Eldon-Online

North Korea - How Near Is The Finger To The Button?

Much has been written about Li'l Kim in recent weeks as the world takes differing views on the seriousness of the threats coming out of North Korea.

 

He has certainly generated a lot of media attention, but as a good friend pointed out yesterday he must be a bit "miffed" about the death of Baroness Thatcher - seeing as how she has now taken pride of place in the media headlines.

What seems clear to most observers is that this recent spate of rhetoric is, as usual, less of a genuine threat. But the big difference this time is that no one really knows whose hand is hovering over the button marked "war".

Previous history might suggest that such threats were designed more to gain some sort of "pay-off", thereby enabling the country to stagger along from one famine to another. After all, no one really takes seriously the notion that North Korea has an armoury sufficient to pose a significant threat to the world at large, or over a sustained period of time. So, are the threats designed to make South Korea very uncomfortable? Sure. And China and probably Japan too and definitely the US. But, again, in general, troop movements in the North have not given rise to concerns that the rhetoric is likely to be supported by action.

To this unlearned observer there seems to be a power struggle going on behind the scenes. As I wrote a little over two years ago, in predicting the death of Kim senior, I suggested that Li'l Kim would fall foul of the generals and be ousted in a power struggle. He was young, untested, appeared to be uneducated and would not be able to stand up to a concerted effort by the generals to remove him.

Then, in a surprise to me anyway, Kim seemed to be gaining the upper hand when he purged his mentor, Ri Yong-ho, and sacked him from all his posts - including significantly, his position as Head of the Army. This happened some 9 months ago. But it now seems that this did not perhaps lead to the army heads into becoming more compliant, and heeding Kim's every word. And this, I believe, is why we are where are now. The Generals are revolting!! (You can take that comment how you like!)

Kim is having to pump up the stakes, create front page news, make people nervous and demonstrate through Kim-controlled media that he is a no nonsense leader, and he is focused on the "enemy" outside his borders. By doing that he reduces the internal tensions that seem to exist, as anyone who protests will be seen as unpatriotic.

But this is turning into a high stakes game of brinksmanship. But it is being played by a potentially impetuous juvenile whose finger may just slip and hit the wrong button! After all, where does he go from here? He has warned foreigners to leave South Korea because "he doesn't want foreigners to be harmed". That suggests he is prepared to bomb, or otherwise harm the ONLY country that could possibly help North Korea reach some sort of economic model for growth. Where's the logic in that? Of course, not a lot of what is happening is, in fact, logical.

He may test a nuclear weapon, but testing does not of itself achieve the goals established by the rhetoric. Thus his only last resort, in a power struggle where he has publicly set out his intentions, is to actually do something. If he fails - the Generals win, and I have no idea what that means for the country. Or there is a very high profile diplomatic solution, engineered probably by China which enables Kim to remove his hand from over the button without losing face. But that seems to be a long shot.

I am hopeful that it will all come to nothing, once again, but I am more nervous this time about the boy and the button!!

Change ... Or No Change. Part II.

... as I was saying, sort of, are things around the world changing due to there being a lot of apparent activity, or does that activity result in nothing more than a gentle re-shuffle? As a result little moves too far away from where it started? 

In Part I, I had a quick look at the Middle East and Europe, of which the latter region in particular is looking clearly unwell ... but now if we hop the pond to the USA, perhaps we do have some real change. Okay we have had the re-election of President Obama so no change there then, but what about the economy? 

Fiscal cliff or no fiscal cliff, here we do have a country of which one might say the shoots of spring are beginning to show. Not consistently across the piece perhaps, but there are some positive signs that I find encouraging. Having said that, as the USA was the source of the Global Financial Crisis I suppose one should expect the earliest afflicted to have the earliest signs of the virus leaving. First in, first out. 

Anyway, America's unemployment level is down which is a good change, corporate results are selectively doing well - especially in the financial arena, and Warren Buffet has bought US household name Heinz. All signs that corporate America is raising its head positively. Hopefully it will last, because whether we like it or not, what happens in the USA still has an impact on other parts of the world. But lurking in the corner remains the ever present ultimate threat of inflation once interest rates start to rise, and that could be a harder task to manage. But overall, clearly here is a case where some of the activity that has taken place has resulted in some actual positive change.

