Why people are a better brand investment than machines

Today, TSB's 'local bank for local people' claims are looking like a sham.
Photo credit: Gnesener1900

...especially if you are a bank.

A crisis is the one thing which is guaranteed to expose the reality of a brand versus the contrived and manicured fantasy which is used to promote it.

By Neil Patrick

TSB’s chief executive, Paul Pester admitted this week, ‘we are on our knees’, following a failed server migration of 1.3 billion customer records. This has gone disastrously wrong leaving hundreds of thousands of customers unable to pay their bills. Worse, some customers have been able to log into other customer's accounts, see their data and even make payments with other people's money.

The bank's employees have been working day and night to try and help customers solve the resulting problems like paying for their rent and utilities. But as the week came to a close, and despite a team of IBM 'experts' being parachuted in as an elite shock force to assist, the problems were still not completely solved.

Business customers have faced consequential losses such as non-payment of suppliers and non-delivery of goods. TSB staff have been so stressed and frustrated in their efforts to help customers that some have collapsed in tears, saying it's the worst experience of their working lives.

This situation is more than embarrassing and stressful for everyone involved. It demolishes the carefully constructed brand that TSB has been investing in, positioning the bank as one which places people at heart of everything it believes in:



TSB's regulator, the FCA, is now investigating the issue and the Information Commissioner says she wants to know more about potential data breaches. The Government has asked for assurances and wants answers to its questions to TSB. Even when the IT problems are solved, the pain will not be over for TSB.

This sorry tale will eventually become a footnote I am sure, but today, right now, it is fraying nerves and spreading havoc in TSB's customers’ lives. And it seems inevitable that many customers will leave the bank at their first opportunity after this crisis is resolved. For TSB, this disaster looks likely to cost them much more than the £100m of savings the migration originally promised.

Meanwhile in China, the world’s first robot-only bank branch has just opened. This is heralded as an exciting step towards a modern, tech enabled future; a homo-sapien free environment, cleansed of the inconsistencies and inefficiencies which are allegedly the hallmark of humans.

The irony here is that it is the people at TSB branches that are keeping the bank from sinking when faulty technology has dragged the whole edifice almost into ruin.

Banking and IT have an old and awkward relationship.  Banking IT systems are not like apps where glitches can be smoothed out over time. They demand 100% reliability and complete accuracy from the get go 100% of the time. Anything less is a big problem. Building or significantly changing any banking platform is a high risk and demanding challenge.

As we've seen with TSB, government and regulators are today emboldened, swift and merciless when it comes to punishing banks for errors and misdemeanors. After years of a light-touch attitude, post 2008, the climate has changed and banks are today probably the most closely regulated and scrutinized business sector in the UK.

Thirty years ago, banks were early adopters of what we now call data harvesting. This was decades before Facebook managed to finally wake the world to the importance of data security and privacy. Sure, we had Data Protection legislation and regulators. And banks were generally compliant with their data protection obligations. Regulatory enforcements were few and the public’s greatest annoyances were telephone sales calls and junk mail.

But this customer irritation at some of the earliest (ab)uses of technology by banks ought to have provided early warning that a very human-based relationship demanding and rewarding trust was unlikely to be entirely substitutable by anonymous automation. In fact, I’d argue that trust is the number one most essential requirement for a customer’s relationship with their bank.

Yet, this fundamental truth seems to have been ignored in the relentless drive for ever lower costs. The endless push for greater speed, and cheaper services seems to have trumped every other aspect. Especially trust.

In areas such as marketing and loan application processing, banks were some of the first businesses in the world to decide that IT could make faster, more accurate, more consistent and cheaper decisions than their human employees. This led to the steady removal of middle managers and the downgrading of staff until a bank branch was staffed by people who had little more skill than supermarket checkout operators (and similar pay and conditions too).

Now these last remaining humans in bank branches are facing imminent extinction as they too are replaced by robots which don’t go on holiday or demand pay increases (or any pay at all for that matter).

Meanwhile, banks (always some of the most unpopular and complained about businesses), are shutting branches, removing staff, and turning everything digital. This cost cutting is justified in the name of customer convenience and modernisation. And to cement the argument, every senior bank spokesperson will tell us that this is what most of their customers want.

But most is not all. And the duality where banks are simultaneously some of the least-loved businesses while moving ever closer to completely people-free service, is not a recipe to build any sort of customer love and affection.

There is and has been for decades, a space in the market for a bank which recognises that customer service delivered by people to people is an untapped and growing market. TSB recognised this and decided this was their opportunity to command a unique market position. Unfortunately, they forgot that occupying this position demands not just that you proclaim it, but also that you live by it.

Most people require relatively little from their bank. Strong security. Error free payment processing. Good and caring advice. Easy access. Fast and painless resolution of problems. It is hard to see how a combination of branch closures, increased automation and demoralised, low paid staff help deliver these things.

And 'adding value' (sic) by dubious marketing adds insult to injury. Hardly anyone really cares about an extra 0.1% of interest, or free travel insurance, or fancy TV advertising. They do care about being well looked after.

Banking for most people is service they cannot live without. And whilst I don’t think banks can or should be backwards looking, there is a stronger argument than ever for a bank which truly understands they are in a people business. And that investing in people might just be a safer bet than investing in their replacement by machines.

Why we should all be concerned about banking job losses

By Neil Patrick

News reached me this morning that RBS is to make 20,000 (about 20%) of its staff redundant in the next few years. These job cuts will take RBS staff numbers to their lowest level in more than a decade.

