Tag Archives: RBS

Stephen Hester and Google.

Usually an organisation the size and scope of RBS  has a few things in place which lesser companies do not. One of those is Succession Planning.

Yesterday’s announcement of Hester’s departure suggests that whoever made the decision for him to quit, made the decision in a hurry, with no backup plan in place. That clearly points to a sudden and very serious difference of opinion between Hester and Osborne. So, the question of whether Hester jumped or whether he was pushed (clutching a very substantial parachute!) is largely irrelevant.

However, we do know that just a couple of weeks ago the RBS Chief Executive was talking as if he would be steering RBS back to private ownership …..so what has suddenly happened? What is the root cause of his sudden exit?

The root cause is the same one which is motivating politicians to bully Google (and others) into paying imaginary tax debts.

The Treasury and Chancellor Gideon are desperate for revenue.

Hester would have told Chancellor Gideon that RBS is not yet ready to be “flogged-off ” merely to produce much-needed cash, (in an immediate Wonga Payday Loan sort of way) for the Treasury’s empty coffers…….. or Google (which continues to act perfectly legally) being told by politicians that it becomes liable for tax “at point of sale”.

The upshot is that the Chancellor will appoint a “yes-man”  to sell RBS – probably at the bottom of the market and Google will continue to argue quite correctly, that its primary responsibility is to its shareholders and NOT to an increasingly desperate, discredited and panicked Chancellor presiding over a destitute Treasury.

“Britain is open for business”?

Don’t make me laugh!

Fred Goodwin in good company!!

Fred Goodwin has never been convicted of anything, he has not been censured by any regulator, yet the very obscure and to most of us, hitherto unknown Forfeiture Committee has recommended to the Queen that he be stripped of his knighthood. This committee (apparently) is non-political and consists of several high ranking civil servants as well as the  head Treasury lawyer.

But what motivated this cruel and unusual punishment? Why exactly was Fred Goodwin stripped of his Knighthood?

In the absence of concrete reasons, it seems that Fred Goodwin was tenderised by the media, before being served up to the baying mob.  A sacrificial lamb with our howling political leaders elbowing themselves to the front of the queue.

Deputy Conservative Chairman,Michael Fallon says, “Ministers don’t control the timings of the forfeiture committee, this is an entirely independent committee of civil servants.”

So why did these independent free spirits make the decision? What motivated them? Why wait THREE years?

We may well agree that Fred Goodwin is an odious little man who had been promoted to well above his personal level of incompetence but that is nothing unusual within the Financial Services Industry. He was merely one among the many.

He was Chief Executive of a huge bank which was chaired by Sir Tom McKillop – a chemist. Goodwin himself was no more than an accountant who was nowhere near ready to run an international bank. He was not a banker – yet at the time, EVERYONE had decided that he was as close to a banking deity as was possible.

The laughs in this financial farce are amplified by the names of some other Sir Knights who have been unfortunate enough to be stripped of their knighthoods: Robert Mugabe, Nicolae Ceaucescu and Benito Mussolini are just three. Then you add “Fred Goodwin” to the list and suddenly realise that it just doesn’t scan!

In December 2011, the Financial Services Authority produced a report into the RBS  failure. There was one section which Fred Goodwin’s lawyers asked to be removed from that report.

It was the bit which criticised his lack of banking experience.

Here is the 450-page FSA report into the RBS collapse. If you scroll down to Page 223, you will see that it is The RBS Board which has been found to be lacking and NOT just Fred Goodwin:      http://www.fsa.gov.uk/static/pubs/other/rbs.pdf

There is a very simple rule in management which always applies, especially to the Board of a company: ” If you hired the wrong man and he screwed up, it’s YOUR fault. If you hired the right man and he screwed up, it’s DEFINITELY your fault.”

It is the RBS Board of Directors which ought to be standing shoulder-to-shoulder in the dock and being stripped of honours. NOT their overpromoted hireling.

So why was Fred Goodwin stripped of his Knighthood?

Petty Political Revenge.

It’s Different Attitudes……….

American father to his son: ” See that man son? That’s Stephen Hester. He’s Chief Executive of the Royal Bank of Scotland. That’s a VERY big bank and the British government hired Mr Hester to put things right after it was left in a bit of a mess. He’s very successful and if YOU study and work hard, perhaps one day you can be as successful and as well-known as Mr Hester.”

