18 Mar 2009

Bank of England Governor in a swipe at the FSA

I think this short quote from Mervyn King's speech to bankers speaks for itself: 'A system in which it is easier for a large bank to expand and then destroy its balance sheet than for an individual to open a bank account has lost focus'

10 Mar 2009

Danger of trying to buy market share

A short press article ('As Merrill Lynch sputtered, it made a big bet on Brazil', Wall St Journal, 10 March 2009) reminded us of the danger of trying to buy market share in any business by throwing money at top people working for the competition.
Not only is it far from certain that the executives lured away will flourish in a different business culture at the new employer. If their recruitment can only be effected at high - or even exorbitant - compensation levels it may also be an indicator that the business one tries to enter has already reached a peak and may no longer offer the growth prospects one is looking for.
Selective hiring of top individuals at top compensation levels may be worthwhile in isolated cases. However, employers should take great care before committing themselves to a large financial outlay and conduct extra due diligence rather than getting carried away or 'falling in love' with prospective candidates.

Banking Secrecy - Enemy Number One or convenient scapegoat?

During the recent past politicians and lobbies of all persuasions seen to have found a new 'Enemy Number One' - Banking Secrecy and linked to this Tax Havens large and small.
Politicians and their paid servants, the regulators, have failed miserably to prepare for the current global financial crisis. For example, the Bank of International Settlements has spent roughly 10 years to produce a report of nearly 1000 (!) pages but this Basel II framework did nothing to prevent the debacle that has afflicted major banks around the world.
So it appears to be nothing more than a desperate search for scapegoats when politicians attack banking secrecy and tax havens. They are not the cause of the current crisis!
Not so long ago there was a time when anyone could walk into a Bank in Austria and open a bank account without presenting any form of documentation. No one asked what their name or address was. You paid in your money and you received a bearer passbook that was the only document you needed to claim back your money. In his teenage years the author even opened a number of passbooks on the same day. That way he pocketed a small amount of money that the banks put into new passbooks as a reward for opening the account.
Was crime any higher as a consequence of lax banking regulation? Was corruption rampant? Not at all. Since the (US inspired) crusade against banking secrecy gathered speed both crime and corruption have - if anything - increased. The world certainly does not seem to be a safer place.
Ironically, much crime and corruption can be traced back to ill-conceived legislation: the war on drugs, arbitrary taxes (tobacco, alcohol), questionable regulations and subsidies (agriculture, trade tariffs, soon to be exceeded by fraudulent carbon trading), limits on prostitution. All these laws and regulations may be well-intentioned but they provide a fertile field for criminal activity and usually are counterproductive as well as costly to the taxpayer and citizen (who most of the time get no say on respective laws).
If countries want to close down tax loopholes they can avail themselves of a solution that is easy to administer and leaves the precious privacy of all citizens untouched: Legislators can decide to impose taxes at source. If politicians are really only interested in reducing the amount of tax that in unpaid this solution should be suffice. Anything more intrusive indicates that the authorities are really interested in invading the private sphere of the individual and increase the control that the state already has over the citizen's lives.

Danger of trying to buy market share

A short press article ('As Merrill Lynch sputtered, it made a big bet on Brazil', Wall St Journal, 10 March 2009) reminded us of the danger of trying to buy market share in any business by throwing money at top people working for the competition. Not only is it far from certain that the executives lured away will flourish in a different business culture at the new employer. If their recruitment can only be effected at high - or even exorbitant - compensation levels it may also be an indicator that the business one tries to enter has already reached a peak and may no longer offer the growth prospects one is looking for.Selective hiring of top individuals at top compensation levels may be worthwhile in isolated cases. However, employers should take great care before committing themselves to a large financial outlay and conduct extra due diligence rather than getting carried away or 'falling in love' with prospective candidates.

8 Mar 2009

Lloyds-TSB: Failure to heed the warning signs

Management has stubbornly refused to call off the acquisition of HBOS. The warning was on the wall in CAPITAL LETTERS and for all to see. We understand that leading a large organisation is a lonely job but that does not mean that executives have to be pig-headed to the extent that they doom their companies as Fred Goodwin had nearly managed to do. The defacto demise of RBS as a free-standing business should have been warning enough and no one can claim that the extent of the decline in financial markets and the world's economies could not have been foreseen last autumn. For an excellent analysis of this debacle read 'Brown cannot shirk the blame for Lloyds' (The Times, 9 Mar 2008). It is difficult to see how the Chief Executive and Chairman can remain in their posts.