The Owner's Name is on the Door.

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.”

All of the above is straight off the Bernard L. Madoff Investment Securities website. Of course you have to get behind the message on the front page from The Honourable Louis L. Stanton, Federal Judge.

Take a look at that statement above again and try to see how far the mendacity really goes. One has to wonder how this man has managed to break the old rule about fooling all the people all the time for so very long. It also begs the question as to how many other nightmares there are still to come out blinking into the sunshine. Well I have a large selection of old, and incredibly bad taste, sunspecs at the ready for them.

Not everybody was fooled though. Jim Vos, investigating on behalf of potential clients, found that the auditors, an accounting firm Friehling and Horowitz, occupied a single room (13' x 18') in Rockland County, upstate New York. Now this is an accounting operation that doesn’t even have a website!

Reports abound of the number of people who have been caught on this one, including none other than the City of London ‘wonderwoman’ herself. Yes I speak of that near deity, Nicola Horlick. Some of her comments had me reaching for the Vintage stuff I can tell you.

First up from Nicola herself, this little gem. ”It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades.” This fooling of people in general would include you then would it Nicola? She then, amazingly, went on to claim that Madoff’s advisers said the firm had been subjected to a full-scale investigation by the US Securities and Exchange Commission twice in the past two years. Well I don’t know about you dear reader, but if I was told something I had millions in was under that kind of scrutiny, I would have exited some time back. Naturally she went on to explain her investment outfit, ‘Bramdean’ was about to redeem some money from the Madoff fund when the scandal broke. Some money? What about all of it? Then with nonchalance that confounds belief, she went on to say “I never met Madoff — he didn’t meet any investors. All contact was through these feeder funds that supplied him with the capital. The strategy we were supposedly buying into was very conservative.” So let me get this straight Nicola, you buy into something paying way over the normal rates of return, furthermore, you don’t even get to meet the sage behind this, yet you believe the statement you are buying into something very conservative. Phew, now I know where I have been going wrong all my life. Then as if that wasn’t enough, she went on to say “There was extensive due diligence being conducted on the funds by our advisers, who are part of Man Group.” This would be the same Man Group who’s shares have enjoyed a dizzying ride from £6.39 to as low as £1.69 per, in these last 12 months would it? One can safely assume this is the same Man Group with near on £240 million of its own funds deposited with Madoff. One wonders if they had the wherewithal to find out if Madoff’s Accountants were the small time operation mentioned previously. Glad to know all the experts have such a grip on matters.

A quick visit to Bramdean’s website does actually tell one everything required.

Some nuggets of wisdom include; ‘We invest on a global basis across the whole alternative assets class.’ Glad to read it, for a moment there I thought you were just handing the moolah onto others to do your work for you.

Then there is the statement ‘Diversification across a broad spread of investments is an appropriate approach to spreading the risk within an investment portfolio’. Well I never. Glad you told me that because I would never have worked that one out for myself.

Then another says ‘Well-balanced portfolios increasingly include an allocation to alternative investments’ I think less said the better, don’t you?

Finally, and chillingly, there is this statement. ‘Our door is open, please get in touch if you would like to introduce us to your funds’ I can see it now like some awful dream after too many glasses of the Vintage stuff... I lead my funds in on the collar and lead; they sit there patiently, tail wagging, while I introduce Nicola and her crew to them. “Funds, meet Nicola, Nicola, meet Funds”….”Funds! Stop that immediately you dirty beast!”

Pip pip

So what next?

OK, so the banking crisis hit. Lehman’s collapsed and banks need bailing out to stop them going to the wall. Then they needed more. Now it seems some major non banking companies are going for handouts. This last point is a fascinating study in social economics. What happens if thousands of corner shops start keeling over due to poor management and not seeing this whole situation coming? Will they be able to ask for handouts because of their own incompetence? Hardly, but then they don’t really bring votes do they. Now on this last point far be it for me to infer that certain industries are being chosen now because of the impact their collapse would have on a voting public, I digress. So all the above still does not seem to be stopping the rot, so central banks slash rates again. This time the Bank of England has reduced rates to a point unheard of in living memory. But what’s this? The retail bankers are pointing out that this makes little difference as the cost of lending to each other remains steadfastly higher. Now at this point, one should kick off one’s shoes, put the aching feet up and reach for the Port, as this could prove to be more spectator sport. Sure enough it does.

Slowly but inexorably the battle lines are being drawn. Yes the Governments have bailed out the Banks around the world. But the realisation is dawning on them that this action has not created a pet for them to show off whenever they feel the need to buy some votes, no indeed. The banks, on the other hand, are learning fast that there is a hefty price to be paid for allowing these new masters in disguise into their portals, watch this space.