RBS is expected to exit its Connecticut-based US investment banking business, as well as shutting down large parts of its Asian investment bank.

 Ross McEwan, Chief Executive of RBS. Photograph: Ian Macaulay/PA

If you are not familiar with RBS, in brief, these job losses and business closures will likely see RBS staff numbers, which stood at 161,000 at the time of its £46bn government bailout in 2008, fall to below 100,000 for the first time since the bank’s 2000 takeover of larger rival NatWest.

Since the bailout, the RBS share price has been languishing in the doldrums:

So what?

You may not care about bankers losing their jobs. You might even think it’s the very least they deserve.

I spent almost 20 years in banking and finance and left it for good in 2004. I cannot claim any great moralistic reasons for this choice or even foresight about the tsunami which was headed towards the sector. No, I was just a bit bored and wanted to do other things. But I have retained an interest in the sector and watched its grisly agonies like a train wreck.

So I feel I have a unique perspective. First inside experience of how banks operate and stage manage their communications and second a degree of detachment which makes me neither sympathetic nor an outright bank hater.

Why this news is significant

The public reaction to this news was even more interesting than the news itself. People’s reactions are shaped by their political and social beliefs more than anything else it seems.

Those of a socialist persuasion see this as some kind of moral victory, but also suspect that these redundancies will be softened with generous exit packages. Those of a more capitalist orientation see it as share price manipulation and the share price did tick up a few points on this news granted. Those who are inclined to a conspiracy view of the world see this news as evidence of yet more government and big business bosses in collusion for their own ends.

I subscribe to none of this positions, though I can see some truth in all of them. What I am really interested in though is what this tells us about the future of work in general.

This is yet more evidence of how technology will continue to destroy jobs for everyone

Buried behind the headlines was this comment:

Project Cook, the internal codename for the plans, will deliver cost cuts which are intended to help fund increased investment on vital IT systems after a series of embarrassing glitches caused millions of the bank’s customers to lose access to their money.

Ross McEwan, CEO, is understood to believe that only increased automation will allow the bank to compete with rivals such as Barclays and Santander UK, which have spent billions of pounds building state-of-the-art computer platforms to offer customers better online and mobile banking services.

This is how the banks frame their statements for public consumption. These headcount cuts are presented as being an investment to enable them to deliver better customer services through more and better IT.

The job cuts are explained as being necessary so that customers and investors can both benefit. Regulators will be happier too as these changes will improve the bank’s capital ratios.

These things may all be at least partially true. But they don’t matter. What matters is that thousands of high paying jobs will be lost and replaced with a combination of technology and lower cost labour. And because similar trends are developing within the rest of the sector and businesses as whole, many within this massive exodus of workers will find nowhere to be rehired.

This accelerated contraction of the banking sector jobs means these people will soon be looking for jobs outside the sector. Which may well mean they’ll be after your next job.

This is why this isn’t good news for anyone.

Is it ageist that you may be turned down for a mortgage because you are over 40?

By Neil Patrick

Daily Mail 25 Nov 2014: “Over 40? Then you CAN'T have a mortgage: Banks are now rejecting borrowers who would still be paying off loan in retirement”.

This headline caught my eye today. And as is often the case with the Daily Mail, it’s a thinly disguised attempt at sensationalism. Nonetheless, I think it is very significant news, but not because of the implied injustices it alleges.

The essence of the "story" is that new research found that people aged over 40 seeking a standard 25-year mortgage are finding their options restricted because (assuming their mortgage runs its full term - which they rarely do) they will be borrowing beyond the “normal” retirement age of 65.

The new Mortgage Market Review (MMR) rules, which came into force in April, mean that lenders have to spend more time considering whether home buyers can afford the mortgages they are applying for. - not a bad thing at all in my view.

The report released yesterday by the Intermediary Mortgage Lenders Association (IMLA) stated that "interpretations" of the MMR have convinced many banks that lending into retirement now carries extra risk if borrowers go on to find that their retirement income is less than expected.

Mortgage lenders have typically applied an upper age limit of 65 for decades now. So this point isn't really anything new.

I think the real story here isn’t about mortgages and whether or not we get accepted or rejected for one when we apply. The simple facts are that lending is and always has been priced according to lenders’ rules around risk assessment. Basically, the higher the perceived risk, the higher the cost of the loan.

But if one lender rejects your application, there will almost always be others that will accept it, albeit at a higher price and/or on different terms.

Banks and lenders get a hard time from the media. Often, it is justified. Sometimes it’s not. In this case, they are damned if they do and damned if they don’t. If they were not making stricter assessments, they’d be criticised for encouraging over-indebtedness. By applying tougher rules, they are criticised for making mortgages less easily available to some people.

So as far as the new assessment rules are concerned, it’s really not a story.

No, the real story is far behind the headlines.

What is significant I think is what this news reveals about how banks currently view the financial prospects for people aged over 40 in the UK.

Looked at in this way, this news is a bombshell.

Forget the MMR rules, this news tells us that as far as the banks are concerned, the income prospects of people over 40 are very weak. Make no mistake, if a bank is happy that you can afford to repay a mortgage or other loan, they’ll be happy to lend you the money (and of course take the interest too).

So the MMR gripes are a smokescreen. And this isn’t a new form of age discrimination.

