Wednesday, 30 November 2011

Vince Cable to make radical reforms to employment law

If you are one of my non-UK visitors, and stats tell me that's quite likely, then you are probably thinking, Vince Cable, who the heck is that, and why do I have to care about his policies. If you are from the UK I think there is a slightly greater chance that you know who he is, by name at least.

Vince Cable is from a very small marginal party, called the Liberal Democrats, who due to a strange electoral anomaly suddenly found themselves as part of a coalition government.

However what makes Vince Cable particularly interesting is that he is in fact an Alien, he appears to be a very intelligent person, but I have from a reliable source that he is not human, an extraterrestrial agent, tasked with infiltrating the british government, that explains how a ridiculous small party could suddenly find themselves in a position of power and why Vince always seems to know things before everybody else. Once you know this its actually easy to spot the signs. I encourage you to watch some of his interviews, watch what happens when he is asked a question, he tips his head slightly to the side,  and his eyes begin to blink rapidly, that's when he is downloading information from the mothership, and deliver his thoughts which are usually progressive and unusually intelligent for a politician. Even if he is a bit of a banker-basher.

If you are foreign, it's okay to stop reading now. If you are interested in UK labour law (and you should be if you are either an employer or an employee) I encourage you to read on.            

So anyway Vince Cable has announced proposals of radical reforms to employment law as part of Government’s plan for growth, cutting unnecessary demands on business while safeguarding workers’ rights. The proposals intend to improve the recruitment, management and exit of staff as well as managing disputes. The speech is available on the BIS website.

A summary of the main proposals announced include;

  • Increasing the qualifying period for employees to claim unfair dismissal to two years.
  • Claims to go through the Advisory, Conciliation and Arbitration Service (ACAS) first in order to attempt resolution through conciliation for a basic period of one month, if conciliation fails, claims can then go to a tribunal.
  • Consultation in 2012 on the introduction of protected conversations – to allow employers to discuss employment related issues with employees openly, e.g. to address poor performance or retirement without fear of risking a tribunal claim.
  • A full review of the employment tribunal rules and procedures being led by Mr Justice Underhill. A revised recommended procedural code to be prepared by end of April 2012.
  • Discretionary power for employment tribunals to impose financial penalties for those employers found to breach employment rights, payable to the Exchequer. 
  • Consultation on introducing a ‘Rapid Resolution Scheme’ which intends to deal with simple, low cost claims in a timely manner as an alternative to the tribunal route.
  • Consultation for compromise agreements to be simplified and re-named ‘settlement agreements’. Government to consider amending the Employment Rights Act 1996 to allow such agreements to cover existing and future claims.  
  • Ministry of Justice to publish a consultation on the introduction of fees for tribunal claims, two options to be considered. Option one: fee to lodge a claim and a second fee to take the claim to a hearing and option two: threshold of £30,000 so that anyone seeking an award of more than this will pay more.
  • Amendments to the Public Interest Disclosure Act to prevent employees from claiming breach of contract.  
  • From 2013, portable Criminal Records Bureau (CRB) disclosures which can be viewed online by employers. Changes are being led by the Home Office. 
  • Improved and modernised family-friendly leave.
  • Combine all 17 of the National Minimum Wage regulations into one, to help simplify the regulations for employers to digest.
  • To ‘slim down’ the current dismissal process with the view of potentially working with ACAS to make changes to the ACAS Code of Practice on Disciplinary and Grievance Procedures.
  • Employment judges to sit alone in unfair dismissal cases
  • Consultation to streamline the regulatory regime for the recruitment sector.

Sunday, 27 November 2011

Bubble Trouble

I've been blessed with a front row seat to a few bubbles in my life. The first was the dotcom bubble, Asia, then the subprime mortgage bubble (I was in Ireland where it was particularly severe), and now the European sovereign debt crisis. So I thought I would discuss my lessons learned, not so much what the world has learned generally, but more so me personally. This one is about the dotcom bubble.

