Walking around Davos, we stumble across a small enclave of bank chiefs sharing breakfast. In this case, Demon, Blankfine, Jinkens and Gilliver, the CEOs of JPM, GSachs, Barcs and HBSC respectively.
Walking around Davos, we stumble across a small enclave of bank chiefs sharing breakfast. In this case, Demon, Blankfine, Jinkens and Gilliver, the CEOs of JPM, GSachs, Barcs and HBSC respectively.
It surprises me that banks rarely get lauded and applauded, as it is far easier to critique and blast.
A good example is the post Hurricane Sandy fallout, where banks in the USA are doing everything they can to support hard hit Americans.
I didn’t see much about this in the news generally but, whilst following a few tweets, discovered that most US banks are waiving fees and doing the right thing.
A few examples .
Interbrand published their Global Top Brands report yesterday, which makes for interesting reading.
The world’s most valuable brand is still Coca-Cola, followed closely by Apple and IBM.
Tech firms feature heavily in the list, with Google and Microsoft in fourth and fifth place, Intel in eighth and Samsung in ninth and Oracle, in eighteenth place, is one of the fastest risers.
Even Facebook, that seven-year-old upstart, gets in on the act in 69th place.
Meantime, the financial brands take a big hit with Barclays and UBS disappearing from the Top 100 (they were 79th and 94th most valuable brands last year), and many others losing traction.
American Express is the top financial brand in 24th place, 23rd last year.
JPMorgan comes in at a respectable 32nd, although that’s four down from last year’s 28th.
And most others see a big drop, particularly Credit Suisse (95th this year, down from 82nd last year).
Here’s the sector review and individual brand reviews from this year’s report, and you can download last year’s complete report if you want a comparison.
There’s a great interactive review of investment banking markets on the Financial Times today.
The chart compares the fortunes of ten investment banks: Bank of America; Barclays; Citi; Credit Suisse; Deutsche; Goldman Sachs; JPMorgan; Morgan Stanley; Royal Bank of Scotland; and UBS.
You can check out how their revenues, employee numbers and market capitalisation has changed since this crisis began in September 2008 through to the end of September 2012.
The numbers may surprise you.
Someone made the comment that I would not receive any business from the five banks named yesterday with the biggest mistakes, so I thought I would rectify that by picking on five good things that banks are doing.
It’s harder to find, because it is less reported, but there are a number of banks that do really good on-the-ground work. Here are five examples:
#5: Bank of America’s Technology Leadership
I often use the example of Bank of America when discussing innovation. The reason is that they took leadership in internet banking a decade ago by committing to the technology early. This is a case study that I’ve written up in detail, and the core of the case study shows that through analytics BoA realised that share of customer wallet increased massively the more the customer was in control. That’s what internet and then mobile banking gave the customer and that’s why BoA committed early to roll out internet and mobile banking with security guarantees to assure customers that these technologies were safe and viable. It’s also why BoA is the #1 US internet and mobile bank.
Active online banking users
Active mobile banking users
#4: Barclays Innovations
It’s true that banks are lambasted for being slow to change and adopt new ideas, but Barclays has proven to be an exception in recent times. From extensive use of social media in their card operations to being the first UK bank to launch a P2P mobile payments service, Barclays has shifted the goalposts regularly in UK banking capabilities. I blogged about this in depth in April, and it shows that banks that innovate do win more business.
#3: Citigroup’s Visions of the Future
Citigroup are regularly rolling out new technology innovations and trialling new ideas. Their branch of the future concept opened in Japan last year was particularly noteworthy, as was their partnership with Google Wallet which could have been massive, if Google had opened the Wallet on the iPhone and not restricted it to one handset (the Nexus S 4G on Sprint). The Google-Citi exclusivity has now gone but, nevertheless, Citi make a point that they have been on the innovator’s curve on a regular basis for over 200 years …
… and what this video shows is that without banking and access to trade and project finance, the world would see no progress. That’s why Citi and other banks are needed to ensure that societies and economies move forward, not backward.
#2: First Direct’s Customer Focus
First Direct appear on this blog and others so often as the UK’s #1 consumer champion bank that it’s almost boring, but the reason is that they truly understand how to deal with remote banking. Regularly voted the #1 bank by their customers, the reason that First Direct get this is that they began life as a bank without branches and now see themselves as a digital bank with a human approach. That’s why they don’t script their call centre agents or do things by the book, and it’s why they win. If you want to know more about the bank, it would do no harm to revisit my 2010 interview with Paul Say, the bank’s head of marketing.
#1: Standard Chartered’s Charitable Work
There are many banks involved in community and charitable work, but one makes a point of it and it is visible in all my dealings with them: Standard Chartered. I first noticed their work when I bumped into the then CEO Mervyn Davies at an Awards ceremony in 2006. He was wearing those tacky wrist bands and I thought it would be something about “stop bullying”. Instead it was about "Seeing is Believing", a charity that is helping to bring eyesight back to emerging market citizens who suffer from cataracts or similar eyesight issues. Mervyn explained that it was a passionate cause for both him and the bank. In fact, if you look at this charity, which aims to raise $100 million by 2020, it is actually a partnership between the bank and the International Agency for Prevention of Blindness (IAPB). In other words, the charity would not exist without the bank’s support. And it goes to the heart of the bank. For example, Standard Chartered sponsor Liverpool Football Club. The bank even replaced its sponsor logo in the Liverpool versus Chelsea match last season, to promote the charity’s work.
And it’s not just this work that places them high up in my list of banks doing good things. For example, I bumped into another senior StanChart banker in Asia six months after meeting Mervyn Davies, Mike DeNoma. Mike was championing a charitable cause to stop child pornography online. It is clear from both encounters that the bank actively encourages charitable work as part of its culture and that’s why they get my number one award for doing good things.
So there you go.
Five banks doing good things.
Note, that four out of five of these are the same five banks as yesterday (First Direct are part of HSBC), so it shows that they can just as easily do good work as messing things up.
Oh, and why did I miss out RBS?
Well, I was going to include RBS but:
Either way, they’ve got no budget for consulting with Chris.
Meanwhile, there are many other banks doing amazing things out there, including many of the names that have had reputational hits over the past year.
I kinda thought that some of the things that have happened in banking in the past – like the collapse of Lehmans and Barings Bank; Jerome Kerviel, Henry Blodgett and Frank Quattrone; insider trading and Ponzi schemes; and more – were pretty bad, but someone asked me to make a list of the top five most embarrassing mistakes made by banks and, as I pondered the list, they all appeared to be recent ones.
Sure, I could put in things like Chuck Prince having to apologise in person before the Japanese FSA about Citigroup’s private banking failings or Goldman Sachs calling their clients muppets, but these things are mild compared to the five here.
So, as it’s summertime and things are changing, here are the top five most embarrassing mistakes made by banks, and they all happened within the last twelve months:
There were a number of major PR gaffes in the last year, where banks were caught short over social media usage. The biggest one was from Bank of America, who tried to introduce a charge of $5 a month to use debit cards in October 2011, in response to the Durbin amendment to the Dodd-Frank Act that limits debit card transaction charges to 12 cents per transaction. Customers didn’t like the new fee and one – Molly Katchpole, a 22-year old nanny – forced the bank to change its position purely by using Change.org to create a petition that garnered over 300,000 signatures. The fact that BoA retracted the fee was then rewarded with the award for the worst PR gaffe of 2011 and a 20 percent increase in account closures in Q4 2011.
