The Financial Services Club's Blog

Yes, this is the 21st Century

Here’s a shocker.

I blog all the time about social media.

We all love Facebook, with 500 million people in their community.

We love to twitter via tweetdecks 24*7 on our iPhones and Androids.

We Google, Amazon and PayPal.

The internet is pervasive.

It is so pervasive that the country is going to ban paper, with the Payments Council looking for an end-date for the cheque by 2018.

We can pay in real-time with Faster Payments every day.

Visa can clear a payment through a worldwide network in just over a second of time.

That’s via all the bank and payments infrastructures globally to clear and authenticate the payment.

All in just a second.

Yes, it’s the 21st century.

So I meet my bank manager and tell him that the landline telephone number they have on my account is wrong.

It’s my old office number.

I didn’t even know they had it, but they need it to authorise a payment via telephone, as proof that it’s me, and I couldn’t remember the old number.

After all, it’s years since I moved from that office.

I just didn't realise they had it on my account.

Or that they would try to use it to authenticate a payment.

So I tell him my new number.

Bish-bash-bosh, should be all done and dusted.

A week later, this arrives in the post:

It has a double A4 form with it for changing the address:

I ring the bank and ask them what that’s all about.

“Oh”, they said, “you want to change your telephone number.”

“Yes”, I reply, “I gave it to my relationship manager.”

“Oh”, they said, “well he asked us to send you the form.”

“Well”, I reply, “do I have to fill it all in or can I do this online?”

“Oh”, they said, “just fill in the bit about the telephone number and then follow the instructions.”

The instructions are on the other A4 sheet:

Yep, this is the 21st century.

On a more serious note, the consumer magazine Which? issued news that banks don't inform customers of interest rate changes on their loans and savings.

The BBA responded by saying:

“If all customers were to be notified of all changes to their interest rates - as Which has suggested - the costs to the environment, the economy, to banks and ultimately to customers would be considerable:

• around 13.5 million personal letters would have to be sent for each rate change;
• in 2008, when there were five negative base rate movements, this would have generated 67.5 million letters;
• the cost to the banking industry would be around 50 pence per letter (total: £33.75 million) and to the environment would be some 575 trees.”

Answer? 

STOP SENDING OUT BLOODY PAPER ...

Why Spanish banks are risky

Walking around the lovely city of Santander, I was pleased to find a Santander bank branch in Santander.

Isn't it just a lovely looking branch?

Now Santander (the bank) is a bank that heavily promotes taking risks in this branch, which surprised me.

Admittedly, it's taking calculated risks but, if you look at the front of the branch, it's all about Formula 1.

OK, they sponsor Ferrari and need to make the most of that sponsorship but, after Webber and Kovalainen's spectacular crash last week at the European Grand Prix in Valencia ...

Source: BBC

... this is risky stuff.

Mind you it is calculated risk, as Webber walked away from that spin uninjured.

So do we associate Santander with risk?

Well, when you find Santander's bank branch in Santander in prime location here:

Maybe you do.

Mind you, what a great idea for the high rollers to be able to leave the Casino and immediately get another million or so to gamble.

Maybe Santander isn't so risky after all.

England's rarest coin

I like auctions and collecting stuff so when it was announced that England’s rarest coin was going to be sold by Spinks Auction House last week, I had to have a look.

The coin is a real rarity dating back to the 7th century and King Eadbald of Kent, who ruled from 616 to 640 A.D. 

This type of coin was long known to be amongst the earliest of English examples, and is peculiarly Anglo-Saxon because it does not have motifs found on similar coins of that time, and does not try to copy Roman ones.

On the back of the coin can be seen the word londenv, indicating London as the mint for the coin.

The real significance though is the inscription naming King Eadbald, as this makes it the earliest coin identified as being issued in the name of an English king.

Eadbald succeded Aethelberht as king of Kent in 616.

Aethelberht is principally remembered for having accepted St. Augustine into his kingdom and his subsequent conversion to Roman Christianity.

According to Bede, Eadbald fell foul of the young Church after his accession by rejecting Christianity, ejecting its Bishops and incurring the wrath of the Church for committing 'such fornication as the Apostle Paul mentioned as being unheard of even among the heathen, in that he took his father's wife as his own.'

Whatever Eadbald did at that time the situation did not last, as he later repented and was duly baptised, rejecting his wife and favouring the Church within his kingdom thereafter.

These events reflect the conflict and confusion amongst the Anglo-Saxon elite at this time as Christianity sought to assert itself over the Pagan religion.

As to the date of these named coins, the presence of Christian iconography dates them to after his conversion between 620 and 635.

Only six coins other than this example are known to exist and are held mainly in institutional collections.  Only one example, other than this one, is therefore in private hands and is the reason why the auctioneers put an estimate on this coin’s value of between £6,000 to £8,000.

As most of the other coins in the catalogue were estimated at under £1,000, this was their star piece and attracted quite a lot of attention therefore ... and maybe even they were surprised when it sold for £26,000!

Now where’s my metal detector?

The post-holiday reality blues

So, it’s just a couple of days since returning to work and I’m already fed up. My PC’s decided not to load licensed and paid for Adobe apps. It tells me to reload and then won’t accept the paid for licence number.

Then my iPhone fell on the floor and broke, the crown on my tooth fell out, my credit card has been defrauded and I’m no longer on holiday.

And then, to cap it all off, the new UK Chancellor George Osbourne tells us that UK, France and Germany are all introducing a bank levy.

Boy, am I fed up.

So ... to cheer me up ... I thought I’d post a couple of holiday photos on the blog.

This was the breaking holiday news in the place I’ve just been ...

If that one seems a bit of a shocker, you should have seen the front page headlines the following week:

Bank histories reflecting our histories

After looking at the future of banking yesterday, it’s time to look at the history of banking today. Not in depth, that would be dull but, being a sad banking nerdo, I’ve got loads of history books about money and banks in my office.