The dotcom bubble

I can't believe I grew up in a world without mobile phones and the WORLD WIDE WEB. When I was a kid the only place to obtain photographs of naked women (for me anyway) was in the local used bookstore, pretty disgusting if you think about it, and very embarrassing when you mum found the stack of incredibly used magazines under the bed. Oh those.. those are not mine… I'm just keeping them for a friend.

That was until the www made all of this a lot easier. My father had started an IT company so I had access to all the cool new stuff and, one day, I got introduced to a modem and one of my father’s employees taught me to call to a Bulletin Board System, or BBS, a sort of precursor to the internet that was basically just a file system, and all you could do was browse the folders (I remember an incredible 1GB of data advertised) and download the files. However treasure hunting in the this new brave world was unbelievable exciting and I can still vividly recall the sounds beeeeep, beep, beep beep, when the modem established a connection, to this day hearing it, or even just thinking about it, gives me a true sense of joy (just like I can't stand the blackberry email received sound, as it reminds me of a horrible woman, I once worked for, and why I know have an iphone), I was absolutely hooked, and besides certainly downloading my share of photographs, I became fascinated with software development, my dad had already taught me some QBASIC but I spent countless hours learning different languages and tools, and when the internet started to gain traction a couple of years later I was of course very much with it.

My father’s business grew to become one of the largest multimedia companies in the country and I started to get well paid programming jobs. Towards the end of the 90es, when I was 17/18, I was able to get my own apartment, studied for my high school finals with a case of beers on my new balcony, I took a year off between high school and college and worked as a developer on an award winning computer game, life was good, head-hunters would try to snatch you from your own fathers business, endless opportunity and I felt unbeatable. Only reason why I decided to college was because "that's what you do".
Then early 2000 the bubble bursts, marking the end of the dotcom boom. My father’s business relied heavily on project sponsors (usually government grants), and money that was readily available in the boom years, quickly dried up, and his business was in fact extremely close to being bankrupt, and since it was a personal company (no limited liability) that meant he was looking at a personal bankruptcy. However there was still a bit of life left in the dotcom private equity tank, and my father found a PE backed company with worldwide ambitions to buy his business. Imagine the relief. One minute you are bankrupt, the next you are a millionaire. My father sold his company for a substantial amount, some in cash and some organised as a share swap, to the biggest in the world in his sector, and stayed on as MD for Scandinavia, he had made it and was looking at a very tidy future.

BUT the company who had acquired him had spent their exorbitant amounts on acquiring a string a business from all over the world, all companies very similar do my fathers, were shocked to learn that many wrongs don’t make a right and even more shocked there was no more funding available. So they were also looking at their own bankruptcy. For my dad that was a particularly problematic scenario, because he hadn’t received any of his money yet, and the company refused to pay him (although he was still receiving a salary as a director). The trouble was that the sale had been notified to the tax man, and they were knocking on the door to get their share, they don’t care about the minor fact that you havent actually been paid. So he was once again looking at bankruptcy, only this time with a deficit 6 times one year prior. My dad’s lucky break came when he found out that the company was in talks with another PE firm (who apparently hadn’t realised the bubble was well and truly gone) to take it over. My dad therefore sued the company, knowing that no one will buy a business with pending litigation, and as expected the company settled for an amount slightly higher than the original price, he got his cash, and the company was sold to the new PE owners. The shares on the other hand were completely worthless now; the new owners spent another few million but only months later realized they had bought hot air and finally decided to pull the plug.

The era of spending for growth without plan for when/how you would generate an income was over. My father’s shares were now rubbish, he was in an industry that had imploded, but it could have been a lot worse. I remember my dad telling me about another guy in the company who was relocating to a top exec position in America. He and his family had just arrived in the states, when he learned that there was no more funding. All their furniture was on a containership somewhere on the Atlantic ocean, and they had to wait for it, and then ship it all back to their suddenly very uncertain future. Noone in the industry had thought that investors would stop giving you money.

