min-myinnersoul

Tragedies are usually associated with Greece - a tribute to the richness of its theatre in the 5th Century BC. Over the weekend, you could be forgiven if you changed your tastes to a Cypriot tragedy. For that's exactly what has happened - albeit in the more prosaic world of economics.   These are the facts. Cyprus is another Eurozone country in deep trouble. It needed a bailout. So far, nothing unusual. A bailout was duly announced over the weekend. It was the terms of the bailout that sent a jolt reverberating through the world of economics. The EU is bailing them by about €13 bn (chickenfeed by the standards of bailout). But the conditions of the bailout are that all bank depositors would be levied a tax of between 6.75% and 9.9%. That means on Tuesday when banks opened, all depositors would lose that amount instantaneously.   The genesis of the problem is, alas, not new. Cyprus is a very small country. In boom times, it went berserk pushing its financial industry, positioni...

Isn't that a brilliant question.  This is a question asked by 7 year old Loulou.   This is part of Facebook initiative by the Holland based banking giant ING . Its is part of their recruitment portal called ING Careers and this idea is called Next Generation banking . In it they are asking children to ask simple questions and for prospective employees who wish to join ING to answer them.   Here are some of the answers   We need banks to keep money moving and safe Banks are also a safe place to put your money and not only that but the bank will even make sure the amount you gave them increases over time by using it in different businesses We need banks for your money: 1. To be safe - Your piggy bank can get lost, stolen or empty. 2. To grow - Do nothing and see your money grow each year because of interest. So banks were a place you could keep your money safe and also get some extra money if you agreed to pay it back soon So you see banks are there to help peopl...

Alongside  wrath, greed, sloth, pride, lust, envy and gluttony - the seven deadly sins - should surely be added "money". For it is now proving to be a deadly sin even in the Vatican. News came out on Wednesday that all forms of plastic money - ATM cards, credit cards, debit cards, etc have stopped functioning in the Vatican. So if you want to visit the Sistine Chapel, you have to fork out cash for admission - cannot wave your plastic. This has happened because the Bank of Italy (Italy's Central Bank) has suspended all electronic operations by banks inside the Vatican in exasperation at the Vatican's continued inability to follow anti money laundering and anti terrorist financing regulations. This has been going on for a long time - the Vatican does not meet the anti money laundering requirements that all countries have to meet and has not been able to set this right for years. Part of the problem is "Ramamrithamisque". Regulations demand all sorts of KYC for...

Remember Jérôme Kerviel  ?  OK, very excusable if you have forgotten who he is. He was the rogue trader who almost brought Société Générale ( a reputed French bank) to its knees. This happened in 2008. Kerviel was a trader who punted like crazy in the casino, that is euphemistically called financial markets - he was making gigantic bets that involved European stock index futures. The whole thing unraveled, he was fired, Société Générale tottered and ultimately lost € 4.9 bn.   Criminal proceedings were launched against Jérôme Kerviel  and he was sentenced to prison and a fine. He appealed, and, on Friday, lost his appeal. What caught me was the quantum of the fine. He was fined € 4.9 bn, the quantum of the loss that Société Générale incurred.  A fine of € 4.9 bn ???? Kerviel has no money and is unemployed and probably unemployable. How on earth is he expected to pay  € 4.9 bn ?   This is outright crazy. The judges have fallen hook line and sinker ...

I recommend that Benjamin Lawski, head of New York state's Department of Financial Services takes my good friend Sriram 's  Geography 101 course . He might want to learn where the borders of the United States lie and where his jurisdiction is. The laws of the United States are enforceable in the United States. They are not enforceable on the world. I am referring to the spat between the DFS and Standard Chartered Bank . The problem is this. US law does not allow US entities to have any business dealings with Iran - neither the country nor its nationals. The US is perfectly entitled to have such a law - its merits or otherwise is for US citizens to decide. The problem is that the US would like everybody in the world to follow that law. That deserves the response - mind your own business. Standard Chartered Bank is a UK headquartered bank that largely deals with Asia and Africa. It has very little business in the US. However it does have a branch in New York where transactions ar...