One of my recent favourites came from the British Museum, and is all about the history of London.  The reason I like it is that it has all these facsimiles of original documents inside, such as this gorgeous South Sea Company Share Certificate from 1759 ...

... you may think it’s not worth the paper it’s written on, which it isn’t, as the £200 invested by Anne Loubert would be the equivalent of £27,000 today.  And it all went up in smoke, when the South Sea Bubble burst.

Poor old Anne Loubert.

Or there’s this old cheque from 1764 drawn on Coutts Bank ...

... one of Britain’s oldest banks, the Queen’s Bank, and part of Royal Bank of Scotland today (really interesting news story on RBS Coutts at Bloomberg if interested).

So why all the history today?

‘Cos I recently had a visit to the HSBC archives.

HSBC’s archives are in a run-down converted hospital barracks from the 1950s in the East End of London, in a shared building with Iron Mountain Storage Company.

Through dark and dank corridors you walk into a little room where Tina Staples heads up the archive, with two colleagues who run the place.

 

Behind scenes are filing cabinets, folders, books, double entry records, papers and more documenting the history of the bank from the 1700s through to today, and its visited by lots of people from researchers to descendants of HSBC's managers and staff through the years.

A living and breathing history of society in fact.

The folks who manage the archives are all professional archivists, and the documents held there are fascinating.

Some of my favourite stories were of the Russian branch of HSBC for example. The London City & Midland Bank office, now HSBC, opened its first branch in Petrograd in 1917 ... and closed it in 1918 after the Revolution.  Even so, the manager toiled onwards to try to look after his wealthy clients. For example, here are the details of the holdings of Princess Anna Soltykoff through to June 1919.

The office had to close down then, as the manager feared for his life, and the story is that he trailed through Russia across Sweden with all of his records, in order to get back to blighty with his and the bank’s reputation intact.

Or there’s the story of the Imperial Bank of Persia, created by Baron Julius de Reuter. Baron Julius also founded Reuters news agency and, in 1889, received a sixty year licence to open the bank at the request of the Shah of Persia, now Iran.

In 1959, the bank was called The British Bank of the Middle East and was acquired by HSBC.

There are lots of other stories in the archives, which makes for a grand visit, and I’m sure I’ll come back to some of the stories from the archives later.

In the meantime, does anyone know what this is?

Answer on Monday.

This year's best cartoons ...

I'm an irregular reader of Prospect Magazine.

It's a great UK publication that focuses on political and economic essays on current affairs, with most of this month's writing about the elections and its implications.

One of the best things in the mag is its A-list cartoonists.  As a monthly they pick only the best and funniest, and this month's really had me chuckling.

First, there is one that appealed to my EU MiFID and PSD credentials:

Then there's the one that tickled my technology bones:

But the winner of the month, and probably the year, has to be a classic bank joke:

I cannot recommend Prospect Magazine strongly enough therefore, for the reasons given.
 
 
 

Your soul is mine

I know that many of you will have read the story already but, just in case, it is worth posting here for posterity and for the record. 

LONDON, ENGLAND, April 03, 2010 /24-7PressRelease/ --

Gamestation has discovered that more than 88% of the British public do not read the terms and conditions of a website before they make a purchase online.

As a result of the research, Gamestation has announced that on April 1st, in a test of its customers, it will include a clause in the terms and conditions stating that the customer grants the retailer the right to 'claim their immortal soul'. The online customer will be offered the opportunity to opt out of forgoing their soul by ticking a box in the small print. As a reward for their vigilance, they will receive a GBP5 discount voucher.

Result?

90% of customers agreed to the terms and conditions without reading them (either that or they were happy to surrender their souls).  They then received an email  stating: “Little did you realise that upon your last purchase from Gamestation.co.uk you also granted us a right to claim your humanity [...] To avoid future fatalities, always check the terms and conditions.”

 

Santander: confused, boring ... or innovative?

Thanks to Andrew Carrier's tweet for spotting this brilliant story in Gizmodo about Grupo Santander's Head Office in Santander City, Spain.

Gizmodo liked the fact they have wee little robots running around guiding visitors around their massive HQ.

Their HQ “is so damn big and confusing to navigate that you'll desperately need these multilingual robots to guide you around ... you stroll up to where the mechanical swarm is waiting, tip-tap your way through a menu on a robot's touchscreen to select your preferred language, pick a destination, and off you go.

“The robots are about knee-high and zip back and forth through the Santander Group's financial complex in Madrid. They're clever enough to avoid running into people, other robots, or any of the LED panel covered columns around the complex while promptly getting you to your destination.”

It makes sense, as the bank moved its Central Services from Madrid to the new headquarters, Santander City, in April 2004 and 6,800 people work there today, so it is a big campus.

However, although Gizmodo may like it, TIME Magazine labels Santander “the most boring bank in the world”:

“Banco Santander's no-nonsense headquarters sprawls across a dusty hilltop a little over 12 miles (20 km) from downtown Madrid. But it seems a world removed from Spain's capital, with its long naps and midnight dinners. Santander City's squat, red-brick bunkers don't try to make any lofty architectural statements, and its workers would be too busy to notice even if they did. Travel between buildings is underground on white shuttle buses. Cigarette breaks don't last long; the leafy inner courtyards have no place to sit. ‘This is a place to work’, says a spokesman wearing the standard-issue Santander red tie.”

The TIME article goes on to explain why Banco Santander's has risen from being the sixth biggest bank in Spain to the largest bank in the Eurozone in just a quarter of a century thanks to the leadership of Emilio Botín, who took over the bank from his dad back in 1986.

Well worth a read, even if half the workers these days are robots.

p.s. please invite me over to visit :)

Banking ... better than cigarettes, but worse than Toyota

I just downloaded Harris Interactive’s 11th annual reputation survey of America’s most visible companies.

