The Financial Services Club's Blog

Barclays billions

I spent a lot of time talking about Barclays Bank yesterday, and the fact that they have not taken the government’s offer of recapitalisation support, unlike RBS, HBOS and Lloyds TSB. This is an unusual move, and everyone wondered what trick they held up their sleeve. Obviously they needed capital, but where were they going to get it?

Answer: Qatar and Abu Dhabi.

Today, Barclays Bank announced they were raising £7.3 billion (around $10 billion) in new funds, of which £5.8 billion will come from investors in Qatar and Abu Dhabi in return for a 30% stake in the bank.

I do find this intriguing, particularly the question as to why the other banks don't get Sovereign Wealth Fund (SWF) investments of this nature?  Sure, there are a few that have, such as Citibank, but UK banks have generally relied on Government support rather than SWFs.

Apart from Barclays.

Maybe it's related to Barclays Capital and Barclays Global Investors.  The relationships with global investors and SWFs through those two units is certainly stronger than the other UK banks.  For example, in the fund raising rounds for new investment earlier this year, RBS and HBOS raised capital through shareholders whilst Barclays raised capital through SWFs in China and Singapore.  This time around, the same connections with global investors has worked in their favour.

I found it interesting to read the public's comments on this move as well, such as: “so Barclays is now in favour of nationalisation - just as long as it's a foreign government that owns it”. The reason Barclays didn't take the UK Government funding in my view, is that the UK Government places all sorts of caveats and requirements on the banks if they take the investment funds.  These include things like: "your Chief Executive and Chairman have to step down" ... SWFs tend not to influence the bank as much.

Meanwhile, whilst reading this news, the Times ran a headline: “How to judge the safety of a bank”, which surprised me as it’s a question that would never have been asked a year or so ago.

The article related to the bailout the UK Government has given to the banking industry and the loss of confidence as a result of the Icelandic banks failing, Bradford & Bingley and Northern Rock being nationalised, and the forced merger of HBOS with Lloyds TSB.

It goes on to say the answer to how judge the safety of a bank is to use the ratings agencies!

OK, it does qualify that statement to say that you should use them with other sources, such as Tier 1 Capital ratios, and then provides the listings for major banks in the UK, as at 17th October:

Bank                           Credit rating     Outlook    Tier 1 Capital ratio
Santander (Abbey, A&L)        AA              Stable              9.25%
Barclays                                AA      Watch Negative       7.9%
HBOS                                    A+      Watch Positive        7.3%
HSBC                                    AA              Stable             8.8%
Lloyds TSB                            AA      Watch Negative       8.6%
RBS (Natwest)                       A+              Stable             6.7%
Nationwide BS                       A+              Stable             9.7%
Post Office (Bank of Ireland)  A+              Stable             8.1%
ING                                      AA              Stable              8%**
First Bank of Nigeria             BB -            Stable             17.4%
ICICI                                    BBB -*         Stable             11.29%
Source: Standard & Poor's/company accounts

*Fitch rating
**Tier 1 Capital Ratio following the €10 billion cash injection by the Dutch Government

Fact is that Barclays is rated to be a safe investment for the SWFs, so it’s a good deal.

Is this what we've been through the last month?

I just got sent this link.

Nothing to do with banking although, as I watched it, it did make me think that maybe this is what we've been through the last month in the industry.

I just hope the ending is the same.

Great advert for Contactless

I don't normally rave about bank adverts but there have been some good ones lately, particularly those from the card firms for contactless cards. 

The last one that stood out was the Visa ad, and now Barclaycard have produced a great one:

Wouldn't we all like to leave the office like that?

Apologies to Bjork and my Icelandic friends

After taking the piddle out of Iceland in my blog about their collapsing banks when the news broke back on 7th October, I do feel some sympathy for their situation.  Especially as our banks are in crisis too.

However, to protect British interests by using anti-terrorism laws to freeze Icelandic bank assets in Britain, we may have ruined the Icelandic economy but it has been effective, according to Lord Paul Myners, the Financial Services Minister.

