The confusion surrounding the banker super-tax and to whom it will actually apply still rolls on nearly a week after the Chancellor's pre-Budget report announcement of a 50% levy on all banker bonuses of more than £25,000, up until 5 April 2010.
Although at first it looked like fund managers, brokers and advisory boutiques had had a lucky escape, this now looks far from certain. Amid growing confusion over who exactly will and will not be affected (and a bit of controversy over the exclusion of N M Rothschild) the government is now expected to extend the scope to ensure that Rothschild (and others) do not slip through the net by way of their non-standard year-ends and other quirks.
Despite a lack of clarity, City heavyweights have wasted no time in launching a riposte - eight of Britain's top stockbroking firms have joined forces to fight the government and its tax. London-based interdealer broker Tullett Prebon yesterday went one step further when it offered staff the chance to move to one of its overseas offices in regions with 'more certain tax regimes.'
Although judged by some industry observers to have been a hasty move by Tullett, one can hardly blame them and others when the picture remains so unclear. Claims of a mass exodus to Switzerland are thought by many to be exaggerated, particularly with signals from our European neighbours that they will be potentially following suit. However this, combined with the 50p tax rate, does little to reassure overseas banks that the UK is a place to stay and do business.
However what is most likely to happen, and will be ugly, is a surge in guaranteed bonuses. Exempt from tax, higher base pay is likely to be taken up even more widely (adding to the already growing trend.)
In reality, it is this type of City remuneration, not bonuses, which is the most undesirable – not only because of the proven encouragement of highly risky and reckless behaviour but the hefty bonus contracts into which banks are then locked and may later on be able to ill afford . If profits start to fall, banks will have little flexibility to cut remuneration and it could well be in the end that it is the shareholders that lose out as institutions slash dividends in order to dish out the guaranteed bonuses to retain top staff.
SS
Tuesday, December 15, 2009
Thursday, November 26, 2009
A question of trust
Pension scheme trustees have been the whipping boys (and girls) of the pensions industry for many years. Four years ago, FRC Chairman Sir Brian Nicholson was amongst those bemoaning their inadequacies, while more recently, Ros Altman was arguing in the Telegraph that "the complexity of investment means you have to question whether they are equipped for the task."
The Pensions Regulator's new report raises similar concerns about whether trustees are fit for purpose. The report notes trustees must ensure they have the right skills and hire the right people to ensure their pension scheme is run smoothly, and reveals that fewer than half the 800 or so trustees surveyed by the regulator "felt 'very confident' about the internal controls put in place to avoid inappropriate investment strategies".
There are striking parallels here with a survey carried out back in 1998 by the then Department for Social Security (now DWP), which found that "most trustees came to the position with little or no direct relevant experience".
The picture which emerges is of a committed and well intentioned, if not particularly expert, group of people, faced with an increasingly complex task. A bit like a parish council or a board of school governors.
To the average pension scheme member, though, the "committed" and "well-intentioned" qualities probably provide enough reassurance to outweigh the lack of expertise. The alternative to the trustee model, after all, would be a contract-based pension, in which a third party – usually an insurance company – provides the employee with a pension arrangement as just another financial product (like an ISA or an insurance policy). And we all know what high esteem such service providers are held in.
AF
The Pensions Regulator's new report raises similar concerns about whether trustees are fit for purpose. The report notes trustees must ensure they have the right skills and hire the right people to ensure their pension scheme is run smoothly, and reveals that fewer than half the 800 or so trustees surveyed by the regulator "felt 'very confident' about the internal controls put in place to avoid inappropriate investment strategies".
There are striking parallels here with a survey carried out back in 1998 by the then Department for Social Security (now DWP), which found that "most trustees came to the position with little or no direct relevant experience".
The picture which emerges is of a committed and well intentioned, if not particularly expert, group of people, faced with an increasingly complex task. A bit like a parish council or a board of school governors.
To the average pension scheme member, though, the "committed" and "well-intentioned" qualities probably provide enough reassurance to outweigh the lack of expertise. The alternative to the trustee model, after all, would be a contract-based pension, in which a third party – usually an insurance company – provides the employee with a pension arrangement as just another financial product (like an ISA or an insurance policy). And we all know what high esteem such service providers are held in.
AF
Tuesday, November 17, 2009
Is TUPE Loopy?
TUPE the "Transfer of Undertakings (Protection of Employment)" in my view should probably stand for "Totally Unwanted Piece of Employment" law. I knew it existed but I suspect like so many of you, it never occurred to me that it would ever affect us. And then bam! - it comes along and gives you an almighty smack around the face when you are least expecting it (or wanting it for that matter).