The reputation survey assesses companies on a scale of twenty attributes in six dimensions ...

... and, during the first six weeks of 2010, Harris Interactive interviewed almost 30,000 people to see what they thought of America's 60 "most visible" brands.

The results are fascinating, with the Top 10 most reputable firms being:

#1 Berkshire Hathaway with a Reputation Quotient of 82.33
#2 Johnson & Johnson                                               81.88
#3 Google                                                                 81.49
#4 3M                                                                       80.96
#5 SC Johnson                                                           80.76
#6 Intel                                                                     80.13
#7 Microsoft                                                              79.83
#8 Coca-Cola                                                             79.81
#9 Amazon                                                                79.57
#10 General Mills                                                       79.46

And the least reputable firms are:

#51 Delta Airlines                                                      59.57
#52 Bank of America                                                  57.72
#53 JPMorgan Chase                                                  55.67
#54 General Motors                                                    53.60
#55 Chrysler                                                              51.90
#56 Goldman Sachs                                                    51.36
#57 Citigroup                                                            50.57
#58 Fannie Mae                                                         41.77
#59 AIG                                                                    39.23
#60 Freddie Mac                                                       38.94

Goldman Sachs, Fannie Mae and Freddie Mac make the list for the first time ever and are viewed very poorly. Firms that were involved in TARP payouts fared badly, with the biggest drop in reputation of the whole list being Bank of America, a drop of 4.92 points over last year.

AIG took a drop of 4.55 points, but at least they weren’t bottom of the list as they were last year. Nevertheless, they fail to score over 50 RQ points, a position that ranks them with Enron, Worldcom, MCI and Global Crossing after their collapses back in the early 2000s.

The good news is that Financial Services has also moved off the bottom of the industry list. Last year only 11% of Americans had a good thing to say about the industry and it came in last, just under the tobacco industry, as the least reputable industry sector in the USofA.

This year, financial services leaped to 16% favourable ratings, a five percent improvement and makes finance the second most hated sector, as tobacco still languishes at the bottom, down at 11%.

Mind you, with the automotive industry jumping 9% after Toyota’s issues, that’s not saying much.

Meanwhile, the study is worth a look if you like watching the banking industry’s own car crash news ... whoops, didn’t mean that.

What are banks for?

I hope you all had a lovely Easter break. I know I did. Lots of chocolate, reading, walking and sleep. Eating, drinking, chocolate and chat. TV, driving, thinking and chocolate.

Wonderful.

During my reading I came across this, first published in the magazine Punch back in April 1957. It’s a classic and worth everyone taking note:

Q: What are banks for?

A: To make money.

Q: For the customers?

A: For the banks.

Q: Why doesn't bank advertising mention this?

A: It would not be in good taste. But it is mentioned by implication in references to reserves of $249,000,000,000 or thereabouts. That is the money they have made.

Q: Out of the customers?

A: I suppose so.

Q: They also mention Assets of $500,000,000,000 or thereabouts. Have they made that too?

A: Not exactly. That is the money they use to make money.

Q: I see. And they keep it in a safe somewhere?

A: Not at all. They lend it to customers.

Q: Then they haven't got it?

A: No.

Q: Then how is it Assets?

A: They maintain that it would be if they got it back.

Q: But they must have some money in a safe somewhere?

A: Yes, usually $500,000,000,000 or thereabouts. This is called Liabilities.

Q: But if they've got it, how can they be liable for it?

A: Because it isn't theirs.

Q: Then why do they have it?

A: It has been lent to them by customers.

Q: You mean customers lend banks money?

A: In effect. They put money into their accounts, so it is really lent to the banks.

Q: And what do the banks do with it?

A: Lend it to other customers.

Q: But you said that money they lent to other people was Assets?

A: Yes.

Q: Then Assets and Liabilities must be the same thing?

A: You can't really say that.

Q: But you've just said it! If I put $100 into my account the bank is liable to have to pay it back, so it's Liabilities. But they go and lend it to someone else, and he is liable to have to pay it back, so it's Assets. It's the same $100 isn't it?

A: Yes, but....

Q: Then it cancels out. It means, doesn't it, that banks haven't really any money at all?

A: Theoretically......

Q: Never mind theoretically! And if they haven't any money, where do they get their Reserves of $249,000,000,000 or thereabouts??

A: I told you. That is the money they have made.

Q: How?

A: Well, when they lend your $100 to someone they charge him interest.

Q: How much?

A: It depends on the Bank Rate. Say five and a-half percent. That's their profit.

Q: Why isn't it my profit? Isn't it my money?

A: It's the theory of banking practice that.........

Q: When I lend them my $100 why don't I charge them interest?

A: You do.

Q: You don't say. How much?

A: It depends on the Bank Rate. Say a half percent.

Q: Grasping of me, rather?

A: But that's only if you're not going to draw the money out again.

Q: But of course I'm going to draw the money out again! If I hadn't wanted to draw it out again I could have buried it in the garden!

A: They wouldn't like you to draw it out again.

Q: Why not? If I keep it there you say it's a Liability. Wouldn't they be glad if I reduced their Liabilities by removing it?

A: No. Because if you remove it they can't lend it to anyone else.

Q: But if I wanted to remove it they'd have to let me?

A: Certainly.

Q: But suppose they've already lent it to another customer?

A: Then they'll let you have some other customers money.

Q: But suppose he wants his too....and they've already let me have it?

A: You're being purposely obtuse.

Q: I think I'm being acute. What if everyone wanted their money all at once?

A: It's the theory of banking practice that they never would.

Q: So what banks bank on, is not having to meet their commitments?

A: I wouldn't say that.

Q: Naturally. Well, if there's nothing else you think you can tell me....?

A: Quite so. Now you can go off and open a banking account!

Q: Just one last question.

A: Of course.

