Wednesday, 6 June 2012

Stress - it really can kill you!

It's Saturday evening and I wake up at the intensive care unit, a bunch of people around me, tubes sticking out everywhere (even places where you definitely dont want a tube) and I have no idea what has happened. My wife is with me and I try to speak but I cant, so I resort to making a thumbs up sign and a heart with my hands. I ask for a pen and paper to communicate with her. 'What happened?'. I am told that I got up that morning, complained I felt very strange in the chest but I was busy so I left anyway, made it as as far as the reception area of our building where I collapsed. Unfortunately I did so on top of a marble staircase and my face, chest, arms and legs took a brutal beating. I dont remember any of this but the prevailing theory is stress, and it has by far been the most stressful quarter, personally and professionally, of my life but right when I thought I could see the end of it, this happened.

My dad once told me, when I wanted to start my own busineess, that I 'have at least 10 good years in me', it seems that my 10 good years are up and I really need to make sure that I take better care of myself. If I dont how can I care for my family.

I got off lighly this time. No major lasting damage, doctors have checked it all and concluded it was just 'one of those things', but it could so easily have been very different. So I have to to remind myself that making money is important, more importantly though is always being around for my family.

Friday, 13 April 2012

NBNK, who are they?

Lately I have had a number of people (and trust me on my blog any number is considered ‘many’) coming from Google with search words such as ‘NBNK’, ‘Gary Hoffman’, ‘Co-op and NBNK’. I can’t recall ever having written anything about NBNK or Hoffman, but in order not to disappoint my next guests, I have decided to dedicate a post.

So to start from the beginning. Banks lent to a bunch of low grade private and commercial customers who couldn’t pay them back, had overvalued the collateral and suddenly the whole world was in the shit. The governments around the world got very busy intervening in different ways. In some countries they put up giant guarantees, in some they lent (freshly printed) money to banks, and in some they bought their shares and therefore partly or fully nationalising them.

A particularly crappy UK bank was Northern Rock, famed for is extremely aggressive lending policy, they were the first to sink and marked the beginning of the UK financial crisis of 2008. After failing to find buyers for it, the government had to take it into public ownership. Gary Hoffman was given the dubious honour as new CEO, tasked with getting the most out of a very poor situation. It was clear from the start that the governments plan for Northern Rock was to sort of clean it up, separate the good bits from the bad and then sell what they could get rid of.

Next up was HBOS, Lloyds offered to rescue HBOS by merging with it, regulatory approvals were rushed through and they formed a new banking giant. Shortly thereafter Lloyds announced that they now were in trouble, the balance sheet of HBOS was worse off than previously thought and they now needed a bailout, so the government essentially nationalised them too by taking a majority stake. However EU was looking at what was going on and said ‘wait a minute’ (should be read with a French intonation) that sale of HBOS, indirectly subsidized by the UK government and against all common sense, constitute many breaches of merger rules and you must therefore divest a large part of Lloyds (more than 600 branches and billions of savings, loans etc.) again. That asset sale, which is by no means concluded yet, is what is known as the Verde project. Apparently what could be bought over a few days and subsequently quickly integrated into the core business, is now so difficult to separate that it require several years and several hundred people to do. Bizarre. It didn’t improve matters much that Antonio Osorio, Lloyds newly appointed superstar CEO, suffered a mental meltdown and was rushed to a celebrity rehab centre, leaving mess to people that had either just arrived (parachuted in by Antonio) or didn’t really want to be there. There were other banks and building societies too, RBS for example, but they are irrelevant for this story so I’ll just keep it at Northern Rock and Lloyds.

Many senior people in the banking industry were looking at what was going on and knew that naturally somebody has to buy these assets and there must be some opportunities here. Companies from other industries, private equity firms etc. considered getting into banking and some investment vehicles were formed with the unilateral purpose of bidding for the banking assets. One of the companies was NBNK. Established by Lord Peter Levene and Sir David Walker, some formidable characters. NBNK then went on to hire Gary Hoffman, the former CEO of Northern Rock.