The rub is that legislation was revised in 2006 when it was extended to include "service provision changes". That suddenly meant that if you worked in a service industry such as marketing, advertising or PR, you could be liable to take on staff from incumbent agencies and on the same terms as they were originally employed when clients, inevitably, move from one provider to the other. This is absolutely crazy. Often the reason clients change service providers is because they are either unhappy with the service they are getting or want a fresh team with fresh ideas or even a combination of both. And probably more importantly given current market conditions, agencies could land up with staff that they simply don't want or can't afford.
On the other side of the coin this can be used as a convenient way of off-loading the 'dead wood' - saving the expense of politely showing people the door. Of course, the savvy Directors among you will be quick to ensure that your 'rising stars' would not inadvertently fall within the rules of the legislation. But it does create a whole new downside risk when pitching for new business, especially when the incumbent is small and losing clients. Does it effectively create a potential liability for clients who take on a small PR agency and find that moving agencies suddenly has an unknown price attached to the pitch process?
Don't get me wrong, I am all for making sure that employees aren't exploited for the benefit of businesses, but I think this is one step too far. What happened to good old loyalty and duty of care? And the employee who is transferred between employers can hardly relish the prospect of arriving at their new company knowing they weren't chosen but were foisted upon them?
The new TUPE rules were criticised in The Lawyer a couple of years ago, which is ironic because in my view the only winners here are the lawyers (let's face it, the fees earned just explaining the legislation are likely to net them at least £1,000). And the losers? Well, pretty much everyone else really.
PD
The rub is that legislation was revised in 2006 when it was extended to include "service provision changes". That suddenly meant that if you worked in a service industry such as marketing, advertising or PR, you could be liable to take on staff from incumbent agencies and on the same terms as they were originally employed when clients, inevitably, move from one provider to the other. This is absolutely crazy. Often the reason clients change service providers is because they are either unhappy with the service they are getting or want a fresh team with fresh ideas or even a combination of both. And probably more importantly given current market conditions, agencies could land up with staff that they simply don't want or can't afford.
On the other side of the coin this can be used as a convenient way of off-loading the 'dead wood' - saving the expense of politely showing people the door. Of course, the savvy Directors among you will be quick to ensure that your 'rising stars' would not inadvertently fall within the rules of the legislation. But it does create a whole new downside risk when pitching for new business, especially when the incumbent is small and losing clients. Does it effectively create a potential liability for clients who take on a small PR agency and find that moving agencies suddenly has an unknown price attached to the pitch process?
Don't get me wrong, I am all for making sure that employees aren't exploited for the benefit of businesses, but I think this is one step too far. What happened to good old loyalty and duty of care? And the employee who is transferred between employers can hardly relish the prospect of arriving at their new company knowing they weren't chosen but were foisted upon them?
The new TUPE rules were criticised in The Lawyer a couple of years ago, which is ironic because in my view the only winners here are the lawyers (let's face it, the fees earned just explaining the legislation are likely to net them at least £1,000). And the losers? Well, pretty much everyone else really.
PD
Friday, November 6, 2009
Keeping the lifeboat afloat
Not the quietest of weeks for the Pension Protection Fund.
The Fund was set up four years ago in response to growing clamour from pensioner lobby groups to provide compensation for people whose DB pensions fail to pay out when the sponsoring employer goes belly up. The initial funding comes from a levy charged by the PPF on all DB schemes, the level of which is determined by each scheme's exposure to risk – the greater the exposure, the higher the levy.
Earlier this week, it was reported that Transport for London is seeking a legal review of the levy imposed by the PPF. TfL claims the levy is "unreasonable", and other DB providers with similar concerns about the unfairness of the levy will no doubt be awaiting the outcome with interest.
And today it emerges that the Fund's deficit more than doubled in the year to March 2009, from £517 million to £1.23 billion, prompting – according to the Telegraph – "questions about the viability of Britain's pensions lifeboat".
Before anyone presses the panic button, however, it's worth bearing a couple of things in mind. Firstly, as PPF Chief Executive Alan Rubenstein recently pointed out, the PPF is currently paying out around £7m a month to its 13,000 beneficiaries, and while these numbers will increase in the coming months, the Fund already has some £3bn in assets, so "let's not pretend there are not extreme scenarios out there that could see us run out of money, but that will not be happening in the foreseeable future".
And secondly, Mr Rubenstein and his colleagues are smart enough to have learned from the American experience. The US equivalent of the PPF, the Pension Benefits Guaranty Corporation was set up in the mid seventies, and has amassed an eye-watering $33 billion deficit. Even so, the debate in Washington is around how to fix the PBGC, not how to get rid of it. What politician, after all, would want to be seen as the individual who allowed a lifeboat to sink?