But what of these leaders of countries? What exactly are they doing? Well old Gordy Broon is strutting his stuff, telling anyone within earshot that his way is the only way, less said there I think, don’t you? George Dubya doesn’t really care any more, he’s had enough and now looks forward to moving to his new home, in an ultra-chic North Dallas enclave of Preston Hollow next year. Sarkosy, on the other hand, still dives about with all the energy of a whippersnapper overdosing on Red Bull. His latest idea is to throw more money at the problem. I am just so disappointed in these Politicians aren’t you? Can’t they think of something else? Sorry, scrub that question, of course not, they are Politicians and as such have the imaginations of retarded toadstools.

So anyway, it seems ‘Sarko’ recently announced a $33 billion economic stimulus plan, including cash payments to the poor, a bigger rebate on new-car purchases and a speedup in high-cost public works projects. This is after, of course, he has had another jibe or two at the cause of all this, the dreaded Americans.

The extra government spending in France, one of the 15 euro countries, implied a willingness to assume further public debt, already estimated at more than 3 percent of the French economy, and contradicted Sarko's campaign pledges to cut official spending and produce a leaner government. But officials emphasized that the measures were designed to be temporary and that much of the money could be considered investment that would bring growth. Don’t say a word dear reader, just take a deep breath; we can all see where this is going to end up, why don’t they? Simple, I refer you to 2 paragraphs above.

"We do not have a choice," Sarko said in a speech at Douai, in northern France. "Doing nothing would cost us a lot more…” That would be a bit like your normal way of doing things then would it?
Critics, however, accused Sarko of doing too little, too late. "These are baby measures, not in proportion to the problem," said Ségolène Royal. Sarko delivered his speech next to a Renault plant, never one to miss a trick is he. "Our response to the crisis is investment," he said. Meanwhile The Finance Ministry's National Institute for Statistics and Economic Studies reported in early December that unemployment rose by a tenth of a percentage point in the third quarter and now affects 7.3 percent of the workforce in mainland France. The numbers confirmed anecdotal reports of job losses across the country since the slowdown began

One of these fine days our self important, self congratulatory, puffed up, pompous politicians will wake up and smell the coffee. Meanwhile we just keep on keeping on.

"How much?"

“Our job is to set a tone at the top to incent (sic) people to do the right thing, and to set up safety nets to catch people who make mistakes or do the wrong thing, and correct those as quickly as possible. And it is working. It is working”.

The above is a quote made by Chuck Prince, then CEO of Citigroup from the New York Times back in 2006. Recently The New York Post ran a headline exclaiming: 'Bounce These Bozo Bankers', how things change. Bearing the brunt of the anger now swirling around like some poisonous whirlpool is Robert Rubin, a man who has worked at a senior level at Citi for almost a decade, taking some $107m in compensation in the process. It was Rubin, some claim, who pushed the firm's traders into taking more risk and who is largely responsible for Citi's current parlous position (asset write downs now around $65bn). Former CEO Chuck Prince (now you really have to agree with me, that is one serious name!) is also being blamed, with The New York Times quoting one insider who said: 'He didn't know a CDO from a grocery list', and Saudi Prince Alwaleed bin Talal, Citi's largest individual stockholder, confirming that he was 'sorry for appointing' him.

Well that’s ok then. I will sleep more soundly knowing that the Prince is ‘sorry’.

However, word reaches me that Rubin, who has taken some $115 million in compensation from Citigroup since 1999, is telling anyone who will listen and, let’s be honest, those numbers are reducing daily that he could have gone elsewhere for more moolah. Is it me, or am I the only one who is beginning to wonder of things haven’t got just a tad out of hand? Here we have a guy who has been a major part of the biggest banking debacle in history not showing an ounce of remorse, in fact, quite the opposite. Rubin acknowledged that he was involved in a board decision to ramp up risk post 2003, but insisted that this misfired as executives executed the plan properly. This logic lost me completely I’m afraid. How bad could things be? Maybe if the executives had not executed the plan properly things might be better, who knows, certainly not Rubin! He also appears to justify his compensation by suggesting that he could have got more elsewhere: His actual words were, “I bet there's not a single year where I couldn't have gone somewhere else and made more”. Some Citi investors may be wishing he had gone for all the good he appears to have done.