English father to his son: “See that man son? That’s Stephen Hester. He’s a fat greedy capitalist bastard who thinks he’s better than us. It’s hard-working people like me who pay his wages. We work and he just sits behind a big shiny desk and gets millions. Make sure that you don’t turn out like him.”

In defence of Stephen Hester!

RBS Chief Executive Stephen Hester has a very challenging job. He has to get to grips with the quagmire of accounting and organisational disorder bequeathed to the taxpayer by his predecessor Sir Fred Goodwin. So far, Stephen Hester does not appear to have put a foot wrong but in spite of that, he is fast becoming as much of a pariah as Fred the Shred.

Why is that?

At the highest levels of the Financial Services Industry, especially Banking, , there is a staggering shortage of REAL management talent.

In 2008,  when  the Labour government realised (too late ) that the entire industry was in trouble and that changes needed to be made at the highest level, the pool of talent on which  the then Chancellor could call, was extremely limited.

Prior to taking over at  RBS , Hester had been appointed non-executive deputy chairman of the newly-nationalised Northern Rock. He had been appointed by Chancellor Alistair Darling.  Subsequently (in September 2008), he was asked to take a non-executive position on the board of Royal Bank of Scotland.

Throughout his tenure at Northern Rock and right up until November 2008, his “day job” was Chief Executive at British Land. However, the vast bulk of his career had been in banking – 19 years at Credit Suisse First Boston followed by three years as Chief Operating Officer at Abbey. His knowledge of banking and the debt markets was beyond question – although at the time , there was some question as to his political skills  – which he would certainly need in his new RBS job.

His job was to turn around what has once been a bank with a share price of 700p, which , at the time of his accession, had tumbled to a mere 50p. That was in 2008 when the British Government bought about £45 billions’-worth of stock, giving it a 84% share of the bank.

The job which he was being asked to do was by far the most daunting and high-profile within the the broken banking industry.

In addition, both the politicians and regulators had begun the process of taking the focus off their own shortcomings and ineptitude by creating the Banker Bogeyman. The Fatcat. The incompetent Greedy Bastard who only cared about his bonus.

Unfortunately, even the white-hatted good guy saviours such as Hester were also tainted.

At no time did a politician stand up in his defence and point-out that Hester was a government hireling and was on their (our) side.

The Labour government of the 2000s,  as well as the unfit-for-purpose Financial Services Authority had failed in their duty and had all but lost control of the banking industry. The bankers had involved themselves in products that not-only they but even the Bank of England did not understand.  Chief Executives such as Fred Goodwin had begun to believe in their own infallibility and the government believed that the good days would roll-on forever.

This highly combustible scenario was overseen by a collection of Bank Directors who had developed lack of understanding and incompetence into an art-form. Most of them have been quietly retired when, in actual fact, many should have been prosecuted for not doing their job.

For those of you who may not understand, in the average bank boardroom, there is a culture of what can best be described as that of self-congratulatory Gentlemen’s Club Machismo . When a Chief Executive breezes into a Boardroom – especially a highly-technical accountant CEO such as Fred Goodwin, there are dangers. Not to him – but to  the directors.

The director is expected to question him but he knows that he has no real idea of what the CEO talking about. The director also knows that the CEO could expose his total lack of knowledge to the other directors. There is an unspoken understanding: ” Try to f*** me over in front of the Board at your peril!”

Exactly the same applied  (still applies) to the politicians.

Credit Derivative? The Zero Lag Stochastic Indicator? The Abnormal Earnings Valuation Model? What do they all mean? Best not to ask……………………..

So it was in this post-Lehman atmosphere of surprise, shock and ignorance that Stephen Hester was headhunted by Alistair Darling and Gordon Brown. Although details are not in the public domain, he (Hester) negotiated himself a legally-binding contract  – and along with it, a remuneration agreement. (If any politician feels the urge not to honour that contract, one suspects that by the time the matter had been dealt with by the Courts, it would have been far cheaper to have maintained the status quo.)

In late 2008, the bankers had already “spooked” the politicians and obtained a total bailout of £450 billion. Because the politicians were still in shock, Hester would have been able to name his price  – and who could blame him? He was on a shortlist of ONE.

Meanwhile, the politicians needed to take the pressure off themselves  – so very soon a campaign was started. Its primary purpose? To vilify all bankers.  The most visible aspect and most populist aspect to focus on was the “unacceptable level of remuneration” – and so the headlines and political bleating began.

