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Piggy Bankers

Here’s the story so far. A bank lends money to anyone who can steam up a mirror, the Chief Executive is sacked but manages to hold onto a huge pay-off and an eye-watering pension. The government then raids the Bank of England every couple of months and continues to scoop-up more and more money which it tips into the bank by the BILLION.

The Investment bankers then take this free money and use it to gamble on the Stock Exchange which is heading upwards  because the government is also tipping  money into other banks and into the economy itself. Regrettably, the government’s munificence leaves it with huge debts but it has vowed to do ANYTHING for the banks because the banks USED to be an important part of the United Kingdom’s economy.

Unsurprisingly, the bankers’ “gambles” earn the bank some dodgy money. Unfortunately, they forget that in a rising market, any muppet can make a profit but nevertheless they demand huge rewards for their cleverness – in the shape of bonuses.

The unelected Lord Myners who is masquerading under the soubriquet of “City Minister” announces that at least 5,000 bankers in the United Kingdom will earn more that £1 million EACH. That’s a total of £5 BILLION. One would be forgiven for assuming that even if they’re on a 10% commission, they should have produced profits of at least £50 billion. However, in reality, £50 billion represents just one quarter of the £200 billion “quantitative easing” bail-out money handed over to them in the few months by a government paralysed  by the fear of upsetting the banks. The total that has been pumped into the banks since October 2008 is £850 billion!!

Taking the Royal Bank of Scotland as an example, their investment banking division made £6 billion this year and they intend to pay 25% of that in bonuses. That is an outrageous figure and should be stopped. Especially as the rise in commodity prices, which has fuelled most of their profits, had absolutely NOTHING to do with them.

The unelected Lord Mandelson calls for restraint.

The Royal Bank of Scotland will be paying a total of £2 billion in bonuses to its staff. There is an unsubstantiated rumour that the government is being blackmailed by the RBS board who say that they will resign if the government somehow manages to block the bonuses. They are all forgetting that they are the same people who were around when the bank was run into the ground. A year ago, they faced the real prospect of spending   Christmas 2009  paying for their children’s Christmas presents out of their Jobseekers Allowance. That is how close it was.

Unfortunately, they were saved by the government, so they never actually managed to set foot in the real world. Hopefully they will –  just after the next banking crisis.

VInce Cable has said that the government should call the bankers’ bluff. If they want to resign – let them resign.

The directors’ duty is to the shareholders which means that they have to listen-to and obey the shareholders. The majority shareholder at RBS is the United Kingdom Government. The Government should step in today and sack the lot of them. The bankers are playing a very high-risk game. Mind you, that’s what they do for a living – but with taxpayers ‘ money, supported by a taxpayers’ guarantee that if they lose their stake money, the taxpayer will provide them with more. 

The newly-anointed Chief Executive of RBS, Stephen Hester was considered to be a “government man” – a steady hand on the tiller. However, even he is showing dissent by saying that the bank will lose “valuable staff” if it is unable to pay bonuses with lots of noughts.

The argument that bonuses need to be paid in order to attract and retain “talent” is exactly the same fatuous argument which is bankrupting most football clubs.

There are two months left before the bonuses are supposed to be paid. Let us hope that everyone concerned uses the intervening time wisely.

(Barclays is about to increase the pay of 22,000 investment bankers by 150% – in lieu of the proposed cut in bonuses. Clever!)

You calling me a banker?

“Move over, Darling. Please!”

Banks are currently reducing their assets and hoarding cash because of liquidity requirements. Put in simple terms, that means that the magic conjured-up money – the so-called Quantitative Easing is making it in through the banks’ back doors but the front doors remain only slightly ajar.

No amount of media-blackmail or Government arm-twisting is going to persuade the banks to start lending to commerce or to the private sector  in reasonable volumes or at reasonable rates. The banks are lending but at nowhere near the volumes needed by the economy. When they do lend, they apply wall-to-wall fees and a starting interest rate of the order of 6% over Base Rate. So, if you factor-in their fees, the actual percentage rate is ridiculously high compared to what little the BANKS are paying for the money and compared to the average company’s profit margin.

Very often finance is over-complicated. For instance, if you are a manufacturer and you have a bank overdraft on which you are paying 10% per year, you need a pretty hefty profit margin in order to make any profit after you have paid your bank charges. Simple.