This blogger is rather vain about his English. And yet he was completely flummoxed when he spotted the headline " JP Morgan loses $2bn in egregious error " . He has to sheepishly admit that he did not know the meaning of the word "egregious" and had to look it up in a dictionary :( Trust a banker to come up with an unintelligible world - at least unintelligible to one "master" of English :). It sums up the problem neatly. The financial world has gone so bonkers in dreaming up structures of incredible and ununderstandable complexity that we cannot sit by and watch this go on anymore. JP Morgan is a well respected bank. Its governance is top class. It should be one of the models of all that is good about the financial sector. In  Jamie Dimon, it has one of the finest Chief Executives in the world. It has superb risk management systems, strengthened even more in the wake of the financial crisis of 3 years ago. And what happens - it manages to lose $2bn in  on...

Immortal words from an immortal movie. If you don't know where this quotation is from, click here (excusable because this was before you were born) I am however writing about more prosaic things. Like the American nomination of Jim Yong Kim for the Presidency of the World Bank. Readers of this blog may recall that I had railed about the practice of nominating an American for the head of the World Bank and an European for the Head of the IMF here . The IMF vacancy came rather suddenly after the antics of Dominique Strauss Kahn. After some pious sermonising about how it wasn't an European stitch up, the post went to Christine Lagarde, another French person ! Now there is a vacancy coming at the top of the World Bank as Robert Zoellick is completing his term. The Americans are now wanting to stitch this up. But its the American they have nominated which is raising eyebrows. Kim who ?? Jim Yong Kim is an eminent American, no doubt. But he is an anthropologist and physician by prof...

Arise Sir Fred, the Queen of England said in 2004 after tapping the kneeling Fred Goodwin lightly on the shoulder with her sword. This archaic ceremony is the conferring of knighthood by the Queen of England. If you are a citizen of the UK or one of its dominions then you can call yourself  "Sir". Fred Goodwin was the CEO of the Royal Bank of Scotland in its boom years. An unknown, middling bank in Scotland (where's that for Gods sake), he took it to become one of the largest banks in the world. First the acquisition of Natwest, a big British bank much bigger than RBS. And then the mega takeover of ABN Amro, just as the financial crisis was unfolding. The bank was growing wildly through mega acquisitions and was cheered on by all and sundry - the shareholders, the market and even the government, including Gordon Brown, the then Prime Minister of the UK. Hence the knighthood. Sir Fred could do no wrong. Of course the party couldn't last. It came crashing down with the ...

Does nationality still play a major part in deciding who should become the Chairman or Chief Executive of the company. It shouldn't, right? But of course it does. Except, to its eternal credit, in the United States of America. A country pretty much devoted to meritocracy and where, by and large, only merit counts. It doesn't matter where you are from or whether you are white or black or yellow or grey or blue. Perhaps to a large extent in the United Kingdom as well. But that's it. Everywhere else, it seems only a local can be a boss. Consider the succession saga at the mighty Deutsche Bank in Germany. The current CEO, Josef Ackermann is expected to be kicked upstairs to the Supervisory Board. A new CEO is to be appointed. There is general consensus that the best candidate is Anshuman Jain. The problem is that he is Indian, not German. And to add insult to injury, he reportedly does not speak much German either. This apparently won't do as the boss of Deutsche Bank will ...

When Hu Jintao, the leader of China, visited Washington recently, there was a flurry of deals signed. Predictably, most were economic. One tiny deal, lost from the public glare may be far more important than most of the bigger ones signed amidst much fanfare. This was the acquisition by ICBC, the world's most valuable bank from China, of the tiny retail network of the Bank of East Asia in New York and California. All bank takeovers in the US need regulatory approval. Given the circumstances under which this deal was signed, its expected that it would be approved. And therein lies the breakthrough. The regulatory approval is given only if the US believes that the regulatory mechanism in the home country of the bank is "sound". This is classical American overreach of dictating to the world. Now if this deal is to be approved, that is a tacit endorsement of China's banking system, which is entirely state controlled and , to even the most neutral of observers, dodgy. Ame...