For my father it was actually a reasonably slow dead because there was some ongoing projects and the liquidator was naturally able to extract whatever possible value they could. But little by little he said goodbye to all his staff, many with completely useless skillsets (i.e. web designers) in the post dotcom bubble world. He had never taken on any partners and therefore had the sole responsibility of presiding over the closure.
I was in college but got (re)involved at a time where my father was deciding what to do with his future, we managed to buy back the rights to some software, and we spent a lot of time trying to clean up the accounts which had been left in complete disarray by the laid-off CFO. Our plan was to take some of the existing code we had and make it available to multiple customers over the internet, what you would now call software as a service. We were relatively successful, but it had been a difficult process and we didn’t always see eye to eye, so I eventually received my share and left the business (btw happy to report that both company and product are still going). I decided to completely leave the uncertain world of technology and instead become a banker (yes but how could I have known). I started studying banking and finance and soon thereafter left the country for study (and never returned). My father still has an IT company and he has decided to keep it small as a lifestyle business, and he is happy.

When writing this I called my dad to ask if he had any regrets and he said NO. He got to work with incredible people and great projects for many years, it took it’s toll physically and mentally but he can’t imagine a more exciting journey to be on. What he did say was looking back as the company grew he spent most of his time on admin, perhaps he should have delegated more so he could have been more involved in the creative process, so possibly he should have taken in partners.

I would add the following;

.Don’t run a large business as a personal company. It is enough that you are investing all of your time 24/7, your health and sanity on trying to build a company and give people jobs, you don’t need to stake your entire life on it. Banks/Investors that ask for personal guarantees I have a big problem with.

.Build a recurring revenue stream to fall back on when shit hits the fan. It can be tempting to just take the cash now, because then you can invest more aggressively in growth, but the day funding dries up (even temporarily) what will keep you going is your recurring revenue. For software companies it is annual licenses (instead of fixed price), support agreements etc. all the stuff a start-up never think about.

.If you are successful you will likely encounter people that will try to intimidate you into taking a poor deal. Get your own legal counsel, it’s worth it.

.Be honest with yourself about when enough is enough. What is your financial and physical/mental limit, when to shut it down because it isn’t working. This is the hardest thing of all. Many entrepreneurs need a few attempts before they make it big, which is only possible if they can see a business failure as distinct from a personal one.


It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

Theodore Roosevelt

Wednesday, 23 November 2011

Canary Wharf Cops and Gigolos

As I wrote about in a previous post (Canary Wharf Ant Farm) I spend a lot of time in the Canary Wharf coffee shops. When I’m there I like looking at people and try to imagine their story, who are they, what do they do, why are they meeting here etc.
One day when I was going through my daily routine of, sparkling water -> Panini -> Coffee -> turn on the computer and do some programming, I realised that the guy at the table next to me was also sitting there yesterday, in the same seat. Over the next couple of days, weeks even, I started to see a pattern. He would arrive 4.30 - 5ish, sit with his back towards the café, he never bought any coffee but would bring his own coke (full fat) and newspaper, and then around 6 he would get up and leave.  He didn’t look like a banker, and he wasn’t reading a bankers newspaper. What was he doing? It was an intriguing puzzle. Then one day I saw him discretely nod to another guy sitting across the square at another café, looking similarly un-banker-ish. There were two of them! The other guy wasn’t always there, but when he was, it was the same thing; he would hang around, reading a paper until 6 pm, when they both got up and left, very discreetly, and not together.  6 pm, so they must be waiting for somebody to leave work, but whom?

Then it hit me, of course, they were gigolos, that’s why they were so discreet, that’s why they looked different, and why they didn’t buy coffee, because they didn’t know when they had to leave. Looking closer at them they were reasonably fit (I’m not an expert), but they certainly didn’t look like models, pretty average in fact, but then again the customers are of course not necessarily young and gorgeous either. However I couldn’t figure out who they were meeting with, I thought that there must be some kind of code, you know the girl with the red dress kinda thing, but usually when they left there actually wasn’t any obvious women around, the women that were there looked too attractive and successful to need or want the services of these guys. On closer inspection one of the two guys was a bit feminine, pink shirt and walked differently. It all added up now, they were, of course, gay gigolos. A few months before a colleague of my wife, fashion designers and gay, had told me about what he called his gold-digger friends who only dated gay bankers. And although I still couldn’t specifically work out who the customer was, I could always pick out a few realistic candidates from the crowd heading towards the escalators; I had solved the mystery and could finally get back to work.
Being a creature of habit I usually sit in the same seat, just like my gigolo friend always sat at his regular table. However there was a day when some horrible person had stolen my table, so I had to sit somewhere else. Because I was on the other side of the gigolo for the first time, I noticed something I had never seen before. The guy had an earpiece in. For a second I thought why does a gigolo need… ah… damn… they are cops.