Q: Wouldn't I do better to go off and open up a bank?

Bankers bonuses in graphics

Money.co.uk just sent me this lovely graphic that puts the banker bonuses in context quite well ...

 

If the Banks are United, they will never ...

Watching the Carling Cup Final yesterday, I noticed a chap who obviously didn't realise that sitting next to England Manager Fabio Coppello would immediately get him noticed ...

Yes, it's Mervyn King (on the left), Governor of the Bank of England, sitting watching his favourite team Aston Villa lose 2-1 to Man United.

Shame.

But then I guess the Governor's used to working with the team that is not United.

p.s. Mr. King is often spotted being sporty and spicey ...

Why Heads of Innovation are actually Bottoms

Over the past year, most of the banks I deal with have dropped the word ‘innovation’ from their mantra. It’s strange but true that the focus upon being innovative had been such a focal point during the 2000s and now it’s all over.

To illustrate the point, the Top 10 American banks used the word ‘innovation’ an average 1.2 times per annual report in 2000, rising to over six times per report by 2007.

Heads of Innovation were popping up everywhere and innovation was the key to being different, attracting customers, growing business and increasing revenues.

Now the Heads of Innovation have all gone and Innovation is at the bottom of the banks ‘to-do’ lists ... in other words, the Heads have become Bottoms.

Banks have realised that the last thing they want to be is innovative.

They want to be boring.

So innovation has disappeared over the parapets as fast as Tiger Wood’s pants.

But that’s not the end of the story.

There will still be some innovation in banks. The question will be: which ones?

Let’s roll back to the beginning.

Innovation became a focus for banks because technology was moving at such a pace, and client demands with it, that any bank which was not seen to be innovative felt they would lose business.

Hence, as is the way with banks, they all appointed a head of innovation, used the word ‘innovate’ in all of their customer marketing materials, and appeared to be innovative by doing funky things like using employees to advertise the bank and giving away pens in branches.

That’s all the token gestures of innovation.

Meanwhile, some banks were actually being innovative, but just weren’t talking about it that way.

Banks such as Goldman Sachs who were creating incredibly innovative trading systems that ensure best price for their investors, which is why they get so much investment business, whilst creating huge market volatility.

Banks like JPMorgan Chase who invented the whole concept and trading of Credit Default Swaps. By being the first mover to invent and then trade these products, JPMorgan were not only the first into profits from such instruments but the first out of the losses created by them, as were Goldman Sachs.

Very clever.

Banks such as Wells Fargo meanwhile, have made it a clear focus to engage customers using social media, and see this as a differentiation in the customer experience. Rather than having a head of innovation in this area however, they instead invest in creating platforms to engage customers in remote social interactions via blogs, virtual worlds, YouTube, Facebook and Twitter.

That’s innovation, but it is not seen as token innovation but core developments in customer engagement.

For the average bank however, innovation is not in their blood.

This is because innovation demands doing things in a different way, and banks don’t like to be different. They want to be the same.

They don’t want to break away from the crowd, but want to do things in robust, proven, low risk ways.

They don’t want to be leaders but lemmings, all running in the same direction doing the same thing in a nice, safe, undifferentiated manner.

They cannot invest in something new and different, because it has to have a clear business model, financial analytics to support the investment, clear returns on investment and absolute management buy-in and commitment.

All of the above would never happen with something that is not proven, not clear, not justified, and unable to be supported by a strong financial business case.

Hence innovation lies in a heap at the bottom of the bank’s corporate agenda.

So what are we really talking about today, when it comes to innovation in banking?

We are talking about banks that create cultures of being prudent risk avoiders, entrepreneurial innovators, excellent customer engagers, aggressive market makers or active acquisitors.

These cultures sit at opposites with each other and rarely would you find a bank that could be all in one.

For example, I wouldn’t put Wells Fargo in the bracket of prudent risk avoider as they see themselves as an excellent customer engager; Goldman Sachs are an aggressive market maker, as are JPMorgan, but they probably wouldn’t use the word prudent; Citi are now a prudent risk avoider having learned their lesson of being an active acquistor; and Lloyds TSB were always a prudent risk avoider until they became an active acquistor.

These cultures are driven from the man or woman at the helm – a fish sets its direction from the head but also begins to rot first from the head – and it is the man or woman in the driving seat that creates the innovation and risk culture of a bank, not the label ‘innovation’.

That is why you can find banks that are hybrids of this model – such as Barclays where John Varley has created a retail and commercial banking operation that is prudent whist Bob Diamond runs an aggressive market making operation in BarCap.

There are other banks that demonstrate this mix, and it is purely a reflection of the management team.

For example, HSBC is a prudent risk avoider under Chairman Stephen Green and CEO Mike Geoghegan, but is also an entrepreneurial innovator thanks to Chief Technology and Services Officer Ken Harvey.

All in all, the lesson learnt for most banks is that innovation is not a function or label, but a culture and so it is gratifying to see innovation has been removed from the mantra of the banks as a label.

Now let’s see which banks create innovative cultures over the next decade, and watch them grow.

Banks aren’t charities, so why do we treat them that way?

Banks aren’t charities and yet the non-stop bleating about bonuses and interest rates would make you think they should be run as though they were not-for-profits.

But banks aren't not-for-profit; they are proprietary firms with stock listings. They are there to make money, not to exist for the public good.

So what’s gone wrong?

Unfortunately during the past two years, the line between public and private has blurred, as evidenced by the Royal Bank of Scotland and Northern Rock, or by Citi and Bank of America in the USA, or HVB and Commerzbank in Germany, or UBS in Switzerland or ...

The fact that these banks were bailed out by their respective governments, albeit temporarily in most instances, has blurred the media and public’s view of what they are there for.

The media and general masses now think they own the banks or, at least, have some skin in their game. And sure enough, in the case of RBS and Lloyds, the UK taxpayer does have some skin in the game: 84% and 43% respectively.

