22 May 2013

EU Bonus Cap - Welfare for all is ultimate destination!


One may agree with this policy (EU casts wider net for Bank Bonuses, CNBC) or not - but there will be many side-effects, intended or not. Staff will migrate to other sectors, in particular private equity and hedge funds, also traditional long-only fund managers. If politicians then want to extend pay caps the next stop for professionals will be the general corporate sector. That would mean that eventually ALL business compensation will have to be controlled - by politicians with only the slightest democratic legitimacy (Has anyone anywhere had a chance to vote for these measures? Does anyone even know his 'representatives' in the national or European Parliaments?). All this and the question of migration to areas outside the control of Eurocracy is completely left open. We might as well hand all our salary to politicians and just receive vouchers for our daily need - Welfare for all is the destination!

7 May 2013

Commerzbank defeated in Bonus Fight

All managers involved in employee compensation will be well advised to study the implications of this protracted legal case (see here and here). When senior managers of Dresdner Bank in London tried to pacify members of staff that were unsettled by news that Commerzbank was about to make a takeover bid they did not foresee the implications of the verbal promises intended to calm the nerves of their employees. They would not have expected that two trials in the British courts would have considered their statements to be a legally binding contract that even the dramatic upheavals of the financial crisis in the later part of 2008 would not have been able to extinguish.
In a similar vein, all-too-often I find that the coordination between senior management and human resource departments leaves a lot to be desired. In addition, special deals - often verbally - are agreed with staff members that lead to further confusion and mistrust among other staff members that feel that they are discriminated against. In the case of the promises made to Dresdner Bank one could also have said (even without the benefit of hindsight!) that employment prospects during the summer/early autumn of 2008 were already less than rosy and the threatened (or feared) exodus was highly unlikely.

17 Apr 2013

Scariest Part of Gold Crash?

Reads a headline but the article forgets to mention what really should scare investors, market professionals and regulators: the fact that the price of a major asset can plunge by such a large amount in a few days demonstrates the inherent fragility of financial markets. During the past 30 years the unprecedented growth of  (mostly over-the-counter) derivatives - subject to 'light-touch' supervision - has created a huge house of cards of interconnections between all financial market participants that could rapidly spiral out of control. The absurd length of time required to unwind all the liabilities from the collapse of Lehman - and the number of company 'boxes' created by that firm - shows that the current regulatory scheme is not up to the job. Proper stress-testing of banks, insurance companies, securities firms, asset managers and pension schemes would have to be much tougher and assume a shift in asset prices by multiples of the underlying assumptions that are used today, something in the order of 20-25 percent.

11 Apr 2013

German Managers want banking pay limited - but not their own

A poll conducted by Handelsblatt comes to the conclusion that German Managers favour limiting pay in the banking industry but not in their own companies. How hypocritical can you be? But apart from this questionable aspect limiting pay in the banking industry would mean that only second-rate people would want to pursue a career in banking. This episode demonstrates that the question of pay - especially for senior management - cannot be tackled in specific industries but must be part of a wider solution based on sound management and moral principles.

Fed sends Minutes a Day (!) early - the real questions

In the Lobby-infested cesspool that is Washington it is no surprise to find that the Fed 'accidentally' sent copies of the latest Minutes to a select list of banks, investment managers and lobbyists. While the easy excuse is that it just is a 'fat finger' error caused by some junior staffer (an unpaid intern?) I just find this explanation less than satisfactory. As anyone who has ever sent an email message to a maillist should know a message is only sent to the recipients that are included in the list. If only this select group of recipients gets the mail it should mean that there was a sort of priority list. Otherwise all those who have signed up to get the Fed minutes delivered upon release should have seen the message at the same time. In addition, there should be a forensic audit into the trading activities of all recipient firms to find out whether they profited from this information or not.

10 Apr 2013

Libor - Regulators asleep on the Watch (again)?

While I have doubts that the alleged or actual manipulations of the Libor rate-setting process really did major harm to anybody it is amazing that one large market participant was allowed to play a crucial role in the fix. Another case of regulators asleep on the watch?

4 Apr 2013

Salz Report on Barclays - another Figleaf for the Establishment

The lengthy - and ridiculously expensive - Salz Report has to be seen in the long English tradition of conducting expensive and lengthy enquiries when the solution to the problem would just have taken common sense and a willingness for decisive action. Both ingredients are missing. It is not clear why there would have to be an enquiry into Barclays Bank and not into any of the other major banks, investment institutions, regulators and politicians who must certainly share a large part of the blame for problems in the financial sector - and wider economy - that have evolved during the past few years. The proverbial blind man could see that executive pay in banks - but also in investment firms and major listed companies - has spiralled out of control. It leaves a sour - not to say salty - taste in one's mouth when one sees that the costs of the report are such that the 'solution' is part of the (pay) problem. How can anyone justify that a 244 page report that any junior management consultant with his head screwed on could has put together can cost £17 million! And how much of that did go to the City 'Grandee'?

3 Apr 2013

No regulators slated for failure

But HBOS chiefs 'slated' for failure (Financial Times). And anyone thought that there was a proper investigation of banking problems?