Here I had been thinking I was observing the marvels of capitalism, that if you work hard, no matter how you look or what you are into, you can always get laid. I had worked these guys into the system as economic actors performing an essential, perhaps even critical, service. Now instead of all of that I had to resign myself to the fact that they were.. cops. While I had imagined these guys literally working their assess off every day, instead I could now realise that all those days and weeks,  they had been sitting there doing absolutely nothing, catching nobody. Is that really the best use of their time? I of course do not know what they were looking for, but unless it was Gaddafi’s hidden cash and gold then all likelihood is that we received a very meagre return on our tax dough. I any case, I do hope they got their man, no matter if they were cops or gigolos.

Tuesday, 22 November 2011

Return of the Cash Cow

Yesterday news (UK Government to underwrite 95% mortgages)  brought me back, back to the good old days of unlimited lending and the first time I was responsible for the development and delivery of a loan origination system for specialist lending.

I had joined the company a couple of months before, when I was called into my Boss’ office.  He told me that our mortgage banking expert had been fired because “we have found out he is an idiot”, and they needed me to go and talk to the CEO, CTO and head underwriter of a new lender, about building them a mortgage loan origination system. TOMORROW.  So I said okay, what am I selling them? I was told that the company a few years prior had developed a bespoke traditional (i.e. 5 products) loan processing system for another client, that we just needed to update it. So I studied the user guide and Wikipedia all night and the next day I sat in front of these people who were a subprime lender, funded by a large global bank, and, it turned out, about as clueless as myself. So they bought the system. There might have been a couple of brown envelopes I don’t know about ,so I can’t claim all the credit but still, it was an achievement, in 24 hours I had become an “expert” in mortgage lending systems, specifically subprime, and I spent the next 3-4 years living up to this reputation .  

My first problem was that I had no resources. It was a very busy time and all the developers were on other projects. When I complained about this to my Boss, he told me to find some people myself.  Almost my entire team was therefore made of part-timers shared with other projects, contractors and I hired one foreign guy based on a quick look at his CV. The guy (now a very good friend whom I have worked with on several projects since) didn’t actually have a work permit, and for a number of months we paid him in one4all vouchers, so at least he and his wife could eat. Anyway we hacked the system, ripped out the old products, and introduced a new more advanced product engine that would determine the price/interest rate in accordance with an algorithm (basically the risk profile used for securitisation). Word spread about our “Specialist Lending Product” and we were suddenly working on delivering the system to 3 subprime lenders simultaneously.  

The banks we were working for were all quite similar; they would get all their business from IFA’s and intermediaries, contracted a 3rd party to service the accounts, and was ultimately looking to securitize all the loans. So you have a bank that never talks to the customer, making decisions based on a spreadsheet (portfolio risk) and a pretty unproven IT vendor developing the systems. I didn’t have much of an attitude to right and wrong in the beginning, it came later when I realised that 5% for example meant 5% of the category would default. It was just a number.  It was these kinds of businesses that were responsible for hoovering up all customers the traditional banks wouldn’t touch (although we know now they ended up with the hot potato anyway through the trade of asset backed securities), but they were allowed, even encouraged, to operate by governments and regulators that had a huge vested interest in stamp duty income and house price inflation.  Having been quite deeply involved, I find it hard to accept the one-dimensional critique of the lenders. They were operating in a regulated market where it was do-or-die, you had to lend on those terms, lend to everybody, because if you didn’t you couldn’t compete. So when the system failed, governments around the world established commissions for this and that, how we can discourage excessive risk taking and greed by the banks. Some of it is certainly reasonable but my point is they have always had the opportunity to regulate, but they needed the income (look at the state of national budgets after the cash cow disappeared). Reading the news yesterday felt like I had travelled back in time, the UK government once again encourage irresponsible lending, only this time they choose to underwrite the risk directly, no bailout necessary.  Look out for FTB stamp duty next.  Although news of growth gets you more votes than austerity, I hope the government will do the right thing and continue to focus on long term sustainable growth.  This scheme is a step in the wrong direction.