But that doesn’t mean the taxpayer runs the bank or that they exist for the public good.

In the case of RBS and Lloyds, they actually now exist in a shadowland where they are competing with openly aggressive trading firms like Goldman Sachs and JPMorgan, whilst having to conform with the requirements of the Treasury and UKFI.

This causes this schizophrenia between being openly competitive versus being humbly contrite.

What a pain.

But look at the bottom-line: these banks are still private firms with stock listings who have to serve their shareholder first.

That’s why they are paying bonuses, restricting lending, avoiding risk and being competitive.

Or that’s their thinking.

This is why we find it so hard to determine the right approach to bonuses and remuneration.

But take this a step further and we now have the journalistic and taxpaying community believing that they should somehow determine the interest rate setting policy and fees of the bank.

For example, over the weekend, the Beeb got itself into a tiz over credit card interest rates. The question posed is why, when the Bank of England’s interest rates are at their lowest levels ever, are banks charging the highest rates ever on credit card balances?

The answer is simple. The credit card portfolio runs as its own division with its own P&L. Today, more folks are defaulting than ever before. As the risks are greater and bad debts increasing, the interest rate has to rise accordingly.

The media and public then say: but you’re paying out all these hefty bonuses, what about us? Decrease the bonuses so that you can reduce our credit interest rates.

C’mon now and be serious.

The investment bank doesn’t subsidise the card portfolio. They are separately run businesses with their own P&L and both are tasked with making a profit, so both run their book as competitively and profitably as possible.

That’s why Barclays announced an increase in overdraft fees on deposit accounts just two days after saying that BarCap’s bankers would get an average bonus and pay package of just under £200,000 each for the 23,000 staff in that division.

You see the latter achieved their annual objectives and targets, so that’s why they deserve it.

And all of this is in a competitive battlefield where anyone can walk – both staff and customers.

But it ain’t that easy.

First, Barclays are justified in their actions because they never dipped into the taxpayer’s pocket, unlike RBS and Lloyds. Therefore, are RBS and Lloyds justified in providing bonus packages in the same way as Barclays? If they are privately held, shareholder-owned competitive banks, yes; if they are semi-nationalised, taxpayer-funded state-run banks ...

In addition, the divisional components of the bank may be independently structured by their P&L but that argument doesn’t hold water when the bank would have gone under in the case of RBS, Citi and others, thanks to the failings of that very part of the bank that is now sharing the spoils amongst their staff at the customer’s and taxpayer’s expense.

It is this blurring of the lines between a nationalised business that should operate in the public’s interest versus the privatised industry that operates in the shareholders’ interest that is causing all of the media and general debate today, whether it is about bonuses, remuneration, profits, fees, interest rates or any other aspect of banking.

This half-hearted, schizophrenic shadow of an industry that doesn’t know whether it’s coming or going, and has no idea how to regulate itself or be regulated, needs a strong hand to steer it to an objective and vision for future operation.

That vision appears to be one of an independent industry, run under free market principles with shareholder focus as its central tenet.

If you don’t like it ... lump it.

"Greed is good ... and now it's legal"

Remember Gordon Gecko from Wall Street?

Well ... he's back:

"Wall Street - Money Never Sleeps", released on April 23rd.

Money never sleeps.

Lunch is for wimps.

Bankers are always winners.

 

Social Media Survey

Brett King, author of the new book Bank 2.0 - which I can recommend to those of you working with social media in finance as a focus – has worked with me in the past few weeks, analysing the inital and general results from our social media survey.

Almost 450 folks responded to the survey (thank you all) and here are a few fast facts:

• the majority of the participants would participate in social media before making a decision on a financial service provider

• 93% of participants consider social networking will be worthwhile or critical for banks in the next five years

• 78% said social media is worthwhile or critical for corporate banking relationships today

• the majority of customers would go first to independent community discussions before coming to the brand itself

• Facebook and Twitter scored as the highest value social media channels for retail banking engagements

• LinkedIn, Blogs and Privately Managed Online Communities scored as the highest value social media channels for business interactions

• 74% said their use of social media organizationally will increase over the next two years, whilst only 1% said it would decrease

For the full 30-page report analysis:

Our conclusions

93 per cent of the 443 respondents to the Financial Services Club survey indicated that a focus on social media would be essential to the future of financial institutions over the next five years. Only 1 per cent of the survey group said that they feel their institution would be likely to decrease their use of social media in the next two years...only 1 per cent! All indications are that this is a hot topic for pretty much every service organization out there which is surprising as so few firms are doing anything about it!

Adoption rate of social media is scary. Two years ago Twitter was unheard of. Although Twitter started beta testing their concept in 2006, it is largely agreed that it didn’t formally launch till April 2007. Since then Twitter has taken off by storm – globally, in the USA and in Australia, Twitter ranks as the 12th most popular website by traffic, in the UK it ranks in the top 10, and in most of the EU it ranks in the top 30 or 50 websites. It took Facebook 4 years to achieve the same impact; so social media adoption is definitely speeding up, not slowing down.

Given the rate at which Facebook, Twitter and other such social networking sites have impacted popular culture, it should come as no surprise that financial service providers are starting to think about integrating social media into their business. However, the path to integration of these new media tools into the institution is a tough challenge. Firstly, organizations understand that this is an issue requiring total commitment across the organization, but achieving such is difficult because finding someone who can garner that support is a challenge. Secondly, brands in general are starting to understand that social media is a medium they can’t ‘spin’ – that is customers are largely in control – and that is worrying, particularly in the current environment where FIs are facing significant perception challenges at large.

