Dirty underwear
My, my. At Goldman Sachs things certainly
are not as they used to be. One Greg Smith, an executive director with GS’s
London office resigned today and felt it necessary to publish his goodbye
to the firm as a Op-ed in New York Times. His point is that the company’s
culture has turned into one of short term maximisation of profits instead of
building long-term relationships to the clients.
Smith agrees perfectly with William
Cohan, who in a book
last year gave the same picture of the firm. Are we surprised? No, or at least
we ought not to be. But the cabal of greedy bankers will just close ranks. As
said a commentator: “Maybe he’s made a sufficient amount of money in his life
that he isn’t particularly bothered if he isn’t employed in financial services
again and works in a completely different world like teaching.”
With this kind of attitude, it is clear
how much work the banking sector still has to do to position themselves as a
part of the broader society and not as the gods who have the right to rip their
clients off at will.
US bank stress test
Federal Reserve has subjected 19 banks to
stress tests, and in the aftermath of the test, it has become clear that Fed
wants to use it as a verdict on the bank’s desire to pay dividends.
Under a rather severe set of assumptions
regarding the economy and the markets, 15 out of 19 banks were found to be able
to keep their capital while continuing to pay dividends and re-purchase its own
stock. Citigroup was found not to meet the capital requirements, together with
Wells Fargo, Suntrust, and Ally Financials.
Interestingly, the take from the financial
markets were that Fed’s required capital is waaaay to high, that the companies
should be allowed to proceed with paying dividends, and that they are now so
strong that nothing can break them down.
We rest our case. One ought to remind
readers that Citigroup received most help of all US banks in 2008.
No talk of needing to adapt to a new
reality, where banks have to accept living with lower RoE.
Italy
In January, Italy’s industrial production
fell by 2.5% from December. That is not good news and again turns attention to
Italy as a potential problem after a good run that saw the country’s
refinancing costs fall strongly since late November.
For Europe, the number was an increase of
0.2 per cent, pulled by Germany’s positive reading of 1.5%. Europe may be
pulling out of the recession, but significant differences persist between North
and South.
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