The fact is that banks are NOT the Civil Service – they are constituted as companies which issue shares. We, the taxpayers are NOT shareholders.

A bank such as RBS is a shareholder-owned company  but none of them have any legal right to demand when, how or what a Chief Executive is paid. That is between the CEO and his Board.

Shareholders can be as unhappy as they want to be but the best that they can do is to make their views known. A Bank Board is under no obligation to take any notice of moaning shareholders.

That, in fact is the only reason why senior politicians such as Cameron, Clegg and Cable can do nothing but whinge.

Finally, the government did not “bail out the bankers”. It bailed out the banks in order to ensure that you and I did not lose any money. Hopefully they also hired competent people to sort-out the mess and effectively, start again.

Stephen Hester is part of that renewal process. He is paid what appears to be an obscene amount of money primarily because of his technical know-how but also for his scarcity value.

Therefore it is most unfair for him to be referred-to as a “fat-cat” or any other derogatory label that we have been brainwashed into applying to all bankers.

Had he said on Day 1 : ” My fee to unravel this multi-billion pound mess will be £20 million. Take it or leave it,” the politicians would have snatched his arm off!

This year, he has received a bonus of £1 million  and the political bandwagon is beginning to creak as they all jump on to criticise his “greed”. (The bandwagon is creaking particularly enthusiastically now that Boris Johnson has  also joined the moaning political posse!!)

To add some perspective to the incredible complexity and scope of Hester’s task, you may be surprised to hear that the RBS annual legal “spend” is about £200 million!!

Stephen Hester deserves every single penny that he has managed to screw out of RBS and its carping political custodians.

Bend Over, America!

We have all known for some time that the ongoing  banking crisis was originally started by some sort of banker-naughtiness and what we have in common with the vast majority of Bank Directors is that we don’t really understand WHAT happened. But we do know that someone somewhere is guilty and needs to be spoken to very severely.

It was good to hear that the US government via its  regulator (Federal Housing Finance Agency), has filed suit against seventeen financial institutions. Specifically, they want answers as to why $200 billion in bad mortgage-backed securities was sold to mortgage companies Fannie May and Freddie Mac.

They made their announcement just as the Stock market closed last Friday afternoon – their timing was exactly what you would expect but nevertheless totally wasted. Today will be the  day when their proposed action will shake out on the markets. Fortunately for the stock prices, the Swiss have moved to protect their own currency which has had a small positive impact on equities.

So what did the bankers do?

Imagine that a bank grants a $100,000 mortgage which results in the borrower repaying say, $1000 per month. Now imagine 1000 such mortgages. If the mortgages were pooled , you’d have a “product” which generates an income $1,000,000 per month. Then you sell shares in the product to investors such as other financial institutions. Here comes the good bit: You omit to tell the institutions buying shares in your new product that the mortgagors (the borrowers) have absolutely no chance of making the $1000 per month repayments. Thus, the banks sold and also  invested in worthless products because they could not generate any income.

These were the famous Sub-prime Bonds. The term “sub-prime” describes the borrowers – the so-called NINJAS to whom the banks lent billions. NINJAS? No Income, No Job or Assets.

(That was a very simplified explanation but it does demonstrate the principle of dealing in debt – you create debt by lending and then sell shares in it).

Embarrassed financial institutions then either sold-on these “investments” and/or attempted to hide their mistakes through the medium of  creative accounting, by keeping these items  “off balance sheet”.

The US Government’s move on the banks is perfectly justified but any legislation will take years and so leave the banks with permanently damaged balance sheets and income.

The other downside will be that banks, having been bitten once by their OWN greed are unlikely to ever lend money for house purchase as aggressively ever again.

The Fed now fully expects the banks to pay for mortgages which they granted five or six years ago.

Fannie May (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) guaranteed most of the dodgy mortgages and are currently the subject of a Federal takeover and have been placed into conservatorship, which in US law is a form of temporary nationalisation

US banks have so far benefited from a $700 billion Federal bailout but nevertheless both Obama as well as the Federal Reserve have been accused of being too easy on the banks.

In fairness to the American banks, most of the money that they were handed by the Fed has been repaid. However, the rescue of Fannie and Freddie could cost the government as much as $350billion.

To add to the banks’ headaches, they are not only being sued by the US Government but also by many private investors who have also lost money.

So, at a a time when the banking industry is trying to rebuild whilst at the same time being urged to lend, it  is having its share values decimated. Then there’s the inevitable and customary Lawyer Bonanza which could add BILLIONS more to their expenses.