The real conclusions of our research show that individually we know that it is inevitable that social media will be integrated into our business, but our organizations are looking for direction. The difficulty is that there is no one size fits all solution. Each of the popular social networking sites works in different ways, so we need strategies that reflect this. The survey showed, for example, that LinkedIn is a far better tool for business-to-business discussions and for promotion of services to professional individuals, such as priority banking and wealth management. For general brand marketing, Facebook is an effective tool, but our respondents wouldn’t use Facebook for banking contacts or LinkedIn for private and personal socializing. So banks must target effectively if they are to get the socialization of finance right. The strategy needs to be localized and involves pay-per-click embedded advertising as well as sponsored groups and consumer support.

Twitter as a tool is an excellent research tool. We would say that this medium in its current form would probably yearn more data than your best of breed focus groups and customer satisfaction surveys if it can be harnessed correctly. When it comes to Twitter it is all about listening. Our survey showed that consumers would use social media first to ask other customers about their experience with your brand, rather than engaging with your brand directly.

The survey shows the biggest missed opportunities for banks and financial service providers are more in respect to their own properties. Banks need to be using blogs to give more of their own voice to the social discussions, along with privately owned social networks embedded into the customer website experience. If you are not sure what privately owned social networks mean, think say Amazon’s product recommendations and rating system, PayPal’s Blog, and Wells Fargo’s Stagecoach Island?

Our survey essentially shows that most banks are missing a key development in customer engagement – both at the consumer and, more importantly, at the corporate level – by not deploying and utilizing this media effectively. For example, respondents are familiar with some of the key bank provided B2B networks, such as those from Bank of America and HSBC, but these examples are few and far between. This is the case even though most consumers and corporations feel this is critical to the future!

There needs to be an immediate and concerted effort to integrate social media into your organization today. More than that, this needs to be a cross-discipline, multi-department effort and it’s going to be difficult, but not necessarily expensive. If used properly, the bank will improve delivery, revenue and customer engagement significantly.

For the full 30-page report analysis:

Spot the Bank Ad ...

I cannot believe it!

SuperBowl used to be a great American tradition with Visa, MasterCard and a variety of other financial firms champing at the bit to get a bit of attention.

Now, in these austere times of banks avoiding advertising, not a single bank or firm in these markets fezzed up the $3 million for a 30-second slot. According to the Wall Street Journal’s blog, this year’s advertisers were:

• Audi
• Boost Mobile
• Bridgestone tyres
• Budweiser
• Careerbuilder.com
• Cars.com
• Census
• Coca-cola
• Coke
• Denny’s
• Dockers
• Dodge
• Doritos
• Dove
• Dr Pepper
• e*trade
• Electronic Arts
• Emerald Nuts
• Flo TV
• GoDaddy
• Google
• Homeaway
• Hyundai
• Intel
• Kgb
• Kia
• McDonald’s
• Michelob
• Monster.com
• Motorola
• Pizza Hut
• Pop Secret
• Snickers
• Sun Life
• Taco Bell
• Tebow
• truTV
• Volkswagen

Sure, you may say that e*trade are a financial firm, which they are, but their baby ads are creepy:

And Sun Life, an insurance firm, have their name on the stadium and splashed out big time with Cirque:

... but where were the bank ads?

There was a rumour that Bank of America was going to air this one:

... but I suppose they pulled it after last year’s outcry about their sponsorship or because it’s not really an upbeat Super Bowling ad.  Or maybe they just listened to my advice from a year ago (as HBOS should).

Jeffry at the Financial Brand spotted this one for Three Rivers Credit Union, which aired locally during the Bowl: 

Woof, woof.

But there were no ads in prime time nationally so, instead, we’re left with the rest.

Here’s a few of my favourites.

The Audi ad, ‘cos it feels this way these days:

The Intel ad, as it’s cute:

And the Doritos ad, it rocks!

See all the ads at i4u.com.

Oh yes, and congratulations to the New Orleans Saints and commiserations to the Indianapolis Colts.

Finally, via the Ridiculant and in the spirit of great puns, here's a Superb Owl:

 

The Long Now of Finance, Part Three

In the last of three reports on the Long Now of Finance (Part One and  Part Two), the last part of the day focused upon new ways of banking and supporting 10,000 year thinking, with Bernard Lietaer opening the session with a dialogue around using demurrage to encourage this.

Demurrage is a hard thing to grapple with, as it gets into discussions about fiat currencies and usury which are far beyond the ken of a mere blog on banking ... or it is today anyway. If you want to know the ins and outs of all that stuff then go checkout a book like: “The Creature from Jekyll Island : A Second Look at the Federal Reserve” (ooh, that’s fun!), but the gist of the conversation goes something like this.

You plant a tree as an investment in the future.

When is it best to chop down the tree, and what is the tree’s value in a hundred years (remember the story about New College, Oxford from yesterday)?

Let’s say that you have $100 today, and you can invest that $100 in planting a tree which, in one hundred years, will retail at $1,000 based upon today’s pricing. So you now think the tree is worth that to you in a hundred years.

No.

In a hundred years, using interest based analysis of net present value and assuming you get a positive interest rate of 5% per year, then the tree is worth about $7.60 in a hundred years, based upon the deferred costs of your investment.

In other words, you are losing 5% per year by having your money tied up in an illiquid asset because you could have been earning 5% interest on that cash by putting it into other more liquid assets with faster, shorter-term returns.

This means you are punished for investing in long-term assets and incentivised to invest in short-term earning vehicles.

It is the nature of usury, interest and today’s financial market offerings.

But it doesn’t have to be.

According to Bernard, if you use demurrage, you can turn this on its head.

What is demurrage?

Normally, it is talking about a fee related to shipping costs but, in this context, it is the carrying cost of money. Here’s one definitive view from answers.com:

Demurrage is a cost associated with owning or holding currency over a given period of time. It is sometimes referred to as a carrying cost of money. For commodity money such as gold, demurrage is in practice nothing more than the cost of storing and securing the gold.