Is Latin America changing? I am not sure it is much. Certainly Brazil is continuing to progress and Chile has been quiet and steady for quite a few years now. Argentina remains difficult, as do other areas of Latin America. And although nothing much stands out, look at the amount of commercial activity in the area of acquisitions being made by Chinese and Middle Eastern companies, as well as sovereign wealth funds. With the death of Venezuelan President Hugo Chavez perhaps there is some scope for real change, in that country anyway, but much will depend on who gets elected - hopefully in free and fair elections. (Unlikely say some of my Venezuelan commentators)!

To Africa, and what can one say about leaders with very dubious human rights records being elected (Kenya), a region providing a fertile breeding and training ground for terrorist groups (Somalia and Mali). A region steeped in poverty where inward investments are chanelled to the few and ignore the mass (Most places). Where investments from China tend to provide jobs for imported Chinese labour and the output, be it agricultural products or minerals, go to satisfy the needs of China leaving little behind in the host country. Nothing wrong with that strategy from a Chinese perspective - rather clever in fact, but will it be allowed to last? Lots of activity bringing about unwanted change in many cases.

But look, when I started on this current tour d'horizon which is deliberately brief and probably considered to be superficially generalist, (and currently missing Asia - of which more later), I came to realise that it does not address some fundamental issues that impact all of us. The most important of which, to me anyway, is the future.

If the suggestion I am making through the title of these two pieces is at least on the right lines, that despite all the apparent activity going on around the world there is in fact little change coming out of that activity, is it always going to be that way?

Don't get me wrong - there has been phenomenal change particularly in certain areas of technology, medicine, manufacturing processes and others. But there are also negative changes taking place in food and water supplies, and population growth. Putting a strain on our limited resources.

So I wonder whether the political and economic structures of the world today, such as they are, can actually cope with these changes? Are companies, those generators of employment and wealth, considering where they need to be in 20 or 50 years time to remain competitive? Do we in fact run around re-arranging the deckchairs on the Titanic believing that the traditional ways in which we do things today are going to prevail, or are they going to be swallowed up by newcomers who think and do things differently? It is all very well talking about the way things "should be done", but the new competitors will do things differently whether you like it or not. And what will be the role and impact of governments who think in terms of four and five year election cycles? Will those other political/leadership structures that exist elsewhere actually provide a different, and maybe more successful - model from the one we grew up with?

There are some really interesting studies out there today. Information that is readily available from a variety of sources but put together in one place so you can see almost at a glance where the problems and the opportunities exist. To enable you to consider the future, and think about how you can remain competitive.

But more of that - and Asia - in the third and concluding part.

 

It Takes Balls.

I should apologise for a slightly ribald start to the year but hey, one can only be conservative (with a small "c" of course) for so long. Rather like some Conservatives (with a big "C") in Britain who have also decided you can only be a Conservative for so long! Yes, you definitely need to break out once in a while.

So, what prompted my Blog title this week? It was a snippet, for want of a better expression, which caught my eye in a magazine explaining that apparently castration could extend men's lives? It seems, from a study of historical genealogical records, that eunuchs tended to live 14 to 19 years longer than other men! Thus, if the punishment proposed as being appropriate to some bankers in the aftermath of the global financial meltdown had been carried out, you might have had them living longer - but at least they might not have had the - well, balls - to go back to their previous ways!  

I am referring of course to the ability of the global Investment Banking community - reviled only 5 years ago for creating the global financial crisis, and who are now clawing their way back to a level of "respectability". Or are they?

Howard Wynn, in his excellent Lai See column in the South China Morning Post was quick to remind readers earlier this week that proprietary trading by investment banks is supposed to have been banned under the Volcker Rule. But it's not applicable to Goldman Sachs it seems, who have established a new unit known as Multi-Strategy Investing, which does ... proprietary trading. And back to the past we go.

So why are the investment banks getting away with it? Because the so-called high street banks are taking all the flak. And why are they getting the flak? Because they are the ones that deal with the man in the street and not in the atmospheric heights of big swinging corporate deals. They therefore attract the attention of the media, the public, the vote-seeking politicians - and the regulators of course, while the investment bankers deal in esoteric products that no one understands - or so it seems.

But there we are - all that rant from the merits or otherwise of castration, when I really wanted to talk about regulators and regulation.

Another year is behind us, and the financial services industry is still wondering what is happening with new regulations - both in the formulation of them, the implementation, the overlapping, and particularly the cost. There appears to be a lack of coordination in the policies of regulators, governments and central banks, none of which is helpful.

In the meantime business is being stifled. Lending and investment is reduced, economic growth is inhibited, and the bankers still get blamed. But what do you expect with these mixed messages? Governments desperately want economic growth ... and austerity. Banks are pressed to increase their capital ... and lend more.