Meanwhile, Bjork wrote a piece for the Times this week that puts it all in context, particularly when she mentions that 1 in 10 Icelanders have signed a petition against our actions.

"I quote a petition signed by a tenth of the nation: 'Gordon Brown unjustifiably used the Anti-Terrorism Act against the people of Iceland for his own short-term political gain. This has turned a grave situation into a national disaster...hour by hour and day by day the actions of the British Government are indiscriminately obliterating Icelandic interests.'"

I think you better advise mom not to go to Iceland right now.

Bankers don't help themselves do they?

So the governments of the world pumped in $3.5 trillion to the banking markets over the past month.  Markets that have lost $2.8 trillion over the past year.

And what do the banks do?

Well the US banks, who received $700 billion, used $70 billion to pay staff bonuses and about $100 billion to pay shareholder's dividends.

This has not gone down well with the public, with the Washington Post's story about the latter receiving over 100 comments.  Here's a selection of the ones that received the most recommendations:

WillSeattle wrote:  “This is total bull.  Look, I've owned a few hundred or a thousand shares of banks (BofA, Citi, MS, PCBC, WaMu) before.   And having them pay dividends using taxpayer dollars is just plain WRONG.  PERIOD.  Only a Red Socialist Republican would think that was good.”

yxl12 wrote: “Are you nuts? What is the ABC of the investment? ‘From your investment, you can either lose or gain in future, but there is no guarantee.’ With our tax dollars, the financial institutes are allowed to pay dividend? What kind of country is this?”

bfjackjernigan wrote: “That's it. I'm getting a state charter for ‘Jack's Pretty Good Bank of Commerce and Industry’. Then I'm going declare insolvency and request bailout money. Then I'm then going to loan every cent of the bailout to myself and default. I'd then state that I'd gladly go after myself to collect but being insolvent I don't have the means to sue myself. If compelled to take action, as both the plaintiff and defendant I could keep myself out of court by filing blocking motions against myself. At last. I've mastered the pretzel logic of a free economy. Now I'm free to steal your money and mine. I'll socialize your losses and privatize my profits.”

cmecyclist wrote: “‘Ed Yingling, chief executive of the American Bankers Association, said these banks don't need the money, but they are willing to use it to increase lending, so long as they are not punished for doing so.’  In other words, the banks that don't need the money are taking the money to ‘lend’ so that they can use it anyway that they want to. Taxpayers be damned. They're giving us the finger.”

gonzo3 wrote: “There was never any doubt in my mind this would happen. Protecting shareholders and ensuring payouts to CEO's was on top of Paulson's list. Why would anyone think otherwise. We have some really smart legislators who need to be replace. Too bad those crooks will get a retirement with benefits instead of jail time.”

UnitedStatesofAmerica wrote:  “The bailout is for the Rich - paying dividends to Buffet from bailout money proves it.”

rymp wrote: “Another idiotic congressional program. Why are we the tax payers paying dividends to share holders? This is baloney. Just like the banks are putting billions aside of our tax money to pay for bonuses. Since when do you get a bonus for failure I mean if you aren't a CEO that is.”

wyne wrote: “When businesses lose money, they cut down or eliminate dividends. So why not banks? Just horrible.”

mriley0223 wrote: “While the rich get richer, I can't pay for gas, food or clothing for my family.”

anniejoyce wrote: “My daughter came home today crying. She's exhausted after spending day after day looking for a job. She lost her job as a massage therapist because massages became wants instead of needs. How do these people sleep at night?"

Jimof1913 wrote: “You've got to be kidding me! They run the bank into the ground, ask for a government bailout, and then use the money to pay dividends. Is there no shame with these bank executives?”

TotalRecall wrote: “Here we go again with this ‘no regulation is good regulation’ BS!!! I'm pissed!!! This is BS!!! Not only do we not have a voting stake in these companies to kick out these selfish, greedy executives, but they are pissing away taxpayer money on their own greed!!!!!!!!!!! REGULATE!!!!!!! REGULATE!!!!!!!!! REGULATE!!!!!!!!!!!!!!”