NBNK, it seemed, was particularly interested in scale and it was widely expected that they would bid and win the sale of both Northern Rock (why they had hired their former CEO) and Verde. NBNK hired a number of other heavy hitters and seemed very confident they would win. Then the first disaster struck, Virgin was picked over NBNK to buy Northern Rock. Undeterred NBNK shifted focus on Verde which after all is the much bigger fish. However it wasn’t long till NBNK suffered a second and much more devastating blow. Lloyds announced that they had selected Co-op as the preferred bidder for Verde. Looking at the press releases following the decision it was hard to tell who was more surprised Co-op or NBNK. The former issued a very lukewarm statement saying along the lines if “thanks, now let’s see if we can agree terms” and NBNK were pretty discontent (probably also a bit embarrassed that the only thing they had achieved for their investors was to pay themselves some generous salaries).

Anyway over the last few months, the Co-op bid has become ever shakier. The regulator has expressed strong concerns over Co-op boards ability to credibly lead a major bank and just about everyone (including Co-op's own CEO) are asking ‘do they have the money’, So a few days ago NBNK launched a PR shock and awe campaign, registering a fresh bid for Verde, even though that’s probably against the bidding process (remember a preferred bidder has already been chosen) but as the Co-op might not be able to conclude the deal what NBNK is trying to achieve is to make sure that Lloyds won’t have an excuse to spin-off the Verde assets in an IPO.

One key point though is that by all accounts NBNK’s plan is to run Verde pretty much as is, they don’t seem to have any radical plans for it and given the choice it is difficult to understand why investors (remember NBNK have to attract a couple of billon pounds to fund the purchase) would want to give their money to NBNK if they could wait for the IPO, buy the shares directly and get it cheaper (I’m assuming that NBNK would also want to be paid). NBNK are however offering existing Lloyds shareholders, including the government, shares in the new bank and claim that they are able to wholly-fund the demerger which will sound very appealing to Lloyds (slightly complicated to explain but because of imbalances in asset/liabilities in Verde, Lloyds could end up lending a large amount of money to the purchaser). Very interesting to follow and I suspect we haven’t seen the end of the soap opera.

Wednesday, 11 April 2012

Delicate negotiations - telling your Business Partner you want more

Is it business, or is it personal? The truth is when you partner with somebody to start a business no matter how you start it will invariably become a bit of both.

If you ask for a bigger share, your partner will often see that as coming out of his or her own pocket.
The trouble is this. You are approached by somebody who says to you 'I have a great idea'. I have it defined, have established all the relevant relationships, and I can sell it, the only piece missing is YOU, I need you to build a prototype that I can sell, for that I’ll give you a share in the business and a exec role when it kicks off.

You say, yes that sounds great, you build the prototype but of course realise that the big customers won’t agree to anything before there is a proven case, you therefore build a production system to pilot with some smaller companies. You realise they have different requirements, you need more functionality to support them and that growing organically will take a lot longer to generate a substantial income.

One day you wake up and say to yourself 'wait a minute, I have delivered far beyond our original agreement, and I am now working for free'. As an investor you think, the founder hasn’t delivered her plan, and this must be funding round two, you want more for the additional risk. As a friend you know that anything extra that you ask for will dilute the founders shareholding and that they will be very upset, as an individual you are finding yourself between a rock and a hard place, because you know you are critical to the success, the founder assures you again that she is 'extremely hopeful to land a big deal soon' but you can’t pay your rent with a wish or a promise.

Delicate indeed. What do you do? I truly don’t have the magic formula. I think it is very important to be clear about what you are doing and for what in return. Failure to do that (and we all fail because nobody starts a business thinking it will be unsuccessful) I think you will just have to check your moral compass regularly. Make sure that you are not being taken advantage of and also that you are not exploiting your own position. It can only work in the longer term if you are both thinking you are getting a fair deal. The really hard part is that you might not be able to find a compromise in which case you should cut your losses (or winnings) and walk. The feeling of injustice is like a cancer that will only get worse. Be prepared to compromise but only agree to a deal you are truly happy with. That’s what I think anyway. I’m certainly not an expert but I’m right at the centre of it on a number of initiatives, so any word of advice is definitely appreciated.

Tuesday, 3 April 2012

The best customer is a desperate customer

I have found that I can only sell to two kinds of people, the egocentric and the desperate. I sell essentially the same thing to both, "help". These days the in-thing is to talk about 'intrepreneurs', the idea being that you find somebody truly excited about your product or service inside the company you are trying to sell to. For me it has worked much better to seek out the person who is under preassure and take their troubles off them. To stick with the theme, let's call him the despreneur.