The principle of the legal actions is simple: The banks screwed-up through near-fraudulent activities and  pushed all Western economies into recession.

Someone HAS to pay.

The FHFA claims that banks were negligent and misrepresented the mortgage-based bonds they were selling because of sloppy underwriting, that is to say, they did NOT carry out proper checks on the people to whom they were lending money.

That is going to be a very difficult defence for the banks.

The FHFA further argues that  the Sub-Prime Bonds should NEVER have been marketed because the underlying “assets” did not conform to normal investor criteria. Yet another difficult position to defend.

Meanwhile, some bankers are attempting to shift the blame to Fannie May and Freddie Mac, while others  are hoping to settle the claims in order to limit litigation. Our own RBS intends to fight any action. RBS is being sued for over £30 billion.

The most sensible outcome will be for all lawsuits to be settled. That would generate another outflow of cash from the banks but would also draw a firm line under the shenanigans leading up to the 2008 crash.

In the United States, the banks are not just being sued by the government for marketing questionable financial products. They are also being sued in respect of bad foreclosure practices and evictions as well as lawsuits over mortgage debt losses.

Such bank payouts will reduce and weaken their capital levels –  further  harming banks’ ability to lend.

With politicians everywhere pointlessly (and theatrically) screaming for banks to enable economic growth as well as stimulate housing markets, the road to full economic recovery looks more impossible than ever.

Over here in the UK, we are still awaiting ANY indication from the government of ANY litigation.

So far, the best that we can do is PPI – but even after being TOLD to pay out, our banks continue to drag their feet and not distribute refunds as fast as they might.

It seems that here in the UK, the promise and lure of fat post-Westminster banking directorships is far too strong – as well as the rather ambiguous relationship between our bankers and politicians.

Nowadays, even on the world stage, politicians become bankers and bankers become politicians – especially in Europe.

It’s the ONLY logical reason for our politicians to sanction not-only immunity to our bankers but even after such catastrophic failures, to continue rewarding them with the glittering prize of the over-inflated, stock-market-generated bonus.

Diamond is forever

” These stiffs earn £65K. Wooooo! I’m so scared!!”

Barclays boss, Bob Diamond,  was today “grilled” by the Treasury Select Committee  and once again showed that he is slicker than frozen catshit on wet ice.

He, of course was not the ideal banker to be interviewed on certain topics, especially as Barclays did not source any funds from the British government during the banking crisis. Instead, they borrowed cash primarily from the Qatar Investment Authority (QIA) which was an existing Barclays shareholder.  Barclays had also held talks with  the Libyan Investment Authority and Russia’s VTB and Sberbank banking groups.

At the inquiry Diamond said (quite rightly), “No bank should ever be a burden on the taxpayer.” As someone who had run  Barclays Capital for 14 years, prior to being given the reins to the Barclays Retail operation, he had known where to source money when times became tough for Barclays in 2008.  He’d done it without any UK-focused sentimentality, whereas the rest of the industry ran to the Treasury for handouts. His exact quote: “Banks should be allowed to fail…It’s not okay for taxpayers to have to bail out banks.”

He was quite right. If a bank failed, it would be bought by another bank. Hopefully one with a competent Board and management.

Inevitably, that old chestnut, the banker bonus  reared its ugly head during rather tense exchanges but realistically, Diamond knows that he can earn what he damn-well pleases. Perhaps he wasn’t the ideal banker to defend bonuses. He has foregone his bonus for the last two years but there is little doubt that he can easily afford to do so. In 2007, he earned £21 million.

Barclays is not a government charity basket-case,  unlike the Royal Bank of Scotland whose CEO, Stephen Hester is set for a £2.5 million bonus. (As the government owns 83% of RBS shares, that will, in effect make Hester the UK’s highest paid Civil Servant).

Diamond expressed his belief in the Retail-Investment banking model, saying that the arrangement provided stability and was a “great starting position”. Many MPs believe that banks should be broken up  so that a clear distinction can be drawn between Retail (personal banking) and Investment (so-called Casino banking). In reality, they have always been separate operations and really only come together for accounting purposes.

It has taken the government a long time to come to the conclusion that they are totally impotent as far as banker bonuses are concerned and that they have effectively been told by the banks to “butt-out“.  As a concession though, the banks are expected to say that they are committed to lend more to small businesses. It remains to be seen whether this happens.

