After the spectacular chaos of the last time that regulators and governments scrambled to rescue banks in the US and Europe, they have hammered out a plan for the next time. It is better than the absence of one in 2008 but who knows if it will work?
Technology has its eyes on banking. Apple is expected this week to launch Apple Pay, its touchless payment system for iPhones; venture capital funds are pouring money into “fintech” start-ups; and Marc Andreessen, the technology entrepreneur, talks of “a chance to rebuild the system. Financial transactions are just numbers; it’s just information.”
Mark Carney © Photo by Chris Watt – WPA Pool /Getty Images
Mark Carney, governor of the Bank of England, would not win a popularity contest among directors of banks at the moment. Yet he and the Bank are taking a stance on individual responsibility that most people think is long overdue. Read more
Star fund managers are very valuable people, but not as valuable as they think they are. In a world of precise calculations and spotting the arbitrage opportunities between prices, this is one gap they fail to notice.
If I ever rise to become chief executive of anything and I’m looking for yes-men to people my boardroom table, I shall make sure I employ a bunch of merger and acquisition bankers.
At the end of every quarter, to coincide with the publication of M&A rankings that they yearn to top (while professing indifference), these bankers boast about the fullness of their pipelines, the strong prospect for strategic deals, and, implicitly, the promise of more fees. As the illustration below shows, their outlook is at its rosiest-tinted just before a downturn.
In spring 2001, for instance, as deal volume plummeted, the esteemed Simon Robey, then co-head of M&A at Morgan Stanley, pointed out that “the fundamentals of the business have not changed, so when markets stabilise, we should see announcements of deals that are currently in the pipeline”. A truism, of course, but deals did not recover their 2000 peak until 2006. (A partial hall of shame of retrospectively regrettable M&A banker quotes appears at the bottom of this post.)
On Thursday, Scotland may set out on the bumpy path to independence from the rest of the UK. Its banking system is likely to work only if it is braver and more far-sighted than Alex Salmond, the Scottish National party leader, during the campaign.
Every time I hear about a company relocating its headquarters I think of the Marvin Gaye song “Wherever I Lay My Hat (That’s My Home)”. A hit for Paul Young in a 1983 cover version, its hummable melody cloaks an unattractive sentiment, voiced by someone with dubious motives.
The other day, a business in New York mailed a dollar cheque to me across the Atlantic. It was a pretty thing – multicoloured, with an anti-fraud foil hologram – and I admired it for a while before putting it into another envelope and posting it back to a friend in New York to walk up the block and deposit. After a round trip of 7,000 miles, it reached my account three weeks late.
While waiting in a big Manhattan hospital about 15 years ago, I glimpsed the chairman of one of the world’s biggest banks in a consulting room. I never found out why he was there. If he was ill, his employer never said and the man is now enjoying a long and apparently healthy retirement.
Given that financial crises are caused by herd-like behaviour by banks, it is hard to know whether to be encouraged or dismayed by the latest mass shift – away from investment banking and toward retail and commercial banking.
The Bank for International Settlements annual report, published today, finds that one-third of banks that entered the financial crisis in 2007 as wholesale-funded or trading institutions switched to retail banking by 2012 (19 out of the 54 in its sample). Read more
The New York attorney-general’s complaint against Barclays over the way it ran its dark pool seems to contain clear evidence of institutional investors being misled about the amount of “toxic liquidity” provided by high-frequency traders.
More broadly, however, it raises the question of how the original purpose of dark pools – to allow institutions to make block trades away from public markets where they would move the price – was subverted by investment banks. Read more
No-one emerges well from the legal battle between Goldman Sachs and Deeb Salem, its former mortgage trader who claims that his $8.25m bonus for 2010 amounted to severe underpayment. It is no wonder that Goldman tried to seal the documents in what it calls an “utterly ridiculous” case.
The problem for Goldman and other Wall Street firms is that they have encouraged that sense of entitlement among employees – one that strikes almost everyone outside Wall Street as delusional. Mr Salem’s claim is merely an extreme example of a much wider problem.
Presumably, although he denies it, Brady Dougan considered resigning as chief executive of Credit Suisse this week when it became the first global financial institution since Crédit Lyonnais in 2003 to plead guilty to criminal felony in the US. In any case, he stayed.
The recent history of Britain’s Co-operative Group is so peculiar it is tempting to paraphrase the opening lines of Anna Karenina – “Happy companies are all alike and every unhappy company is unhappy in its own way” – and dismiss it as a management aberration.