And then there are the warnings. The IMF is concerned that ... five years on ... a safer global financial system is far from reality. And warnings from those great escape artists, the rating agencies, who have somehow escaped severe censure for their major role in the global financial crisis, who say they are sceptical about specific regulations.

Yes, on paper there seems to be some progress, but there is precious little consensus in practice. So what can we expect in the months (and years) ahead?

In mid-October 2012 the leaders of the European Union agreed to work towards the creation of a single banking supervisor overseeing around 6,000 banks in 17 euro countries ... and saying that the necessary legislation could be in place within weeks! The resulting Single Supervisory Mechanism would be up and running this year, 2013. If it is I will have to start believing in fairies!

Perhaps we will see the finalisation of Dodd-Frank. At the last count it ran to 8,800 pages of new rules in the USA - and estimates suggest that is only about 35% complete. So that doesn't look so imminent either.

And if you add it all up:

Dodd-Frank, Volcker Rules, the EU super supervisor, the Vickers Report plus Twin Peaks regulation in the UK, Basel III, the related unintended consquences and the extra-territorial implications it totals  ... yes, you guessed it, continued uncertainty! And that's only where the regulators are concerned. Regulators who are in many cases in the driving seat of the industry, thanks to the legislators, while being aided and abetted by the media who sense there is an opportunity to jump on the bandwagon.

But think about this! It ain't gonna change. As an industry you can try to fight against it or you can accept it as the new reality for the industry. You can see it as an opportunity to better understand regulatory expectations. To seek guidance when the rule setting agencies and regultors seem to differ in their approach. And as an opportunity to anticipate regulatory trends quicker. I think the best option is clear - even if you think it is all balls!  

 

 

What Did I Miss?

If you don't get out much, as has been my misfortune of late, you start picking up all sorts of "rubbish" information. For example, were you aware that "soap operas" - now shortened of course to just "soaps" - got their name because the original sponsors of these long running fictional dramas were the major soap companies? I certainly wasn't.

Another feature of soaps - not that I watch them, but as I have been told - you can be watching one over a period of time and then not do so for a matter of months, but when you come back to them you can apparently pick them up virtually from where you left off. You don't seem to have missed much.

So it has been for me! Before I took to my bed Barack Obama was President of the USA - but under "serious threat" from Mitt Romney. I recover to find the USA still has President Obama. The battles in Syria go on, albeit despite the dangers globally they have taken a back page. Egypt still hasn't found any solutions as a result of the Arab Spring - but seems to be degenerating, which was the other option if they didnt get their act together. The Eurozone still hasn't bitten any kind of bullet, as a result of which they are in disarray, which was the expected outcome of not taking any action. China has established its new leadership to cover the next ten years. Although it is only new to the extent of confirming what everyone already knew some time ago.

So, what did I miss in the last six weeks? Precious little, it would seem. The moral of the story? Take a holiday. Have a break if you can still afford one and have a job to come back to, and you will find not much has changed. 

And, of course not to be outdone at home - Hong Kong's beleagured Chief Executive C Y Leung is still facing questions about illegal structures, bus and minibus drivers still drive too fast without due care and attention, and the focus on business and those little things that might drive Hong Kong to retain its important role in Asia, get pushed further and further backwards and swept up in the general news.

Just as an example, a little over a week ago the UK press picked up on a report issued by the highly regarded Centre for Economics and Business Research (CEBR). The CEBR report said that "London has lost its crown as the world's financial capital by number of finance jobs to New York. And it will fall to third place behind Hong Kong by 2015". (The bold script is mine). Did this get reported by any of our Hong Kong media, or were they too focused on a highly intelligent member of our Legislature, who wears totally inappropriate T Shirts to the Chamber and throws things at people? Oh! Perhaps I missed it!!

The report is actually good news - but we do seem to have trouble in bringing ourselves round to the point of publishing things that are good. Is it because we don't really believe them?

I do seriously wonder if there is any possibility that we will get to the stage where the "Government" can work together with the Legislative Council, and perhaps the business community in its broadest sense, to the overall benefit of Hong Kong and it's future.

Publish the good news and the successes, damn it, and  put some serious thought into keeping Hong Kong's status highly regarded in the world. Then there will be no need for the front pages of our newspapers to focus on silly shirts and relatively minor issues, or for people to feel the need to wave an old colonial flag.

This does not mean sweeping the important things under the carpet. It does not mean ignoring the calls towards establishing a democratic process for the election of some, hopefully, appropriate legislators and a Chief Executive, but it does mean leaving room on the front pages for some of Hong Kong's achievements.

