The Financial Services Club's Blog

Does the World depend upon China?

I’m off on holiday today so this will be my last post until September 8th.

The last post? Sounds like we need a bugle call on that one!

Anyways, I normally have a rant or a joke when I’m blogging, but this is a little more serious as it’s a thought piece.

The thought: whatever you think about China, our future is with the Chinese.

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How many cards are left in Chip&PIN terminals every day?

The banking industry continually seeks to find cost-effective methods to minimise fraud, although often in a way that creates issues or insecurities with the customer.  A great example is the UK’s implementation of Chip&PIN, with Canada, France and other countries implementing similar programs.

From a personal perspective, the one thing I have noticed is that consumers continually leave their cards in the terminal.  On four occasions this month, I've found someone else's card left in the POS PIN terminal. 

That was at just one PIN terminal in one major store, so I wonder how many cards are left in terminals each day?

I wonder if we should have just separated the Chip&PIN double-act at birth, as demonstrated brilliantly by comedians Mitchell & Webb in this classic sketch:


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How much does an Olympic Gold Medal cost?

For those who have enjoyed the Olympics, Yahoo! has posted a fascinating report of the investments Britain made in each sport, and the return on those investments.

As a result we can see a pattern of funding for each medal won.

In the build up to the Olympics, over £190 million of funding was pumped into Team GB sports, which averages out to be around £10 million per Gold Medal and just under £4 million per medal, based upon the fact that we won 19 Golds and 47 medals in total.

Of these, the cheapest medals are for Cycling at just over £2 million per Gold and the most expensive is Athletics at £20 million per Gold Medal.

Generally, the cheapest sport for a medal is Cycling again, at £1.25 million each, versus the £7 million invested to get a Bronze in Gymnastics.

Meanwhile, £7 million in Badminton and over £8.5 million into Hockey returned a zero sum gain.

Intriguing.    

Mind you, it's not a patch on the £10 billion ($18 billion) London is budgeting for the Games in 2012, about half-price compared to China's £20 billion ($36 billion), but more than Athens in 2004 (£7 billion, $13.5 billion).

Where did Sir Callum go?

A recent bit of news has been little reported in August, but it is a fact that has been picked up by satirical journals such as Private Eye.

 

The fact: Sir Callum McCarthy is leaving the Financial Services Authority having been its Chairman since 2003. He’s off to pastures anew and handing over his mantle to Lord Adair Turner, trusted ally of Gordon Brown. Lord Turner was otherwise known as “Red Adair” when he was the former Director-General of the CBI, and the real Red Adair was a renowned fire-fighter … skills that the new Chairman will be in desperate need.

 

Meanwhile, where’s Sir Callum going?

 

The Treasury.

 

In an ‘open competition’ for these new roles at the Treasury, a hard-fought fight saw Sir Callum and Deidre Hutton, former Deputy Chair of the FSA, become non-executive members of the Board of the Treasury.

Nice to see such a genuine search for talent resulted in the right people being placed in these roles.

As Private Eye says: “McCarthy is stepping down from the financial regulator and chancellor Alistair Darling has found the perfect new job for him: as a non-executive director of the Treasury itself. Having been in charge of regulation when Northern Rock imploded, he can now be first on the scene when the entire economy collapses.”

The New Rules of Marketing in the Real World

I'm intrigued to see that the latest methods of marketing are to create real life experiences in the real world with the launch of  "Pot Noodle: the Musical" at the Edinburgh Fringe Festival this year.  A festival that exists, in part, thanks to the benefaction of the Royal Bank of Scotland's sponsorship.

As you would expect with that title, the musical is all paid for by Unilever, the makers of Pot Noodle, with the only rule being that the musical had to be called Pot Noodle.  No other creative control allowed, although the message is clear as the musical is set in a Pot Noodle factory.

Similarly, there's the launch of the new film, Somers Town, all paid for by Eurostar.  That's why the main character is an employee of the Eurostar.  Subtle, but it works as the film has been a major critical success.  I'm not so sure it always works however, as I cannot even find a review about Raiffeisen Bank's movie, "Santa Claus, Tina and Liza"!

And not all real-world sponsorship works, especially if you break the rules and get found out.

Take the example of Omega, the watchmaker, and their sponsorship of Michael Phelps. 

The wonderful Phelps, the greatest Olympian of all time, definitely performed brilliantly at this year's Beijing Olympics.  Nevertheless, some say that Phelps did not win the 100 metres Butterfly, and that his win was 'given' to him by Omega, his sponsor.