You can have issues over reputation but the #1 reason why customers close accounts is when mistakes are made. In this case, the RBS glitch was huge, with customers at Ulster Bank closed out of their accounts for almost a month. The mistake was made by an update to CA-7, a core payments program, which corrupted the payments files. The issue has been that no matter how hard RBS try, they cannot recreate the issue to find out what caused it, or so I hear.
When the head of mortgage Quality Control sues her employer over their mortgage processing system, you know something’s wrong. When Sherry Hunt did this, claiming that three out of five mortgage applications were missing key pieces of information including signatures and proof of salary, you know something’s really wrong. Especially when her employer told her to fudge it and stop complaining. That’s why, when the Department of Justice backed her case, she received $31 million for being the whistle-blower her blew the whistle on Citigroup and succeeded in bringing them to justice as the first test of the new Dodd-Frank whistle-blower rules.
You would think that with global AML controls in place, a bank of HSBC’s size and breadth could handle a little tracking of terrorist cash. David Bagley, Global Head of Compliance for HSBC, has been co-chair of the Wolfsberg Group that set the rules for Anti-Money Laundering worldwide for banks since 2005, so they should know something about it. However, he and the bank got caught out as accounts in Mexico enabled drug cartels to gain monetary movements via the Cayman Islands, and terrorists were engaged in similar activities via the Saudi bank division and its counterparty Al-Rajhi Bank. The result is that he stepped down from his position in the bank, even though he wrote emails warning of the Mexican banks lack of a “recognisable compliance or money- laundering function.” The lesson learned is that when business leaders see billion dollar accounts, they ride rough-shod over their risk, audit and compliance folks. The balance has to shift the other way around so that when risk, audit and compliance folks see businesses they don’t like, they can tell the business leaders that when the going gets stuffed, the stuffed get going.
It’s not so much that LIBOR had faults so that rates could be rigged, which we all now know, but more that the messenger got shot. Barclays were the messenger who blew the whistle on LIBOR rate rigging. That’s why they got the first massive fine, as they have been co-operating with the authorities. Meanwhile, all the other banks have now been drawn into the crossfire with HSBC, RBS, Lloyds, Deutsche, Mitsubishi and more being investigated with multimillion dollar fines. So what’s the problem here? That Barclays allowed the release of the LIBOR news to make them look like the sole bad guys. Result: Diamond, del Missier, Agius and more all go and the bank becomes a headless mess. How did it happen? Well, apparently the day the news came out about Barclays fine was the first day of a brand spanking new Head of Corporate Communications joining the bank. Not a bad day’s induction training to find yourself in the middle of the biggest comms crisis of all time and #epicfail for not dealing with it effectively.
So there you have it.
Five massively embarrassing moments for five megabanks.
Nevertheless, my award for the bank with the all-time brownest stuff dripping off its fan has to go to UBS.
UBS – the bank with the multibillion dollar loser.
UBS – the bank that tells their staff how to dress and not dress.
UBS – the bank that trains their staff in how to avoid the FBI and US Customs.
UBS – the bank that has employees willing to go the extra mile, like doing illegal activities on behalf of their clients.
UBS – the bank that received one of the largest Federal Reserve fines in history in 2004 for peddling dollar bills to Saddam Hussein, something that HSBC copied this year.
Need I go on?
Oh yes, but it’s still a very good, reputable bank.
There’s a buzz that’s started about Facebook banking asCommonwealth Bank of Australia and ICICI Bank get into Facebook banking apps, with Citibank fast to follow.
What’s going on?
Originally, we all though Facebook would take over bank functions through stealth creep via Facebook credits.
Facebook credits are in fact worth around $1.5 billon a year in revenue at 2011, about 15% of Facebook’s revenues, and are predicted to reach almost $50 billion by 2014.
So why did Facebook drop the credit system?
Because they didn’t.
They just switecherood from having something customers didn’t understand – a credit – to something they do understand – a dollar.
You still work with Facebook in pretty much the same way – register your credit or debit card details and then you can buy add-ins to games, apps and other media.
In other words, they’ve decided to take the iTunes route to payments, where everyone is registered with an account profile and all they have to do then is ‘confirm’.
From there, it’s a one-step beyond to consider the idea that ‘Facebook connect’ for a secure logon (and it is) becomes ‘pay with Facebook’ for a secure payment.
At that point, Facebook has both an iTunes card aggregation capability (currently expected to be for around 50 million people this year from 15 million last year) growing into a full PayPal style payments service shortly thereafter.
As Techcrunch noted: “And then, what’s to stop Facebook from introducing a Facebook Credit Card? Facebook could be bigger than PayPal and become Visa or MasterCard as well. Facebook has the potential to become a universal wallet for both online and offline purchases.”
So Facebook is still a serous payments player, credits or no credits.
That is why banks are starting to jump on the Facebook payments and banking train.
Noteworthy has been Commonwealth Bank of Australia’s (CBA) jump into the Facebook banking space.
CBA is building a Facebook app that will make it possible for customers to make payments to third parties and to their friends through the social network.
Transactions are secured using the bank’s own authentication system and the bank's chief marketing and online officer, Andy Lark, said the institution was not seeking to reinvent banking rather that “help people manage their money and their lives” in ways that suited them, The Sydney Morning Herald reports. “We as a society have migrated to Facebook [...] social banking is here”, Lark said.
PC Advisor provides more details quoting David Lindberg, executive general manager of card payments and retail strategy, on the aspects of Facebook banking and the lack of privacy and security of Facebook .
“We know that there are customers who just do not want their financial information sitting on Facebook,” he said. “For those customers, of course, there is no reason to use [the application]. At the same time, we know that there is a segment of customers who are very comfortable with using Facebook for a number of private things, one of which is for financial services. So, in terms of the privacy, our view of privacy is that it is something which is completely up to the consumer.”
CBA is not the only bank on Facebook. ICICI bank in India has been there for a while.
According to CNN’s IBN service, ICICI Bank launched its Facebook banking application earlier this year to give customers the ability to carry out a number of banking related tasks such as checking account details, getting account statements, upgrading debit card and cheque book enquiry.
The bank claims that using the ‘ICICI Bank App’ on Facebook is completely safe and secure due to features such as “Secure SSL connection, two-factor authentication process (and) activity details not (being) published on Facebook Wall … there is no charge for this application. ICICI Facebook banking application is totally secured. All communication between the app and ICICI server is encrypted. No data is stored on Facebook. All communication is secured and encrypted,” the bank says.
As part of the security features, registration is subject to Debit Card and PIN authentication and access to the application is subject to a separate PIN authentication generated by the user.
The bank goes on to claim that a customer’s account details would remain secure even if the Facebook ID is hacked: “Since your account data is not stored on Facebook, your bank account is completely safe. Even if your Facebook ID is hacked, the hacker will not be able to access the application unless you have shared your application password with the hacker,” ICICI Bank says on its Facebook page.
