After six years of scrutiny, and repeated legal action against those around him, Steve Cohen remains a free man. His $15bn hedge fund SAC Capital is still in business and he still firmly maintains his innocence, despite the evident disbelief of regulators and prosecutors. It is time to prosecute him.
My views on Jamie Dimon‘s dual roles as chairman and chief executive of JPMorgan Chase have not changed since a year ago, when I called for him to give up the chairmanship, but the stakes are much higher.
Mr Dimon faces a shareholder vote at the bank’s annual meeting next week to enforce a split of the two roles in the company bylaws. According to the Wall Street Journal, he has hinted that he might give up both jobs and leave if that passes. 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.
If you’re on Twitter, you’ll know by now that Warren Buffett is – to quote his first and (at time of writing) his only tweet – “in the house“.
His appearance on the social media service is apparently linked to a Fortune forum in which the Sage of Omaha is due to participate. It has already garnered him (again, at time of writing) 40,000 followers and prompted some Twitter wit from his bridge partner, Bill Gates. Read more
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
I struggle to see any logic behind the European Parliament’s latest initiative to crack down on financial industry pay, beyond a dislike of bonuses. The idea that investment funds should be treated similarly to systemically important banks has even less merit than the original idea.
The basis on which the EU proposed to rein in bank bonuses – despite UK opposition and criticism from supervisors including Andrew Bailey, the incoming head of the Prudential Regulation Authority – was that excessive bonuses gave bankers a perverse incentive to take risks. Read more
The article by Erin Callan, former chief financial officer of Lehman Brothers, on how she lost herself in work, is an interesting reflection not only on women on Wall Street, but also on how relentlessly many bankers work.
Ms Callan, who lost her job in 2008 “amid mounting chaos and a cloud of public humiliation only months before the company went bankrupt”, writes in the New York Times of the extreme work culture at the top of the former investment bank: Read more
There are plenty of interesting ironies raised by the news that investment banks are charging asset managers up to $20,000 an hour for access to chief executives, often unbeknown to the executives themselves.
One is that chief executives themselves are no strangers to “cash for access”. It’s a perennial political “scandal” that big corporate donors to political parties get to rub shoulders with the prime minister or his cabinet at private parties and dinners. The last time such a hoo-ha erupted, in 2012, the FT wrote that prominent City figures were “bemused at the outrage” surrounding the affair, describing it as “a healthy part of the democratic process”. One said: Read more
What strikes me about the findings of the UK Competition Commission’s inquiry into the audit market is that in a world of ever more rapid change, a company’s relationship with its auditor is now often the oldest fixture in the boardroom.
Think about it. The commission says 31 per cent of blue-chip FTSE 100 companies have had the same auditor – almost invariably one of the “Big Four” – for 20 years or more. During that period, on average, most companies will have changed their chief executive at least four times, their non-executive board members (assuming replacement at the nine-year mark, when they lose their independence according to UK guidelines) twice, and their computer systems probably five or six times. Read more
If I were a mastermind seeking to undermine the City of London, I would shift Germany’s financial centre from Frankfurt to Berlin, just as the country moved its political capital from Bonn in the 1990s. Then it would be part of a cosmopolitan city where foreign bankers and lawyers might actually want to live.
As an old student of HSBC – or, as I prefer to call it, Hongkong and Shanghai Banking Corporation – I found Stuart Gulliver’s remarks about the inadequacy of its structure following the Mexico money laundering scandal fascinating.
HSBC’s chief executive told the Parliamentary Commission on Banking Standards on Wednesday:
“Our structure was not fit for purpose for a modern world. Our geographic footprint became very attractive to transnational criminal organisations, whether they are terrorist in origin or criminal in origin.”
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
The showdown between Bill Ackman and Dan Loeb, two activist fund managers, over the value of Herbalife, the US health supplement company, is entertaining for bystanders. It presages more such splits.
Traditionally, hedge funds have tended to hunt in packs – lining up to sell shares short or to arbitrage securities. One recent example was at JP Morgan Chase, where a set of hedge funds, led by Saba Capital, traded against the bank’s derivatives position.
In Herbalife’s case, Mr Ackman’s Pershing Square Capital and Mr Loeb’s Third Point, are arrayed against each other. Mr Ackman has accused Herbalife of being a Ponzi scheme, which it fiercely denies; Mr Loeb is on Herbalife’s side. Read more
Lehman Brothers collpsed in 2008. Getty Images
The demise of London’s merchant banks, which were sold to US and European banks in the mid-1990s after the collapse of Barings in 1995, showed they could no longer exist in the modern world of finance.
Was the US much different, though? Looking back at the 2008 financial crisis, the collapse of Lehman Brothers had roughly the same effect on the Wall Street investment banks as the collapse of Barings in 1995. 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.
You have two weeks until the end of the quarter – which, for many companies, is also the end of the financial year. Instead of developing strategy, or working on long-term plans – let alone buying gifts or dressing the Christmas tree – you’re locked in a windowless office. Your sole objective: to hit your targets for 2012.
Bob Benmosche, the amiably loud-mouthed chief executive of AIG, took his victory tour to London this week. “We are free at last,” he rejoiced to his fellow bosses as the US Treasury sold the last of its AIG stake.
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
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