But it is a very troubling indication, that those whose business it is to understand the outlook for our incomes have decided that despite rising house prices, the outlook for most peoples' incomes remain very fragile indeed.

How a failure in selection processes can bring down a bank

By Neil Patrick

Poor governance allows bad leadership choices. And bad leadership choices risk the destruction of a whole business.

This week has seen the conviction of former Co-Operative Bank Chairman Paul Flowers for possession of class A drugs. Specifically, cocaine, crystal meth and ketamine. The mass media has had a field day with the story, but the scandal isn’t the part of the story I am most interested in.

The most intriguing question for me is how was it that Paul Flowers, who had no experience in banking was ever appointed at all?

This drugs scandal is just the latest in a long series of misjudgements which beggar belief for a man who rose to hold such a senior position.

Here’s an extract from the Wikipedia entry about Paul Flowers:

Soon after the filming of Flowers’ purchase of non-medicinal drugs was released to the media, it was revealed that, while deputy head of Social Services at Rochdale Council, Flowers had known about the activities of paedophiles at a residential boys' school, but had neither informed parents nor taken measures to close the school, was responsible for rejecting allegations of child sex abuse by the late Cyril Smith, and that, in 2011, while working at Bradford Council, "Inappropriate but not illegal adult content was found on a council computer handed in by Councillor Flowers for servicing. This was put to him and he resigned immediately."

Several newspapers reported allegations that he communicated with rent boys using his work email account while he was in charge of the Co-operative Bank, and was convicted of carrying out a sex act in a public toilet. After the bank lost £700m in the first half of 2013, and a £1.5 billion hole in the bank's finances was discovered by the new Chief Executive Euan Sutherland in May 2013, Flowers resigned in June 2013.






At the root of this crisis is bad governance and weak HR

How can it be that a person with such a background was appointed to lead an institution whose core ethos is supposedly based on fairness, transparency and good ethics?

He was voted in unanimously by his peers, but also was judged by the FCA to be a fit and suitable person to be a non-executive director of a bank.

According to some of his former colleagues, the former Reverend Flowers allegedly got the job because he did well in psychometric tests, despite lacking the financial knowledge of other candidates for the job.

Rodney Baker-Bates had experience of banking but lost out to Flowers because of the tests. A review of the bank’s governance decided leadership was more important than financial knowledge.

So Baker-Bates became one of Flowers’ deputies alongside David Davies, both appointed to keep an eye on the chairman and provide financial expertise.

When questioned, they told the Treasury Select Committee that they were ignored, and both said they would quit the board after the lender voted to buy 632 branches from Lloyds in 2012.

Baker-Bates said, “I set out to convince the board that the Lloyds branch acquisition was a giant step too far, and it was over-laid on another major error, Project Unity - which was intended to bring bank and group leadership together.”

How can it be that Paul Flowers passed the psychometric tests?

The most reliable form of psychometric testing, the five factor model (FFM) quantifies the extent of each of these personal characteristics:

• Openness: intellectually curious, prefer variety and novelty, active imagination
• Conscientiousness: dependable, prudent, methodical, achievement striving
• Extraversion: sociable, talkative, excitement-seeking, warm
• Agreeableness: sympathetic to others, cooperative, trusting
• Neuroticism: emotionally unstable, anxious, irritable, impulsive

If such tests were applied properly and evaluated correctly in the case of Paul Flowers, then why was he ever appointed? Someone, somewhere either got this wrong, or was overridden, with disastrous consequences.

What does the future hold for the Co-operative Bank?

Last year the Co-op Bank had to be rescued after it was left with a £1.5bn capital shortfall, with many of its troubles stemming from the merger with the Britannia building society in 2009.

Despite this bailout, the cumulative impact of this mismanagement means the capital position of the bank remains precarious:

This week we learned that the Co-op Bank will pay four of its largest hedge fund and institutional investors nearly £2m to support its £400m capital raising effort to ensure the deal goes through without a hitch.

A failure in this capital raising attempt could potentially bring about the collapse or at least drastic restructuring of the entire organisation.

If the Co-op Bank were for some reason not to be able to raise the money, the Prudential Regulation Authority could put the lender through a wind up process that would likely see it split into a “good bank” and a “bad bank”, with the continuing operations handed to another major lender and the toxic assets put into run off.

So it’s been a tough week for the social media team at The Co-op Bank. And their customers are not impressed with the situation either:

As I have contacts with institutional depositors at the Co-operative Bank, I spoke with them about this today and learned that they are pulling millions out of the Bank as a precaution against its possible collapse. Such a collapse would be a sad end to a once ethical and genuinely different type of bank.

And it can all be traced back to poor governance and leadership selection processes. This isn't the first and it won't be the last example of why proper governance is critical to large businesses. But it is perhaps the best example yet of the catastrophic damage that can be done through the incorrect use of psychometric profiling.

Banker suicides: Why banking is now the most dangerous career choice

By Neil Patrick

I have become fascinated this week by a news story which is being largely ignored by the mainstream media. This virtual news blackout in itself is intriguing. Over the last few weeks, at least five and according to some sources as many as twenty banking executives have committed suicide.

If these people were musicians, actors or politicians, I am sure this story would be front page news.

The facts we know so far are this. In the last two or three months, between five and twenty traders and managers involved with FOREX trading and derivative currency trading have all allegedly committed suicide. Several have thrown themselves from the tops of bank buildings in New York, London and Hong Kong. William Broeksmit, 58, a retired Deutsche Bank risk executive was found dead in his London home in January.