AF
The Fund was set up four years ago in response to growing clamour from pensioner lobby groups to provide compensation for people whose DB pensions fail to pay out when the sponsoring employer goes belly up. The initial funding comes from a levy charged by the PPF on all DB schemes, the level of which is determined by each scheme's exposure to risk – the greater the exposure, the higher the levy.
Earlier this week, it was reported that Transport for London is seeking a legal review of the levy imposed by the PPF. TfL claims the levy is "unreasonable", and other DB providers with similar concerns about the unfairness of the levy will no doubt be awaiting the outcome with interest.
And today it emerges that the Fund's deficit more than doubled in the year to March 2009, from £517 million to £1.23 billion, prompting – according to the Telegraph – "questions about the viability of Britain's pensions lifeboat".
Before anyone presses the panic button, however, it's worth bearing a couple of things in mind. Firstly, as PPF Chief Executive Alan Rubenstein recently pointed out, the PPF is currently paying out around £7m a month to its 13,000 beneficiaries, and while these numbers will increase in the coming months, the Fund already has some £3bn in assets, so "let's not pretend there are not extreme scenarios out there that could see us run out of money, but that will not be happening in the foreseeable future".
And secondly, Mr Rubenstein and his colleagues are smart enough to have learned from the American experience. The US equivalent of the PPF, the Pension Benefits Guaranty Corporation was set up in the mid seventies, and has amassed an eye-watering $33 billion deficit. Even so, the debate in Washington is around how to fix the PBGC, not how to get rid of it. What politician, after all, would want to be seen as the individual who allowed a lifeboat to sink?
AF
Wednesday, November 4, 2009
(You gotta) fight for the right to (counter)party
Who would have thought that white-boy hip-hop could hold a mirror up to the financial markets...no, not me either. Firstly, we've got the Beastie Boys fighting for the right to a (central) counterparty and then InterContinentalExchange (ICE) leading the chorus of Vanilla Ice's 90s anthem "Ice Ice Baby". Post-Lehmans ("PL" – that's right we're coining a new acronym right here, right now) the concept of counterparty risk came to the fore – it always existed, it's just that people didn't really expect giant banking institutions to fail.
Not for the first time, the market was spectacularly wrong. Either way, the successful transfer of trades PL overcame a major hurdle in the clean-up operation and marked the clearing and settlement operations that underpin many markets as one of the few success stories of last year. This was not only true of equities but also the centrally cleared futures and OTC interest rate swaps, which were swiftly reallocated without loss to counterparties and without disruption. On the other hand, Lehman's unregulated credit default swaps and non-cleared interest rate swaps brought chaos to the market. The case for centralised clearing and the danger of defaulting counterparties was duly presented and the debate has rumbled on behind the scenes ever since.
Now, counterparty risk and centralised clearing have again been cast centre stage, with moves afoot on Capitol Hill to institute sweeping changes to the structure and regulation of the massive OTC derivatives business. Citadel's influential CEO Kenneth Griffin has been quick to weigh into the debate and called for the overturn of the 'merchants of status quo' and the worth of the centralised clearing model. Granted, his motives are probably not entirely altruistic – after all, this is the same Citadel that has a joint venture with the CME to clear credit. Self-interest aside, clearing is definitely back on everyone's lips – from exchanges to regulators to banks to hedge funds.
ICE, the futures exchange group, has been swift to react to the new world order and forged ahead in the race to clear credit default swaps. The group announced yesterday that nearly all new CDS contracts would be cleared centrally by the end of the month. This is impressive stuff and as Hal Weitzman writes in today's FT: "ICE has taken a strong lead amongst exchanges". This is probably a wise decision and as Jeremy Grant relayed earlier in the week: "governments and regulators in the US and Europe have made wider use of clearing – particularly in the over-the-counter derivatives market – a pillar of reform of financial markets." ICE has stolen a march on their competitors and given their relationships and collaboration with the main CDS dealers has reportedly cleared more than 43,000 index trades in Europe and the US with a notional value of more than $3,5000bn.
This is a big, lucrative market and Jeff Sprecher, ICE's chief executive, has been in an understandably buoyant mood of late. Does this signal a return to confidence in the credit derivatives market? Perhaps so...in which case – ICE ICE Baby indeed.
JS
Not for the first time, the market was spectacularly wrong. Either way, the successful transfer of trades PL overcame a major hurdle in the clean-up operation and marked the clearing and settlement operations that underpin many markets as one of the few success stories of last year. This was not only true of equities but also the centrally cleared futures and OTC interest rate swaps, which were swiftly reallocated without loss to counterparties and without disruption. On the other hand, Lehman's unregulated credit default swaps and non-cleared interest rate swaps brought chaos to the market. The case for centralised clearing and the danger of defaulting counterparties was duly presented and the debate has rumbled on behind the scenes ever since.