And, in yet another move towards Facebook banking, Citigroup asked the social stratosphere if they would be interested in banking on Facebook the other day.
This immediately got everyone thinking that Citi would follow on the heels of CBA and ICICI to soon launch Facebook banking.
You never know, although Citi have not confimed such plans yet.
Meanwhile, at least these banks didn’t have the epic Facebook fail that Barclays achieved the other day.
Barclays launched a new viral media campaign on Facebook the day before the LIBOR scandal broke and it’s not gone down well.
The campaign is based around Dan, a fictional character who the bank was following to see how the guy spends and lives his life.
Soon the campaign fell into pointed comments and attacks, along with several in the social sphere poking fun.
A few examples:
Dan moves all his accounts from Barclays to financial institutions that pay him interest. Suddenly he can afford to fund his condom habit, thus avoiding the unnecessary expenses of unwanted babies by ex-girlfriends.
Is Dan into fraud and larceny? Or being ripped off as a customer? If not I doubt Barclays are that interested in him. Hang on, is Dan black? Does he know barclays used to invest in apartheid? He should move his account sharpish.
Bob’s a CEO and spends £5,000 a day on Bollinger. That’s about £155,000 a month; enough to buy a classic Ferrari at the vintage car festival he really wants to go to in August. Rigging LIBOR for a couple of months would mean a more memorable end to the summer. Haha :)
No wonder the campaign ended early, with the official response from Linzi on 8th July:
Thank you all for your comments over the past week. We have read them all and provided your feedback to the rest of the business. However, under the terms of the settlement we cannot discuss this matter in any further detail, but you can read our official statements here http://group.barclays.com/news/news-article/1329925891776/navigation-1330349053975. If you would like to speak to us directly, you can email firstname.lastname@example.org.
Just been reading this month’s Bloomberg Markets, with the lead story: “Woman Who Couldn’t Be Intimidated By Citigroup Wins $31 Million”.
The story proves to be an intriguing in-depth analysis (4,000 words) and is not an indictment of Citigroup per se, but of the corporate mentality of any global business today.
You may disagree with that statement so, if you can’t be bothered reading 4,000 words, here are 1,000 in summary:
Sherry Hunt ran the Quality Control department for Citi's Mortgage Unit for eight years.
She joined the bank in November 2004, as a vice president in the mortgage unit. Her team were responsible for protecting Citigroup from fraud and bad investments by checking prospective loans to see whether they met the bank’s standards, e.g. properly signed paperwork, verifiable borrower income and realistic appraisals.
At the time, investor demand was so strong for mortgages packaged into securities that Citigroup couldn’t process them fast enough.
As a result, it had an army of people working to process them.
Those people worked in different teams.
One team bought loans from brokers and other lenders.
Another team made sure loan paperwork was complete.
Yet another group did spot-checks on loans already purchased.
It was such a high-volume business that one group’s assignment was simply to keep loans moving on the assembly line.
Still another unit sold loans to Fannie Mae, Freddie Mac and Ginnie Mae, the government-controlled companies that bundled them into securities for sale to investors.
Workers had a powerful incentive to push mortgages through the process: compensation.
The pay of CitiMortgage employees all depended on a high percentage of approved loans.
By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures.
Shelley Hunt reported such discrepancies regularly to her bosses who buried her findings before, during and after the financial crisis, and even into 2012.
Hunt’s team was processing $50 billion in loans a year and, because her unit couldn’t possibly review them all, they checked a sample.
When a mortgage wasn’t up to federal standards -- an unsigned document, a false income statement or a hyped-up appraisal -- her team labelled the loan as defective.
In late 2007, Hunt’s group estimated that about 60 percent of the mortgages Citigroup was buying and selling were missing some form of documentation.
Hunt says she took her concerns to her boss, Richard Bowen III.
Bowen alerted Citigroup executives in an email dated November 3rd 2007.
Citigroup’s response was to move Bowen from managing 220 people to overseeing two. By January 2009, Bowen no longer worked for Citigroup.
Meanwhile, Hunt was transferred to the quality-control group on April 1, 2008. She went from supervising 65 people to managing none.
She found even worse dealings in her new role.
For example, the Fraud Prevention and Investigation Group were supposed to investigate the mortgages for fraud and notify the Federal Housing Authority (FHA) within a month if it found any.
In November 2009, Hunt came across a list of about 1,000 loans that the quality-control team had identified for possible fraud.
The Fraud Prevention and Investigation Group left some of the mortgages in the queue for more than two years and not one notification went to the FHA before July 2011, when the U.S. Attorney’s Office issued a subpoena.
In November 2010, Ross Leckie, a senior director of CitiMortgage’s retail bank mortgage unit, sent an e-mail ordering his staff to meet its goal of a maximum 5 percent defect rate on home loans (at the time, the level was over 7 percent).
CitiMortgage defect rates did plummet, but not because there were fewer bad mortgages.
The culture led to Hunt studying the new federal whistle-blower rules under Dodd-Frank in late 2010 and followed them after a meeting with Jeffrey Polkinghorne, an executive who was three levels above her in the chain of command, on March 22, 2011.
That’s when Polkinghorne called her and a colleague aside and told them their “asses were on the line” if the mortgage defect rates didn’t fall.
Hunt says it was clear what Polkinghorne was asking – for her to ignore the defective loan book - and she wanted no part of it.
On March 29th 2011, she followed the first step in the Dodd-Frank regulation: formally complaining to the company.
Hunt walked into CitiMortgage’s human resources department and told them everything: how the bank had been routinely buying and selling bad mortgages for years, how the fraud unit wasn’t doing its job and how the quality-control people were being pressured to change their ratings.
She also reported her concerns to the SEC (Dodd-Frank states you must do this within 90 days of filing your complaint internally) and hired a lawyer.
On August 5th 2011, she sued the bank, filing a false-claims complaint in U.S. District Court.
She knew her chances of winning were slim, because she couldn’t match the resources of a big bank, and just hoped the government would join her action (only 20 percent of whistle-blowers get help from government prosecutors and, without that, success is rare).
On January 3rd 2012, the Justice Department decided to join her in the case.
There was no testimony and no trial. Citigroup admitted wrongdoing and, on February 15th, paid the $158.3 million to settle.
In a press release Citi said it was pleased to resolve the matter: “we take our quality-assurance processes seriously and have proactively undertaken process improvements to ensure that they are as robust as possible.”
If Citigroup has learned anything from Sherry Hunt, it’s not clear from the comments of CitiMortgage CEO Sanjiv Das:
“This is a complex industry. It’s a complex process. It takes time. We’re heading down a trajectory that I’m incredibly proud of. Is there something that is systemically wrong? Absolutely not. Absolutely not.”
As a reward for blowing the whistle on her employer, Hunt got a $31 million out of the settlement paid by Citigroup.
Postscript: Citigroup isn’t the only bank held accountable for processing bad mortgages in the USA ... but what sets them apart is that the bank approved flawed loans well past the 2008 financial crisis.
