Thursday, 26 September 2013

Banking Scandals

‘The public have a sense that advantage has been taken of them, that bankers have received huge rewards, that some of those rewards have not been properly earned, and in some cases have been obtained through dishonesty, and that these huge rewards are excessive, bearing little or no relation to the work done.’

So says John Lanchester, quoting the Parliamentary Commission on Banking Standards in a very readable overview of the mind-boggling banking scandals of recent years.  He categorises them as follows:-

First,  'the biggest of them all, the grotesque toxic-asset and derivative spree which took the global financial system to the edge of the abyss.  ...  The crisis and its consequences are too big to count as a scandal: they’re more like a climate.'

Second, the 'old-fashioned' banking scandals:  'Traders take financial instruments created to control risk and use them to make huge bets; sometimes they do it with their bosses’ approval, sometimes without. That’s just how they roll. Every now and then one of these bets goes wrong on a huge scale. The banks always claim they have procedures in place to control the relevant processes and manage the risks involved, until it turns out that they don’t.'  

There have been two of these recently.  'These losses were caused by Kweku Adoboli, the UBS wunderkind who lost £1.4 billion in 2011, and Bruno Iksil, the ‘London Whale’ at JPMorgan Chase, who in 2012 lost an amount described by his boss Jamie Dimon as ‘a tempest in a teacup’, until it turned out to be $6.2 billion.'

Third, banks wildly over-extending themselves through reckless lending.  The classic case here is HBOS.  'This was a traditional bank failure pure and simple. It was a case of a bank pursuing traditional banking activities and pursuing them badly. ... In other words, the single biggest factor in the collapse of HBOS was simple incompetence. And let’s not forget what happened next: when HBOS was clearly about to go broke, it was taken over by Lloyds, with the encouragement of the government. Unfortunately the extent of the losses was so great they ended up bringing Lloyds down too, and the new combined bank was bailed out by the taxpayer a month after the takeover.'

Fourth, LIBOR manipulation.  ‘This dwarfs by orders of magnitude any financial scam in the history of the markets'.  The full scorecard isn't yet in plain sight as cases wind through courts around the world, but especially in the litigious USA.  Total compensation costs are expected to run into tens of billions.

Fifth, 'sexier forms of overt criminality such as money laundering and drug dealing.'  Standard Chartered and HSBC have both been fined hundreds of millions of dollars in the USA.

Sixth, the RBS back-end payment system implosion of 2012.  The UK taxpayer paid out billions to keep the cash machines open in 2008, then RBS managed to shut them down from sheer incompetence.  ‘Completion of new home purchases were delayed, others were stranded abroad, another was threatened with the discontinuation of their life support machine in a Mexican hospital, and one man was held in prison.’

Seventh, PPI mis-selling.  The costs of this scandal keep going up and the latest estimate is £16 billion.  Lanchester feels this is the worst of all, 'because it involves a more basic breach of what banking is supposed to be about: looking after other people’s money. That’s the first thing that is qualitatively different about PPI; the second is that the misdeeds happened not inside rogue units of these huge global institutions but at the centre of their retail operations. This was an industry-wide, systematic cheating of the banks’ own customers.'

It's well worth reading in full and quoting whenever anybody tries to convince you that a large financial sector is a good thing for an economy or a country.

Friday, 20 September 2013

Keeping Your Suppliers Happy

Managing suppliers is an often neglected part of the financial manager's craft.  Everyone understands the importance of keeping customers happy (provided they pay their bills) but there can be a different attitude to suppliers, who are seen as a necessary evil at best, an annoying distraction at worst. There always seems to be a supplier kicking up trouble for you at the very time when you’re busiest with other things.
The positive side for you is that suppliers only want one thing from you – cash. If you can keep a steady flow of funds to them, they will not bother you.
This article sets out how to look after suppliers in a way that will minimise the distraction and the time spent.  