Currently, margins are so tight that the banks may as well be in a different economy and on another planet because the sums just do not add up. The banks are doing their own thing, apparently with absolutely no reference to what is happening in commerce – especially where interest rates and current commercial margins are concerned.

There are those who seem to think that the current Bank of England Money Sale (Quantitative Easing) is not working. “We can’t tell yet” is a current often-recited bankers’ Mantra. The double uncertainties of whether QE is working and more importantly, whether  the UK will ever be able to repay its currently vast borrowings without further damaging the economy has caused the pound sterling to fall in value. It has begun its short journey South and will be closely followed by the dollar.

Mervyn King, the Governor of the Bank of England wants to add another £25 billion to the Quantitative Easing pot. He is currently in a minority of ONE. The dissent reminds us once again that Economics is largely a matter of opinion, guesswork and misjudgement.

The Chancellor, Alistair Darling still has an occasional bleat about bankers’ bonuses. That is all purely cosmetic. Bankers’ bonuses are trivial in comparison to the current needs of manufacturing and commerce.  In fact, the whole subject of bankers’ bonuses is taking-up a very disproportionate  amount of not-only our media space but also of the Chancellor’s and the Prime Minister’s collective energies. It is a red-herring. This morning, Alistair Darling has again been banging-on about “clawback” and banks holding onto bonuses for three years. It’s all ill-conceived rubbish.

The fact is that the Government has absolutely NO RIGHT to tell any privately-owned company what it should be paying any of its employees. That is up to the owners of the company – the shareholders. However, where the Government is a major shareholder in a company, e.g. RBS, only then is it at liberty to impose its views.

The banking issues will not be solved until there is a dislocation between High Street Banking and Investment Banking.

This morning’s hare-brained scheme was to ask companies  to declare their TOP 20 earners’ incomes. That should work-well for many Hedge Funds! Some only  have 5-10 employees. We’ll know what their secretaries and cleaners are earning which should be useful!!

The Banker Bonus issue is a red herring which the Treasury is using more and more to distract us from the fact that they  not-only made a mess of managing the economy prior to September 2008 but  it now looks increasingly likely that the “cure” that has been applied through the medium of Quantitative Easing only has a 50-50 chance of working.

The real worry, however is that Quantitative Easing was the last throw of the dice – and don’t be fooled by the near-miraculous “recovery” of the Stock Markets. Those Investment Bankers are now gambling with pretend QE money. The end-game will be fascinating.

Retribution or Restitution?

 

Unlike your MP, at least Dick Turpin had the grace to wear a mask.

The taxpayer is looking for two things as a result of the current MPs’ expenses campaign. Retribution and Restitution.
 
Retribution can be delivered through the medium of the ballot box but  the matter will not be allowed to rest until there is at least some attempt by Members at restitution. Apologies are no longer hard currency.
 
How about if some of the more frivolous Members’ claims were dealt-with by the Inland Revenue as “income” and subject to taxation at 40%. Any such amount could then be collected by an adjustment to the MPs’ tax codes and would be collected by the Inland Revenue over say, a couple of years.
 
There is little doubt that there has been some “naughtiness with intent” but in the main, I believe that the vast majority of MPs are honourable people who currently appear to have but one weapon with which to defend themselves.That is the “It was within the rules” mantra. Unfortunately, that phrase is a little too reminiscent of  “I was only following orders”  – and just as believable.
 
The suggestion appears to be that if you are caught with your hand in an open sweet jar – it is perfectly OK to blame the jar for being open.
 
It would appear far more honourable for certain members to come over the parapet with their hands up and admit that there has been confusion. Rather than be subjected to any possible hardship as a result of having to make repayments, the matter could be left to the Inland Revenue. Meanwhile, that nice little earner for retired Civil Servants, the enquiry, could grind along at its own pace.
 
I hope that soon we shall see the green shoots of trust – currently they seem more important that those other shoots which keep threatening to emerge.

I’m a real FRIC.

 A Valuer FRICS

Gordon Brown continues to speak with the conviction of a condemned man reading from a hurriedly-conceived briefing paper  This time it is mortgages (again).