The fact that even the exact number of deaths is so vague is difficult enough to comprehend.

Others with strong connections to investment banking have also met unusual deaths. Michael Dueker, former vice president of the St. Louis branch of the Federal Reserve, was found dead at the side of a highway that leads to the Tacoma Narrows Bridge in Washington state, according to the Pierce County Sheriff’s Department. He was 50.

The cause of his death is still undetermined.

The strangest of these deaths was Richard Talley, a former investment banker with Drexel Burnham Lambert who shot himself with a nail gun at least ten times at his home in Centennial, Colorado.

There is much speculation based on the known facts that these events have occurred at the same time as regulatory agency investigations of fraud, price fixing, and “front run” trading in the FOREX markets and earlier in the LIBOR index.

Ten global banking giants including JP Morgan, Royal Bank of Scotland, Deutsche Bank, Goldman Sachs, Credit Suisse, Lloyds Banking Group, and others, have found themselves subject to criminal investigations.

Some are attributing the cause of these deaths to high levels of mental stress within the industry. I find this difficult to accept as a plausible explanation. Sure, I know these guys work crazy hours and have huge pressure to perform. And I am sure that many are finding the regulatory investigations extremely testing. But if job-related stress is the cause, why would we see so many more or less simultaneous suicides?

Stewart Black, professor of global leadership and strategy at IMD, the top business school in Lausanne, Switzerland said that the people at greatest risk are “those who have not cultivated friendships and networks outside of their company. A lot of executives keep their nose down, work hard, do great work and don’t really cultivate extra networks,” he said. “Those broader networks act as safety valves.”

A more interesting source of comment is Peter Rodgers, chairman of the City Mental Health Alliance: “Banks are starting to realize the scale of the problem”, he said. Membership of his group includes Morgan Stanley and Bank of America.

Is this a clue? Are these ‘independent’ respected commentators being used by the banking industry to deflect suspicion away from what is really going on?

If simple stress and overwork is the true explanation, why haven’t we seen a steady trickle of similar suicides over the last few years? Why didn’t we see similar events during the meltdown of 2008, which was arguably the most traumatic year ever for the big banks? And why would those no longer actively working in the sector also be killing themselves?

JP Morgan, which has had at least two suicides so far this year, isn’t a member of the City Mental Health Alliance and hasn’t publicly announced measures to deal with the aftermath of the deaths.

“JP Morgan haven’t come forward to us and we haven’t approached them either,” Rodgers said. “There’s a period of mourning. The last thing they need is us sticking our heads in. I’m confident they will come forward.”

The ‘alternative’ financial media is having a field day with this story as you’d expect. Conspiracy theories are running amok and all sorts of ‘experts’ are being called on to provide their interpretation of what might be going on.

They knew too much. They were possible whistle blowers, they had sudden attacks of conscience or guilt as a result of the regulatory investigations. All these theories and more are being put forward.

And of course as usual, the most extreme of them all is coming from Max Keiser, whose commentary is in this clip. I have a feeling this story has far from run its course.

How to never lose your job (a reprise)

By Neil Patrick

In January 2009, Grant Cardone put up an article in the Huffington Post with this title.

To put that date in perspective, this was about one year after the start of the global financial crisis and 8 months after the collapse of Lehman Brothers.

I agree with some of his observations, but we now have the benefit of hindsight on events which have seen the unfolding of the worst financial and economic crisis since the 1930’s.

And this has shown that Grant’s viewpoint fell way short of the mark. Even in 2009, it should have been apparent that we were dealing with something other than a cyclical recession. We were (and are still) dealing with a systemic collapse.

So let’s take a look at what he proposed. He said:

There are two groups of people that will never be without work;

1) those working for companies and in industries that are selling enough product to keep them profitable.

2) Those people within those companies that contribute to the selling, yes the selling, of the products and services of that company.

Those that are able to drive revenue through the selling of the products and services of the company are the most needed and valuable people in that company. Warning: Assist the company you work for in bringing in revenue (selling products and services) or you are at risk of losing your job!

Fair enough, but to say such people will never be without a job is a massive over-generalization. And he hinted at this when he continued:

The question is, who will lose their jobs and who will not? If you notice the people that are losing their jobs today are attached to companies that are failing! Note - if the company doesn't do well, make profits, jobs are lost! (my emphasis). The next level will not be from failing companies but from those companies that don't want to fail! (sorry Grant, but I never came across any company that wanted to fail).

What he missed was the fact that (and I don’t care about the labels that economists apply here) we are not dealing with a recession, when everything gets tough for a while and then bounces back. In a recession, companies make less profit and have to scale back some of their expenditure, whilst trying to lift revenue.

Today is different. We are dealing with a systemic collapse. And in a systemic collapse, companies don’t just struggle, they die. In large numbers. And people's jobs die with them.

And whilst companies are failing every day, that’s a symptom not the cause of the problem. The root of the problem is massive over borrowing by western governments. Plus endless QE programmes by central banks that continue to deflate the value of our wealth and earnings. Plus much needed, but unaffordable healthcare programmes. Plus an ageing population. Plus soaring food and utility costs. Plus rising house prices at least in some regions thanks to misguided government interventions (yes, that’s you David Cameron).

Compared to this, the problems faced by businesses are miniscule.