We are becoming just like a soap opera - close your eyes for a month or two and nothing has changed. We do not have the luxury of floating in a sea of inertia.

Rising Above The Rhetoric - The IMF, China and Japan

 China's delegation to the annual meetings of the IMF and the World Bank inTokyo will not be led by its most senior finance officials, a report from state news agency Xinhua said on Tuesday, in what looked like a deliberate snub of Japan... [Reuters report]

The recent increase in hostility between China and Japan is beginning to unsettle the region as no one really knows how the dispute over some islands will end. And by "some islands", I do not mean to trivialise the matter or suggest that this is a spat over nothing ... it is clearly strategic, financial, and particularly emotional. Feelings in China are running high, it is true, with Japanese business in that country suffering all the way from retail to manufacturing.

The IMF, however, is a global body of which both Japan and China are significant members - and whose contribution is important to the rest of the world. It demands the attention, and therefore the attendance of the most senior delegates from each country if anything is to be achieved. And certainly, in the case of China, there is ultimately a bigger role for them to play in the future, even to the extent of leading that organisation.

For those who are unaware, the annual IMF meeting is held for two consecutive years in Washington DC and then on the third year it is held in an outside city. Recent hosts have been Istanbul (2009), Singapore (2006), Dubai (2003), Prague (2000) and Hong Kong (1997). It is the one time in the year, every year, where you will (usually) find every senior banker, regulator, and Finance Minister in the one place. The meetings that take place outside the official meetings are every bit as important as the formal sessions themselves. Therefore to deny access to senior Chinese officials, and vice versa, on an occasion like this seems to me to be a little short sighted.

This is not about China versus Japan, or it shouldn't be. Had the meeting been held anywhere other than Japan this year, I imagine that Chinese officials would have been present as normal. But on this occasion it is not the location that is important - the meeting is! And it is at times like this when there needs to be a realisation that there are some occasions when one needs to rise above the rhetoric and act like a senior statesman.

What A Difference A Year Makes.

"...and there's a more worrying thing going on in London right now. It's you Brits. What's happened to this grumpy national identity? All this smiling is getting annoying." 

(Good-natured comment from Australian restaurant owner in London on the Olympics.)

Who would have believed it? From the London riots of August 2011 to the London Olympics of August 2012, what a difference!

There were plenty of naysayers who opined that the Olympics in London would be a disaster. They ranged, of course, from the inappropriately critical Mitt Romney who provided London Mayor Boris Johnson with yet another opportunity to enhance his own reputation with the British public, to the man in the street in the UK who until recently appeared to be disenchanted with the whole idea.

Not today! With the closing ceremony only minutes away as I write (no, not here for the ceremony, but a good view from television!) the unbiased view as far as I can tell is that the games have been a success - without serious qualification. Ticket problems? Yes - some. Empty seats - yes but only at the beginning as the "Olympic Family" were taken to task for not attending events for which they had been allocated seats. Bad attitudes? Nowhere in sight.

London's transport system defied the odds. It worked!! Yes, it was very crowded at times and I can certainly testify to that, but it didn't break down! A game of sardines would have been really appropriate.

The security arrangements - jeopardised by the failure of a privately enlisted security firm to live up to their contract - but saved by members of the British armed forces who stepped in with good humour and efficiency, and earned the respect and support of everyone.

The "volunteers" particularly have received plaudits from every quarter for their humour and their willingness to help visitors.

And the spectators, despite their obvious bias towards British athletes ("...very un-British", as one of my neighbours said), have been enthusiastic at all sports venues - witness the turn out this morning for the Marathon where British hopes were more aspirational than real - with spectators 10 deep in places cheering just anyone who went past.

And the smiles? Well - they have really been evident. It helps because Britain has done well of course, with a record haul of medals. And I am sure they are partly because most of the Olympics have been held during the two weeks of summer they have just had! The start was a bit wet - and the close might see some rain, and the rest of next week is forecast more rain - but the last two weeks..?

Yes, Britain welcomed its visitors well.

But what now ...

I have never heard so much community spirit being expressed amongst people here, but can it be maintained?

And if you had told me that by 2012 the Monarchy would be respected, and even perceived to have a "human" side, I would not have believed you. But the wedding last year of Prince William and Kate Middleton, the outpouring of support for HM The Queen's Jubilee this year, and then her participation in the opening ceremony of the Olympics has certainly changed opinions.

Behind the beaming Brits at present - who by the way will continue to smile and provide support as the Paralympics get under way in a couple of weeks - is there something more sinister lurking? Will the smiles last?