Remember Jerome Kerviel - the trader who almost brought down Societe Generale ? The French banking giant ? He was convicted by a French court this week , sentenced to jail and ordered to pay back the € 4.9 bn loss the bank suffered as a fine - largely symbolic as he would just become bankrupt. No doubt at all that he was guilty. He had built an open position of some € 50 bn . He violated trading policies of the bank. His actions almost brought the bank to its knees. He was guilty; and he's been found so in court. But what is amazing about the judgment is that it completely exonerated Societe Generale . They have been found to be not guilty at all. That completely gobsmacks me. The bank admits lax controls, but said it did not know. You want to believe that the bank did not know that the guy was taking an open position of € 50 bn ? Really ?? Of course they must have known. They just turned a blind eye as long as he was raking in the money. When the retreating tide reveal...

HSBC is a solid, and perhaps staid, bank. It rode the financial crisis reasonably well and generally stays out of the headlines. Surprising then to see it on top of the financial news for the last five days thanks to a messy succession saga. Here's what happened. Successions in HSBC are very orderly. The Chairman retires to tend to his garden somewhere in the English countryside. The CEO becomes the Chairman. The senior most executive being groomed for years, takes over as CEO. All very dignified and solemn. The Board congratulates itself over many glasses of the finest bubbly. The money continues to pour in and all is well in the world. This time the script went wrong. Stephen Green , the current Chairman, had indicated in May that he wanted to retire in a year's time. A search firm was duly appointed to recommend that there were no suitable outside candidates so that the pesky shareholders can be told to keep quiet. But suddenly Stephen Green was asked to join the UK cabinet ...

I had never heard of ShoreBank until I read this article in The Economist. The Economist titled its article – Small enough to fail. I add an “alas” to my post header. ShoreBank , according to The Economist article, thrived for 35 years on a business model of a small community bank that targeted lending to poor people in poor neighbourhoods. It actually had higher repayment rates and lower delinquency,  as any careful micro lender will tell you.  But then the recession struck like a tsunami. In the neighbourhood in  which it operated, the recession has been brutal and most people lost their jobs. Despite very good payment records in the past, they couldn’t keep it up.  Unfortunately its location in Chicago and therefore the association with Obama made it a political lightning rod. No way it could be bailed out. Alas, it had to go. This article set me thinking on the risk quotient for small businesses. By definition, small businesses cannot be diversified in terms of ...

Mr Vikram Pandit Chief Executive officer Citigroup Inc. New York United States of America Dear Mr Pandit You are probably used to receiving hate mail, but here’s a letter that you might be very pleased to read. I read in the Wall Street Journal that the United States Government is planning to sell its 27% holding in Citigroup over the next few months. It is heartening to note that US tax payers are expected to make a profit of $ 7bn from their original “bailout” money that they gave to Citigroup. You have not only paid back the entire amount, but also let the taxpayer make a profit of $ 7 bn. Yours was the last bank from which the government is completely recovering the money it lent under the Troubled Asset Relief Program, more popularly called as the bank bailout. The US government invested a total of $165bn in all the banks and in the end it has made a 14% return ; not bad considering that if the tax payer had invested in the S&P index at the same period he would have lost 3% ...

How do you price services which are very exclusive and for which there is no possibility of a real market ? Is there some such thing as a “fair price” or is that concept an oxymoron ? Does public opinion on what constitutes “excessive” have any role to play ? Should pricing have any relation to cost at all ? Not easy questions to answer. Welcome to the world of investment banking. The case that triggers this post is a legal suit filed by JP Morgan on Consolidated Minerals (ignore who they are for the purpose of this issue), in an Australian court. The case relates to the acquisition of Consolidated Minerals, a mining company, by Palmary for A$ 1.3 bn. JP Morgan was Consolidated Minerals' advisor in the acquisition. But the new owner, Palmary has a dispute on what fees must be paid by them to JP Morgan. Palmary believes that JP Morgan’s fees should be A$ 7m. JP Morgan believes it should be A$ 50m. Hence the dispute. Its extremely rare for investment banking fees to be brought to co...