Key points:
  • Work on your systems to ensure they are as efficient as possible
  • Target a reduction in phone calls received from suppliers chasing money
  • Build relationships internally and externally
  • You may still have to delay payments, but don’t compromise your ethical standards

Wednesday, 11 September 2013

How secure is your data?

The recent revelations of the extent of Government surveillance of the internet have generated much commentary on the implications for individual privacy, as well as coverage of the attempts of those involved with the whistle-blowing to stay out of the hands of the law.  Surprisingly little has been written about the implications for the commercial world.

Firstly, you have to assume that your email and social media traffic is being capable of being read by at least the UK & USA governments.  For the vast majority of traffic, there's nothing that could possibly be of interest.  However, if you have business dealings with the Government, or if you're involved in any activities that may be seen to be on the edges of legality, then you should be worried.  This certainly applies if you're involved in 'tax mitigation' activity.

Secondly, the knowledge about how to crack internet security must be extremely widespread.  Edward Snowden was a lowly employee of a sub-contractor, but easily got to understand the entire scope of the NSA operation.  If someone in a similar position to Snowden decided to just take what he could and sell it to a foreign government, or criminal gang, would we ever know?  The technical knowledge of how to tap into communications must be in the hands of many thousands of people, with worrying implications for the security of corporate networks.

Thirdly, there is worrying evidence of intimidation of journalists going on.  Glenn Greenwald at 'The Guardian' and his colleagues are bravely standing up to this  If other journalists have given in to intimidation, then we probably wouldn't hear about it.  So we have to be sceptical whether we are getting all of the news and information we need in this area.

Fourthly, if you're concerned about data security, you should be very cautious about using products from large American or British suppliers.  Companies with data stored on American servers may well already be in breach of European data protection law.

And fifthly, a whistle blowing policy is essential for any organisation wishing to keep its reputation intact.

There are, I'm sure, many other implications of this affair which should be leading us all to rethink our use of technology.

Friday, 6 September 2013

Collecting Debts From Your Customers

It's a cliché that without cash flow a business will die. Collecting cash from customer is something that every business person needs to be an expert on. This article sets out some practical things you can do to improve your collection process.

Key Points
  • Check out customers before you start to deal with them

  • Understand why customers do not pay

  • Build relationships internally and externally to improve your chances of getting paid

  • Don't be afraid to get tough if a customer isn't paying

Wednesday, 4 September 2013

Why a medieval peasant got more vacation time than you

Reuters report that:

"Life for the medieval peasant was certainly no picnic. His life was shadowed by fear of famine, disease and bursts of warfare. His diet and personal hygiene left much to be desired. But despite his reputation as a miserable wretch, you might envy him one thing: his vacations.
Plowing and harvesting were backbreaking toil, but the peasant enjoyed anywhere from eight weeks to half the year off. The Church, mindful of how to keep a population from rebelling, enforced frequent mandatory holidays. Weddings, wakes and births might mean a week off quaffing ale to celebrate, and when wandering jugglers or sporting events came to town, the peasant expected time off for entertainment. There were labor-free Sundays, and when the plowing and harvesting seasons were over, the peasant got time to rest, too. In fact, economist Juliet Shor found that during periods of particularly high wages, such as 14th-century England, peasants might put in no more than 150 days a year.
... Go back 200, 300 or 400 years and you find that most people did not work very long hours at all. In addition to relaxing during long holidays, the medieval peasant took his sweet time eating meals, and the day often included time for an afternoon snooze. “The tempo of life was slow, even leisurely; the pace of work relaxed,” notes Shor. “Our ancestors may not have been rich, but they had an abundance of leisure.”
... As for the modern American worker? After a year on the job, she gets an average of eight vacation days annually.
... Ironically, this cult of endless toil doesn’t really help the bottom line. Study after study shows that overworking reduces productivity. On the other hand, performance increases after a vacation, and workers come back with restored energy and focus. The longer the vacation, the more relaxed and energized people feel upon returning to the office. "
That should cheer everyone up at the end of the holiday period!  Full article here