The economy is not in wonderful shape, just like the rest of Europe, and unless there have been some great deals achieved by British companies during the last two week, nothing much has changed. The Americans are continuing to beat up the British banks, leaving a reputational issue out there, but frankly I think they may have overcooked it this time and people in Britain are getting pretty fed up with what appears to be posturing and electioneering by Americans with an eye on internal political positions.

Unemployment remains an issue in Britain, and there is no easy answer to that - you can't build Olympic venues all the time to provide employment.

The "trick" therefore, must be to harness the current good will, and provide some momentum and incentives to people who can create employment. I know that suggesting tax breaks is not welcomed generally in Britain today, but if they are well directed and not open to abuse they can create new opportunities. And I often wonder what the reaction would be to the abolition of death duties (inheritance tax) in Britain. I am sure that it would encourage wealth to be brought back into the country. If you have paid taxes all your life and met your obligations to the community, it just seems totally unfair that you should not be allowed to pass on your remaining wealth to your family, rather than having to hand 40% of it to the Government with no say over how it is used.

There is much to be done, and many lessons to be learnt for other countries out of the positive changes that have taken place in London over 12 months. Let's not waste them.

 

Banking On The Culture

Back in the days ... I know, here I go again into history but bear with me ... your average Bank Manager was considered to be the pillar of local society, rather than the pillock as they are being sometimes unfairly portrayed today (that is, if you can find one!). Banks, or at least those with which I was familiar, had something of an aura about them, and the people who worked in them were respected. You went to the Bank because you needed them more than they needed you. They knew all about you and your business anyway, because it was common knowledge in the town. Everyone knew your business.

If Mrs Jones went to see her Bank Manager it was probable that she would be sat down, handed a cup of tea and given time to talk about her most recent question about investing. The Manager was quite likely to say, "I wouldn't advise that one Mrs. Jones, there will be others". No business for the bank on that occasion, then, and no performance bonus for the Manager for not selling a product! There were no bonuses.

By the time I hit the banking industry as a filing clerk and then as a teller, I used to see my Manager arrive around 10  a.m, do a quick tour of the banking hall, go to his office and read the newspaper before heading off for lunch around 12:30. Return around 2 - 2:30 sign a few papers and be out of the door by 4 p.m. Looks good, I thought, something to look forward to in the future, if I get that far. But the banking industry was way ahead of me. When I first became a Manager I was in the office by 7:30 and left after everyone else had left. Visiting customers in the market, trying to attract new business and build up the existing ones - everything that commercial bankers do today, really. Act as salespeople. But back then - still no bonuses. In Hong Kong your "bonus" was a 13th month payment, paid to all staff, if the Bank had a good year.

But then there was this thing called "culture". The dictionary definition did not really do the word justice. It was rather cold and clinical. I remember an occasion as I had just returned to Hong Kong to take up a new and senior position, being asked by a journalist to define the "culture" of HSBC. It was all about values, discipline, honesty and loyalty. A remarkable lack of "office politics", a cohesion of thought and principles.

And it seemed to be the discipline, and an understanding about doing the right thing not just paying it lip-service, that were keys. About leading by example. Indeed, HSBC was seen by some as being overly militaristic, and was sometimes criticised for appearing out-dated, irrelevant, and less likely to attract the brighter university graduates. Hmm! 

But the outpouring of anger about banks and bankers behaving badly has had me thinking more about what changed. Why, today, do banks find themselves in a dark hole with steep sides and little sign of redemption?

And it seems to me that a negative change in culture is an underlying theme.

Frankly, there were fewer rules in the past because the "spirit" and the " fundamental principles" of proper behaviour were clearly understood. Then came the new rules, followed by the people who spent their time trying to exploit the potential loopholes, and thinking less about what was right or wrong. Or they were trying to gauge just how far over the line they could go without being seriously penalised. So it's the behaviour - the culture - surely.

As banks became larger, usually by acquisition, they sometimes allowed the acquiree to inflict some of their culture on the acquirer so they didn't feel totally shut out of the acquisition process. And if it was a slightly more relaxed culture, what was once rigid and well-defined became more opaque. And if that was acceptable at the top - it was by definition as sure as hell acceptable lower down the organisation. After all, the shareholders wanted ever better returns, the analysts were judging you quarter by quarter, the regulators were not exactly keeping up - and while things were going well, nobody turned a hair.

And as an aside, it is now somewhat interesting to hear Sandy Weill, the architect of mega banks, now saying that big banks should be broken up. Hindsight's a wonderful skill - although I am not entirely in agreement with the concept that big is less safe than small, for a variety of reasons.