The banking industry claims that it is lending, whereas the business sector says that banks are not lending enough and when they do lend, it is at exorbitant interest rates with  borrowers having to jump through a series of bank-designed fiery hoops before banks do deign to lend.

However, Diamond said that demand for commercial loans had subsided.

Once again, Diamond demonstrated that our MPs, who are a motley crew of ex-lawyers, academics, union men and local councillors are no match for the denizens which swim the murky waters of the world’s banking system

PREVIOUS BOB DIAMOND

CHANCELLOR GEORGE OSBORNE’S VIEW ON BONUSES? BUSINESS AS USUAL

Vince Cable

Have you noticed how quiet Vince Cable is these days? He used to be the most vocal politician on the subject of both “Casino Banking” and the banker bonus. It seems that after being told never again to crap in the Coalition’s cosy little nest, he has had his wrist slapped and been muzzled.

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!)

Transparency?

 

There is every likelihood of yet another banking scandal and it seems that yet another piece of the banking jigsaw has fallen into place. This particular piece indicates that at least two banks were near-bankrupt at the end of 2008. Not just “in trouble” but BUST.

The Bank of England extended secret emergency financing to Royal Bank of Scotland and to  HBOS during the banking panic last September and October – without telling the taxpayer or shareholders. Lloyds shareholders were being asked to approve the takeover of HBOS. Yet they were not told about the multi-billion cash bailout of HBOS.

From the beginning of October 2008 when the Irish Government guaranteed the liabilities of all its banks, HBOS needed life support, with RBS also seeking emergency lending on 8 October. There was a certain amount of scoffing at the Irish when the secret handouts were being made by the Bank of England.

By mid-month, the emergency liquidity assistance for the two peaked at £61.6 billion , indicating that insolvency would have followed had the Bank of England  not acted. The two banks clearly could not meet their obligations.

“This was a dire emergency,” said Paul Tucker, deputy governor of the  Bank of England, giving evidence to the Treasury Select Committee.

These loans were in addition to the measures which provided liquidity to the entire banking sector, suggesting that even those measures were not enough to sustain either bank.

In addition, both banks had access to the Bank of England’s special liquidity scheme under which banks could swap  mortgage-backed securities for government gilts.

The obvious question to ask is how many more secret deals have been made between the Treasury, Bank of England and the banking industry.

You may recall that in 2007, the Bank of of England provided secret finance to Northern Rock.

So what has happened to transparency within the financial sector – or is it a case some being more transparent than others? 

It will be long and hard.

” We all lose interest after making a deposit and a withdrawal”

We are all looking forward to the banking industry’s return to communication through facts and figures. In the last year-or-so they have all shown an increased predilection for the medium of the euphemism, metaphor or cliché.

The RBS Chief Executive Stephen Hester is our favourite banking boss – a straight-down-the-line guy  with whom you can shake hands without  having to count your fingers or look for your watch. Nevertheless, he too has succumbed to the inanities of modern “bank-speak”.

Yesterday,  RBS announced 3rd quarter losses  of £2.2 billion.

Stephen: “Although conditions have improved over the last three months, they remain ‘fragile'” and “The RBS recovery will be a marathon , not a sprint.”

He added that as far as executive bonuses are concerned ” Everyone is treading a delicate tightrope.”  A tightrope only has two pertinent qualities: 1. It is a rope and 2. It is tight.

He could take a leaf out of Mervyn King’s lexicon of generalities; avoid figures of speech and avoid facts as well . This is from yesterday’s pronouncement on the economy: “Households have reduced their spending substantially and business investment has fallen especially sharply. A number of indicators of spending and confidence, however, suggest that a pickup in economic activity may soon be evident.”  Mervyn has the right idea – there is absolutely no point in clouding issues with facts.

Spygun’s all-time favourite: ” We can hear a Niagara in the distance but have no way of knowing how soon we’ll  hit it.”  (That was about a sudden economic downturn).

Stephen should hire a new metaphor scribe because if this recession continues for too much longer all the good metaphors will have been used up.

 

Not a terrorist?

Major Nidal Malik Hassan opened fire at Fort Hood and shot dead 12 fellow- American soldiers and injured over 30 others. Is this another terrorist “sleeper”? Probably not.

Fort Hood is the world’s biggest Army base and is (of course) in Texas. The soldiers that Hassan shot were men who were undergoing last-minute medical checks, dental treatment etc before being deployed to Iraq and Afghanistan.