On a lighter note, I heard an interesting story recently regarding the Somali pirates. Fresh from extracting over £100m from the Saudis for that massive oil tanker, the pirates are said to have considered hijacking Citigroup. They all got together and plans were being drafted, when one of the cleverer gang members pointed out a fundamental flaw in their thinking – like who would pay for the company's release? The US Government? Hardly. More likely they would be happy to see the back of it! 'OK', one gang member countered, 'Why don't we at least open an account and stick our booty there?' 'Are you crazy?' responded the gang leader. 'That's far too risky. I'd rather keep the cash under my mattress. It'll be safer there'. In the end, the group decided to use the tanker money to buy Citi (not that difficult considering where the share price has been), apply for further funds from the TARP (the US Troubled Asset Relief Program), and then push off back to Somalia with it. That's apparently far more profitable than hijacking for a living, as any banker will tell you.

Talking of hijacking, the UK Government continues on its merry way with the idea that there is no reason at all why the young should not have their futures hijacked. Now when I was dealing in finance (at a very low level you understand, knocking out small loans from a secondary finance house), the customers used to call these loans ‘the glad and sorry’, in other words, glad they had the product, sorry they had to pay back the loan they took to buy said product. Now, along with everything else in the looking glass world of politics, we have the UK Government’s own peculiar inverted version of ‘the glad and sorry’. Their version is “sorry we got you into such a mess everyone, glad we won’t be around when the bill really hits.”

Go figure.

Oh how the mighty fall.

So now Citigroup moves into the spotlight. We have seen it all before over the last few months. First the bluster, bravado and braggadocio from the incumbent CEO followed by a sharp jolt. This time our Vikram was the culprit, yes he who harangued his poor staff over the Wachovia jilting. He stood outside his headquarters not 2 weeks ago telling anyone who would listen how strong his operation was. I don’t know about you, but as soon as I saw this I wondered whether I shouldn’t go and get a loan from them in the hope they would collapse and some idiot middle manager would offer me some crazy settlement figure, that’s if they were actually still giving loans by then of course. Then we watched the freefall and collapse of the Citigroup’s share price as if we were seeing a massive road traffic accident in slow motion. Speculation mounts about the future of Citigroup and, despite the determination of Vikram to go it alone, some say that he is no longer the master of his own destiny, as the likes of Morgan Stanley and Goldman Sachs have been said to be circling overhead. Well why am I not surprised. Morgan Stanley, however, is thought to have cooled on the idea of a deal since CEO John Mack's 'help' call was rebuffed by Pandit last September, a few days after the collapse of Lehman Brothers. Our Vik, a former head of Morgan Stanley's institutional securities division, was not interested in a deal at that time. Well like all Emperors who have lost touch with reality Vik had committed that cardinal error by then, he started to actually believe his own press.

Now it seems Goldman is also said to be crying off, despite its CEO Lloyd Blankfein calling up Citi in September to discuss a possible merger. The boot is on the other foot now though, as it is now Citi which is in trouble. Goldman is said, however, to be concerned about the cultural fit in a Citi deal and also the extent of the firm's future write downs and losses. The New York Times quotes Oppenheimer analyst Meredith Whitney, who has suggested that a break-up of the Citi Empire is almost inevitable. 'Pandit is wrong', she said, 'Citi will not be able to stay in its current form. Citigroup is in such a mess Stephen Hawking couldn't turn this company around. It has lost the most money of all the banks, and has the greatest leverage'. I say why not let Stephen Hawking have a go, would be interesting instead of just depressing wouldn’t it? (Insert here a slightly robotic voice telling the Board they are all fired).

Moving across to Europe, I hear that Deutsche Bank CEO Josef Ackermann has written to senior staff advising them that he is conducting a strategic review of the bank's operations in a bid to boost profits and Deutsche's falling stock price. ‘Ackers’, as I like to call him when we are sharing the odd glass of beer…not…is said to be alarmed at the bank's depressed stock price, which has fallen around 80% over the last year. He wrote in his recent letter that 'nothing, either in respect of future losses or capital requirements, justifies the currently heavily discounted price level of our stock'. You really do have to stand in awed and stunned silence at these guys don’t you, I mean come on guys, when did you stop seeing things as they really are? Oh sorry silly me that would be when you decided to start a systematic shredding of any principles Banks of yesteryear adhered to wouldn’t it.

Meanwhile the Governments in the developed world commit themselves to ever decreasing circles. The latest wheeze by the UK Government is to go and borrow massively and spend spend spend. So where are they going to get that moolah from I wonder. I don’t suppose for one moment it will be underwritten and thus, in the main, borrowed from, those very same institutions they are presently bailing out would it? Perish the thought we are on another crazy merry go round.