No more 100% mortgages? I think that it is about time that the Prime Minister carried out a simple calculation as follows:  Suppose that the Government (sorry, Northern Rock) lends 80% on a £100,000 property – that is an £80,000 mortgage. Then let’s suppose that the property falls in value by 20%. That means that there is an £80,000 mortgage on an £80,000 property. That is what they call a 100% mortgage. When a householder has  no equity in his property – that is also a 100% mortgage. Negative equity just means that the mortgage is over 100%.
 
That brings one rather neatly to one organisation which has kept its head down throughout the whole sorry mortgage  mess. The Royal Institution of Chartered Surveyors. They should have come out with their hands up many months ago. Why? Because their members have been the ones who have been valuing properties. The most deflationary thing that the Government can do as far as property prices are concerned is to ignore the sulking banks for a while and have a serious chat with the RICS.
 
There was a time when the RICS was a leader – an organisation whose valuations were sacrosanct. The RICS has now become a follower which does exactly what the banking industry tells it and has contributed more than any other organisation to the ridiculous house price rises of the last 10 years. But wait – their blind slavishness to the banks is far worse than merely following orders.
 
Imagine that you are a Bank and you want to lend and you also want to make sure that the properties that you lend on have the benefit of  a high-enough valuation. How do ensure that there will be no problems with house valuations? How do you make 100% sure that  the valuation will be exactly the one that you need?

 Simple – YOU BUY YOUR OWN VALUER!
 
For example, Halifax  valuations are carried out by Colleys. Who owns Colleys? The Halifax. One is not suggesting naughtiness but when valuation fees are a function of the valuation and the value of  properties in-mortgage represents a lender’s assets, the temptations do not have to be spelled out.
 
The RICS should assert itself – otherwise there is a real danger of the property inflationary spiral replicating itself in a few years time. Independent property valuations and a return to more objective valuations will have an immediate impact. Currently, there is far too much reliance on the “supply and demand” argument and incidentally, the “drive-by” valuation – but that’s another story.
 
In the last few years, the pressure on valuers has been to “value up”. The valuers value up and then the accountants come along later and value down. Not an ideal system.
 
Time for the RICS to make a stand – if that’s all right with the banks.

Twitter to who?

 

Here in the UK, the gossip website Twitter.com has suddenly taken off like a rocket , all because of  last week’s discussion  between His Holiness Stephen Fry and the potty-mouthed Jonathan (call me Ranker) Ross.
 
Inevitably, Twitter has the usual itinerant population of Hypnotists, Holistic Healers, Motivational Speakers and “How would you like to make $3500 per day” merchants but it is so much fun.
 
The idea is very simple – you register and put down your thoughts and deeds as often as you like – as long as each entry is no longer than 140 characters.  A sort of electronic Haiku.  You can also “follow” others’ entries and you can allow as many people as you want to follow your musings.
 
Currently, Stephen is undoubtedly UK’s  “Mr Twitter” as he has over 100,000 followers (or should I say disciples?).
 
So what exactly is it for?

In the beginning there was email but originally, that involved sentences, grammar , punctuation and all that old-fashioned stuff. All that superfluous fluff was soon removed and for good measure, vowels were also rmvd. Thus the text message was born. All in the name of as little effort as possible.
 
A few years ago, the Blog was invented. A Blog is  a personal website where you can write anything you want, in the hope that others read it, but there is a catch. Paragraphs, punctuation, spelling  and all that jazz are again the order of the day. If you want to look like a writer, apparently you need all that formal stuff. There along came Twitter – a shorthand blog.  Most of us can  write something  in 140 letters and spaces – so Twitter is a great leveller.

Those with the brain of an isopod may fashion to appear as clever as the eruditiously tumid St. Stephen of Fry.
 
Twitter.com is the 21st century version of Vanity Publishing and has all the characteristics of being of its time. It is quick, shallow and disposable – but luscious.
 
There some very famous individuals sharing their thoughts and deeds – for instance , we all knew by early this morning that “Schofe” was snowed-in and would not be appearing on This Morning and  St. Stephen was in the recording studio. Mundane? Yes.
 
Definitely a case of the  Bland reading the Bland. But wait…………
 
This morning, I was informed by email that a very well-known person was “following” me. I must admit to a slight “frisson” and am currently trying to compose something  very learned and witty – all within the constraints of 140 characters.  Hmm……………

KFC is not a Knighthood, Gordon!