I was asked to talk about the role of social media in banking this week, and was a little irritated by the question.
Because social media has a very strong role in some banks.
Then we come to the UK.
Who needs to be social.
Not one of them has an official company blog or, if they have, they’ve hidden it.
This is because I researched a little bit for my presentation by seeing if any of them had one.
And they haven’t.
Now I was reminded of this because, five years ago, I introduced a leading UK bank to Wells Fargo’s Head of Experiential Marketing, Tim Collins, to discuss social media.
Tim was already well into blogs and virtual worlds, and was expanding the bank’s footprint into facebook at the time.
They asked him why he bothered?
His answer was simple: “if you’re not part of the social world of conversation amongst your customers, then they will talk about you negatively and you have no voice to respond. If you engage in the online conversation, then it becomes far more civilised, interactive and interesting.”
There were lots of things discussed.
For example, the UK bank said they tried an internal blog for three months but got so much negativity they shut it down.
Tim responded by saying that Wells Fargo had the same thing from customers at first but, by having a team monitor their social media 24 by 7, they always responded to any negativity straight away with a response explaining why it happened that way.
Customers were far more polite and calm when they saw their rude postings garnered a civil reply; hence it led to being engaged in a conversation. Through conversation, the bank learned a lot more about what frustrated customers. The result is better products and services.
However, it is quite clear that the bank cannot engage in such activity half-heartedly, as you need to be responsive and therefore have people dedicated to social media interaction.
Like a call centre, it’s a response team to online questions and issues.
He also said that now other customers often reply to rude postings, and that their best service agents are their own advocates.
I hear this from many other banks now too.
Finally, Tim talked about the reasons why they first got into social media and it was in part related to one customer who had created a website called wellsfargosucks.com.
Unfortunately, that website came up as the first result in any google search.
Therefore, in order to ensure the right image of the bank was presented, the bank sees social media as a key method of moving the right message to the top of the search results rather than leaving it to negativity from media or anti-bank activists.
So now I come back to my UK bank social media research.
Here’s what I found.
Lloyds Bank – no blog, and mainly investor discussions.
HSBC – no blog, one negative headline in top five search headings.
Santander – no blog, a few negative headlines but at least they put an advert against their name.
Barclays Bank – no blog but great search results!
NatWest – oh dear, dear, dear.
I’ve just received this month’s Banker magazine which the editor, Brian Caplen, describes as their most important issue of the year as it covers the latest Bank 1000 listings.
This year’s listings show a surprisingly stable crew of American and British banks.World Bank Tier One Pre-tax
Considering the crisis was meant to have killed these banks, you may find it surprising to see that Citigroup and RBS have maintained their leading positions.
This is down to the fact that the Banker measures a bank’s strength by its Tier 1 Capital, and so their positioning is more of a reflection of the sheer size of these firms than by their brand or market capitalisation, which is used in some other studies of size.
The Banker’s data is fascinating though, as the database also contains profitability, revenue, cost-income ratio and more, so it’s a useful tool in all senses. And the online data goes back to 1996, so you can do some useful comparisons.
Mind you, my data - old Banker magazines - goes back even further so I quickly took a snapshot of a few useful year’s – 1994, 1999, 2004, 2008 and 2010 – to see how things have changed. Mapping out the Top 20 banks of the world for each year makes for an interesting picture (doubleclick the picture to see a larger version):
Back in 1994, Japan ruled the world.Then their economy went South and Origami Bank folded, Sumo Bank went belly up, Bonsai Bank cut back their branches and something fishy went on at Sushi Bank where staff got a raw deal. Post-Japan’s slump, the Anglo-American financial system ruled. So you would think that, as that system failed, it also would have gone South. Not the case. Maybe that’s a reflection of the sheer scale of investment American and European firms have put into these economies to avoid such a crash. Well worth spending time looking at the data and looking forward to playing around with it further.
After Brett's post the other day which posed the question: "what if the internet is your bank?", I was quite amused just now, as I loaded Citibank's homepage and nothing loaded.
Nothing at all.
Because I use an add-on in Firefox called NoScript.
NoScript describes itself as the "best security you can get in a web browser! Allow active content to run only from sites you trust, and protect yourself against XSS and Clickjacking attacks."
The only problem is that it results in screens like this:
No big deal, but made me laugh.
What is not so laughable is if you really do depend on internet access to get to your bank, and you can't access it. Hello Bank of America ...
January 29th 2010
The Bank of America website is down since morning. Bank of America's main page is still not accessible as of now. The Bank of America website could be down due to cyber-attack, but it might just be a technical glitch. If you are trying to access your BofA online banking account, you can follow the Official Bank of America help account on Twtter (@BofA_Help) for updates.
The website is still functional if visitor enter through specific pages. For example, the Bank of America "About" page could be accessed without problem. Once in the website, you can navigate through the website normally.
UPDATE-1: The BoA website is back online.
UPDATE-2 (1:52 PST): The website seems unstable now, and have gone offline again.
UPDATE-3 (3:39 PST): BoA has ruled out a cyber attack but is still trying to identify the cause.
Hmmm ... cyberattacks work I guess. According to informed sources, this was a Denial of Service attack, but BoA aren't letting on. They haven't made any official statements about the cause ... and why would they as it either shows weakness of security or might encourage similar attacks in the future.
It seems that I’m having a long whinge and rant all week, but I’m trying not to.What I’m really trying to do is to get some answers to this crisis of confidence in the banks and, consequently, the banking system. This is nothing to do with the credit crisis, but the response of the banks to the credit crisis, which is to trash all trust and confidence in their ethics and approach.This is why there is this non-stop bleating about bonuses and interest rates. The banks justify this behaviour on the basis of all the other kids on the block are doing it so, if we didn’t, we would just get beaten up in the banking playground by the bonus bullies. This is what Stephen Hester said today:Mr Hester warned “that employees are leaving because it was offering lower bonuses than City rivals. He also said that profits at the bank, which is 84 per cent owned by the taxpayer, would have been about £1 billion higher if it had managed to stop staff leaving. The bank said it had ‘paid the minimum necessary to retain and motivate staff who are critical to the recovery of RBS’.”Trouble is, this doesn’t cut the mustard.MPs warned that the public would be astonished that the bank was paying £1.3 billion in bonuses given that it today reported a £3.6 billion loss for last year.
“Vince Cable, the Liberal Democrat Treasury spokesman, said: ‘Stephen Hester is trying to justify the unjustifiable. Most bankers owe their jobs to the taxpayer. His comments will just reinforce the view of bankers in many people's minds as greedy and selfish.’
“Shadow chancellor George Osborne echoed the views of Mervyn King, the Governor of the Bank of England, by telling BBC radio: ‘I do think the level of payment in the banking sector has got completely out of kilter with the rest of society. It is totally disproportionate to what doctors are paid, people working in industry are paid, teachers are paid and the like. We need to bring down pay across the sector — not just in one bank, across the sector — and things like a bank tax, internationally agreed, might help do that.’”
Oh yes, and I love the photograph the Evening Standard chose to run with that report.
Hmmm ... Hester, the fox killing, horse and hound man.