MariaAntoinette wrote: “This is absolutely outrageous! Is this some kind of joke?! This is how revolutions start.”

Is mobile banking the future or a waste of money?

Posted an article on Mobile Banking on SWIFTCommunity today that talks about the four levels of banking I see out there today on mobiles.

There's basic text messaging, such as GCash in the Philippines:

Then there's a fuller mobile wallet that can make payments easier across credit cards and deposit accounts:

Then there's Bank of America's million users of full mobile banking with balances and more:

And finally there's BBVA's Web2.0 styled mobile apps:

But IBM reckon that people don't want banking on a mobile, so the latter two could be a waste of money?

Don't believe it ... people don't know what they want till they have it.  Once they realise what they can do with instant balance checks at point of sale, they'll start using mobile banking.

$2.8 trillion is a lot more than $350 billion

I noted in yesterday's blog about the Financial Stability Report from the Bank of England that they say UK banks ramped up lending to £700 billion ($1.1 trillion) over deposits between 2001 and 2008, but failed to mention that they estimate total losses in the credit crisis to be $2.8 trillion. 

That's a lot more than the $350 billion the OECD estimated for the subprime crisis back in April 2008 (just six months ago!) and double the value the Bank estimated just six months ago.

The report is well worth a read.

What happens to SEPA if Europe fails?

Whatever we say about the Eurozone and its challenges, particularly in light of the credit crunch, we have a problem.

When Ireland announced guarantees for all customer deposits, without limits, earlier this month it led to a crisis of confidence. The crisis was the flow of funds from all EU countries to Ireland as a result, and so Greece followed and soon all governments were backed into a corner where they had to try to follow suit, as far as possible.

This on the back of Ireland’s negative vote on the EU Treaty has made them hugely unpopular with the Brussels and pro-Europe community.   A community that already has strains, as reported in the International Herald Tribune back in May.

“Greece, Portugal, Italy and Spain - the sun-drenched fraternity sometimes called Club Med - are struggling with eroding competitiveness, rising prices and bloated debts. Meanwhile, Germany, the sick man of Europe for most of the euro era, is suddenly vigorous again ... when leaders and laggards use the same money but have opposite problems, tensions are bound to surface.”

So it is actually a cause for celebration that we have made it to ten years of Euro Union.

The Euro celebrated its tenth birthday this year, as did the ECB and the EBA, and we have many new investments and infrastructures that are making Europe more effective and efficient: EURO1, STEP1, STEP2, Equens, SIA, Vocalink, TARGET, TARGET2, TARGET2 for Securities, EuroCCP, EMCF …

Ah. There’s an interesting one. EMCF.  Formerly a Dutch bank Clearing System, now a nationalised system and soon to be part-privately owned by NASDAQ OMX and maybe a few others.

We are by no means certain of our infrastructures or even of our Union, but will these things fall apart?
If the EU disbanded tomorrow, would our systems be redundant?
If Europe fails, do SEPA, MiFID and all of our investments fail too?

I don’t think so.

Personally, I’m an advocate of a strong European Economic & Monetary Union. I’m not an advocate of a European Political Union however. The two are very different.

The former means that we can share services to compete commercially with other large geographic zones, especially America and China.

The latter gets us into discussions about Brussels not allowing us to have our sausages:

It gets into all the silly stuff of Euro-meddling we all hate.

Somewhere in between is our tax, fiscal and company laws, which is where we all stumble between European harmony and European hate.

But, politics aside, what does this mean for banks and SEPA instruments, for example?

Well I can take note of some people’s cynicism about SEPA and the PSD, after all it’s been nine months and we’re just toddling along slowly but surely towards success. Take note however, that I did say “slowly but surely towards success”.

This is a marathon, not a sprint.

What we are finding is that the time we are taking is long, but the process is certain and has a goal. It does not have an end-date, which everyone still points to as a problem, but it has a goal.

