Looking ahead – and back

Just back from two weeks of annual leave and I found 670 new emails in my inbox. That’s 47.8 emails a day including Saturdays and Sundays. No wonder I sometimes slack off emails – you’ve probably seen it in my blog. So I’m still digging through. I spent some time in Denmark with the family (and secured a nice tan there) and also some time at home in Edinburgh. With the various festivals on full speed there’s always something to do in Edinburgh in August. In fact there’s always something to do in Edinburgh.

While I’ve been off I have of course still kept up with the news: Barclays’ positing a 8% increase in profits, but with an increase of £2bn of toxic debts, and RBS a deceptive plus for the first six months of 2009. Unlike Barclays, RBS is still expecting more sever write-offs as a consequence of toxic debt. Barclay’s result has of course sparked the discussion about bonuses again but they have cleverly put off that decision until end-year. is that in the hope that things will look much brighter then and we won’t notice some big bonuses? I don’t know. The problem about bonuses is that in the past they were not based on proper measures. A bonus is can be OK if it is based on proper principles. The thing is of course that the UK taxpayer owns RBS to a very large extent so big bonuses are probably not on the agenda here, while Barclays decide for themselves. Or rather the shareholders do. Barclay customers can of course vote with their feet. A plus is that the housing market seems to be picking up but the problem is that mortgages are difficult to secure and many business fail to secure necessary capital. Therefore the job market is still a major problem and we will see small businesses failing because banks are taking the opportunity to right past wrongs and stock up. Have you noticed that although the BoE rate is at an all-time low of 0.5% fixed rate mortgages are still at min 3.5%. Speaking of margins!

Quite apart from this I do have my eyes on other things as well and I note that ‘my’ new MBA class will be here in less than five weeks, so many interesting people will come to Edinburgh very soon and hopefully create the usual close-knit network. At the same time the incumbent class is working on their final projects while at the same time keeping a keen eye on the job market. It is looking rather difficult and I think one has to accept that for the time being the job market is very much of a temporary nature with contracts and internships dominating. BW had some good advice on how to turn an internship into a job; basic advice really but it’s always good to keep these things in mind.

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Unexpected fall-out of bonus reductions

I saw in the paper this morning an, to me, unexpected fall-out of the slump in City bonuses: a number of divorcees are approaching their solicitors/ ex-spouses with a request to renegotiate divorce settlements. These of course have been negotiated with the expectation of solid bonuses that are now not forthcoming.

This though is probably overshadowed by the expected but, even so, scary record loss reported by RBS: £24.1 billion! This is the worst business loss in UK history – those record numbers just seem to pop up all over the place these days. £16.2 billion was caused by “must have” ABN Amro, this certainly have proved a costly decision and made despite several warnings. (I wonder why the word ‘irresponsible’ keeps popping up in the back of my head.) The plans are that the taxpayers are to cough up with another £25.5 billion and in return we get all the toxic waste from RBS. Hmmm….

Bonuses and other stuff

Entirely as expected we now see increased focus on the bonuses offered by the FSA in the UK.  You will remember that I referred to the remuneration scheme at the FSA in my last entry, all boiled down to meeting objectives, contribution to success and goals and a behaviour valued by the FSA.  If I can be cynical – I wonder what successes might be rewarded this year?

Don’t get me wrong.  I don’t begrudge the lowly paid minions their bonuses.  They have had no opportunity to do anything about the mess we currently find ourselves in, and their private budget would collapse without this bonus.  But should we pay fat-cat bonuses to people who already take home enormous salaries and who had the knowledge about the imminent mess and did nothing about it?  But yes, we can go on and on about past mistakes.  This is only good if we learn from it so can the bonus system undergo a major re-haul in the next 12 months please?

I was just leafing through my diary this morning and I realised that I will be sending off my students on the MBA in International Business on their exchanges in about six weeks time.  Yup guys, just another six weeks to go before you are off.  Amazing how time flies when you are having fun.  After the exchange comes the internship and then the dissertation, and the sad fact (for me anyway) is that some of my IB students will not return to Edinburgh after 1st April. After the dissertation they will fact-track into their (new) careers and be far too busy to attend graduation.

At the same time as writing this I am of course in touch with and assessing applicants from all over the world who want to come here in September and this just goes to show the cyclical nature of life in the MBA provide lane.

Bonus or no bonus?

Love it or hate it but I do have to touch upon the issue of bonuses in the banking world. This is so to the fore of peoples’ minds in the UK, especially because a certain bailed out bank has been reported to preparing to pay £1bn in bonuses. Yes, it is RBS I’m referring to.

A reaction to this from the FSA’s new chairman, Lord Adair Turner was that it was necessary to ask important and difficult questions about the bonus systems found in the world of banking. The view was echoed by the PM, Gordon Brown who referred to certain unacceptable features of the bonus system. A system that could be seen not to reward long-term benefits and growth but rather short-term and risky behaviour. Lord Adair Turner went so far as to say that the FSA could penalise banks who pay bonuses that encourage the wrong kind of business.

Let’s pause and look at the remuneration scheme at the FSA. Here we see rewards related to meeting objectives as well contribution to success and goals. So far nothing very different from the banks and this is the same for the criteria for annual bonus rewards – performance and delivery. But then we get to the third point: “demonstrate the behaviours we value.” I expect/hope that these values are made clear by the FSA.

And that is the point really, are the values of the company made clear? Apparently the values of certain banks until now have been gains for the sake of gains but nothing about the nature of these gains. So yes, a revision is essential.

So now many people in the banking world now fear for their bonuses and that is fair if you are on the low rungs of the ladder and need the bonus to balance your personal books at the end of the year. But the fact-cat bonuses? No, I can’t support that.

KPMG thinks it unlikely that the regulators will want to instill rigid models but do expect pressure on the bonus scheme and foresee big changes to these schemes in the future. Some experts expect to see more bonuses paid out e.g. in the form of shares that cannot be sold for several years and this I suppose could instill in employees an interest of that of the shareholder who is often in the ‘game’ for long-term gains.

A personal closing note: I am a taxpayer of the UK and I bank with one of the bailed out banks that may use my tax money to pay fat-cat bonuses. Will I choose to take my business elsewhere if they persist in that? I am very likely to.