Meanwhile, in the same paper, Chris Blackhurst writes about how we've blown our chances to rein in the banks:“We somehow think that the bankers will take it upon themselves to lie down on the steps of St Paul's and seek forgiveness — and reform their ways and slash their incomes. They won't. They're human. Yes, they're pariahs, but they will carry on taking the money until they're forced to stop, until the authorities say bank licences will be relinquished if bonuses are paid.”But none of these arguments raging in the media address the real issue here.The real issue is not bonuses, profits, lending or interest rates.The real issue is a lack of internal market leadership within the banking industry.Nothing to do with regulators, politicians or press. The most significant failure has been the inability for the industry to act as a cohesive hole (sic: whole) to respond to the issues arising under their watch.Instead we act as a fragmented group of a thousand voices.Individual voices stand up and are counted, and some count more than others such as the Jamie Dimon’s, John Varley’s and Stephen Green’s. But nothing is co-ordinated or arranged in a way that makes sense or alleviates the public anger and distrust in the system.Take the example of the past week of banker’s bonuses.Initially, one bank – Barclays – set an example of waiving bonuses payments, as their leaders chose to repeat the actions of a year earlier and declined the multimillion pound pot they were entitled to. Reluctantly the rest then followed with RBS, Lloyds and now HSBC one-by-one agreeing not to award their leader’s bonus.The result is that they were accused of being lame sheep in doing so, just following the lead of one, and it just looked limp.It also rang of insincerity anyway, in that several of these leaders are purely deferring bonuses and have taken large swags of cash via other means (e.g. Bob Diamond’s $46 million payout on the sale of Barclays Global Investors last year) or just don’t need it as most are on million-pound plus packages. In fact, one cynic said that there would just be a top-up of their pension pots to compensate, and so no-one sees these token gestures as being anything other than that- ‘token’.Does this justify the payouts to their investment banking teams by making such sacrifices?No.Does it restore faith and trust and displace the anger and mistrust?No.So all it’s done is served as some form of internal justification for the continuance of mega-bonus payments to investment banking staff.The issue still lies with the press, politicians and regulators however: in this land of 1,000 voices, where no-one coordinated single voice resonates, where is the leadership to change the system?Take the example I’ve just given.What bankers should have done is worked together to create a co-ordinated plan across the sector pre-emptively and early on.For example, Stephen Hester (RBS), John Varley and Bob Diamond (Barclays), Eric Daniels (Lloyds) and Michael Geoghegan (HSBC) see each other often enough in front of Treasury Select Committees to be able to co-ordinate their responses.So why didn’t they all agree upfront to defer leader’s bonus payments, and announce this as a co-ordinated approach pre-results season?A joint announcement of rationale and reasoning would have been far more powerful than the sheep mentality manner of following the leader.Equally, Jamie Demon Dimon (JPMC), Vikram Pandit (Citi), Lloyd Blankfein (Goldman Sachs), Brian Moynihan (Bank of America) and John Mack (Morgan Stanley) see each other all the time in front of Federal Committees. So why didn’t these leaders co-ordinate responses to bailouts and bonuses?You may say they did, but not from an observer’s viewpoint externally.It looks like maverick individual actions and approaches, with no single voice to rally the industry to a resolution.Why these ‘leaders’ cannot organise themselves is beyond the ken.After all, if these global CEO’s of banks had created a co-ordinated and rational campaign to cap bonuses, waive their own, provide charitable donations, show how bank lending and bailouts had been atoned, then the media, public and politicians would not be baying for their blood.The fact that: (a) there is no single voice of leadership that is co-ordinated across these banks speaking on their behalf; and (b) these leaders have allowed banks to behave without change, as they were before and as if nothing had happened, is going to lead to a showdown.That showdown is not far away and, according got all my sources, will be far more draconian and vicious than any action that would have been taken if the industry had spoken with one voice, rather than thousand.But then, this industry’s ability to self-regulate with transparency and integrity historically has been pretty poor so this comes as little surprise.
Meanwhile, you only have to look at the fact that our poor old Queen has been forced onto the tube these days, to realise how hard times are in Britain ...
It's forty days since the introduction of the Payment Services Directive (PSD), so there has been lots of chat about the PSD this week, and how it’s working or not working.
Derogations and interpretations are rife, with the hottest and most contentious issue being the fact that charges are now meant to be shared (SHA in the SWIFT message exchange), except that many banks, institutions and even government administrations are insisting on OUR charging structures, where the sending bank pays all fees.This issue is even causing ambiguity within a country, where one bank might accept OUR message payments from corporate clients in order to save the client having to re-jig their systems to accommodate, whilst another bank might not.Even worse is where a bank sends a payment and gets a call from the beneficiary’s bank saying that they will process it as SHA but, if the client objects to the charges, then they will process it as OUR and ask the sending bank to pay the fee plus a potential ‘lifting fee’.Elsewhere, some banks are taking the payments as SHA but then wrapping charges into other services and fees, so that the client does not realise they are paying or how much.All of these shenanigans are just mere ‘teething troubles’ of course, as the PSD settles into the markets.In fact, according to Ruth Wandhöfer, EMEA Head of Payments Strategy and Market Policy for Treasury & Trade Solutions at Citi’s Global Transaction Services and member of the EU Banking Council for the PSD, there are things that are being captured and changed. For example, some German banks were asking for €170 to process an incoming cross-border direct debit payment because their systems are so inefficient. This has been slapped down, with a maximum of €40 being viewed as an acceptable charge (that’s still high if you ask me).Equally, some Spanish banks were asking for 4% of any transaction as their fee. That’s been slapped down too.All in all, it is still clear that we have passed the start date for the PSD but the PSD has yet to start.For example, here’s the state of transposition of the PSD according to the latest EU analysis:
What this shows is that Estonia, Greece, Latvia, Poland, Slovakia, Finland, Cyprus, Lithuania, Italy, Spain, Sweden and Belgium (Belgium!!!), all missed the deadline of 1st November 2009.This is poor form as that means only 15 of the EU27 made it on time. Only in September, when I last checked the Europa website for the state of play, they had confidently predicted that 26 countries would meet the deadline.Poor show.Even worse, those that are making the deadlines are misinterpreting, adding or changing the intent of the text. These changes take one of three forms:
The good are JPMorgan and Goldman Sachs, who have both delivered stonking results. The bad are, you guessed it, Bank of America and Citi who are both struggling with domestic credit market losses.
In particular, JPM has impressed as, even with the absorption of WaMu and Bear Stearns, they delivered a $3.6 billion net income for the quarter and build upon consistent Q2 and Q1 profits.Goldman are the same, although their profits were slightly below expectation as their investment banking part of the business was a disappointment. That’s why the share price took a hit but they can still afford to give everyone a jolly good bonus.Both banks have paid back TARP funds and are well on their way to a return to the good times, much to the annoyance of the taxpayer.Even more annoying for the taxpayer is the two banks left.
Like HBOS and RBS in the UK, Citi and Bank of America are still plagued with consumer and business debts and defaults. Particularly worrying is the continuing impairment of mortgage lending, and now consumer and corporate lending. One example is credit cards where default rates are now rising above 10% according to JP Morgan’s latest results.