‘How to break the news’

So now it is a recession. Furthermore, this recession will be longer and deeper than at first thought. I don’t know about you dear reader, but I am heartily sick and tired of being treated like the same kind of idiot by the ruling Politicians who are running about like headless chickens, and being spoken to by those same ruling Politicians as if I was as inanely stupid as they are.

First we had ‘there will be a slight dip’, meanwhile we all drummed our fingers on the table wondering when they would get to the point, this was while repossessions were soaring, companies and individuals were going into bankruptcy at an ever accelerating rate. Then we had ‘there will be a bit of a depression, but not a recession’, we carried on drumming our fingers and shaking our heads, these guys were running out of road fast, but could not see it, or chose not to in their looking glass world of Politics. Then came the shock horror news that ‘this may be a recession’. We all yawned and wondered why it took them so long. Meanwhile they, that is the Politicians who had done nothing whilst this situation was bearing down on us like an out of control bus, started to act all tough, and pretend they really had got a grip on things, we weren’t fooled, and we won’t be at the elections across the world next time round. Following this, by a couple of weeks, so we, the stupid public could get a grip on their previous statement you understand, they delivered the news that actually ‘there was a recession’. Hurrah we all shouted, at last they seemed to be taking those first steps away from the self delusional world they all inhabit, until the voter gets rid of them that is.

However, worse was now to come. They all truly thought they could do something about it. Having let the Genie of a deregulated market out of the bottle, they fully expected to put that Genie back. They hummed and they pondered, they looked concerned and semi intellectual (yes I know, a difficult thing for them to manage, but they tried, so give them credit), they held meetings (always a good thing to do if you are bored and lonely I suppose), they discussed, they cogitated, they ruminated. Meanwhile we sat there wondering what had possessed us to let such a bunch of nitwits and incompetent nincompoops take control, and not on a local scale but on a global scale. I put it down to mass hysteria myself. Anyway, I digress. Next up, we had news that ‘the recession would be short and sharp’. This would be like a short sharp shock would it? Something like an electric shock perhaps? By this time, we could see their lips were moving, but we had now switched off to their ramblings. It was all getting old news, the day to day toil of putting one foot in front of the other was now more important. It would be wise on that last point, not to let your incumbent ruling Party Politician know, he or she may well suffer a complete breakdown if they really knew how insignificant we really thought them.

And so we come to this latest statement. We are now told, with a complete lack of any kind of humility, ‘the recession will be longer and deeper than at first thought’. This ‘first thought’ would be when? Would it be earlier this year as all the cracks in the dam started to appear but still they partied at the base? Or would it be at any of the 5 steps of complete self delusional ineptitude we have seen above.

I leave that decision to you.

dateline 10th November 2008

So the news is that Peter Burt and George Mathewson wanted to prevent the government-brokered takeover of HBOS by Lloyds TSB. Burt was chief executive of Bank of Scotland when it merged with Halifax to form HBOS in 2001 and Mathewson was previously head of RBS. These would be two guys who were part of the problem then wouldn’t it? After all, they were instrumental in setting up HBOS and RBS in their current forms, models that have faced difficulties since the credit crunch given their use of wholesale funding.

Shane O'Riordain, HBOS spokesman, gave the usual, ‘we are studying’ stuff then followed by saying the letter did not address the funding issues that all major banks are currently seeking to manage. Meanwhile the prospect of the UK government becoming a major shareholder in Scotland's other big bank, Royal Bank of Scotland, through a recapitalisation programme -- have become a major issue there. Last week, the bank accused a Scottish lawmaker of treating the bank as a "political plaything" after he said a rival bid to its planned takeover by Lloyds could emerge within a week.

Alex Neil, a member of the Scottish parliament who has campaigned for an alternative to the Lloyds offer, said he was "very, very confident" a second bid will be unveiled soon. Neil then declined to name the possible bidder or give details about their potential offer. He described the suitor only as a "financial institution with a global reach.”

Well that’s ok then, thanks for ensuring we all enjoy this new period of openness Neil. Now is it me, or are these guys starting to play a bit fast and loose? Oh wait, they’ve done that, so no change there then.

I bet myself it would only take 1 or 2 months before the infighting started, so it looks like I owe myself a nice jam sandwich. With a cup of tea, natch.

News reaches me of that juggernaut of the Motor Industry, General Motors. Now this is the company that recently went cap in hand for a hand out from the US Government bail out fund without success. It transpires that GM is turning to debt exchanges to deal with capital-raising needs. The financing arm of General Motors says it wants to exchange a “significant amount” of its outstanding debt for a reduced principal as part of a plan to become a bank holding company and to participate in the US government’s bank rescue package. Crafty old foxes they have at GM it seems.