The goal? To create a pan-European financial infrastructure for processing payments and allowing investments, without cross-border barriers.

That goal is valid regardless of the EU in my view.

After all, for global and international banks and corporates, a pan-European infrastructure for processing payments and allowing investments, without cross-border barriers, makes absolute sense.

For efficiency of processing and for effectiveness of costs, investments and organisation.

So we have these sceptics, about SEPA, the PSD, Europe and all of its operations so here’s to the rub – is SEPA working?

For this, I’ll use the EBA’s figures, as they have had STEP2 operating with SCT’s since 28th January, and seem to know a little about their subject matter.

STEP2’s SCT facility has 113 direct participants in STEP2’s SCT operations in 21 countries, connecting 3,967 indirect participants who support over 5,220 institutions in 35 countries.

At SIBOS this year, the EBA gave me these figures for SCT volume and value:

                 Average daily volume      Average daily value
August              185,673                         €1.24 billion
July                    196,003                         €1.35 billion
June                   185,187                         €1.32 billion
May                    169,526                         €1.14 billion
April                   159,114                         €1.01 billion
March                152,385                          €878 million
February              95,041                           €535 million
January                32,741                          €194 million

With around 28% of these credit transfers for domestic payments, rather than cross-border, they can claim some success.  And yes, it's early days, but this is a marathon, not a sprint.

So sure, SEPA Direct Debits have issues and SEPA Card Frameworks aren’t necessarily clear and simple (do we need another purley European Card operator?) but, whatever the discussion, there’s no point in being sceptical or cynical about this stuff. 

Why?

Because there’s no way these services are going to fall apart.

Even if everything else fails, they will just become Euro Shared Service Centres for cross-border processing and pan-European investing. These services will still exist because they are needed. They are needed by both banks and corporations for efficiency and effectiveness of payment processing, clearing and settlement.  And they will be supported because of the time taken and the investments made.

So here’s my bet.

Regardless of whether the European political issues disband our process towards a Federal Europe, we will still have an Economic & Monetary Union (EMU) and, even if EMU and the Euro falls apart, we will still have T2S, TARGET2 and SEPA instruments.

They won’t go away, but will be shared services for EU banks.

So start supporting the movement towards the goal. Be constructive and remember the end-game. 

The end-game?

Oh yes, worth a reminder, to create a pan-European financial infrastructure for processing payments and allowing investments, without cross-border barriers.

Live with it.

The Financial Instability Report

The Bank of England (“the Bank”) released their Financial Stability Report today ... or should we rename this the Financial Instability Report as that's what we've seen for the last few months.

The Report reviews the UK banking system every six months and started back in 1996. In that first report, the Bank said: “The most recent figures suggest that the banks are in good shape. They are strongly capitalised and, on that basis, well placed to expand their lending.”

And that's just what they did.  For example, today's report notes that UK banks had an equal amount of deposits to loans back in 2001 but, by 2007, had lent £700 billion more than they had on deposit.

£700 billion more than they had in deposits?  Were they mad?

Yep.

Read more ...

The best internet hoaxes ever

Thanks to Information Week for pointing out the top internet hoaxes of all time.

First, is the discovery of BigFoot.  Yep, a dead Sasquatch was found in Georgia.  The movie proves it:

Then there's Snowball, the mutant cat:

and there's the last tourist to enjoy time on top on the World Trade Centre in 2001. 

Although I think he was beaten by Snowball ...

No jokes about banks in this lot though, although I think the last month may have been the biggest internet hoax ever ... as in, there is no stock market crash.  It's all just a dream!

Let's all move to Canada

The World Economic Forum (WEF) released their Global Competitiveness Report last week.  Compiled by Michael Porter of Harvard University and Klaus Schwab of the WEF, it clearly shows the impact of the last year’s market turbulence.