Finally, Citi and Bank of America are also still plagued with TARP repayments, the Troubled Asset Relief Program. As a result, Ken Lewis was told not to take any pay this year by the US Payments Czar who can order such actions due to the debt owed to the government.
As JPM and Goldman have paid back their TARP, they've set aside over $37 billion in bonus payments so far this year. Whilst Citi and Bank of America have this TARP burden to bear they really cannot compete and, instead, are easy targets for taking star traders, clients and profits.
Here's a brief summary of the key news and views:
JP MORGAN CHASE
$26.6 billion revenues, up 81% on same period in 2008 with fixed income driving profits in investment banking, including a $400 million gain on leveraged loans and mortgage-related securities that the bank had previously marked downThe second-biggest US bank made a net income of $3.6 billion (£2.5 billion) up 72% on equivalent quarter last year ($527 million)$1.9 billion net profit from investment banking division
Strong performance in its investment banking division cancelled out losses on credit cards and consumer loans.
The consumer lending business posted a net loss of $1 billion, up from $659m in the same period of last year.
Card services made a net loss of $700m, which was an improvement on the $992m lost in the third quarter of 2008.
Investment banking business made net income of $1.9 billion, up from $1 billion in the third quarter of 2008.
JPMorgan said it had also benefited from the impact of buying most of the assets of Washington Mutual, which it acquired in September 2008 after it had been seized by regulators.$2 billion set aside for consumer credit losses, taking total to $31.5 billion as more than 10% of credit card customers failed to pay debtsThe bank repaid its $25 billion of US government rescue funds in June.
$7.3 billion set aside for bonuses taking this years tally to $21.8 billion
Goldman Sachs' net earnings for the three months to 25 September were $3.19 billion (£1.96 billion), up from $845m in 2008, just before the Lehman collapse.The profit figure was up from the same period in 2008, but it was lower than the $3.44 billion that Goldman made in the previous three months. The bank paid back the emergency loan it had received from the government in July this year. It has come through the financial crisis relatively well, having been less exposed to the mortgage-related debt that crippled many of its peers. Goldmans is doing particularly well thanks to the revival in world financial markets with most of its money from trading in stocks, bonds, currencies and commodities – a high risk, high reward strategy which other banks cannot replicate Revenue from its mergers and acquisitions operations fell sharply from the previous quarter, reflecting the continuing lack of activity. This caused investment banking revenues to fall to $899 million, 31% worse than same quarter last year and 38% down on last quarter due to declines in bond underwriting
Increased this year’s bonus pool to $16.71 billion (47% of net revenue)CITI
Citi is more exposed to consumer loans and has more bad debts. It got a $45 billion bailout from the US govt - The Treasury Department now owns a 34 percent stake in the bank after converting a portion of the $45 billion in rescue funds Citi received last year.
BANK OF AMERICA
Bank of America posted a $1 billion third-quarter loss compared with a profit of $1.18 billion a year earlier.
Total revenue increased 32% to $26.4 billion.
Results were helped by profits from Merrill Lynch with gains from trading bonds, stocks and currencies. Losses on home lending and insurance widened to $1.6 billion from $724 million, and the loss on credit cards expanded to $1.04 billion from $167 million.
The bank said the provision for credit losses was $11.7 billion, with $9.6 billion of loans considered uncollectible.
Reserves for future losses increased by $2.1 billion, compared with a $4.7 billion addition in the previous quarter. The bank’s reserve is now 4% of total loans, compared with 4.7% at JPMorgan and 5.9% at Citigroup.
Net write-offs of uncollectible loans rose 11% from the second quarter to $9.62 billion. The bank wrote off $3.2 billion of home loans, including home equity loans, during the quarter, up 10% from the second quarter. Charge-offs on credit cards increased 5% to $2.17 billion.CEO Ken Lewis is stepping down at the end of the year and his abrupt resignation and the lack of clarity on his successor are contributing some uncertainty surrounding the stock.
Bank of America earned $3.2 billion last quarter.
Bank of America needs to clarify its position on TARP. It would be a very positive sign to pay down some of their TARP as they have only paid $1.83 billion of the $45 billion due.
Earlier this week, I noted that Citi were advertising the fact that they spent a billion dollars on global transaction services (GTS) in 2009.
This is an investment in new infrastructure that delivers global real-time transaction services fit for the 21st century, and was one of the core messages on their booth at SIBOS:
According to Citi's folks this is an intelligent investment, as GTS turns over $9 billion in revenues and $3 billion in income, as detailed in their latest results.
GTS is one of the best parts of Citi, so leave it well alone and keep on pumping investment into it.
I wouldn't say the same about the investment banking division, but then much of that has been sold off, so Citi's gradually getting back to doing what it does best.
Commercial and retail banking.
After the innotribe stuff, it was off to a panel debate about “payments innovation”.
This session was described as follows:
“The crisis has put the emphasis back on traditional banking and sources of revenue, with payments coming to the fore again. Yet payments are also seen as a commoditised, legacy business where scale is everything. Into this business come a series of new market demands which might change this such as same day retail payments, e-payments, mobile payments, contactless cards and real-time finality. How will these new opportunities develop and will they be profitable new forms of business? Can banks afford to develop new channels individually or will they need to co-operate further? Will non-bank players use technology to challenge banks for their new payments service business?”
Bearing in mind that innotribe was all about innovation, it is obvious why this session was of interest to me.
This session was chaired by Robert Heisterborg, Global Head of Payments and Cash Management at ING, with a panel comprising:
Here's a summary of how it went:
Who’s driving innovation?
The innovation drivers I can see include:
Citi in particular is focusing upon prepaid cards and mobile as key new innovation areas.
Often the idea of the innovator is not the way it works in reality. My favourite example is the ATM which was introduced as an automated teller in branches and it failed. In desperation, the developers decided to try the machine outside the branch and it took off. That was an accident, but one that created success.
As a market infrastructure we’re the last place people would normally look for innovation, but we have to do this because it is required, expected and needed amongst our clients and community. The challenge to do this is that many of us benefit from the inconsistencies in the markets, and we have to rethink our business models if we are to take advantage of creating innovation through more consistency.
When we refer to payments innovation, the only example normally mentioned is PayPal and I’m a little tired of hearing about PayPal. They’ve been around over ten years now, so get over it. PayPal have a billion dollars of revenue in Europe alone so their innovation has happened, they have achieved change and they’re here to stay.
Now, as a consumer, I may not want PayPal because I find it difficult to use. It’s clunky and doesn’t provide me with the security I want. For example, a recent US survey by Nielsen found that 81% of consumers would prefer a P2P payment instrument provided by their bank. So we have to do a little better particularly as there is a trillion dollars of ecommerce out there each year, and 20% of that is cross-border.
Prepaid cards are becoming a mainstream in the payments landscape, and that’s another key innovation we are tracking.
Equally, I’ve heard lots of people talking about convergence this week and I’d like to see that. In particular, I would like to see the end of the back street money transfer agent. Bank2Bank and Card2Card services, such as Visa money transfer cards, should mean that AML will go away into a different place.