Have a look at the despreneur on the left. I've met him several times in the last two months. Ask him a couple of probing questions about how things are going and the eye rubbing begin. It was such an obvious case of non-verbal communication and it happened in exactly the same way with two different people only days apart, so I decided to Google it and figure out what it means;

'When a person is feeling uncomfortable, the eyes may water a little. To cover this and try to restore an appropriate dryness, they person may rub their eye and maybe even feign tiredness or having something in the eye. This also gives the opportunity to turn the head away. The rubbing may be with one finger, with a finger and thumb (for two eyes) or with both hands. The more the coverage, the more the person is trying to hide behind the hands.'

Really interesting. So that's the point where we start talking about how we can make his life easier, not in detail of course because we know he really just want to hide from the problems, we just make it clear that we know what we are doing, 'we have done it a million time before, so just leave it with us', and unsurprisingly, if it's not his own money he is spending, he is interested.

To rent or buy, that's the question

It’s been a while since I blogged. With two family members in hospital and a pregnant wife, it’s just been a little hard to give a toss about banking. However prompted by news that our lease can’t be extended, landlord went bankrupt and I assume the receivers want to try to sell it, I have regained some interest in the property market. As I posted about previously, I like renting and being completely debt free, yes I don’t reap the rewards of property price inflation but conversely, I haven’t seen my personal finance completely implode with property price crashes around the world in the last few years. I suppose my careful approach reveal my continental working class background.

But anyway, being a retail banking expert of sorts and now homeless, I must care a bit about property prices. I guess if we were looking at a recovery in house prices one should consider buying something. Many analysts and several of my colleagues are indeed expecting a recovery, citing 'pent up demand' as the key reason. Their predictions are based on the fact that a lot of people haven’t been able to get on the housing ladder, mainly because of strict lending criteria. So the argument goes that when lenders start relaxing their lending criteria, more people will be in a position to buy and therefore prices will increase, it seemingly doesn’t matter that these people will be stretched beyond the maximum they can afford to repay, where there is a will there is a way, is the argument.

My view is this. We might see another short period of house price inflation followed by a long period of deflation. When government finally abandon the idea that increasing house prices are in some way good for the economy and give up subsidising it in every way possible, when Bank of England starts to increase the interest rate, and when the small private property investors (and by that I mean people with little or no knowledge of macro economics or property) start to realise that bricks and mortar are no longer a sure thing. I could be wrong, of course, but for me continuing to rent seem by far the safer option.

Sunday, 29 January 2012

Just leave Stephen Hester to shovel his shit

We give the man nothing but a pile of shit and a shovel and then complain, when he hasn't turned it into gold. I think he has been doing a lot of shovelling and not a bad job. Is it the appropriate amount, I don't know, but surely the people who should be penalised, if anybody, are the ones who hired him on terms we now don't like.

Anyway let's just consider what 'success' looks like. Basically the current targets are linked to share prices because that will provide an exit for the government, something that both government and banks are keen to see. BUT that doesn't mean long term improvement in cost to income ratios (profitability), it simply mean shares went up. But isn't that the same thing? No, certainly not.

With some simple accounting gymnastics you can for example make 2011 look a little worse than it is in order to make 2012 or 13 look a bit better than it is. Markets react strongly to both examples. Hopefully just enough to get over that threshold, so that you can collect your bonus and get rid of UKFI (the government).

I don't trade, I don't gamble, I don't even lotto, my brain cant handle the stress, but if I did, I would be keeping my eye on the above.

The thing to look out for is excessive loss provisioning (putting money aside for a loss that hasn't incurred and according to my theory wont incur) in 2011. Those banks might have a surprise for you in the next annual report.

So just leave Stephen to shovel his shit, reward him for that.

Saturday, 28 January 2012

Pitching to the super rich - do you want to be more rich or famous?