The massive and naive gamble of western governments is that while contracting government spending, they can simultaneously boost the growth of private sector businesses. And it’s just not happening. Because governments are useless at this. They launch expensive initiative after expensive initiative. Every one sounds great with all the spin at launch. And then a year or two later they are quietly shelved when surprise, surprise they didn’t work.

So we are trapped in a Catch 22.

Western governments cannot spend their way out of recession. Their currencies are losing value and their assets are dwindling whilst expenditures continue to soar. Government bonds (misleadingly also called gilts) are showing diminishing yields as investors place less and less faith in the security of such instruments.

You only have to look at the situation faced by Portugal, Ireland, Greece and Spain to see what happens when a government’s borrowing options dry up.

But back to Grant:

Those that will never lose their jobs are those that go beyond the normal expected responsibilities and the duties of their post. Those that creatively extend themselves and take responsibility for assisting the company in revenue creation will never be let go. The job of selling the products and services of the company you work, will no longer be left to the sales force but become the responsibility of everyone that desires to continue to work for that company.

Sorry Grant, this may be true in a recession, but it’s just wishful thinking in a systemic collapse. It is of course also completely irrelevant if you work in the public sector where revenue generation is completely disconnected from the success or otherwise of your employer.

What happened to all those top selling people at Lehmans, at Bear Sterns, at MF Global, at Northern Rock? That’s right they lost their jobs with everyone else. And the subsequent devastation of the whole financial sector meant that only a minority could expect to find another similar job with another employer. And if you think that banking is not typical of the world of real jobs, what about all those folk employed by Detroit City who lost their jobs and/or pension rights? What about all those staff at Woolworths, Borders, Aquascutum, Comet and countless other retailers that have gone bankrupt?

So if no-one’s employment can be assured anymore, what are we to do?

The first fact to get a grip on is that there is no such thing as a secure job anymore. It makes not a bit of difference how good you are or how hard you work, your future is never assured. So despite Grant’s opinion, my belief is that not even the best sales people in the world can count on anything anymore.

Second, if you accept this first fact, you need to be preparing right now for the day when you lose your job. That means getting your borrowings down as much as you can and building enough reserves to ensure you can survive for at least 6-12 months with no income. At least then you are giving yourself enough time to hopefully find another job somehow.

But what is a job? Essentially it’s the means by which you earn the money to live and hopefully enjoy your life. And being employed by an organisation is only one of the ways you can do this. The numbers of entrepreneurs in their middle and later years are soaring right now. And whilst many report that they don’t earn as much as they used to, almost all report that they are happier and more fulfilled than when they had a ‘normal’ job.

All this means preparing yourself for the possibility especially if you are over 50 years old that you may never get another job again. But that’s not necessarily as catastrophic as it sounds. It might just be the greatest opportunity of your life. And this is how you can make sure you never lose your job, because you will own your job and your vision for your life goals. Not someone else’s. But you should be thinking about it right now and doing what you can to start developing your ideas and plans, because when the hammer falls, your clock will be ticking…

USA: The jobs crisis carries on and our ‘leaders’ have no solutions

By Neil Patrick

I get really cross when I read pronouncements from regulators and bankers about the recession. The members of both groups are securely cosseted from actually feeling any of the real effects themselves. And each blames the other for the crisis. Regulators blame poor bank governance, bankers cite excessive and disruptive government interventions.

I believe both are right actually. It’s not rocket science to work out that these are not mutually exclusive. One does not preclude the other.

It’s actually a rather cosy mutual support mechanism, enabling each to pass responsibility to the other, whilst happily continuing to pursue their own self-interest.

But we need to look forwards not just backwards to restore growth to the US.

On Sunday, the former Federal Reserve Vice Chair, Roger Ferguson admitted the US economy is still suffering "lingering effects" from the financial crisis. Growth he said was too "modest" to bring down unemployment or increase labor force participation at a satisfactory pace.

(Well said Roger; we hadn’t actually noticed that).


We need to remind you who the bad people are (and that’s not us).

Of course, Ferguson did not offer any monetary or fiscal policy prescriptions for accelerating economic growth as he accepted the National Association for Business Economics' annual Adam Smith Award. Instead, he focused on the need to restore public trust in the financial sector and to improve corporate governance.

(That’s right Roger, this recession has nothing to do with out of control government debt, it’s those greedy heartless bankers we need to blame).

Ferguson has been mentioned as a possible successor to Ben Bernanke. Currently president and CEO of financial services firm TIAA-CREF, Ferguson told the NABE's annual meeting "we have continued on a path of modest growth in the U.S., and while we all would wish for more, it is a far better scenario than we might have imagined five years ago today."

(That’s really great news Roger, thanks).


Of course we cannot risk upsetting the (massively overvalued) equities markets…

He also said the "still-modest growth" pace - 2.5% in the second quarter but less than 2% so far in the third quarter - should not be viewed as acceptable. He said, “it serves as a reminder that today, five years on from some of the darkest days of the financial crisis, we continue to deal with its lingering effects."

"The unemployment rate remains stubbornly high and labor force participation low. The markets have been volatile in the face of concerns about the Fed's tapering plans."


…much better to continue devaluing the dollar

Although he mentioned concerns about the Fed "tapering" its large-scale asset purchases, Ferguson did not say how he thinks the Fed should proceed in scaling back its $85 billion a month in "quantitative easing" or how monetary policy could be applied to stimulate growth.