Caveat Emptor , or let the buyer beware, is a fundamental law in property buying and selling. The buyer is expected to make enquiries and be sure that he is getting what he thinks he is getting. Once the sale is done, he cannot moan about defects that he subsequently finds out. These days the principle is better deployed in financial transactions. Banks and finance companies spin a complex web around even seemingly simple products. For the mathematically challenged, like yours truly, this is a landmine waiting to explode. Take the case of an apparently new innovation – teaser home loans. These are loans where the interest rate is fixed at a very attractive rate for a pre determined period and then made floating plus margin thereafter. Buyers are enticed by the low initial rate and don’t realise the consequences of a subsequent high floating rate. Once hooked by the teaser, they are sunk. Buyers certainly deserve their misfortune if they jump into something blindly. If 2+2 is a very co...

Don’t cry for me Argentina, could very well be refrain of Martin Redrado, the governor of the central bank of Argentina. He was dismissed by the President Cristina Fernandez a couple of days back, only for the courts to reinstate him and rule the President’s action unconstitutional. At heart is the issue of the independence of the Central Bank. In many countries, including Argentina, the Central Bank is supposed to be independent of the government. This enables it to follow the right, and long term, stable monetary policy without political interference. Governments don’t like it as they like central banks to do what they want them to do. The problem in Argentina is that Cristina Fernandez would like to use the reserves of the central bank to pay down the debt of the government. The central bank is refusing to do this. So she thought she could sack the governor and replace him with somebody more pliable. Its rebounded on her because of the court’s decision. The problem is always the te...

You normally associate business leaders with high intellect, sound judgment, and in general, greater ability than many of us, mere mortals. Then I read this front page report in today's Guardian in the UK. I had promised to myself that I'd stop writing about either bankers or Goldman Sachs after my last two posts on the subject. But what can you do when somebody makes a speech like that. And where does he chose to make these remarks ? In St Paul's cathedral, no less. If you know of any greater act of appalling judgement, please let me know.

Mr Lloyd C. Blankfein Chairman and Chief Executive Officer Goldman Sachs Group Inc. Dear Mr Blankfein, Congratulations on the stupendous third quarter results of Goldman Sachs, you announced yesterday. To achieve some of the best ever results in the firm’s long and distinguished history, just one year after its worst crisis, is a remarkable achievement indeed. We are writing this letter to make a humble suggestion for your consideration. As we all know, the financial crisis over the last two years has affected millions of people worldwide. We think you would agree that the financial services industry, and therefore Goldman Sachs, had some part to play in this. The United States government had to step in to provide assistance and guarantees to you last year to tide over the crisis. I would suggest that some humility and just a hint of remorse, might serve the bank well. Arousing public anger, however fair or unfair the anger may be, is not in the bank’s best interests. We suggest that y...

Remember ABN Amro. It was one of the largest European banks, operating in some 60 countries. This venerable institution had a history dating back to 1824. In October of 2007, it was acquired by a consortium of Royal Bank of Scotland (RBS), Fortis and Banco Santander for a staggering price of $ 100 bn. By this time, the financial crisis had already started, although it was in its early stages. Still these three banks went ahead, paid a fortune and carved ABN Amro amongst themselves. Just one and a half years later, look at the scenario RBS needed huge bailouts from the British government to exist- its in effect nationalised. Its share price has plunged more than 80%. Its declared huge losses, in no small part due to huge writedowns of the ABN Amro acquisition. Fortis has fared even worse. Its now completely taken over by the Dutch government. Its effectively dead. Banco Santander is the only one standing , and perhaps smiling a bit. It took the Italian and Brazilian parts of ABN Amro an...