The shooter was himself shot but is not dead. He is a long-serving American serviceman, a trained psychiatrist and a devout Muslim. It is known that he was very unhappy about going to Iraq and Afghanistan.

Major Hassan had previously faced harassment over his Palestinian ethnicity, although he was born in Virginia. Recently, he had expressed a wish to leave the army.

A picture is emerging of a disgruntled loner who was increasingly at-odds with  colleagues as well as current American military strategy – especially the fighting in the Middle East and Afghanistan.

In spite of a slight outbreak of “insurgent hysteria” in the media, this look like no more than a sad and lonely man who had been taken way-past his personal breaking point.

Bummer

One of Westminster’s most popular and colourful MPs, Sir Nicholas Winterton has been accused of bottom-slapping a fellow MP. His accuser is Ms Natascha Engel MP, who said: “I can’t believe it, Sir Nicholas just slapped my bottom.”  The heinous offence took place in the Commons eatery and although Sir Nicholas recollects that soup which he ordered, he has no recollection of the assault. 

There is only one thing to say to the spectacle-wearing Sir Nicholas:See full size image

 

 

Sir Nicholas’  eyesight may have also been a contributory factor in his claiming (together with his wife and fellow MP, Ann), £165,000 expenses on a London property which they already owned.

Handouts with Conditions

21st Century Banking

The British government said that following improved market conditions and extensive due diligence announced in February, Lloyds will no longer  participate in its Asset Protection Scheme and instead will raise additional private sector capital and pay a fee  of £2.5 billion to the taxpayer for the  protection provided to date. Lloyds has also announced plans to raise £21 billion through a combination of a £13.5 billion rights issue, and £7.5  by swapping existing debt for contingent capital. 

The Royal Bank of Scotland will continue to  participate in the APS under revised terms that improve incentives and deliver better risk-sharing with the private sector.  RBS will take a greater potential loss than first agreed on a portfolio of toxic assets -£60 billion instead of £42 billion. That will be on a smaller pool of protected assets, £285 billion instead of £325 billion . RBS also won’t give up tax losses valued at between £9 billion and £11 billion as first agreed.

In addition it has been announced that about 10% of the UK’s retail banks will be up for sale and there was a surprise announcement that no cash bonuses are to be paid  – except to branch staff.

Both Lloyds and RBS will set up new banks from existing branch networks and sell them within four years.

In another development, RBS has said it is to cut 3,700 jobs across its UK branches, adding  that it hoped to achieve most through voluntary redundancy.

The jobs are to go over the next two years.

The  announcements have been approved by the European Commission.  This is as a result of the Commission having ruled that government-supported banks should be scaled-down in order to comply with European competition rules.  That can only be achieved through disposals of branches and other assets. 

Just to put the scale of the RBS problem in to perspective – the RBS balance sheet was once roughly equivalent to that of the entire British economy.  Currently, part of the government’s strategy is to get rid of the “too big to fail” problem.  Banks will now be rationalised so in certain circumstances, they may be allowed to fail without the risk of wrecking the economy.

The government has always had a tough choice to make. If the government didn’t put money into the banking system, banks would have collapsed and torn-down the economy. However , they have injected cash into the banks. If there is another major economic downturn, there could still be trouble ahead for the banking industry. This government and all other governments are gambling on there NOT being another downturn in the short-to-medium term.

One interesting aspect of the reorganisation and downsizing is that in spite of the “we are united in our approach” noises made at G20 conferences, the United States is not, as yet downsizing or breaking-up its own banking system.

One small note of caution. The Icelandic economy failed because the country was being run like a hedge fund. The amount of risk that our own government has now built into our economy suggests that they are following the Icelandic model. One can understand diverse economies (ones with manufacturing, natural resources plus less reliance on the service and financial sectors) taking-on high-risk investments such as failing banks. Their risk is acceptable because of the make-up of their economy. Can the same be said about the UK economy?

 

  • Here’s another thought on the supposed “sanctity and purity” of scientific opinion. The cannabis-inspired debate between our Home Secretary and the scientists has amplified the divide between scientific thought and political expediency. In principle, one cannot help but agree with the scientists – but only on the assumption that what they say is Gospel. Today, research has been announced which suggests that scientific evidence about the  health benefits of taking an Aspirin daily in order to ward-off a heart-attack may not have been all that it was cracked-up to be. It now appears that the risks of a stomach bleed and other complications outweigh the heart-related benefits. New Scientific Opinion. Remember HRT? Once lauded as a risk-free treatment – it was then announced that HRT increased the risk of cancer. New Scientific Opinion. Scientists have been reworking their computer models and have today announced that their predictions of obesity in the United Kingdom had been wildly exaggerated. More New Scientific Opinion. It all goes to show that scientific opinion is not an exact science.