Rather, he said "it would be wise to turn our collective energies to ensuring that we never have to endure a crisis like that again."

(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).


And the solution is…lots more regulation

Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."

(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).

"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.

The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.

(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)

Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."

In saying "weak corporate governance" lay at the root of the financial crisis, Ferguson was referring to, among other things, commercial banks' increased "involvement in risky trading activities; growth in securitized credit; increased leverage; failure of banks to manage financial risks; inadequate capital buffers, and a misplaced reliance on complex math and credit ratings in assessing risk."

(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).


We’ll tell you how to run your business

Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:

"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...

"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...

(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).

"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."


I apologise for my mockery of Mr Ferguson,but…

Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.

We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.

Update - Government robs citizens of Cyprus

UPDATE Monday 25th March

By Neil Patrick

I've just watched the President of Cyprus announce that a deal has reached with the ECB to bail out Cyprus. Eurozone finance ministers have agreed a 10bn-euro bailout deal for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.

Since the final shape of this deal has been under discussion for a over a week now, the terms are somewhat different to how they were mooted when I reported below. But the ethical fundamentals are unchanged. The Cyprus government with the ECB holding a gun to its' head, is now robbing its' banks and citizens directly. They have attempted to avoid inciting the mass of the electorate by applying a cap, so that only those with significant sums on deposit pay for the politicians' errors...the people who are the least unlikely to incite civil unrest in other words...

Laiki (Popular) Bank - the country's second-biggest - will be wound down and deposit-holders with more than 100,000 euros ($130,000; £85,000) will face big losses. However, all deposits under 100,000 euros will be "fully guaranteed". On the face of it, the better off citizens and corporates will pay, and the less wealthy will be protected. For now.

But think about it - £85,000 isn't a fortune. Plenty of people who have worked hard all their lives and paid their taxes are about to be robbed by their government to pay for the government's errors. It's more than a disgrace, it's a terrifying portent of what we can expect to see repeated again and again in the coming months and years.

I don't see this as a rescue. I see it as a small scale test of a new and very troubling development in the evolution of 'democratic' governments' interpretation of democracy and their legitimate authority.

IMF head Christine Lagarde said the bailout deal agreed was "a comprehensive and credible plan" to help restore trust in the banking system. Cypriot Finance Minister Michalis Sarris said he believed the possibility of bankruptcy had been averted. Christine Lagarde is of course desperately trying to shore up confidence in the Euro, whilst the Cypriot Government have found a scapegoat in their banks; an easy and popluar target to divert the blame to.

Cypriot officials meanwhile have warned the island faces a deep recession with many businesses to shut. The mood of Cypriots seems to be relief that whilst this is bad, things could have been much worse.

Give it time...

Meanwhile the content of Stefan Molyneux's video below seems even more relevant and justified now. So if you've not seen it have a look now with the luxury of hindsight...

Once again, my intention to post about the jobs crisis has been overtaken by news that is so astonishing that I had to report on it immediately. I have long believed that the populations of western democracies live under the illusion of freedom. But this isn’t a philosophy blog, so I’ll not expand that idea here and now.

Something has happened now though that is yet more evidence of this idea as reality. And it’s a profound and shocking example of what we can expect to see more of in Europe as the Eurozone farce unravels. Rather than inflating the currency, which was the pre-EU strategy, the Cypriot government has decided to adopt a more obvious form of theft by taking money directly from its citizens’ bank accounts.

A €10 billion EU bailout required a 9.9% tax on anyone with deposits greater than €100,000, and 6.75% on those less than €100,000. Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries.

The president was elected weeks ago partly because he ruled out any kind of wealth tax. According to one report, the IMF and EU were originally demanding a 40% wealth tax on bank account holders in Cyprus.

What is so wrong with Cyprus? Unemployment is half that of Greece and Spain and debt to GDP is 87%. The US has a debt to GDP of well over 100%.This is economic imperialism, a fundamental breach of property rights, dictated to a small country by foreign powers.

The European Central Bank has no money, it's exchanging paper for assets.

Cypriot banks got into trouble after losing €4.5 billion on their Greek government bond holdings after Euro zone leaders decided to write down Greece's debt last year. The Cypriot president said if he hadn't accepted the tax on bank deposits, the European Central Bank would have stopped providing emergency funds to the country's top two lenders which would have led to the collapse of the banking system, the bankruptcy of thousands of small businesses, massive job losses, and ultimately the country's exit from the Euro.

You may well have caught some of this news in the mainstream media, but as usual, I went looking for a deeper analysis and I am pleased to share here Stefan Molyneux’s excellent evaluation and commentary.

Stefan Molyneux is the host of Freedomain Radio, the largest and most popular philosophy show on the web - http://www.freedomainradio.com

Deutsche Bank seeks older women to change culture, improve reputation

By  Kai Pfaffenbach

FRANKFURT (Reuters) - Deutsche Bank is on the lookout for mature, tech-savvy women who it thinks will be better team players to help change its corporate culture and rebuild its reputation in the wake of the financial crisis.

The bank is being forced to rethink the way it does business after short-term bonus incentives led to risky deals which hurt profits. Deutsche is also being probed by regulators over possible rigging of the Libor benchmark international lending rate and for the way it sold toxic assets to investors.

"You could say having trustworthy bankers is enough to rebuild trust in the banking industry," said Stephan Leithner, Head of Human Resources and Compliance at Germany's flagship lender. "It is not enough. In future you need to have other qualities."