But the biggest cultural change of all? Money!

We had got used to the idea of the investment banking community being paid bonuses - but those got larger and larger, as did our eyes at the amounts being paid out. We were used to the idea of dealing rooms being treated differently, and the traders being paid bonuses. But eventually it came to the turn of the commercial bankers - the high street banks - to be paid bonuses.

When the Global Financial Crisis hit us in 2008, we blamed the investment banks for being greedy. Bonuses were huge. Products had been created - in the knowledge they were unsafe - but it didn't matter. It meant money in the pocket of a magnitude unimagineable. 

But here's the final change; the commercial banking staff were becoming eligible for bonus payments. A new phenomena for them, and when there is money on the table for the taking, even if it doesn't match the investment banking pay-offs - what happens to the old style adviser/bank manager I mentioned earlier? It's out of the window with the boring but tried and tested methods, and on with the glitzy "let's sell everything" attitude because it affects my pay!

Yes, it's a generalisation, of course.Not everyone behaves badly, but it doesn't need that many to bring down the walls?

This is NOT all about an unwillingness to progress, or a gripe about bonuses. It is not about analysis, and shareholders and profits and governments and regulators and rating agencies and the media ... it is about behaviour. Plain and simple.

If the banks want to regain some of their dignity and reputation, they will have to consider their culture. And that starts from the top. Visibly.

Sadly, from my perspective, it seems that the investment banking community hasn't changed - and that will be up to their clients, collectively, to make them do so. But for the man in the street, and for the popular media who are busy demonising the commercial and retail banks, they will want to see positive change in their institutions (not necessarily all institutions are tainted), and see a return to a culture with which they are more familiar. 

Bankers - Ready, Aim ....

I must say that entering into the minefield of today's commentary on banks and bankers, might not be the wisest thing I have ever done. But ... let me start with a quotation from one of my favourite text books:

"If it be asked how such evils arise and are developed...they arise from transactions entered upon, either in sheer ignorance or in reckless violation of the fundamental principles of banking; and once entered upon, they develop themselves with fatal swiftness of growth."

                                                                            George Rae "The Country Banker" - Published 1885.

It was many years ago I entered the profession of banking, albeit initially as a filing clerk and through a series of roles at the "roll your sleeves up" end of banking, which eventually led into management I ended up 40 years later retiring with a somewhat better title than the one with which I had started.

When I was growing up (alright then, learning to behave in public), banking was a generally respected profession. But in fairness it was not complicated in those days either, just so long as you knew your customer and could provide - or perhaps refuse when necessary - the services they wanted. When I went on to a career in international banking, it was often to countries where banking was of the more traditional kind. Financing traders, manufacturers, small businesses and keeping safe the money that was entrusted to your care.

But times have changed, and although the excrement has now made physical contact with an electrically- powered oscillating air current distribution device, the current revelations of impropriety are sadly not a phenomenon that has happened overnight.

Like the rapid development of modern devices that have delivered more services to more customers more quickly than ever before, product development on its own was not really going to give you a market lead. Products could be copied quickly enough.

Meantime, shareholders were demanding bigger yields in the face of good results from other industries, analysts were focusing on the quarterly results and penalising those financial institutions that in their view were not delivering - choosing to ignore commentaries from banks who said they were focusing more on, and investing in, the long term. At the same time the financial services industry was being praised by Prime Ministers - Labour's Gordon Brown in particular with a 2007 speech where he told an audience of bankers that Labour aspired to replicate "their success" for the whole UK economy. The same man who said in 2005 that the better model for financial regulation was "not just a light touch, but a limited touch". So even the regulators were complicit in this unravelling.

In fact, if you look at it, everyone has had some sort of hand in either implicitly encouraging or taking a "Lord Nelson approach" (putting the telescope to the blind eye, for those unfamiliar with the story). But with all the opprobrium now being conveniently heaped on banks, bank boards, and bankers - you can bet that there will be many others covering their backsides as fast as they can. 

Since the GFC I have been at pains to point the finger mainly at the unethical behaviour of certain financial institutions - particularly the investment banks. (Interestingly by the way that no heads have rolled in that community). But clearly there have been less desirable elements at work in the commercial banking world as well, and I shall certainly have to be more even-handed in my comments on that score in future.

But while I can understand the rationale for the banks to try and live up to even unrealistic expectations, I cannot condone unethical and underhand behaviour of this nature. Is it criminal? - I am not a lawyer and cannot say, but even unethical people should be expected to bear accountability for their actions.

