Lloyds Rights Issue

Maybe you saw that Lloyds is embarking on a £13.5bn Rights Issue. If you already own Lloyds shares you will be given the option to buy 1.34 new Ordinary shares for every 1 you hold, at 37 pence each.  One might expect that Lloyds would be looking for additional funds after the HBoS take-over that was encouraged by the UK government.  It has since then emerged that the value of HBoS was inflated by a secret loan made by the Government and also that apparently Lloyds chief executive and the former chairman both knew about the secret arrangement. This was not disclosed to the investors during the time of persuading that a take-over of HBoS would be a good idea. With this loan, and another such secret loan made by the Government to RBS, having been repaid early this year it is not surprising that funds are low. No, I’m not going to refer to bonuses again…

My MBA class is now busy with the Integrative Project that sees them competing against each other in a virtual market – lots of hectic decision-making and, dare I say, a bit of industrial espionage taking place! After that we have a week of revision before the exams. And then, before we know it, it is time to pack our bags and set off for the Christmas break.

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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.

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….

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.

The 44th “Mr President”

As I write this I have one eye on the live coverage on the BBC of the inauguration of Barack Obama.  So many people and such celebrations. The oath taking is in progress and you can almost see people’s lips move in sync with the oaths.  You can also see the nerves kicking in, as Mr Obama has to be reminded of the words.  And now the citizens of the United States of America have their new president.   So much hope is attached to Mr Obama’s presidency; time will show how he manages.

Last night and this morning I also had an eye on the share price of RBS.  After the predictions of a record loss RBS shares plunged 67% yesterday.  They have moved up a bit today but investors remain nervous because other UK banks have dropped as well.  The record loss to a large extent stems from the sub-prime market and the acquisition of ABN Amro.  An acquisition that took place despite much concern about the profitability of this.

A different kind of buzz

Last semester we certainly had a lot of buzz in the building and tons of brain power was expended on a daily basis.  This is still the case but it is fair to say that the buzz is different in nature now.  As described before, now it is time for options courses – course of specialist nature.  It is early days but I can already see people engaging in a different kind of discussions, much more exploratory.  It is also interesting to see new connections being made.  Before Christmas when everybody took the same courses, the class tended to hang out with the ‘ usual gang’.  Now the class is split up in many sub-cohorts, one for each class, so new shared interest are being developed between people who may not have worked closely together before.  This of course will affect the group dynamics.

One course I have high expectations for is the option Climate Change and the Challenge for Business.  It is the first time that we  offer this important topic to the MBAs.  I hope to be able to add a few comments from students who take this class at a later opportunity.

I don’t know about you but right after the Christmas break I always find it difficult to shake off that holiday feeling and get on with things.  This of course was exacerbated by my catching that awful cold.  But now I seem to have found my energies again.  Good thing as there’s nothing more annoying than having a to-do list as long as you arm and no energy.

As I write this I’m also looking into my travel arrangements for going to Barcelona on 12 March to attend the fair on the World MBA Tour.  If interested then you can sign up here.  Quite apart from meeting with exciting prospective candidates, this for me will be a chance to meet with Alumni in the area as well as paying a visit to on of our exchange partners, EADA.

I’m also very much looking forward to the MBA Careers Fair on 6 February. Some exciting companies such as Accenture, IBM, RBS, Procter & Gamble  and Lloyds TSB have confirmed their attendance and many more will attend.

Bailout, Madoff and other stories…

Those of you who read my last entry about the US car industry will know that it was just too early to include the news that the White House was reported to consider using some of the money set aside for the rescue of the US banking industry to bail out the carmakers.

In some offices this has probably been completely overshadowed by the news of the fraud by US trader Bernard Madoff. It would appear that the surprisingly large and very consistent payoffs to investors did in fact stem from funds paid in by new investors. As a consequence major banks around the world have been hit. As have a number of investment funds and charities. Do I hear the word “regulation” boom through cyberspace?

I use Firefox and I’m glad because it would seem that a problem has been detected with IE. It has been suggested that this problem would allow criminals to take control of your computers and steal your passwords. As a consequence user have been advised to switch to another browser. It is probably well worth keeping an eye on developments here. Especially with all the on-line Christmas shopping taking place these days.

So what’s happening at the Edinburgh MBA? We have exams this week as well. Last one is Friday and after that we will meet for a reception to celebrate the end of exams Semester 1. Exciting options is beckoning in January but I do hope that all ‘my’ students will take the opportunity to have a good break over the Festive season. Semester 1 here is really tough but it is well worth the efforts.

Friday 19th is my last day here and I’m looking forward to the break. Christmas will of course be very different this year but it’s always good to see the family.