"Let me be provocative: The banker of the future will be more female, more international, older, more team oriented and more mobile, and needs to enjoy working with technology," Leithner told a seminar for young high-potential bankers in Frankfurt on Wednesday.

By 2018, Deutsche Bank said in September it wants to raise the proportion of female staff in senior leadership positions to 25 percent from around 17 percent in 2011. It is also seeking to raise the proportion of women in overall leadership positions to 35 percent by 2018 from around 29.7 percent in 2011.

"In many situations, female staff contribute toward team orientation, partnership and long-term sustainability," Leithner, a former co-head of corporate finance said.

Deutsche's move to promote female employees comes as German Family Affairs Minister Kristina Schroeder renewed her push to introduce a quota for women in management positions.

Schroeder has proposed a so-called flexible quota legally obliging companies to set their own benchmarks. Sanctions would be imposed if they missed them.

In the future, Deutsche Bank will also tend to employ older, better educated staff, Leithner said.

"Bankers need to be more educated and spend more time learning. It means that many people will be asked to re-invent themselves," Leithner said.

Technological know-how is growing in importance, Leithner added, as clients are demanding access to bank services over different technological platforms and new regulations are forcing lenders to raise risk-management capabilities and control systems.

Around 25 percent of staff at Deutsche Bank are already working in jobs involving technology such as payment systems, Leithner said.Staff who are international and have moved around in different departments have good opportunities at Deutsche, Leithner said.

Last month the Frankfurt-based lender which has around 100,000 employees, said it will cut 1,993 jobs by the end of the year and overhaul its businesses to see if products and services add value for the real economy, whether they eat up too much capital, and whether they throw off enough profit.

Banks remain years away from developing business models that will produce sustainable profits, according to a report by consultants McKinsey published in October.

It said return on equity - a key measure of profitability - fell to 7.6 percent for global banks last year, well short of their 10-12 percent cost of equity.

(Reporting By Edward Taylor; Editing by Elaine Hardcastle)

http://articles.chicagotribune.com/2012-11-21/business/sns-rt-us-deutschebank-personnelbre8ak0qz-20121121_1_deutsche-bank-stephan-leithner-change-culture

Switzerland: More banking jobs to be axed - why it matters (revised)

By Neil Patrick

Credit Suisse cuts 300 Swiss jobs in local units merger

Here's more on the unfolding crisis in Swiss banking from my newsfeeds. Whilst 300 jobs being lost in the retail arm (ie. the 'everyday' banking operation, not the investment banking arm) of a major Swiss bank may not cause you any personal sympathy or worry, it's the implications which concern me. Until now, Swiss business has been more or less blissfully immune to the rest of the western world's economic woes.

You may very well not have any sympathy for these people; you may even think it's no less than what they deserve. But I think that misses the point (personally I do not think the people who serve me at the counter in my bank have any responsibility for the actions of other parts of their organsation and they certainly haven't ever been rewarded with big bonuses or even remotely generous salaries).

No, my concern is that if even the Swiss economy is now starting to wobble (as I reported here last week), it's a worrying sign that we are moving one step closer to the global economic meltdown I describe here

By Katharina Bart

ZURICH | Fri Nov 9, 2012 

(Reuters) - Credit Suisse (CSGN.VX) is to merge its retail and private banking arms in Switzerland from January, cutting 300 jobs at the Swiss bank to save 50 million Swiss francs ($53 million).

The restructuring is part of an extra 1 billion-franc cost-cutting campaign announced by Credit Suisse two weeks ago as it seeks to boost profits and strengthen its balance sheet.

The current head of Swiss retail operations, Christoph Brunner, will lead the streamlined unit, the bank said."I am convinced that we can fulfill our performance promise even more effectively with this move, ensure we are close to our clients, and ultimately secure and expand our market position," global private banking head Hans-Ulrich Meister said in a memo to staff seen by Reuters.

Meister's move will feed fears of a widening cull of Swiss bankers after domestic rival UBS (UBSN.VX) said last week that 2,500 of an overall 10,000 job cuts will be made in Switzerland.

UBS is winding down its fixed income business and returning to its private banking roots.

Julius Baer (BAER.VX) is also expected to cut some jobs in Switzerland as part of an overall reduction of 1,000 jobs, as it seeks to rein in costs following its purchase of Bank of America Merrill Lynch's (BAC.N) international wealth management business.

At Credit Suisse, Rolf Boegli, who is currently operating chief at the private bank, will lead a separate unit serving ultra-wealthy clients in Switzerland - typically those with more than $50 million in bankable assets - as well as asset managers.

The current head of private banking in Switzerland, Arthur Vayloyan, will leave Credit Suisse, the bank said. Vayloyan wasn't immediately available for comment.

Credit Suisse is targeting 4 billion francs in cost savings by 2015, up from a goal of 3 billion francs it set in July and an earlier figure of 2 billion.

The bank, which is already cutting 3,500 staff or 7 percent of its workforce, said job losses would be inevitable to achieve the extra savings, but until now have not detailed how many more staff would go.

"The lack of far-sightedness surprises us, given banks tend to be very resourceful when it comes to maximizing their profits," workers' lobby group Employees Switzerland said in reaction. ($1=0.9477 Swiss francs)

http://www.reuters.com/article/2012/11/09/us-credit-suisse-idUSBRE8A80U620121109

Swiss bank (UBS) results and why these affect you (pt2)

After my post this morning, I have been following up on the news that UBS, Switzerland’s largest bank is to cut its global workforce by 10,000. If you read my last post, I tried to explain why I think that is bad news for all of us, not just the Swiss.