I felt my blood run cold when the UK banking rate cuts were issued recently. Not the cut you understand, that was great news for all us borrowers. What made my blood run cold was when various members of the incumbent UK Government smarmed their way onto the TV channels telling us they had brought huge pressure onto the various retail banks they now have influence over. Alistair Darling, that Finance Supremo, put the banks in a half nelson by telling them he would consider ‘prescriptive’ measures to force them to tow the line. Now good as this may seem on the surface, I am not so sure I want a Political Party using the UK banking system as a vote winning tool. However, I did have a good chortle when I read that HSBC and Barclays had effectively stuck two fingers up at him. Darling and his acolytes were also told that this was it. I loved the quote by one bank executive who said “Base rates are now so low that our margins are desperately small, this point was made quite clear to the chancellor by several of the executives — we are not charities.” Ah, that’s where I’ll be going wrong then.

The next few months should prove fascinating.

dateline 03 November 2008

Earlier this month I read the forecasted third-quarter profit forecast for Deutsche Bank with great interest. I was surprised when the headline on their website read “Deutsche Bank expects third-quarter 2007 net profit to exceed EUR 1.4 billion” I was less surprised to read that the posted profit in the third-quarter was €435 million, and this after certain ‘adjustments’ now allowable, but hey, what’s a billion between pals. Amused, I had a good chortle reading Josef Ackermann’s comments in the lead up to the posting. He said, “the outlook for the banking sector remains challenging". I do enjoy rhetorical understatement don’t you?

Keeping with the European theme, the derivatives losses still keep coming. Caisse d’Epargne the French savings Bank must be going through the meat grinder at the moment. I couldn’t decide which comment had me laughing more. Their own, with yet more masterly understatement, said “Due to the extreme volatility of the markets and stock market crash in the week of October 6, Caisse d'Epargne experienced an important market incident in its equities derivatives activities”. This was an ‘incident’ of around €600 million you understand, or the comment in a note coming out of Citigroup recently which said, “Caisse d’Epargne's business model looks increasingly challenged". Well challenged would be one way of putting it I suppose. Unmitigated disaster may be another. Added to this Natixis must be feeling the pressure. Not that you would know it by the Ostrich impression Caisse d’Epargne is managing right now. This recent piece of information dropped into my inbox and I was amazed. It transpires Caisse d’Epargne and its merger partner, Groupe Banque Populaire together own 70 per cent in Natixis, France's fourth largest bank. A sharp fall in the Natixis' share price is currently being investigated by French authorities to see if investors had contributed to the decline (surely not). Natixis' shares were recently trading at €2.03 but Caisse d’Epargne holds the bank's stock on its books at €19.55 - the price at which its shares listed when it floated in 2006. I shake my head in bewilderment dear reader, as I’m sure you do to.

Moving swiftly on, we even had Christine Lagarde, France's Finance Minister, denying funding difficulties after the French satirical magazine Le Canard Enchaine, a great name don’t you think, said Societe Generale was facing a €6.5 billion gap in its capital base. You must all recall the name of Jérôme Kerviel, yes, that trader who managed to pop around 4.9 billion Euros in a series of trades. What I want to know is where did that 4.9 billion go, and is there any chance poor old me can get a cut? One lives in hope.

In the UK there was outcry amongst the political chattering classes when Barclays went solo on raising finance. Many august institutions were full of envious shame at their own positions. You know the feeling, you see the expensive opulent car go by, you lust after it, and yet you almost hate the person inside. Well all I can say to Barclays, on behalf of all these people you understand, is ‘How very dare you.’ However, Gordon Brown still does his globetrotting bit, telling anyone who will listen that they should join him in his financial idea of a ‘New World Order’. God help us all.

Hang on tight if you are involved in Hedge Funds. Investors heading for the exit has turned into such a rush some are getting trampled underfoot. Managers are trying to herd them safely back into the pens with increasing desperation. I only mention keeping the investors penned up because the industry itself talks about gate provisions. Only a few months ago, joining a hedge fund was akin to getting a Coutts & Co bank account, not for mere mortals. Now managers are making it hard for investors to get out.

Timothy Mungovan, a partner who advises hedge funds at the monolithic US law firm Nixon Peabody LLP is quoted as saying, "Everyone is looking at their gate provisions and what rights they have to close their gates, it is a phenomenon that has been occurring for some time and is picking up pace now."

So there, I wasn’t the one who started talking about those investors like they are cattle, they were.