 

In the preface, Klaus Schwab sums up the current world pretty well:

 

“This year’s Global Competitiveness Report is being released at a time of multiple shocks to the global economy. The subprime mortgage crisis and the ensuing credit crunch, combined with rising inflation worldwide and the consequent slowdown in demand in many advanced economies, has engendered significant uncertainty about the short-term outlook for the world economy. Global growth is slowing, and it is not yet clear when the effects of the present crisis will subside.”

 

Within the report, they rate how sound the banking system is for each country of the world based upon the opinions of executives which creates an index where banks are marked between 1 (insolvent and possibly requiring a government bailout) and 7 (healthy, with sound balance sheets).

 

According to the report, Britain’s banking system has pretty much totally collapsed from being the world’s fifth soundest to being 44^th, just below El Salvador and Peru.

 

Oh dear.

 

So let’s move our money to America?

 

Nope. The USA is 40^th, behind Barbados and Namibia.

 

Who comes out on top?

 

Canada.

 

I’m off to join some bears over there.

 

Here’s the top 10:

 

1. Canada

2. Sweden

3. Luxembourg

4. Australia

5. Denmark

6. Netherlands

7. Belgium

8. New Zealand

9. Ireland

10. Malta

 

A tale of two banks: HSBC and Santander

On Thursday 23^rd October, I received an email newsletter from VRL Publishing with the headline titled: "HSBC stands out from the crowd”. Here’s the opening paragraph:

 

“HSBC's near-unparalleled strength in the face of the tornadoes blowing through global financial markets has been re-emphasised with a swift, internally funded £750 million ($1.3 billion) recapitalisation of its UK business. The move came at a time when most of its rivals in the UK - and the world - have been forced to turn to governments to underwrite rights issues and inject capital.”

 

On Friday 24^th October, HSBC’s shares fell £1:09p to £6:96p because, according to the Times, “Michael Helsby of Morgan Stanley gave warning that the book value of HSBC’s North American loans – mainly sub-prime mortgages offered through its Household division – is $33 billion more than their present market value. If the bank writes off that sum, its capital reserves would fall to the level at which its rival UK banks are having to be recapitalised by taxpayers.”

 

Mind you, the Times goes on to report about Abbey/Santander:

 

“Abbey will reveal this week that it has swept up billions of pounds in customer savings from rivals after the uncertainty generated by the £37 billion bank bailout scheme … the figures come amid mounting speculation that Abbey’s Spanish parent group, Santander, is under pressure to raise more capital. The rumours have intensified after a string of bad news from South America, where Santander has huge exposures.”

 

Can anyone make sense of it all anymore?

 

These reports follow on the back of something else that doesn't make much sense, which is that the bailout the banks have been given has not resulted in any further lending to anyone.  The Times reports that the Government is now pulling the bankers in again to tell them why, whilst the New York Times reports that the banks are keeping all the money to themselves because "all of the combined profits that major banks earned in recent years have vanished".

 

Oh yea, and the New York Times also has a brilliant multimedia montage about the crisis. 

It was the dollar, now it's the pound

I received this image on email the other day:

This was when the dollar was trading at over $2 to the £1.

Now I got this image:

Yep, you guessed it.  The £1 is now only worth $1:50 ... and that was just a 20 cent drop on Friday. 

Roll on next week.

Viral campaigning works

Barack Obama apparently raised $150 million in campaign funds in September, and now you can see where he's spending that wad of dosh.

In a sequel to the Budweiser Wassup adverts from a decade ago, he makes a few key points about the economy, the subprime crisis and more in a new online YouTube ad:

Not that I'm endorsing the sentiments expressed of course, but rather noting that within 24 hours of posting the video it's been watched a million times and garnered 5,000 positive comments.  Take note.

Meanwhile, if I'm honest about political matters, I prefer Saturday Night Live's take on the campaign anyday ...