Now it’s not a well known field or term, but it is focused upon making it worthless to keep your cash in short-term things and incentivises to invest in long-term things by exchanging your cash for something else of value, such as a basket of commodities.

So here’s Bernard’s idea.

You take your money and swap it for a Terra.

Terra is a complementary currency designed for long-term investing, and 100 Terra = 1 barrel of oil + 10 bushels of wheat + 20 kg of copper + 1/10 oz of gold + 1000 carbon emission units and so on.

The fact is that here, you are investing in commodities that have lifelong values, so you lose nothing but gain.

This is why, when we see a ‘flight to safety’, it’s always oil, gold and commodities that fly through the roof in value. Meanwhile, the storage cost of your basket of commodities is passed to the issuer of the Terra currency who pay a demurrage fee.

The result is that you have a currency exchange that is: inflation proof by definition; automatically convertible without new international treaty; and provides a pure medium of exchange and planning currency, rather than a store of value.

Returning to our tree example therefore, the 100-year old tree is now worth $168,903.82 in a hundred years time, rather than $7.60, based upon the payment of a demurrage fee of 5% per annum.

In other words, it works the opposite way to the usury based system and encourages long-term investing.

It is also complementary to the commercial world of investing, and Bernard totally believes in this proposition. I’ve known Bernard for over a decade, and he knows his stuff. After all, he’s worked and invested alongside George Soros and was formerly a Belgium Central Banker who came up with the idea of the euro, or the ECU as it was back then. He knows his stuff.

But ...

... after a decade, his idea still has not got all the buy-in it should have.

This is because people’s behaviours won’t change unless they have to, and because the thing he’s talking about above is darned complex.

That’s why fund manager Edward Bonham Carter said: “if you ask people to think about the world in thirty years, they won’t because it’s not in our nature to do that.”

Professor Sir Roderick Floud cast doubt on Bernard’s contentions too, stating that we over-estimate the extent of market volatility and underestimate the benefits.

The debate raged on, and will do so a long time into the future. The Long Now of the Financial Future that is.

The learning for me is that there is a way to evolve and morph capitalism for the future to protect us from the crashes of the past and to invest in a sustainable, long-term protection for the planet. However, it’s just so complex and difficult that most politicians, regulators, bankers and investors don’t understand it, won’t invest in it, can’t see that far ahead anyway and need a good kicking if anyone wants them to focus upon it, e.g. force them to do it.

I guess that’s why Edward Bonham Carter’s comment that: “there are a lot of clever people out there. The challenge is to get them working on the problems before the dumb people get there”, got the biggest laugh of the session.

For more on Bernard’s projects and thinking, go to www.terratrc.com and www.lietaer.com.

For more on the Long Now, go to www.longnow.org.

For more on Long Finance, go to www.longfinance.net.

There are also a number of excellent white papers available for free download here including: “The Road to Long Finance: A Systems View of the Credit Scrunch”:

In their discussion paper, Michael Mainelli and Bob Giffords have laid out a provocative analysis of the global financial crisis in an attempt to widen the debate. The authors have worked hard to raise some new arguments, dismiss some old ones and change the priorities for others. They point out the dangers of an over-zealous regulatory reaction and of trampling over competition in the name of emergency measures, and they argue that a healthy system must be more diverse. Their key point is the importance of competition in open markets to prevent "too big to fail is too big to regulate", and they encourage more radical investigation of Long Finance.

Tree pictures sourced from funtimeshad.com and dmu.ac.uk

 

The Long Now of Finance, Part Two

Following on from yesterday’s blog about 10,000 year thinking, how does this relate to or work in finance?

The idea is to fund long-term projects.

The sort of massive projects that no-one knows how to fund.

The sort of project that governments shy away from as politicians only have four-year lives and thinking past the next term in office is hard for them.

The sort of thing like building a Pyramid or a Cathedral, something that is long lasting and changes humanity forever.

Who today would think about building such a thing?

Back in the heady Egyptian and religious fervour days of old, building a huge monolithic testimonial for prayer and worship was the thing to do. But then, back then, you were rewarded with something other than finances.

Today, no-one would build such things.

However, there are other things we could, and probably should build, such as flood protection barriers, and the Long Now guys used the example of two countries to illustrate this. One that thinks and funds Long and the other Short.

The Long thinking is in the Netherlands.

The Dutch Government spent €450 million building the Maeslant barrier to protect the reclaimed land across the Coast of the Netherlands.

Rather relying on a boy to stick his finger in the dyke, the Dutch government decided they would fund such a project because, if catastrophe ever struck and the land was flooded, it would pretty much wipe out the most important parts of Holland.

So if you’re Dutch, a €450 million spend on an event that may never happen makes sense ... because if it did, the cost could be, let’s say, €60 billion.

What could cost €60 billion?

The devastation and disaster caused by a major flood of the Dutch coast.

And this is also the cost of the sinking of the major American coastal city, New Orleans, in 2005.

Hurricane Katrina cost the USA over $80 billion.

That’s €60 billion. If the USA had thought long, they would have spent the $1 billion it would have cost to build the flood defences for the southern coastline, and saved themselves $79 billion.

That’s the thing about Long Finance, it thinks long-term.

It recognises that the investment of millions today will save billions tomorrow.

For each euro or dollar spent today, it recognises it will save 100 times that amount tomorrow.

So long-term finance thinks long and invests long to save when the short now happens.

Stewart Brand, author of the Whole Earth Discipline, then expanded on this commentary further by quoting from the classic book by Robert Heinlein: Time for the Stars.

In the book, released in 1956, Heinlein recounts the work of the Long Range Foundation (LRF), a foundation that thinks the way outlined above:

“The charter goes on with a lot of lawyers' fog but the way the directors have interpreted it has been to spend money only on things that no government and no other corporation would touch . . . To make the LRF directors light up with enthusiasm you had to suggest something that cost a billion or more and probably wouldn't show results for ten generations, if ever . . .”