After all, he swam in an Omega sponsored lane as an Omega sponsored athlete, and was given the Gold based upon Omega's timekeepers saying he was 100th of a second ahead of Milorad Cavic.

1/100th of a second is the smallest margin allowed to differentiate times between swimmers.

Make your own mind up (Phelps is on the left and Cavic on the right):

Photo from underwater camera at the end of the Olympics final 100 metres Butterfly courtesy of Heinz Kluetmeier/SI

The fear of foreigners

I would like to say it amazes me that Europe’s countries are still very insular and resistant to open access and open borders for open business … but it does not.

This week, it is the Germans who are being accused of protectionism.

On Wednesday, Germany introduced the concept of a law that would outlaw the idea of German banks being controlled, run, owned or even interfered with by Sovereign Wealth Funds.

The law passed by the Cabinet for approval by Parliament, would allow German politicians to reverse any investment in a German business that exceeded more than a 25 percent ownership stake by a foreign investor.

But it may place Germany in a very weak place, according to their business community.

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Socially networking with the Hoff

I haven't written much about Facebook lately because we're all familiar with it now, although you may not be familiar with the fact that Wells Fargo have recently launched Stagecoach Island, their virtual world, in Facebook.

But I'm more interested in the fact that David Hasselhoff has launched his very own version of Facebook. 

Why?

Well, here's what the Hoff has to say on his new socially networking homepage:

"In my travels round the world I have always been surprised that no matter where I go people recognize and know me, from Europe, Australia and India to the Philippines and the Zulu Nation in South Africa. This got me thinking... I realized that while two people from two entirely different countries and backgrounds may seem to have nothing in common, the only thing they might have in common is me... So I decided to start a network where people from across the world might come together and get a conversation started over me. Where it will lead, I don't know but the world would be a better place if everyone talked a little more to each other...

"So here is HoffSpace. There are videos and photos of the adventures of my life (THAT NO ONE ELSE GETS TO SEE) and also from the lives of other members. Read the discussions or start a forum on a topic that interests you. Check out Hoff TV, where I go live often. Chat with other members from around the world and make friends. Design your own home page. Add music and share your lives with others. Send me the weird, wonderful and wacky things that are happening in your life. Tell me the stories of how you are making a difference in your life and, if you need my help, ask... One man or woman CAN make a difference."

Excuse me whilst I go and sign up as this is far too good to miss, dontcha think?

Money for nothing, and my ticks for free

BATS recently extended their market data feeds into free real-time feeds for AOL and Yahoo! Finance users. In recognition of this move, NASDAQ OMX now delivers free real-time market data to Google, the Wall Street Journal, CNBC and Xignite.

Real-time market data for free on public websites for millions of consumers at home to access.

No delay. No fees. No hassle.

I like it … by the way, how much do we charge for real-time market data in the EU?

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eBay and PayPal's Australian challenge

Is it just me, but the news today that eBay are trying to force all Australian users of its website to use PayPal seems to be a bit of a strange strategy. 

Don't they remember that PayPal succeeded because it was available across all sites and did not have the same restrictive practices or usage that eBay's own payment service, Billpoint, had?  That was the reason PayPal succeeded and why eBay acquired them. 

Harking back to 2002, when eBay abandoned Billpoint and acquired PayPal, here's just one paragraph of commentary from CNET that they should bear in mind as they talk to the Ozzies:

"Meanwhile, Billpoint had something else going against it: its association with eBay. While some analysts saw that as an asset, many sellers worried about eBay extending its dominance in auctions to online payments as well. Many were reluctant to rely even more on eBay than they already did and rejected eBay's more heavy-handed attempts to promote the service, such as last fall when it required require sellers to use Billpoint in its Auction for America charity effort ... that could spell problems for eBay after it acquires PayPal. Already some sellers are talking about abandoning PayPal, worried that with it, eBay will become too powerful."

MiFID starts to really bite

As 2008 progresses, some organisations are realising the true meaning of the Markets in Financial Instruments Directive, MiFID.

First you have the new upstarts: Chi-X, Turquoise, BATS Europe, Equiduct, NASDAQ OMX Europe and more circling to take advantage. All of these Multilateral Trading Facilities (MTFs) have low latency, low price and low cost streamlined operations, and are trying hard to cash-in on the pan-European cash equities trading opportunities that MiFID has created.

Then you have the incumbent cash equity exchanges, led by the big boys of Deutsche Boerse, Euronext and the London Stock Exchange (LSE), and they're struggling with share prices down by half this year as a result of these new competitive threats. 