Robert Heisterborg then asked the audience: “We have been here for a week, is there enough innovation at SIBOS?” and over 80% of the audience said ‘No’. Where were all of you when the innotribe sessions were running all week????
We then started looking forwards to the future of payments.
The future landscape for payments will fall into three camps:
Robert Heisterborg then referenced an ING trial in m-payments in Romania that found the average transaction value of a mobile payment to be €2.44. Therefore, is mobile the cash killer?
A decade ago we talked about micropayments killing cash on the internet and it hasn’t happened. For example, Google has announced a micropayment service for content recently but these sorts of developments are all about ‘if we build it, they will come’. It’s not what consumers want though. Consumers don’t want to pay for content and Google’s announcement of micropayments for content will therefore not necessarily work.
How can you say that David when, in Africa you have four times the number of mobile telephones than bank accounts? How come you don’t think m-pay will happen?
Because consumers are asking for other forms of payment that are more traditional, such as prepaid cards in Africa rather than mobile.
What will drive the mobile is banking the unbanked rather than the payment itself. However, once banked, then mobile payments will come.
The audience were then invited to ask questions and the first was about the fact that Nokia have 1.3 billion telephones out there and relations with all the carriers. The fact that they’ve partnered with Obopay should be seen as a threat should it not?
No, as they are working with the banks on this. We’ve created a financial cloud at Citi for example, as a super settlement mechanism for the kind of needs of Nokia. It’s a settlement and clearing role and there’s always going to be collaboration with a bank on these things, so the question is really about the last mile. The last mile is all about who wants the connection for something as ubiquitous as a toothbrush, which is what the mobile is these days. For this, do I need to own the last mile? Do I need to compete with others there? Or do I enable that capability and collaborate? There’s always room for collaboration.
All in all, it was an interesting discussion but the fact that the panel talked mainly about prepaid and mobile, but no real discussion of SEPA innovations around einvoicing or contactless payments was an oversight, so I asked about contactless.
Of course, the panel said that it was not purposefully missed off the list, and that this is going to be embraced.
My take on this: for ING, Citi and HSBC, contactless technology is still off the radar or it would have been referred to more strongly. Would have been interesting to see Octopus or Barclaycard or Visa PayWave or others, as thee form factor of contactless mobile or contactless watches (forget cards) is far more innovative as a consumer payment service than a mobile payment using SMS or something (which is where most banks focus first).
Net:net, and being honest, there was no real discussion of innovations here but the panel talked more about stuff that has been bubbling away for years in the form of prepaid cards and mobile payments. Even if they had talked about SEPA einvoicing and contactless, it’s not really innovatory.
What would be truly innovatory would have been to discuss the next generation of payments using wireless technologies to pay without any physical devices involved.
Now, that is revolutionary and I’ve got a whole nine yards on that innovation.
Anyone wanna hear it?
Just went to another great plenary session discussing whether transaction banking will be the engine for the next phase of sustainable growth and moderated by Karen Cone of TowerGroup. The panel consisted of the heads of global transaction banking from some of the largest banks:
Here’s my loose highlights of what was said and please note that these are not directly quotes but an interpretation which began with each panellist providing a view on the current regulatory environment ...
I went to the European Union to find a continent covered by regulations and thought that was bad. The recently retired chairman of our bank, Sir John Bond, said on his retirement that he joined an industry with zero regulators and there are now over 300 when he retired, and that was bad. The result is that the costs and confusion created by regulations outweigh the aims and the benefits.
Regulators are always following what is happening and should be more forward looking, instead of always trying to mop up after an accident. I want to see the regulator, at least on the EU side, more coordinated. For example, we have European initiatives but no European regulator, and this would help if we had more harmonisation rather than country-to-country approaches. For example the PSD has country to country views and the cover payments initiative has no global coordination. The result is a lot of money involved in implementation.
Francesco Vanni d’Archirafi:
Just to switch the lights on we have to constantly upgrade our platform to serve our clients. Therefore business as usual, particularly with earnings pressure, will push the industry to continue to collaborate. I use scale providers when we don’t have the scale in our business and that is what others will need to do.
Regulators tend to introduce these rules and think we make so much money that it doesn’t matter, but they forget there are a lot of smaller banks that also have to comply. The costs for them are too great. This means there should be industry created platforms to support compliance with shared costs for all, rather than all the costs being applied to each institution.
When I think about the risks that are in the system, it is not that they are unknown to us but that they are different to those of the past: the average size of risk, the speed at which things move and how decisions are made, the costs and volumes involved. There are a lot of challenges there. The nature of counterparty identification and counterparty risk is a critical factor. Also, the places we take risk are not necessarily the places where we get paid. Daylight overdrafts for example, and the exponential risks involved there. We are not necessarily adept at educating our clients on the risks that we are taking and sometimes we are not adept at doing that internally. We have to work different ways as a result, in order to get value out of the system. This is why the notion around cooperation and leveraging scale and partnership within the industry makes sense.
We are all paid to take risks and if we didn’t, we wouldn’t be in business. In the securities space are massive risks hidden away. We are now talking about how we manage risk on an individual and systemic basis. There are significant intraday risks in there and we need consider these and price them accordingly.
Francesco Vanni d’Archirafi:
Everything we do is focused upon releasing working capital for our clients. The more you can squeeze cash from working capital, the more efficient our clients can be. This means we need to give visibility and transparency for our clients and allow them to manage risk on their balance sheet and transaction flows based upon that visibility and transparency to give them more control.
We, as bankers, have a duty to our clients to provide a window into the marketplace because we understand the functioning of the marketplace. We have a track on global trade flows and trade movements and, as capable as we are, we must step up our accountability to this so that our clients know as much as we do about those flows.
We will have to do more in responding to regulators and making sure our internal controls are in place. That means more costs as this is not just the risks we are aware of historically, but now legal risks and fiduciary risks and more. We’ll need to spend a lot of time on the legal documentation in the securities business for example.
Compared to other areas in banking, we work much more together in transaction services, where our biggest competitors may also be our biggest clients. Without working together, payments would not work. For example, without SWIFT, we couldn’t do what we do. This is why, during the crisis, you didn’t hear about issues in the infrastructure and how the systems work or any failure in payments or settlement. BAFT is also following our interests and we are talking about how we can standardise the processes more and work together more. Sharing information on fraud protection for example, and also in the area of having a common voice to the regulator.
Francesco Vanni d’Archirafi:
We work together more because forcing people to stay with you because it’s difficult to unplug is the model of the past. This is why most banks will consider using shared services outsourcing from a competitor’s transaction services structure in the future for this reason.
We’ve spent a lot of time working out where is the moment of separation where we need to compete and where is the moment to leverage where the scale and operation of working together can achieve more than competing. We have a joint venture with Wells Fargo in this space called Pariter** for example. The reaction to this announcement has been evidence of what an unnatural act this collaborative competition is. There were very negative reactions from some, including the Federal Reserve, about how that impacts the traditional ways we have done business. We have a lot of structures trying to craft cooperation now though, and the crisis has brought us to a moment where we have realised how we can work better together.
Francesco Vanni d’Archirafi:
The market forces us to do this, not just the regulators.