Monday, 21 November 2011

UK tax-payer new sub prime lender - £400M scheme to "boost" mortgage lending.


Today the government revealed a new initiative to "boost" the housing market. The new £400M scheme is aimed at encouraging first-time-buyers to take out 95% LTV mortgages, or put in another way encourage the lenders to approve 95% mortgages by guaranteeing the losses. Many experts believe that this is a good initiative as it will release some of the so-called pent up demand and, crucially, stop the house prices from falling. Unsurprisingly the estate agents are quick to praise the scheme (why bother asking them) and mortgage lenders likewise (because what is their downside?). However my humble opinion is that the scheme and anything like it is perverse.

We, including the government, are complaining about excessive risk taking by the banks during the boom years. They did that because it was easy to remove the risk from the balance sheet through securitisation. Now as way to boost the housing market, the government has decided to make it palatable for banks to lend more by underwriting the risk. The government is turning itself into a sub prime lender.

But that isn't actually my biggest problem with the scheme. I am of the belief that house prices are too high (yeah yeah, but that's my opinon and this is my blog), I do not believe it is for the greater good that most people has to take on huge amounts of debt just to live a sub prime existence in a two bed semi-d. The only reason why people are so desperate in the first place is that the rental market is pure wild west, two sides of the same story. The government should do the responsible thing for the next generation and preside over a gradual deflation of the property bubble, probably down to a sustainable 50% of today's values, and use whatever schemes they have to support people that are disadvantaged by the correction. In addition, improve tenants rights, cap the number of investment properties one can own (like in China), set the max ltv far lower than today. It will hurt but your children will thank you. A house is a home, not an investment.

As said, not an experts opinion, just an opinion.




The Canary Wharf Ant Farm

I do a lot of my work in a cafe. Many of my colleagues are not based in the City, our customers often don’t want us to mingle with their staff due to issues of confidentiality and my wife goes mad if I’m home too much, so I spend an enormous amount of time in coffee shops. If you see a scruffy looking guy (only wear a suit when I have to, what my wife calls, 'pretend to be a businessman') in one of the coffee shops in Canary Wharf, it could be me. I love looking at all the people that pass by and believe me there are many interesting people in Canary Wharf. Canary Wharf, if you are unfamiliar, is organised with an underground subway station that lead up to a series of underground tunnels filled with shops that again lead up to the above ground skyscrapers that house the banks, HSBC, Barclays, Credit Suisse, Citi etc. etc. When you are like me sitting in one of the many underground coffee shops, it feels like you are in the middle of a giant Ant Farm.

If I’m unfortunate enough to be there during early morning and midday rush-hour when the 'worker Ants' all have to eat and have coffee at the same time, the place becomes very tense and stressed for a couple of hours a day. The worker Ants are always walking very fast and usually carry two or three mobile phones, which they spend the majority if their lunch hour checking obsessively. For that reason the free WIFI never works in the lunch hour, there are simply too many people clicking REFRESH REFRESH at the same time