 

  • A quick note about bank “competition”. The Chancellor  has said that he wants to increase the number of banks operating within the United Kingdom economy. The theory is that banks, like greengrocers or electrical shops will start to undercut each other and so provide a better “deal” for the customer. That sounds very plausible until you remember that prior to the meltdown of the banking industry, the UK had more foreign banks competing for our business than any other economy. Those were the days of real competition. In the last 12 months, most of them have either gone bust or cleared off. Theoretically, competition works – except in banking. What the government should be thinking about is the eradication of the “faux” entrepreneurship which was such a major contributor to the failure of the banking industry. That is the one thing that bankers cannot do – they cannot “do” entrepreneurship. If they could, they wouldn’t be bankers. They tried it and they were found lacking.

Another handout

Darling’s unique approach to the banking industry.

 

Alistair Darling is going to announce that the government will spend £30 billion on “buying bank shares”. One presumes that it is now called “buying shares”  because the government does not want to keep using the word “handout”. (By the way, he is not using “our” money. This will be a combination of recently-produced or borrowed money). The government will thus be increasing its equity in the banks and so diluting the share value. The medium-to-long-term intention is to break-up the banks and have another fire sale. This time the beneficiaries will be companies such as Virgin and Tesco. Considering the way that the banks have behaved, surely Ladbrokes would be more appropriate. Dealers have once again begun “shorting” bank shares so there is a very real possibility of the government ending-up with a load of underpriced stock which they will have to hold-onto  until the City  screen-monkeys decide to play again. Continue reading Another handout

Joint-up Government

Two executives at the Royal Bank of Scotland have been suspended after alleged corruption at its overseas mortgage operation.

The bankers were allegedly asking foreign estate agents for payments worth tens of thousands of pounds in return for referring customers. Many of the suspected practices have  taken place within the last 12 months and since the government bail-out.  Continue reading Joint-up Government

Antonio Polverino scores again!

There are two types of organisation that have made such huge financial rods for their backs that it looks as if they are beyond help.

 

At first, it appears that they have little in common but if you look closely, you will see that they do share two very basic elements. The first is a weak and often unskilled boardroom and the other is direct access to the public’s money. Another interesting similarity is that their personal incomes bear little relation to how they perform long-term. That has resulted in near bankruptcies within both types of organisation with the genuinely solvent ones being very much in the minority. Continue reading Antonio Polverino scores again!

Sorry?……..Er….Yes, all right then.

I would have asked only the one question:
 
Sir Tom and Lord Stevenson……..”I sincerely and unreservedly apologise for this question but can you please describe the differences between a Credit Default Swap, a Total Return Swap and a Credit Listed Note?”
 
“Phone a friend?……….Oops, sorry, I forgot!! You don’t have any.”
 
Thankfully, this morning’s Treasury Select Committee Cringefest is over and there have been apologies. They were on a par-with and as pointless-as the Australian Government apologising to the aboriginals about nicking their land, the US Government’s apology to Native Americans about killing their buffalo or perhaps the Germans apologising for the Holocaust. ” Sorry about that”.
 
Go to any good PR man and he will show you the anatomy of a good apology. This what it should contain:
 
1. A detailed account of  what happened
2. Acknowledgement of the damage done
3. Accepting responsibility
4. A statement of regret
5. Asking for forgiveness
6. A promise that it will not happen again
7. Some offer of restitution
 
Some of the elements were missing but there is never any harm in a bit of well-placed management sincero-talk.
 
When the s*** hits the fan, don’t bother pretending to eat it because it is your audience that experiences the bad taste.

The bank that likes to say “Help!!”

There is euphoria, Gordon Brown is the saviour of the Western economy, there have been a couple of “dead cat bounces” and all decent metaphors have been used up. Life is great! Happy sunny days!

But in reality….. it is still raining.

The FTSE 100 index is limping soggily either side of 4500 . Last week’s red screens seem to have been forgotten – as has the fact that twelve months ago, the FTSE 100 was standing at a healthy 6500. Today, the Dow rallied and finished at about 9300. Economists are smiling. One year ago it was at 14000.