More Jobless Bankers

After my post the other day about bank layoffs, the news that Goldman Sachs were to layoff 10% of their 32,500 staff led to Here is the City posting a definitive list of the layoffs from all banks.  Here's a small selection:

 

%age of          Jobs      Total jobs

jobs lost          lost        originally

 

53.5               7,500      14,000         Bear Stearns

48.3             14,500      30,000         Lehman Brothers

26.3               7,900      30,000         Citi

26                  5,800      22,300         UBS

25                  7,000      28,000         RBS / ABN AMRO

18.2               3,650      20,000         Bank of America

11.6               2,900      25,000         HSBC

11.4               5,400      47,050         Morgan Stanley

10.5               2,100      20,000        Credit Suisse

 

Shocking!

Corporate Social Media and Networks

I just found this list of the best Corporate Social Media and Networks today.  Amazingly long list that is short of bank examples.  Here are the few financial links which includes both the good, the bad and the ugly:

• Accuquote:
  • Blogging:  Life Insurance blog.
  • Podcasting:  Life Insurance podcast.

• American Express.  Blogging:  OPEN Forum.

• Bank of America:
  • Online video: Managers sing at a corporate meeting.
  • Social networks: Small Business Community on Clearspace.  Medal Me! Facebook application.

• BBVA.  Social networks: Finance community.


• Experian:
  
  • Blogging: Free Credit Report band blog.
  • Online video:  YouTube account.

• Fidelity Investments:
  • Mashups: savings rate finder and checking account comparison.
  • Podcasts: Three topics relating to investment guidance.
  • Widgets:  market monitor.
• H&R Block:
  • Microblogging:  Twitter account with almost 600 followers.
  • Social networks:  Facebook fan page with almost 1,000 fans.
• HSBC.  Social networks:  Stop the Great HSBC Graduate Rip-Off on Facebook.  The HSBC Business Network for entrepreneurs.

• Securities and Exchange Commission.  Microblogging:  Twitter account.

• Wells Fargo:
  • Blogging: Four corporate blogs.
  • Online video:  YouTube channel.
  • Social networks:  MySpace profile for Cassie, from Stagecoach Island.  Facebook Stagecoach Island application and fan page.
  • Virtual worlds: Stagecoach Island.

Thanks to Peter Kim for compiling the long list and, although it doesn't include all the ones I would include, e.g. where's Zopa's blog or RBC's Campus blogs and Facebook apps, it is pretty exhaustive.

Meanwhile, my favourite story of the day is the one where a Japanese woman has been arrested because her virtual husband in the MMORG Maplestory virtually divorced her, suddenly and without explanation.

How very dare he!!!

So she went round to her virtual husband's house in the real world, nicked his username and password for the game ... and killed the virtual him.

If found guilty of hacking his PC, as seems likely, she could face five years in jail in the real life.

Poor thing. 

She should have robbed a virtual bank instead as no-one would have jailed her for that would they?

Sometimes it's better to be slow

I chaired a dinner this week on speeds, feeds and latency in the City's Capital Markets.

Fascinating stuff all about the latest Multilateral Trade Facilities (MTFs) and how Chi-X and Turquoise claim to be ripping up the old exchange models by processing trades in 2 milliseconds.

During the course of the conversation, I found something interesting.

Most of the City folks said that speed is irrelevant and that those milliseconds are meaningless.

Read more ...

Send in another taxpayer

I was in Ireland yesterday.  As always, the humour and hospitality of my Irish friends was second-to-none as illustrated by this cartoon from the Irish Independent:

Tech: it's an age thing

Someone commented on my last blog that it's just me getting older.  Looking at the latest E*TRADE ad, I see what they mean ...

Why is today's technology so rubbish?

Having spent the last month virtually non-stop talking about the doom and gloom of the stock markets and the financial industry, I thought I’d be much more positive today and talk about technology.

I grew up in the technology industry and love technology.

For years, I've been an avid fan and user of PC's, mobiles and laptops, and they all just worked brilliantly.

But y'see, I’m not just a fan of blackberry’s, mobiles, the internet, my laptop, my MP3 and iPod, my Blu-ray and HD-TV … I love it. I’m in love with it. I’m immersed in this stuff.

I LOVE TECHNOLOGY.

But there's an issue I've discovered of late.

The issue is that technology does not work anymore.

Read more ...