Deutsche Boerse and Euronext have certainly seen the impact in their cash equities business with Chi-X, the first MTF launched last year by Instinet, peaking at a 15.08% market share of the DAX30 and 9.39% of the CAC40 on certain days of June. Luckily, Deutsche Boerse and Euronext have a balanced business with global diversification and large-scale derivatives operations in Eurex and LIFFE respectively.

Then you have the LSE, and it’s not been so easy for them.

You only have to look at their share price which is down by almost two-thirds, far more seriously impacted than the Deutsche Boerse and NYSE Euronext



After a rock and roll ride on the share price from 2004, with various predators circling to buy their business, the LSE is now languishing at a lowly 745 per share today. Mind you that’s still well up on the just over 316 per share you would have paid in 2003, but nowhere near the high of 2002 earlier this year.

What’s going on?

MiFID’s going on.

Chi-X has been the first to shoot holes in the LSE’s business model, peaking at over 20% of FTSE 100 trading last week.

Similarly Turquoise, which started live trading last Friday, believes it could take up to half the liquidity away from the LSE. That would be due to the strength of the liquidity pool represented by the nine firms who created Turquoise: BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley, Société Générale and UBS.  These firms have guaranteed Turquoise's liquidity from day one.

Now you have BATS announcing yesterday that they aim to take at least 15% of the FTSE 100 share trading operations by the end of 2009.

With PLUS Markets nibbling away at the mid-caps; MarkitBOAT and Chi-X stealing nearly a third of all trade reporting activities; and Dark Pools appearing from all directions; it’s no wonder that everyone is wondering what the LSE are going to do.

What they claim to be doing is becoming aggressively competitive with TradElect providing low latency and their fee structures slashed for high volume traders. However, with around 450 staff in London and a spend of over £40 million on TradElect, the LSE has a more serious issue. After all, BATS have six staff in Europe right now, and Turquoise and Chi-X around forty each. Their spend on technology has been a fraction of the LSE’s and yet, between them, they will be running anything from a half to three-quarters of the FTSE100 liquidity pool by the end of next year, and deepening their waters into the FTSE250 and more.

Therefore, low latency, low price, low cost trading facilities are the way of the future, not low latency, low price, high cost. That’s unsustainable.

Meanwhile, LSE’s joint venture with Lehmans to open their own dark pool, Baikal; the acquisition of Bourse Italiana; and extending the operation of the derivatives exchange EDX, are critical parts of their survival plan. But I’m looking for a few more pieces of the strategy before I’d think about buying into their shares today.

That Was The Week That Was

Absolutely nothing to do with banking but, as I think of this as a dialogue, I wanted to share a few stories with the Finanser community that made me smile this week, as well as made me proud to be in Europe.

First was the Swedish court case against Apoteker, the state-run pharmacy.  Two chaps claim that the firm is in breach of Sweden's equal opportunities legislation for stocking lady's sex toys, and are quoted as saying that the pharmacy chain "had a misguided and untrue view on sexuality where a woman with a dildo is seen as liberated, strong and independent, whereas a man with a blow up plastic vagina is viewed as disgusting and perverted."

Only the Swedish!

Then there's Giles Smith, in the Times, who writes a lovely little piece about the World Sauna Championships.

"It would be a shame if the Olympics completely overshadowed the World Sauna Championships, which took place in Finland last weekend. The host nation cleaned up, producing the champion in both the men's and women's competitions, the male winner managing an impressive time of 18min 15sec at 110C.

Great Britain, one noted, was nowhere to be seen, which was both disappointing and slightly surprising. After all, what is a sauna, if not a kind of shed? And didn't the British pretty much invent sheds, and sitting in them? Obviously British sheds are generally unheated, as they stand, but that could be sorted out simply enough with a bit of lottery investment and a commitment to a national improvement programme. The grass roots are in place and it wouldn't take much, surely, to end the hurt, restore some pride and break these long years of Finnish domination in the sauna."

Only the Finnish!

This was followed by the lovely story of the bouncy church in Italy designed to attract Italian Catholic holidaymakers on the beach to still ahve their religious moments. 

The church is 30 metres long,and comes complete with an altar and confessional.  So, for all those on the Campomarino beach in the Adriatic, god bless.

Only the Italians!

Finally, there's another giant inflatable story, but this time in Switzerland. 

Artist Paul McCarthy's latest piece caused mass hysteria in Berne when his giant, inflatable dog poo:

broke free from its moorings at the Paul Klee Centre museum and flew over the town. 

The Turdzilla, which is the size of a house, brought down a power line and broke a window, before coming to rest in a children's playground ... probably where it belongs?

Only the Swiss!

How I love being European.