The banking diversions and shenanigans of the last two weeks will slowly be giving way to harsh economic reality as final quarter company profits loom, with the sobering prologue of unemployment and inflation figures.

Some commentators are saying that  here in the United Kingdom, Margaret Thatcher’s policies and the 20 year-old deregulation of the markets have finally unravelled. It is not policies or rules that cause catastrophes – it is people. In this case it is the ineptitude of those running the banks and building societies.

Guess what? Apart from the four sacrificial lambs that have been offered up today, the same senior executives are still running the banks. We have been regaled by the rather fatuous argument that the executives who are still in place are the ones who understand how the business works and if we trashed them then we would be in even more trouble. That is nonsense.

Spygun has worked for a Building society, several large insurance companies and a large (the largest) American bank. The root cause of what has been happening in the last year-or-two is the total lack of technical and managerial talent within the industry.

In the good old days, the lending of money  to an individual had never been a profession – it was more of a “trade” because it was simple. Consequently, the money-lending business (nowadays it is called “banking”) was run by ordinary honest folk who could gradually work their way to the top of their organisation.

The directors would make sure that they kept the bank or building society well within the liquidity rules, they would vary interest rates when instructed  to do so by the Bank of England and they NEVER went bust because it was nigh on impossible to go bust. I recall just one occasion many years ago when the Chelsea Building Society was forced to revalue its assets but otherwise – no problems.

There were no executive bonuses because the word “profit” was not in their dictionary – but they would strive to make a small surplus. Likewise, there were no golf days, coventions or any other executive freebies.

Then laws were changed and the “suits” came.

Directors of lending institutions used to be a crustily venerable lot and  tended to be unqualified businessmen who strangely enough, were more entrepreneurial than the MBAs that are running the show these days. Typically, they were senior partners in accountancy companies, estate agencies or solicitors. They were men in their 50s and 60s who were REAL businessmen and who had created their own wealth.

That is where the seeds of destruction were planted – in the panelled boardrooms of provincial England. The Old met the New and were dazzled by the following: (perm any two from six) MBA, Oxford, Cambridge, Harvard, Degree and Insead.

The flatulently pipe-smoking unqualified old duffers were dazzled and seduced by the shiny new boys with MBAs and incomprehensible management jive talk. They all wanted one!

It was in 80s  USA that the cult of the “corporate entrepreneur” had been born and transplanted rather uncomfortably into the gut of the UK’s financial industry.

The phrase CORPORATE ENTREPRENEUR is like “Police Intelligence”, ” Microsoft Works” and “Friendly Fire”. It is an Oxymoron.

A corporate entrepreneur is a man who takes risks with other peoples’ money and is rewarded for his “bravery”. (Incidentally, one is not being sexist when referring to entrepreneurs as “him”. There  are few REAL female entrepreneurs because most girlie entrepreneurs had a flying start with either inherited or gifted money.)

Plus, one of the vital ingredients of REAL entrepreneurship is testosterone. Most women don’t have it – although there are a few who act as if they have. We digress.

A proper entrepreneur takes risks with his own hard-earned cash whereas the boys who run our banks are just overpaid bluffers with a shelf life and a permanent hard-on.

As a result of their corporate games, our Government is now forced  to take a shortcut which is the reciprocal of what  happened in China and the old USSR.

The Russians and Chinese have flipped from state control to capitalism but we appear to be heading  in the opposite direction. If the government takes on any more banks, they will  be reported to the Competition Commission.

For the time being, the markets will bounce along, floating on the short-term  wave of faux-euphoria. We are all whistling in the dark.

Soon we will all wake up and realise that if we are really seeking a new banking direction – it is the drivers and not the cars that have to be changed. The government is the short-term relief driver but new drivers need to be found from within the banking industry.

There are scores of very talented “solid citizen”  gems within banking who are dependable and honest but who do not have the need  to constantly spray testosterone. We need service-driven bank managers and directors and not self-serving ego-driven scalp-hunting prima donnas with over-funded pensions.

These corporate hidden gems have all the knowledge and experience needed to reawaken the banking system from its torpor.

They are also the ones who know where some of the bodies are buried.

(If you are not familiar with the phrase CORPORATE ENTREPRENEUR, please enter the phrase in Google, see the various Management Models, the smug mugshots………………and weep)