 

As a management trainer I thought that I would give Gordon Brown and his motley band of funsters a basic (and free) lesson in management – purely to help then to concentrate their minds.  During this week’s PMQs, David Cameron referred to the “headless chicken”. His brutally eloquent summing up of the Brown style , although unoriginal is perfectly accurate.
 
There are only a few types of generally accepted styles of management. So which one is the Labour Party using?:
 
1. Management by Objectives. This is the best-known and easiest to understand  and all other styles of management have this style at their core. You set specific measurable objectives which are agreed and timebased and then you monitor progress. For instance: The banks will have lent £10 billion to businesses by 15th February. Currently, the government’s version is that the banks will lend when they have “regained confidence”.  Perhaps Gordon Brown ought to assign a social worker and a counsellor to each bank to help with their affirmation exercises.
 
2. Management by Exception. Let the system continue and only intervene when pre-defined objectives are not being met. Do not attempt to manage every single micro process such as fiddling with the VAT at a time when retailers are discounting by 50 or 60 %.
 
3. Management by Process. Define critical Macro and Micro processes, assign ownership of these processes and monitor and measure performance and progress against pre-determined objectives.
 
4. Management by Projects. Plan the entire process that you need to complete your goals and set interim goals. Intervene when it looks as if a goal is in danger of failing to be achieved.
 
Currently it appears that the government has no plan, no time-based objectives and appears to be  creating so many disparate goals that the country is in real danger of losing total confidence.
 
The government appears to be an observer rather than a shaper of events. The current style of management also has a name and is called:
 
5. Management by Pissing in the Dark. You attack as many parameters as you can in the hope that something positive happens. Unfortunately you need to hit them in the right order which is unlikely especially if  a. You don’t really understand the root cause of the problem and b. Your head is being eyed up by the man from KFC.

Em I Rate?

” A large erection in Dubai – the Burj Dubai”

Dubai, in common with all other Middle Eastern States is not immune to the global financial crisis.

A few weeks ago the UAE Central Bank injected nearly $15 billion into the economy in order to maintain liquidity. It did so without the accompanying noise and self-justification that Western governments go about their business.

Dubai has had local issues which have complicated its exposure to the credit crunch – namely allegations of corruption among its banking and real estate executives. There has been naughtiness.

In recent years, during the rapidly inflating property market, “flipping” became a bit of a national sport. (“Flipping” is the practice of buying a property and then selling it almost immediately for a profit). If you have the right executives in place, flipping can be an almost instant method of acquiring a great deal of capital – sometimes with no initial outlay. It is the opposite of “shorting” shares and can only take place in a rapidly rising property market.

Dubai property prices have risen by 80% in the last 18 months but currently, in spite of Government support, they are experiencing a downturn.

Dubai’s fixation on leading-edge architecture and artificial islands, coupled with its testosterone-fuelled march towards the architectural “biggest and best” seems to be generating the vigour which is currently sustaining its PR machine – but what happens when the building stops?

This is an economy which (unusually) appears to be driven by a constant striving for a continually amplifying “WOW” factor. If we didn’t know better, we may be forgiven for thinking that the Dubai economy is controlled by a Public Relations company!!! But there is a serious undercurrent.

The glitzy celebrity-fired parties and openings are the superficial face of Dubai. This Emirate is also a uniquely-placed business hub which attracts international investment like a designer magnet.Why? Because the UAE are not “overborrowed” but have massive reserves.

Sheikh Mohammed Bin Rashid AI Maktoum has very recently stated that the federal government will ensure that no UAE national bank will be exposed to credit risks, guarantee deposits and savings, guarantee all inter-bank lending operations between banks operating in the UAE and inject sufficient liquidity in the financial system if and when necessary.

That seems pretty comprehensive.

In addition, Energy Minister Mohammed bin Dhaen Al Hamili has announced that the UAE has decided to reduce its November production ceiling of crude oil in accordance with the most recent OPEC agreement.

Those are definitely the kind of problems that most economies would give their right arm for.

More by accident than by design, Dubai has crafted a haven for big-hitting investors to shelter whilst the global financial hurricane blows itself out.

I suspect that the long-term prognosis is good – better than for instance, the USA and Western Europe.