans at the bottom of the cycle. That allowed groups to avoid taking losses immediately, and instead to wait for the assets to rise in value again.

But the rules for recognising bad loans have tightened over the past three decades, while a lot of credit instruments are now carried on a mark-to-market basis instead of on the loan book. Their old freedom of manoeuvre has largely gone. Read more

Andrew Hill

If I kept crashing my car, I might well decide that I needed to keep a bigger chunk of cash available to repair it, but I would also consider whether I needed to improve my driving.

Following the same logic, regulators’ efforts to force banks to hold more capital to guard against operational risk seem to me to address only half the issue: the other half is about ensuring basic management competence at financial institutions.

As Brooke Masters writes in Monday’s FT:

Operational risk covers almost any problem – bar trading losses, bad loans and legal cases – that could damage a bank, such as the weeks of computer problems at Royal Bank of Scotland.

Yet while it may suit banks to characterise some of these operational risks as bolts from the blue – interruptions to the smooth running core business of making money from money – the truth is that most of these incidents start with simple mismanagement. Read more