Now, counterparty risk and centralised clearing have again been cast centre stage, with moves afoot on Capitol Hill to institute sweeping changes to the structure and regulation of the massive OTC derivatives business. Citadel's influential CEO Kenneth Griffin has been quick to weigh into the debate and called for the overturn of the 'merchants of status quo' and the worth of the centralised clearing model. Granted, his motives are probably not entirely altruistic – after all, this is the same Citadel that has a joint venture with the CME to clear credit. Self-interest aside, clearing is definitely back on everyone's lips – from exchanges to regulators to banks to hedge funds.
ICE, the futures exchange group, has been swift to react to the new world order and forged ahead in the race to clear credit default swaps. The group announced yesterday that nearly all new CDS contracts would be cleared centrally by the end of the month. This is impressive stuff and as Hal Weitzman writes in today's FT: "ICE has taken a strong lead amongst exchanges". This is probably a wise decision and as Jeremy Grant relayed earlier in the week: "governments and regulators in the US and Europe have made wider use of clearing – particularly in the over-the-counter derivatives market – a pillar of reform of financial markets." ICE has stolen a march on their competitors and given their relationships and collaboration with the main CDS dealers has reportedly cleared more than 43,000 index trades in Europe and the US with a notional value of more than $3,5000bn.
This is a big, lucrative market and Jeff Sprecher, ICE's chief executive, has been in an understandably buoyant mood of late. Does this signal a return to confidence in the credit derivatives market? Perhaps so...in which case – ICE ICE Baby indeed.
JS
Playing ketchup
M&S has reported sterling figures this morning. Great news for me, I am a share holder (albeit of about 2 shares) but that isn't the half of it..........
The best news I have heard so far this week amongst the doom and gloom of the usual business stories and the continued injection of cash into ailing banks (but that is another story) is that Marks and Spencer is to expand the sale of branded goods from a select number of stores to more than 600 stores across the UK. I am hoping this includes my local.
For years I think M&S have been missing a trick. You see the M&S own branded ketchup just isn't quite up to it. And the fact that you could buy a ready meal of the highest quality and a t-shirt at the same time was beginning to lose its appeal. I made the move from M&S to Waitrose so that I could get different brands but now I am going back and fast.
According to Mysupermarket I will also save some pennies. M&S is cheaper than Waitrose on 1,200 lines although Waitrose has retaliated by saying it is 6% cheaper on the other lines – we'll see. The battle for market share between these two quality food outlets has begun but I know where my loyalties lie........
LW
The best news I have heard so far this week amongst the doom and gloom of the usual business stories and the continued injection of cash into ailing banks (but that is another story) is that Marks and Spencer is to expand the sale of branded goods from a select number of stores to more than 600 stores across the UK. I am hoping this includes my local.
For years I think M&S have been missing a trick. You see the M&S own branded ketchup just isn't quite up to it. And the fact that you could buy a ready meal of the highest quality and a t-shirt at the same time was beginning to lose its appeal. I made the move from M&S to Waitrose so that I could get different brands but now I am going back and fast.
According to Mysupermarket I will also save some pennies. M&S is cheaper than Waitrose on 1,200 lines although Waitrose has retaliated by saying it is 6% cheaper on the other lines – we'll see. The battle for market share between these two quality food outlets has begun but I know where my loyalties lie........
LW
Tuesday, November 3, 2009
Ucits or lose it: life on the hedge
Right now Ucits are hotter than Brad Pitt and Angelina Jolie in a sauna as hedgies fire off new funds into the market left, right and centre. About 75 to 100 Ucits funds are estimated to have been launched to date, a figure that rises to around 300 when Ucits hedge funds are taken into account. The sudden craze is partly due to high profile hedge fund names such as Man Group, Brevan Howard and GLG Partners launching replicas of their existing hedge funds in the Ucits III format. Some have claimed that hedgies are tapping into the Ucits space in a bid to trump the draft EU directive on Alternative Investment Managers due to come into force next year, whilst others say that hedge funds are keen to expand their investor base. But some industry pundits have urged caution that the conversion of complex hedge funds into Ucits funds could expose smaller investors to hidden risks.
Hedge funds will need to change their business model in order to survive..."transform or die" is a cry often heard in the press. But does the entry of hedge funds into the regulated, onshore Ucits space not threaten the traditional offshore unregulated hedge fund model? Could this be a sign that the traditional hedge fund model is becoming obsolete?
NB
Hedge funds will need to change their business model in order to survive..."transform or die" is a cry often heard in the press. But does the entry of hedge funds into the regulated, onshore Ucits space not threaten the traditional offshore unregulated hedge fund model? Could this be a sign that the traditional hedge fund model is becoming obsolete?
NB
Subscribe to:
Posts (Atom)
Posts