I work in retail banking mostly. That’s what I know and what I’m good at. However because we are involved with starting, acquiring and transforming companies I’m increasingly exposed to the world of investment banking. Now investment banking is a catch all for many different things, I’m not talking about trading but the scenario where you want to secure a very large amount of money for your venture, +100 million, you can’t just walk into your bank branch and get a business loan. You need investment.
So you go to an investment bank, they essentially act as the broker. Their job is to find people or companies willing to invest in you. If the deal goes through the investment bank receive a large fee. It’s very similar to selling a house except the money is bigger. My impression is that investment bankers aren’t the high flying sleazeballs they are portrayed as, I would rather describe them as clean cut, small round spectacle wearing, prep school boys. As a middleman you want to be credible but not too flamboyant.
So the investment banker will introduce you to a private equity firm. These tend to be small companies overseeing vast amounts of money. Often the PE firm is lead by rather more colourful characters, the super rich who have a sizeable chunk of their inheritance invested in the fund. If you are in the UK you’ll also encounter a certain amount of Lords and Sirs and other fancy titles here. I assume it has some sort of positive effect on their ability to attract money to their fund. Why? Well one theory would be that PE firm, handles money from many foreign wealth funds. One can perhaps assume that the 'royals' in charge of these eastern wealth funds have a soft spot for titles. If you are digging money out of the ground you are probably more interested in cool friends and status than more money.
So we go to the investment banker, the investment banker to the PE man and the PE man has what is called commitments from foreign wealth funds to allow him to draw some of their money to invest. It takes time and many many meetings to get your hands on that pot of gold at the end of the rainbow. Slowly slowly catchy monkey.
So what do they want in return? They like to get a return, yes, but the people we are pitching to already have more money than they can comprehend, so just telling them "I can make you a lot of money" doesnt really get them  excited, but "I can make you famous" does. They of course don’t want you to pee away their money either, so a plan for acquisition of a large amount of assets (their security) would probably go down better than a very ambitious start up. We have therefore concluded that a business case with a steady conservative return, considerable tangible assets and a very PR friendly proposition, is the best investment profile for us.
So ask yourself, do you want to be rich or famous? If you don’t care about the latter, find somebody who does, position yourself as the one who can help them achieve that ambition, somebody who has 5 billion and effectively don’t care if its 4 or 6, help them leave that legacy they desperately crave. The bigger the plan, the better the response and we have a pretty grand plan.

to be continued..

Friday, 6 January 2012

The year of the black dragon

2012. The year of the black dragon. 6 am,  on the train on my way cross country to the first board meeting (im a shareholder in a small legal services business) of the season.  I'm sitting here wondering what kind of year it will be.  2011 was a watershed year for me, a year where my wife and I defied the economic trend and spent/invested like never before, we got involved with a couple of businesses and they were, on balance, successful. I released myself from some of my old demons and could, for the first time in a long time, get a decent nights sleep without worrying about EVERYTHING and nothing. To all those aspiring entrepreneurs out there, who can build great things but forget all the smaller bits in the process, my advice is; get yourself a good wife (or husband) and a good accountant and let them manage what you can't or won't, it will do wonders to your sanity. It's been 2 1/2 years since I quit my job (one of those jobs where you spend most of your time on office politics) and turned myself into what some would call an entrepreneur but is much better described, by one of my customers, as a middle class hobo. For two and a half years, I have not had a week with 5 days in the same office, I have worked less, earned more and spent an enormous amount og my time in coffee shops.  During this period, I have worked for 3 different employers simultaneously. I dont have any debt and I rent EVERYTHING, so its very easy to pick up and go somewhere else.  When we have more, we spend more, when we have less, we cut down a bit. When there is work, its 24/7, and when there isn't we spend time together. We have also had a freedom to travel a lot, start new businesses and generally do what we want to do. However 2011 ended with a stark reminder that we, perhaps, can't live this way forever. We have illnes in the family now and it will require our emotional and financial support and I therefore started to consider taking a full time job again to get some more regularity into our life.

Financially this year could really go either way. Judging by the amount of communication, I have received over the christmas holidays and particularly the first few business days of january, my business partners have decided to come at 2012 all guns blazing. I hope we will all do that. Do what we do just a little bit better, and let our optimism rule the fear. Lets tame the dragon and ride it to more prosporous times. The Chinese certainly think it will be a lucky year and 1 billion optmistic workers and consumers might be just the medicine the world needs.

Officially the year of the black dragon doesn't start until February, so I will continue my hobo lifestyle a while longer until I get a chance to gage what kind of beast we are dealing with.