Of course with the benefit of hindsight, in the comfort of "retirement", it is easy for me to sit here and make condemning noises. I will say though, hand on heart, that if I had come across this sort of behaviour on my watch there would have been some searching questions asked.

I may have been a boring banker, (I always preferred to say "conservative"), but for my own peace of mind and an ability to sleep at night, I preferred it that way.

How the banks are going to restore the public's faith in their activities, I have no idea. Over time, I guess. But I also think you need to keep this in perspective. The reaction in Britain today is to call for "blood". So it was in the USA 2 or 3 years ago, but nothing has happened there. But why just get at the bankers. Has business always been clean and ethical? Have our politicians - not just in Britain always been the pillars of society we would expect them to be - and if caught out were they always punished? Indeed, there is a big campaign going on in Britain at present I believe to try and stamp out the abuse of the welfare system.

Yes, punish appropriately those who deserve it, but were the Banks to blame on their own? I think not, somehow.

 

The ABC of Finance

Now, you may have landed up in this Blog by accident because you were searching Google for something learned or maybe educational, on finance. Perhaps you wanted a forum to exchange views with finance industry participants. Or you may just be curious about the title. Whatever it is, read on. By the time you have discovered it is not exactly what you were looking for, you will have finished it anyway!

But first to the "A". A happy letter - it starts the alphabet, but is now a letter feared in Europe because it is the starting letter of that other "A" word - Austerity. A concept that some European leaders (not that Greece seems to have found a leader yet, following their elections), seem to regard as a recipe for disaster. A concept that politicians from the left seem to find has a particular appeal for their voters, especially those in the "sunshine belt" of the Mediterranean . But I bet those same politicians don't run their homes the same way they want to run their economies. If they want groceries, heating, clothing - they work out what they can afford, and spend within their limits - or close to them. And if times get tough, they cut back on various things. That is austerity, so I wonder which bit of Austerity they don't understand.

They want growth, but they need money to grow and they don't have it. Where does it come from then - the printing presses? Yes, up to a point but then we all know what happens to countries that just print money - eventually it all catches up with them and they enter a period of depression. Worse, much worse, I would suggest than a period of austerity. Oh yes, and another thing, who suffers the most - who has to pay it all back eventually? The children, and their children and inevitably, even their children. What great parents you all turn out to be.You voted for yourselves a comfortable life without having created the means to pay for it but, just like your household bills, they have to be paid eventually.

Sure, some people get it. While M. Hollande may have been victorious, yet the margin was not as large as it could have been, and he only received a little over half the votes which doesn't suggest a landslide, because almost the other half didn't want him! But look at the poll results for the far left. A huge success for them.That should worry Europe!

And has Europe given up worrying about Greece? I saw today that the leader of their far left says Europe would not dare throw Greece out of the Euro. Really? Alexis Tsipras might regret such a bold statement. But once again, did you notice in Greece the rise in popularity of a neo-Nazi party in the polls. Be wary Europe. It does not look good from where I am sitting.

"B" in the Blog title is for Bankers and Brides. Actually, I was originally only going to talk about brides under "B" - and at a safe distance from my daughter who could suffer sense of humour failure if I write this incorrectly, but it was in relation to austerity! My extremely talented and beautiful daughter (what do you mean I'm biased - well of course I am - but she is!), is about to get married - in a couple of months actually. Made a wise choice - Scottish accountant; they don't come much more careful than that - (but good luck son)! I was merely going to say that for weddings, austerity is not a word on the lips of many! But it's worth it - and I am NOT spending more than I saved for the day!

But then my thoughts on brides got neatly hijacked by Mr Dimon and his J P Morgan Chase colleagues, with yet another example of the excesses that continue to give banks and bankers a bad name, reinforcing the view that the profession is run by a bunch of banksters.

One of the greatest critics of new regulations, claiming they stifle business, Mr. Dimon has quickly been "up front" in saying that they got it badly wrong. USD2bn wrong at the last published count, (which is already a lot) although there were some rumours on the street I hang out on that the amount was actually quite a bit higher. Nice of Mr. Dimon though to be so refreshingly honest, and for senior people in his firm to accept responsibility and leave already. But in an honourable house, the buck stops with the boss who should take full responsibility. But then perhaps like the now standard "Murdoch defense", Mr. Dimon was not aware of what was going on!