I won’t get into the argument here about ‘greedy bankers’ and the rights and wrongs of government bank bailouts. More than enough has been said already about that.

However here’s a Euro News report today with more on this story.

UBS blazes lone banking trail | euronews, behind markets

What interested me was that the news about UBS job losses (not to mention the £1.43bn losses in the 3^rd quarter) resulted in a massive boost in the UBS share price. Shares in the bank closed up more than 7% in Zürich, the highest riser on a falling SMI.

Apparently, the idea is to reorient the bank around its core activities, which internationally means wealth management that reaps double-digit returns. In other words, selling more stuff to the super rich.

Now I should point out I am not an outright bank hater. In fact I have worked for several of the world’s largest banks - although I left the sector in 2004 and alot of 'very bad things' have happened since then.

That said I am seriously troubled by this news. I am also astonished that banks continue to pay huge bonuses in their investment banking businesses. In my view, the traditional arguement that you need to pay big bucks to get the best talent simply doesn't hold water in today's economic situation. Even if this argument did stack up, the fact is that the banks have lost the trust of the public.More than ever, they need to rebuild this trust if they are to have sustainable businesses in future.

But back to UBS. In essence, the only winners here are the investors. The losers are everyone else including a large number of highly paid investment banking staff. These folk will find it very tough to get new jobs (which depending on your view about the banks' behaviour and culpability, you may or may not care about).

If an office full of investment bankers shuts down, there are a huge number of other people who risk losing their jobs too - staff in the local restaurants and shops, right through to the German car worker, the Italian hotelier and the Japanese TV manufacturer.

But what really worries me here is that these developments are increasing wealth inequality.

Many studies have proven that it isn’t absolute wealth or poverty which creates social tension and misery, it is the relative levels, i.e. the size of the inequality between the richest and the poorest in any society.

Just about the only people who will benefit from this news are the super rich, who have just become richer.The small investor who has a few hundred or even a few thousand UBS shares won’t really be affected by this. But if you hold say a few million UBS shares, you’ve just had a great day (assuming all you care about is yourself).

So I hope you can see how this news means we are increasing wealth inequality further.

Whilst the super rich just got richer, everyone else, from the waitress at the restaurant, to the car worker in Germany to the very highly paid investment bankers and their staff, just got a whole lot poorer. Whilst that is bad news in itself, the wealth gap just got bigger too and the global economy took yet another knock back.

Switzerland is stalling and this affects us all

This morning, I fully intended to write about technology and how it provides opportunities for the over 40’s to redesign their lives and financial prospects way beyond what most can imagine.

But then going through my newsfeeds I was hit by some astonishing news which just had to take precedence. So the technology opportunities piece will have to wait a day or two…

Whilst this is about Switzerland, in my view, it is news of global significance. 

I have some connections with Switzerland. Not least is that my younger brother lives and works there, employed by a major US multinational. So I have spent a reasonable amount of time in that beautiful and prosperous country, soaking up the spectacular landscape, the historic buildings and the clean and efficient environment. A couple of years ago on my last visit, when the US and UK were already in recession, the Swiss would just shrug and say, ‘What recession?’ 

Then almost simultaneously this morning, I caught two news stories. The first was that UBS is cutting 10,000 jobs as it looks to drastically shrink its ailing investment bank. 2,500 jobs will go in Switzerland and 7,500 in the UK and US.

UBS is Switzerland's biggest bank and announced the plans as part of its third-quarter results which revealed a loss of 2.2 billion Swiss francs (£1.43bn) yes that’s right £1.43 billion!, compared to a profit of 1.02 billion (£0.67bn) in the same period last year.

UBS said the result for the July-September period was damaged by a one-off charge of 3.1 billion Swiss francs (£2bn) linked to the restructuring of its investment banking division and a debt-related charge of Fr863 million (£574m).

So possibly, just possibly, these results are one-offs due to the restructuring.

But then, this news was supplemented by more news that Swiss manufacturing is entering a slowdown due to reduced demand in the Eurozone. Here’s an extract from the Fox News report:

Employment prospects in Switzerland's industrial and banking sectors are likely to worsen in coming months as faltering economic growth in the Euro zone damps demand for Swiss goods and services, according to a survey released Monday. The employment indicator compiled by the KOF economic institute has held below the growth threshold in the third and fourth quarters of the year, suggesting a "stagnation of the Swiss employment trend in the coming quarter, with the industrial and banking sectors hardest hit”, it said Monday.

Read more: http://www.foxbusiness.com/news/2012/10/29/swiss-job-outlook-sours-as-weak-eurozone-hits-demand-survey/#ixzz2Amf6cqqS


When a previously immune and secure economy like Switzerland falters, I think it’s a sure sign that we are in deepening trouble.

So why is this news of global significance? Because it points to at best further stagnation and at worst a meltdown of the global economy.
 
The big Swiss banks and manufacturers are global businesses. Their employees are all over the world. And when these businesses struggle, so do their employees; and the businesses where those employees spend their incomes are damaged too. It’s a trickle down effect.

It gives me no joy at all to report this news. The one thing I do know though is that the survival strategies I describe in my report here are becoming ever more relevant to more and more people.