The Great Debate UK
So much for Barclays' ambitions to be a magnet for banking talent. When the British bank hired Frits Seegers, the Dutchman arrived with a big reputation and an even larger price tag -- the cost of buying him out of his previous job at Citigroup. Three years on, he's on his way, the main casualty of a management shake-up that leaves his main rival, Barclays president Bob Diamond, looking stronger than ever.
As ever, the reorganisation is not entirely without strategic merit. Barclays is shifting responsibility for the corporate bank from the retail side of the business to its Barclays Capital investment banking arm. The logic is that even small companies want to hedge foreign exchange and commodity risks -- products they are more likely to find in Barclays Capital. Besides, most rival banks have combined corporate and investment banking. There is something in this. Though it is hard to see Barclays' investment bankers wasting much time on small British businesses with a few million pounds in turnover.
The other argument for the move is that Barclays wants to give some of the thrusting managers coming through the organisation a place at the top table. So Barclays' executive committee, which previously had just four members, will now need to find another eight chairs for its meetings. This gives more executives direct access to the board, and provides plenty of choice when drawing up a shortlist of potential candidates to replace chief executive John Varley.
It is also true that Seegers' tenure was mixed. Several of Barclays' retail businesses, such as its Barclaycard credit card division, had already installed strong management teams before he arrived. His main achievement has been to expand Barclays in far-flung countries like Indonesia and Pakistan. Whether this flag-planting approach survives his departure remains to be seen.
Lloyds seems to be taking a leaf out of Vito Corleone's book: if you need someone to do something that they don't want to, you have to make them an offer they can't refuse. For the mafia boss in The Godfather, that meant decapitating a horse. For Lloyds, the UK bank whose logo is a black horse, it means threatening to cut off interest payments on your own debt.
Lloyds' plan is to convert subordinated debt into 7.5 billion pounds of contingent capital. These new-fangled securities pay out fixed coupons, but can be converted into shares in times of need. The exchange is part of Lloyds' efforts to avoid the government's asset protection scheme. Lloyds is likely to pull off this deal, but the jury is still out on whether this kind of capital will be widely used by other banks.
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
There is so much talk of a new regulatory framework for the financial sector, anyone would think it was an important issue.
Barclays has come up with an interesting way to solve an optical problem. Concerned that the bank's shareholders are nervous about possible future writedowns of wobbly assets with a value of $12.3 billion, it has sold them to its own employees.
This isn't necessarily a bad idea. But there are two things to dislike about this deal. First, it looks pretty cozy to sell to your own workers. And second, the deal looks potentially very favourable for the purchasers.
Jose Manuel Barroso promised the European Parliament that as re-elected president of the European Commission he will have more authority to fight for Europe and defend its single market against economic nationalism.
But after five years of toadying to the big member states, he will need to show more spine to enforce state aid and competition rules on Germany, Britain and France in the teeth of strong national financial or commercial interests.
Regulators are rarely accused of being too candid. But Adair Turner's observation that the financial sector is too large has seen the chairman of Britain's Financial Services Authority swamped by a wave of protest.
Executives, lobby groups and even Boris Johnson, London's Mayor, have responded with dire warnings about the risks of undermining the financial sector. This knee-jerk response shows the industry still fails to understand the consequences of the crisis it helped to cause. It is high time bankers engaged in a proper debate about their future.
Rating firms and analysts have been lowering high yield default forecasts in recent months, but there’s still plenty of pain in store for the banks, insurers (and taxpayers) who own collateralised loan obligations, funds that package leveraged debt.
Here are some cheery stats from Fitch Ratings, which is busy setting about downgrading more European CLOs.
from The Great Debate:
Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.
For now things still look fine. China Banking Regulatory Commission (CBRC) this week claimed that Chinese banks were managing credit risk sagely, pointing to record low non-performing loan ratios. Given the massive increase in the number of loans outstanding -- up 24 percent since the start of the year -- it's not surprising that the proportion of them that are non-performing at large commercial banks, which accounts for 60 percent of the lending, has declined from 2.4 percent to 1.8 percent in the past six months.
Earlier today I wrote that Sheila Bair is one of the few financial regulators who gets it. And by getting it, I mean not sucking up to the banks and the big money interests on Wall Street. You know, the guys (and most of them are guys), who got us into this financial mess. Tim Geithner, on the other hand, is a regulator who just doesn't get it.
It's not that the Treasury secretary isn't smart--he is. And it's not that he's not up to job--he is. It's that Geithner is too much of a politician and his views have been molded by people who work on Wall Street.
from The Great Debate:
Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government's bailout itself and the underwriting of banks that are too big to fail.
News that some financial firms benefitting from government largesse actually increased the share of revenue they pay their employees sparked a lot of outrage but more heat than light.