The key to the LRF is that they only invest in things so expensive and so far out that it wouldn’t be investable for a government. However, by adopting this strategy, they have become the most profitable company in the universe, making shedloads of cash thanks to those investments paying off when the inevitable disasters, catastrophes or just plain bets pay off.

Oh yes, there are long bets too. For example:

“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”  Predictor: Warren Buffett

But that’s an aside.

The bottom line is that Long Finance and Long Banking looks at uninvestable projects, the big ticket items, and takes them on board precisely because they are good for the long-term health and protection of mankind. That’s the nature of the Long Now.

Brian Eno likened it to the story of New College Oxford which, being British, was actually established in 1379 and isn’t new at all.

The College’s Great Hall has this fantastic arched ceiling with oak beams across.

After five hundred years, the beams inevitably were rotting and decaying so badly they needed to be replaced.

So the Dean of the College asked the groundsmen if they knew of anywhere to source some similar beams?

“Oh yes”, the head groundsman said. “Five hundred years ago, when they built the college”, he told the Dean, “the founders planted a forest of oaks of the same wood as the one’s used in the ceiling just over there.”

In other words, they had had the foresight to realise that, at a point in the Long Future, the ceiling beams would need replacing so they planted trees for just such an occasion in the Long Now.

That’s thinking Long, and this is what Long Finance is focusing upon.

I realise all of this sounds a bit tree-hugging or academic, but it's also critically important for those who care about an agenda that focuses upon more the just the right here, right now.

And, just in case you're wondering, yes, the College used the oak trees for their new ceiling and have since planted another small copse of oaks for the next time it may be needed.

A final thought on this tomorrow but, for now, think the Long Now.

The Long Now of Finance

So I finally got to attend a free lunch!

This was the launch of the largest event focused upon using long-term thinking in finance that I’ve ever seen, and sponsored by many organisations including the Financial Services Club.

Around 400 folks gathered to hear the wise words of legendary thinkers and speakers, including my good friends Professor Michael Mainelli of Z/Yen Group and Bernard Lietaer, along with luminaries Brian Eno (yes, he from daze of old Roxy Music), Alexander Rose, Stewart Brand, Professor Sir Roderick Floud and fund manager Edward Bonham Carter.

This was all ably chaired by Faisal Islam from Channel 4 News.

The gathering will be a source of material for quite a while but, to begin with, it’s worth discussing the opening session, a panel discussing: "The Long Now - Long-Term Thinking and Responsibility In The Framework Of The Next 10,000 Years".

What the hell is it all that about, you may ask. 10,000 years? Who the hell cares about 10,000 years?

Well, a lot of folks do and the Long Now is all about thinking for the long-term.

Brian Eno kicked off the session by talking about how the idea came to him, as he is the man everyone pointed to as the creater of the phrase: “the Long Now”.

He said the idea came to him when walking around New York and seeing everyone rushing about, real fast.

New York – like many capital cities of today – is all about fast.

Fast this, fast that.

And everyone is passing through, as they don’t see New York as their home but as their place of work. So they have very short-term thinking or, as Brian referred to it, they think like a "Short Man".

Ask the Short Man what he’s doing, and he’ll tell you his plan for today or this week. That’s as far as the Short Man thinks. There is no life plan, or after life plan. Just the Short Now.

The issue however, as anyone thinking about what planet we will be leaving to our children and grand children and great grandchildren, is that short-term thinking is killing the planet. So how do we think long term: the Long Now?

It’s challenging.

10,000 years from now is 12010 AD (which is why all the material of the Long Now refers to Now years with a 0 precursor; for example, this year is 02010).

10,000 years ago was 7990 BC.

There was no civilisation as such then. We had just converted from cavemen to men in caves and beaches and nomadics. Then, around 5000 BC, we became civilised (which is debatable).

10,000 years is hard to imagine or to see as relevant.

So what did the Long Now guys do to make it seem more relevant?

After all, the aim is to get us to think about what we will be leaving on this planet for the long-term, not just today.

The Long Now guys decided to build a clock that would last for 10,000 years.

A 10,000 year clock!

This would be a physical manifestation of the Long Now to inspire long-term thinking about what we leave on this planet.

The Clock was inspired by Danny Hillis, who had just created the world’s fastest computer back in the early 1990s, and it is a physical manifestation of the longness of time.

A clock that will last for 10,000 years.

The first question is how can you build a clock that will last that long?

And Danny responded by creating five guiding principles:

1. Longevity: with occasional maintenance, the clock should reasonably be expected to display the correct time for the next 10,000 years.
2. Maintainability: the clock should be maintainable with bronze-age technology.
3. Transparency: it should be possible to determine operational principles of the clock by close inspection.
4. Evolvability: it should be possible to improve the clock with time.
5. Scalability: it should be possible to build working models of the clock from table-top to monumental size using the same design.

The five principles can easily apply to anything you want to build for the long term.  

The Long Now team then built a prototype of the Clock in 1999, and are now building a massive underground 10,000 year clock in Nevada.

The clock has a really impressive algorithm which produces a different order for the ringing of the chimes each and every day for the next 10,000 years. That’s over 3.5 million combinations of chimes!

Amazing stuff.

All in all, the Long Now is very impressive. It’s also very academic, very expensive and very, very, very long-term, which raises the question ... so what?

OK, so it’s a big underground long now clock, but what’s it there for?

It’s there to get us to think about and answer long-term questions such as, what will happen to the clock if, in 1000 years, there’s another Dark Age?

It’s to get people to think long-term, which is what many are claiming we should now be doing in banking and finance.

And that was the point of this conference.

How can we think long?

I’ll add more to this entry through the week in bite-size chunks but, for sheer imagination, I like the idea of a 10,000 year clock.

Now, how about an Apple product that stays cool for more than one year?