And as for "C", well yes, China. For the second time in a month I find myself in the Middle East at the request of people there, to go and talk about China. Talk about a region which has strong historical links with the Middle East and Eastern Europe. Links that were put on the back burner during the last couple of hundred years with the rise (and subsequent decline) of British naval and trading dominance, the subsequent rise generally of the West, and then the growth of nationalism in China which effectively closed off the country for decades. The Middle East has the oil and gas and the money. China has money and a work force for hire. Both want to invest, but the trade links are nothing new. It is just a restoration of an old pattern.

As far back as 745 AD, or whatever the politically correct term is now, a census determined that as many as 5,000 foreigners were living in Xi'an, the so-called "eastern terminus" of the trade route from the Middle East. In terms of the difficulties of travel in those days, it represents a large community.

And today, in the North Western provinces of China, written out in this Blog in a six part series starting in July 2009 by younger son Paul entitled "Travels in China", there is still strong evidence of the Turkic minority in China known as the Uyghers. But the links have gone, so I find it fascinating that business people in the Middle East are once again looking eastwards. Wanting to re-establish ties with an emerging China - and othercountries in the region. Deciding that the future is in the East, and in what my colleagues in the PwC bit of my current working life have dubbed SAAAME. (South America, Africa, Asia and the Middle East).

And if you look at the West today, can you blame them for heading this way?

And The REAL Winner Is .....?

On the one hand - Hong Kong, but on the other?? I really must stop sounding like an economist ...

Talk about fluctuations. The early favourite losing almost all momentum from the outset, and even though the gap narrowed towards the end, the clear winner based on strength, skill and tenacity was .... definitely Fiji!

Oh! You thought I was talking about that other event - the annointing of Hong Kong's next Chief Executive? (Well, you can't really call it an election can you, when hardly anybody votes). More about that in a minute.

But over the weekend, Hong Kong was at its best. As a tolerant host of the Cathay Pacific/HSBC Rugby Sevens, welcoming hordes of overseas visitors, some of whose behaviour and habits would seem outlandish but which was all pretty good natured. I have not seen the attendance figures, but I would be surprised if they were not a record. And - yes I am biased - but so good to see the "auld alliance" back together of Cathay Pacific and HSBC - and even better to see helping to present some of the prizes, HSBC's former Chairman Sir Willie Purves whose early involvement in the Sevens set Hong Kong off on the track of creating what surely must be adjudged one of the best Sevens tournaments in the world. No, THE best Sevens!! Hong Kong does it very well, and although our police force were at full stretch on Sunday with the various events going on - they were unobtrusive. Good for them! Good for us!

And for the other event? What was apparently pre-ordained, was not to be.

But after all the shenanigans at least we were spared the ignominy of having re-runs and second votes. And if the outcome was not what you wanted - sorry, that's life. But you know what - having got it over can we just now get on with it? 

That of course is unlikely to happen. Already we have the analysts, the re-analysts, the commentators who commentate on the comments made by the analysts all trying to give their definitive opinions on what happened, what went wrong, what went right, who is to blame. Is it really any surprise that the first four letters of the word analyst are so wonderfully descriptive?

I thought Henry Tang's description of why he didn't get the position were the most sensible of the whole campaign - "I didn't get enough votes". Well said Henry. I think it is a shame that whoever was advising you did such a bad job, and it is also a pity if the powers that be decided to hang you out to dry, in the interests of - well - themselves really.

The facts seem simple:

a)    CY Leung has received the mandate to be CE of Hong Kong for the next five years.

b)    For whoever is paying attention to us - China in particular, the rest of the world, our trading partners, our competitors (think Singapore, think Shanghai) - we need to demonstrate that Hong Kong is somewhere to be taken seriously, and that we have a lot to offer.

c)    We have had an acrimonious and debilitating run up to the events of this last weekend, making us look rather juvenile. We have some ground to recover.

If we want to drive Hong Kong further into "backwater" status, then let's just carry on as we are, but if we have any pride left in our city - and the Rugby events of the last weekend have left a very positive impression in the minds of many well-placed visitors - then now, right now, is the time to move on.

That includes trying to ensure that C Y Leung is willing to fulfill many of his statements, recognising that the "Occupy Hong Kong" movement under the HSBC Building in Central has made its point (apparently - because I never did see the point of it) and it is time to pack up and move "because you are achieving nothing other than making our city look untidy", and learning from the experiences we have just gone through in how to mismanage public relations.

There is much to be done, and as usual - it is up to us! The "blame" games shouldn't even start. What's done is done - get over it. Wouldn't it be nice if for once we could all try and pull in the one direction and to do what is right for Hong Kong? Then we will know the identity of the REAL winner.