They commute in from the suburbs in morning on the tube. It is warm, absolutely packed and the perfect place to contract a viral/bacterial infection or worse even, endure an hour with your face buried in some bloke’s armpit. They are then squeezed out of the tube at Canary Wharf station. Most escalators move upwards in the morning and downwards in the afternoon, moving the crowds with efficiency like a German motorway. The Ants all go to lunch at the same time, and leave the office at the same time, squeeze into the tube at the same time in the afternoon. Another 90 minutes of armpits, home, get the kids something to eat, catch up on emails and then to bed. Tomorrow is another day. Why the long journey you ask? Because the common misconception is that all bank employees make an exorbitant amount of money. However most are in fact on relatively modest salaries. Above average but not by much. The property market in central London is fuelled by foreign wealthy buyers. It is on one hand what make London the incredible place it is, there are always some people and some money looking for a home in the City, but on the other hand it is also why most people on a middle income can’t afford live there, hence the long commute. Why do they do it you ask? Because that is what they can do. It is a rare privilege to be the master of your own destiny, one which is not always afforded to people who decided on a career path 10 years ago, when the situation was very different.
It is interesting how bankers are perceived as one thing, one kind of people, while the truth is that the vast majority are worker Ants. They have little influence on the job they are doing and their remuneration certainly won’t get them invited to any bonga bonga parties. Yes being a worker Ant in Canary Wharf is far from the glamorous life of excess that some people think. The worker Ant’s world is a ruthlessly hard place, driven, I would argue, more by fear than greed. Fear of the day they are no longer required. The structural problems in the banking system and the uncertainties on how to deal with it make it very stressful place to be a worker. I know some people have been asked to reapply for their own jobs 5 times in 3 years.

The colony of course also has its soldiers, queens and its opportunistic parasites, like me, feeding on the scraps, which I will talk about in another post. Today is about the worker, who slaves away day after day, do not have the credentials to ever be anything but a worker, do their best to fulfil the role they have but no matter how well they perform they know that one day, somewhere in Brussels/Bank of England/No 10/ Top Floor etc., somebody will decide to change things in a way that their services are no longer required. When we call for change in the industry, cuts in the industry, we must remember that the workers here are as innocent as in any other Ant Farm.

Sunday, 20 November 2011

Northern Rock and Virgin

So Nothern Rock was sold to Virgin. Or at least sold to a consortium led by Virgin. This weekend has been very interesting. Would the press focus on the 'good story' and talk about all the great things Virgin can do for service in the industry or would they be more interested in the bad and things like the 'taxpayers loss'. It's fair to say that the jury is still out. I think the trouble for Osborne is that he has to explain in simple terms a fairly complicated deal. What Virgin has bought is cheaper than it was when it got bailed out, but it's actually more expensive than the top banks when you look at the price relative to the asset base and one could argue they paid too much. The reality is that many assets (look at property for example) are not worth as much today as they were 4 years ago. However what I'm most interested in why they want it and what they plan to do with it. Why would you buy a bank with the majority of it's customers and branches in the north where austerity will have the most profound impact? It is unlikely that running it "as is" will make them any money, so there would either be a sinister plan to strip/sell it's assets  (after the 3 years they have promised no redundancies) or an ambitious growth plan. I sincerely hope Virgin has plans to expand, it will require brave decisions and A LOT of cash but I for one will be rooting for them.


I work with banks. I am however not what you would call a banker as my speciality is banking systems. I am a banking nerd. I work in a small consulting team of real bankers, most have been top bank execs. We assist with transformation programs but are particularly focused on launching banking operations and/or acquiring banking assets. I am therefore exposed to many of the problems we face and also many of the new initiatives, banks and governments are working on to improve products and services in the sector. It is not easy but I wholeheartedly believe that the industry will, eventually, change for better. Incumbents who can't deal with issues of poor quality products, service and inefficiencies will in the longer term loose significant market share. 

Very Welcome

Banking used to be an honourable profession and, I would argue, still could be. So if you have arrived at this url hoping to find another "hate the bankers" blog you'll be disappointed. Instead I hope this blog will be the place of constructive debate on how we can move on from the current rather gloomy status quo and create a better, more responsible banking framework. Although some of my thoughts naturally relate to the current home loan and sovereign debt crisis, many are merely related to creating "better banking". Better service, better systems, better products etc.

And then again most things here are just whatever I find interesting, it doesn't have to have a great academic point or even any point.