How recessions change financial behaviours, Part 2

We use the word crisis to mean danger and opportunity, and yesterday I blogged about what that means for local communities, who are using the current crisis to create local currencies.

Today, it's time to take a reality check regarding property. 

For some, buying a house is an investment, for others it is a home, and for some others again, it is both.  Well, for those who enjoyed property investments over the last decade, crisis now means the danger of losing your home or the opportunity to pick up more property on the cheap.

For example, I’ve heard of foreclosure tourists for a while now, but find the idea of personally going on a ‘Foreclosure Tour’ a bit sick. The idea is that you go over and get on a tour bus that takes you around the depressed homes of families who have had their houses repossessed. On the bus is a property expert, a banker, a lawyer – all you will need to sign over the deeds of the house there and then.

Times are desperate.

Just how desperate?

Let's have a look.

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Do recessions make banks redundant?

In times of crisis, there is danger and opportunity, and this is no truer than when there is a recession, stagflation or war.

In the 1920’s for example, during the runaway hyperinflationary times of the Weimar Republic, Germans started to create alternative economies using local currencies. This is because the national currency was effectively worthless and the national economy was out of control, so citizens turned to local focus to survive.

Similar trends have been seen with Zimbabwe more recently, and are now appearing in other parts of the USA and Europe as the credit crisis tightens.  Should such systems really take off then Bankers, we have a problem.  The problem is that these systems are locally focused and usually operate outside the banking system.

Luckily this is not a major concern as most local currencies, also known as complementary or community currencies, appear during the crisis and then disappear afterwards, with only Switzerland's WIR surviving long-term.  The WIR was created in the 1930’s, has its own WIR Bank, and is used by 1 in 6 Swiss businesses for commerce and trade today.

Maybe this might be changing though as, taking my own locality of the UK, there have been two significant examples of local currencies launched in the past year.

The first was the “Totnes Pound”.

Launched in March 2007, the Totnes Pound aims to encourage local spending on local produce by local people to the benefit of the Totnes locality. These local currencies are often outside the banking system, and intended to be inflation-proofed by not being tied to external commerce, but to local community interests.

As the Totnes (a town in Devon) website states:

“The benefits of the Totnes Pound are to: 
• build resilience in the local economy by keeping money circulating in the community and building new relationships
• get people thinking and talking about how they spend their money
• encourage more local trade and thus reduce food and trade miles
• encourage tourists to use local businesses.”

So I was intrigued to hear over the weekend of the launch of the “Lewes Pound”.

Lewes is another town in Britain, launching their own currency on September 9th.

As the founder of the Lewes Pound, Oliver Dudok van Heel, states: “studies show if there is more than 12 per cent unemployment in a community these systems become very popular”. With growth slowing, unemployment and inflation rising, and credit about as easy to find as Gordon Brown’s personality, times are hard. Hence, the launch of local currency schemes.

However, when times are good again, these schemes could just as quickly disappear for, no matter how many of these schemes are created – reports of over 9,000 such local currencies exist arond the world – the difficulty is that those who travel outside the locality, as many of us do these days, cannot take the currency with them. It is useless currency, unless it is used in Lewes or Totnes. So a Lewes Pound cannot be used in Totnes and vice versa.

This is why so many local currency schemes close down when times are good again,and why they are usually of little interest to us commercial bankers.

But all of this could be about to change as Barclays Bank are involved in the Lewes scheme, and will accept Lewes Pounds into accounts for payments.

This could be very significant as a friend of mine, Bernard Lietaer, has been trying to create a way to organise a global local currency for years*. The idea would be that, in a similar system to Airmiles, you could bank your local community activity in an online system and exchange it for value elsewhere.

So I bank a few hours of work on my neighbour’s lawn as being worth the value of 5 Lewes Pounds to the local community. I could spend that locally, but I want to buy a few hours’ worth of time in Totnes, where my mother lives, to have someone mow her lawn.

Via Barclays Bank, if they supported the Totnes scheme as well, then I might be able to do this.

Why is this important?

Because you could see the emergence of a dual system: a commercial system that operates in commercial currencies for commercial trade and activity; and a local system that operates in local currencies for local trade and activity. The former is subject to all of the economic turmoil of the world, the latter to the economic turmoil of the town.

And banks could play a key role in enabling this to become a global system, by recognising and possibly even issuing, local notes for local trade, alongside commercial notes for commercial trade. The exchange system guaranteed by a bank, purely means that those who want to support localities can do so through a system of trust in the same way as we do through commercial systems.

The result is a whole new way of looking at finance and trade.