We are also seeing global changes in trade trends – the north-south trade flow is declining but the south-south emerging markets dealings are growing. There are huge opportunities here in Asia and once we work out how to leverage those opportunities through the right products in the right systems, we will be far more competitive as I’m sure my competitors are thinking today. If you introduce new products priced appropriately and have a good balance sheet, then you can grow your business by leveraging your strengths ... but you must know what those strengths are.
The value we get paid for the business that we do has not just reduced in the last two years, but in the last ten. There’s a painful truth about the economics of our business.
The regulators now recognise how systemically important our service is in trade flow and commerce globally, and are now asking: if we are so systemically important are we too big to fail? The answer to that is to ensure capital is covered and therefore this is why capital flow and analysis has been a key.
Also, if a provider should fail, there should be no issue in moving their service to another. That’s the basis of open connectivity today. On another note thought, in Europe, I have two messages for the regulator on SEPA.
First, come up with an end-date
Second, harmonisation. If you have one SEPA Direct Debit, but each country with a different implementation then you don’t have a single direct debit for Europe, and this is crucial for SEPA. If we are not strict on harmonisation then the total SEPA introduction is at risk.
Note: this is what Weiner said in the research note on PSD and SEPA we released last week
Francesco Vanni d’Archirafi:
I agree and we also need to ensure the end-date is not too far out. A date please and the sooner the better in our view.
2012 would be ideal, but 2013 is realistic.
I disagree. We don’t have an end-date it’s because there’s no client demand. So my message would be make SEPA and the PSD more relevant and get the markets – corporates and citizens and countries – to see it as necessary. They see it as driven by politicians however, and not as relevant.
Francesco Vanni d’Archirafi:
If we look at the European securities space, MiFID and T2S are creating major headaches for many of us around the table, and these programs have irrevocably squeezed profit pools from the trading environment. I think that’s good for Europe though as we have new business models and efficiencies delivered as a result. This is what SEPA should achieve in the future – more efficiencies through new business models.
I don’t disagree that we need efficient infrastructure but I take the view that rather than making the rules and then forcing the market to follow we should understand what the market needs and then make the rules.
** Wells Fargo and Bank of America have announced the formation of a joint venture to operate a single, combined automated clearinghouse (ACH) platform for both companies and their clients. The new entity, called Pariter Solutions LLC, will be the country's largest processor of ACH payments.
It’s been nice having a break, and feeling like the banking system isn’t the only thing I care aobut in this world. Nevertheless, the eye wasn’t completely off the ball as several grumblings and mumblings have been taking place during the last two weeks.
The obvious and biggest story being the need to sort out bankers’ bonuses.
For a start, Barack Obama thought about a cap of $500,000 earlier this year. Various newspaper headlines screamed: “Obama imposes $500,000 ceiling on bailed-out bank bosses”, and this was seen as a good thing ... but only by the naive new incumbent of the White House that is who, like most of the populous, wanted to do the obvious thing and clip the wings of the evil banking system.
It just isn’t that simple.
Sure, bankers making ‘obscene’, ‘outrageous’ and ‘vulgar’ amounts of cash out of a failed system is a source of retribution to be sought, but not by making your country unattractive to the very people who fuel your economy.
That’s why Obama was rapidly shot down by those who understand these markets. Their argument went something like:
“OK, OK. So you’re a bit pissed with the banking system, as are all of us. But you gotta see it our way. The banking system is the fuel of the economy. If the system fails, the economy fails, you fail. You know that. That’s why you bailed us all out.
“Now then. What makes the banking system work? Having the brightest talent who totally understand and get these complexities of trading.
“Now you know how complex trading has gotten. That’s why we had these issues in Credit Default Swap Derivatives. In fact, the more derived a product is, the more complex it gets, the more risky it gets but, if you have guys who understand those risks and can trade in them effectively, then you make massive amounts of profit.
“That’s how the ‘vampire squid’ Goldman Sachs works, and that’s how all of us want to work. And it did us good for the past decade or so, didn’t it?
“So, you cap bonuses and you effectively are saying: the best and the brightest traders, go trade elsewhere. And they will.
“Just look at the dead meat on Wall Street and London.
“Royal Bank of Scotland for example. Lost a load of traders to BarCap and others overnight.
“Or UBS? Same thing.
“A bit of weakness in the system and stellar rewards await elsewhere for the best and brightest as can clearly be seen.
“So go on Mr. Obama. Put a cap on our ability to attract, retain and incentives the best and the brightest traders and you’ll soon see all your banks that are working fail. We will all fail because all the guys will be in some other country with some other bank.
“Oh yea, and you throw in a few things like: ‘working with the G20 in a co-ordinated fashion and we avoid this’. Sure. You think China and Russia would really see the opportunity to steal your main strength in the financial system – the knowledge – as something they would ignore or see as being just fair dues?
“We don’t think so.
“Your choice, Barack, but you stifle our competitiveness in salaries and bonuses and you sign our death warrant.”
In other words, the core of the financial system involves having top trading talent who understand their markets intimately in order to be able to deliver profits.
I liken it to footballers.
Do you really think that Christiano Ronaldo is worth or not worth £80 million?
Does it matter what you think because Real Madrid think he’s worth that and, if they have the money, they get the man.
This is how banks work and it may be economies they are kicking around rather than footballs, but the talented few who have proven track records deliver the greatest profits.
That is why America and Britain have fought Germany and France so hard over this matter, as America and Britain have the financial markets as the core of their economies and economic strength or, more recently, weakness. But to cede these markets now, as they move into recovery, would be to place a nuclear bomb in the heart of Geithner and Darling's Treasury operations.
It just will not happen.
Governments therefore have learnt that they have to protect their banks, that are too big to fail, and their bankers, who are too bright to lose.
Finally, on this last point, do the brightest really deliver the greatest profits ... or is it their firm and environment?
In a fascinating study by Harvard Business School’s Professor Boris Groysberg of over 1,000 stock analysts who worked for 28 American investment banks between 1988 and 1996, he found that when a company hires a star away from another firm: 46% did poorly in the year they switched jobs and their performance remained lower even after five years; there is a decline in the performance of the group the star analyst joins; the market value of the company hiring the star falls; and the star doesn’t stay with the new employer for very long.
Grosyberg concludes that hiring stars does not do much for a firms’ or the star’s performance, and that everyone would be better off by growing talent inside the firm.
Hmmmm .... it's good to be back.
And yet another Top 10 list is released today. This time it's the Financial Times analysis of the leading investment banks of the world (doubleclick image to see the list properly):
This is hot on the heels of the Banker's release of the leading banks of the world, with the most profitable banks being:
China Construction (+$17.5bn)
Bank of China (+$12.6bn)
Banco Bilbao (+$9.64bn)
and the banks with the biggest losses being:
Wells Fargo (–$47.8bn)
Fortis Bank (–$28.3bn)
and adds to the Forbes list from April:
More to come I'm sure ...
... meanwhile, the UN's Millennium Campaign report, which also came out this week, states that the amount of money found to bail out financial institutions over the past six months is 133 times greater than the amount of aid given to poor countries over the past 49 years.