Near Brompton Cross in South Kensington, Jeeves, a drycleaner, has a big sign in the window: “Bankers still Welcome. 7 shirts will be done for the price of 5, How’s that for a bonus?”
I thoroughly approve of a deal and of the open arms to much maligned bankers. I even approve of bonuses. However, on a global scale, nationalised banks that have the effrontery to pay enormous guaranteed bonuses are abusing public trust, while those that argue they have not taken government money are conveniently ignoring that the whole macro system has been transformed in order to bail them out.
Or why else do we have quantitative easing and the slashing of interest rates and enough moral hazard to drown in?!
I am also somewhat mystified by why the FSA’s new remuneration code insists that firms should not enter into contracts with individuals which provide guaranteed bonuses for more than one year (my italics). A rule like that is made to be abused.
To lunch at the Boxwood Café in Knightsbridge with Michael Hintze, chief executive of CQS, one of the few asset management companies running hedge funds that met investor redemptions.
As a result, “we were used as an ATM” by some investors and prime brokers, he says. Pre- the Lehman explosion to a couple of months ago, assets under management fell from $10 billion to $6.4 billion, the majority of which was due to redemptions rather than performance. Hopefully, this enlightened attitude to customer service will lead to inflows back. Hintze points out CQS is beginning to see net subscriptions.
Australian-raised Hintze, who spent three years as a captain in the army, is the founder, chief executive, senior investment officer and chairman of the CQS executive committee. Surely there is a key man problem here?
"If I got knocked over by a bus, it would go on," he says. "I don’t pay people not to get advice."
He, like most of the industry, is concerned by the EU’s draft Alternative Investment Directive. “It is clear you need rules for the effective functioning of markets. What is peculiar is that it is not about market stability,” he says, pointing out that the credit crunch was not caused by hedge funds, while the shadow banking system is about issues such as structured investment vehicles (SIVs), “but those are run by banks.” He also argues that hedge fund strategies and structures are in many ways dictated by what banks allow them to do.
He says the draft directive in its present form is more of a “UK plc problem” as it makes countries such as Switzerland more attractive to set up a fund (“I won’t go off but at the margin it will have an effect”), is arguably protectionist on the back of the passport requirements thus potentially inviting US retaliation, while its insistence that depositories must be EU credit institutions would make global trading very difficult.
If passed in its present form, the effect overall would be to limit pension fund choice and increase the cost to pensioners. Still, not all hope is lost, as there is some pretty hard lobbying going on, not least by the UK Government. Better late than never.
Hintze, who has a MSc in Acoustics, among other degrees, is not surprised by the market run over the last months, noting the huge amount of liquidity being pumped into the system by governments via fiscal stimuli. On the banks, he believes the banking system is fine.
“Would you buy banks here [in the UK?] Yes you would.”
A few interesting statistics.
a. Chinese regulators are telling the banks to focus their loans on the real economy, as they have been helping fuel a stockmarket and property bubble. The forecast is for 40 per cent loan growth this year. This is a classic example of how government intervention – the Chinese government had pushed the banks into abandoning their new risk management systems to ensure economic growth – always has unintended consequences.
b. The UK’s five largest mortgage lenders were responsible for nearly 75 per cent of all loans in 2008 as smaller players withdrew from the market due to problems in accessing wholesale funding, according to the Council of Mortgage Lenders. Competition is waning everywhere.
And just for fun:
A Member of Parliament to British Prime Minister Disraeli: "Sir, you will either die on the gallows or of some unspeakable disease."
"That depends, Sir," said Disraeli, "whether I embrace your policies or your mistress."