It just leaves me wondering whether the creation of the world’s local currency infrastructure should be by the world’s local bank?

* Bernard works with other leaders in this field, such as Margrit Kennedy

You can't hide anything, Part 3: U2

Following on from previous entries, U2 are now the subject of a scandalous lack of privacy when their new album, No Line on the Horizon, was filched by a tourist in the South of France.   

The tourist happened to be walking past Bono's house just as Bono stuck the demo cuts on the iPod, stuck up the volume to 100% and rocked the house.   The happy-go-lucky bozo walking by, heard the music and recognised the band but not the tracks ... so he recorded them and stuck the recording on YouTube (sound has been disabled since).

Whoops.

Do we really need Fund Managers? Continued …

Yesterday I asked the question, “Do we really need Fund Managers” and there were a couple of interesting comments which, rather than responding individually, I thought it worth writing a follow-on note.

 

The first comment was: “If you're trying to do as well as the market, then tracker funds (spiders) are probably a better ‘bet’.” The other comment was that my target should have been Independent Financial Advisors (IFAs) and the other middle men who broker business, rather than Fund Managers.

 

The fact is that Fund Manager's stock picking is no better than a monkey’s, but we trust their decision making better than our own. 

Equally, IFAs are trusted because they come out and have a face-to-face meeting with us at home and claim to be 'independent', so we trust their decision making better than our own, or those of direct sales and agents.

And, no matter how hard we try, we will never get rid of IFAs or Fund Managers. 

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Investing 2.0: do we really need Fund Managers

As most of you know, I’m always messing about with internet applications for social networking, virtual worlds, future tech, gadgets, games and so on and so forth. There’s always a reason for this, as in it’s fun, but I like to think it’s all work-related fun of course.

So I was messing around with social finance applications, and focused on those to do with investing.  After a while, it made me ask the question: do we really need fund managers?  The reason being that social investing gives me a far richer investment experience than investing through a remote advisor.

Social finance has been around for a long time, with Yahoo! Finance being a first generation.  Today, there are many more.

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We're not all doomed

According to the media in Britain this week, it's all doom and gloom in the financial markets.

Unemployment numbers up, inflation rising, house prices tanking, the euro sliding and oil and gold prices sunk.  The press are even forecasting that China and India’s economic boom is over and the whole world is slipping into recession.

Woe is us.

It's all claptrap media scare stories of course.  We're not all doomed and, between all the morose media musings, I found two reports yesterday that intrigued me more.

First was a report from the Federal Reserve titled: “The July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices”.

Aha, I thought, this would be interesting. And it is.

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It's banking, but not as we know it

Some brands are fairly ubiquitous.

I have a Sony TV, Sony Mobile, Sony Laptop and Sony Games.

My friend has a Virgin Mobile, Virgin Media with Virgin Broadband and Virgin Television, and flies with Virgin Atlantic.

Another shops with Tesco online using Tesco broadband, they use their Tesco mobile whilst shopping in Tesco stores.

These brands are trying to be all encompassing and have another thing in common: they all own and operate their own brand banks.

Their banking services are not as successful as some of their other services but they could become core.

They could become serious contenders.

They could knockout current banks from their core customer proposition.

How?

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Social networks and the future of money

Social networks have created new forms of money already and, as I spend more time playing with these virtual currencies, I can see how they may become the future of money, from a retail and consumer viewpoint anyway.

For example, last November, I wrote about the threats of money laundering in virtual worlds. At the time, most of the threats were emerging, and were represented by figures such as $9,999 paid on eBay for a virtual weapon in the online game of World of Warcraft.

More worrisome was the Chinese government’s efforts to stamp out virtual gambling and other illegal activities which, so far, seem to have failed. The capability came around thanks to the virtual QQ currency of Tencent Holdings.

Anyways, I decided to have another look at QQ, in part prompted by the start of China’s Olympic Games, and as I started to spend more time thinking about it, I am convinced that this is a model for the future of retail payments. 

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RBS results not so bad, so hire some mortgage advisors

After posting the rumour that Royal Bank of Scotland (RBS) were going to record the biggest losses in banking history earlier this week, they actually announced a pre-tax loss of £691m for the first half of this year.  That's almost £1.1 billion less than the Times guessed, but what's a billion here or there.

Meanwhile, to celebrate such a great result, RBS are hiring lots and lots of mortgage advisors for their UK NatWest and RBS branches. 

Obviously the credit crunch hasn't worried them too much.

Mind you, there are many commentators who have picked up on the fact that RBS, Fortis and Bank of America have all suffered the curse of the ABN AMRO acquisition.