Sunday 12 August 2012
Sky News blunder - sex rather than six
Sky news mobile app shows 'sex and 11' rather than 'six and 11'
Tuesday 4 October 2011
Thursday 15 September 2011
Rogue trading in UBS - US$2bn loss expected
Today marks a day in history within the banking sector when London Police arrested a 31 year old banker suspected of a $2bn fraud within the Swiss Banking giant UBS.
Not surprisingly, the bank is not giving out more details to the market until all the 'positions' are closed and the dust settles, however under the disclosure rules they have already given a statement to the market about a potential $2bn loss as a result of this unauthorised and rogue trading. There is also news in some editions that this hit could result in UBS going into the red for the quarter.
The banker arrested and identified as Kweku Adoboli used to work at the equities desk of the Bank popularly called as 'Delta One'. Potentially trading in Exchange Traded Futures (ETF). I will definitely do a separate article on ETFs in the near future so watch this space!
What strikes to mind immediately after hearing the news is that a loss as big as this is unlikely to involve a plain vanilla trade. It is likely to be more structured and complicated and potentially involving the use of derivatives too. As days progress we will obviously have more details but in the mean time the other obvious question is the role of risk management and the internal controls which operate within the bank.
Process brief
Generally, you would expect the trader to be entering into his deals from his desk either through phone or through his computer terminal. The deal would be in the recorded in the front office system and picked up by the back office team. This would be followed by the middle and back office taking appropriate steps to ensure functions such as sending and receiving of trade confirmations with the counterparty, front to back office reconciliations, cash/ nostro reconciliations, daily P&L calculations etc etc.
What if the trader enters into a deal but does not inform the back office?
A number of things can happen through which this could be identified. These could be (i) control operators listening to recorded telephones, (ii) identification through margin calls as one would expect counterparty to ask for margins in such big positions specially those that can generate such big losses, (iii) identification through nostro reconciliation if any payments have been made, (iv) independent confirmations process, (v) limits monitoring and so on.
In a nutshell, it would not have been easy to run such large open positions given the compliance and risk management policies that a lot of banks are investing in heavily. There will be a lot of questions to ask of the risk management team as to how this happened and why no one was able to detect it.
It also brings into question the role of regulators and internal auditors? What have they been doing if they did not identify in their periodic reviews of internal controls? The details are still very sketchy so it will be an interesting point to see what comes in the details.
Some even say that the future of investment banking in UBS hangs in a balance specially having to bear this rogue trading incident after all that they went through in the credit crisis! The traders immediate boss has already resigned and we wait to see what comes out in the days to come.
Follow for more updates to come!
Not surprisingly, the bank is not giving out more details to the market until all the 'positions' are closed and the dust settles, however under the disclosure rules they have already given a statement to the market about a potential $2bn loss as a result of this unauthorised and rogue trading. There is also news in some editions that this hit could result in UBS going into the red for the quarter.
The banker arrested and identified as Kweku Adoboli used to work at the equities desk of the Bank popularly called as 'Delta One'. Potentially trading in Exchange Traded Futures (ETF). I will definitely do a separate article on ETFs in the near future so watch this space!
What strikes to mind immediately after hearing the news is that a loss as big as this is unlikely to involve a plain vanilla trade. It is likely to be more structured and complicated and potentially involving the use of derivatives too. As days progress we will obviously have more details but in the mean time the other obvious question is the role of risk management and the internal controls which operate within the bank.
Process brief
Generally, you would expect the trader to be entering into his deals from his desk either through phone or through his computer terminal. The deal would be in the recorded in the front office system and picked up by the back office team. This would be followed by the middle and back office taking appropriate steps to ensure functions such as sending and receiving of trade confirmations with the counterparty, front to back office reconciliations, cash/ nostro reconciliations, daily P&L calculations etc etc.
What if the trader enters into a deal but does not inform the back office?
A number of things can happen through which this could be identified. These could be (i) control operators listening to recorded telephones, (ii) identification through margin calls as one would expect counterparty to ask for margins in such big positions specially those that can generate such big losses, (iii) identification through nostro reconciliation if any payments have been made, (iv) independent confirmations process, (v) limits monitoring and so on.
In a nutshell, it would not have been easy to run such large open positions given the compliance and risk management policies that a lot of banks are investing in heavily. There will be a lot of questions to ask of the risk management team as to how this happened and why no one was able to detect it.
It also brings into question the role of regulators and internal auditors? What have they been doing if they did not identify in their periodic reviews of internal controls? The details are still very sketchy so it will be an interesting point to see what comes in the details.
Some even say that the future of investment banking in UBS hangs in a balance specially having to bear this rogue trading incident after all that they went through in the credit crisis! The traders immediate boss has already resigned and we wait to see what comes out in the days to come.
Follow for more updates to come!
Monday 12 September 2011
Ring-fencing the Retail Banks
The UK Government has announced plans to ringfence retail banks from their investment banking arms. The obvious first ones that come to mind and which would severely be impacted would be HSBC, Barclays and RBS. We should wait and see how the banks respond to these plans, however these do not have to be fully implemented by 2019. Long way to go!
Proposed by the independent commission on banks set by the UK treasury some of the salient features as I understand are as follows:
- all retail operations to be ring-fenced into a separate unit and quite possibly within separate subsidiaries
- the ring fencing would have the option to include big corporates
- trading in high risk products and financial instruments would be outside the ring fenced operations (that was going to be obvious!)
- the ring fenced operations of the retail side will have their own Boards and will have to maintain a minimum 10pc capital
- lending to the investment banking division would only be in a similar manner as to any other banks on an arms length basis and such that the capital resources do not fall below the 10pc level
- loss absorbing capacity for all big banks between 17 to 20pc of risk weighted assets (this could be a significant one!)
In my view whilst all banks would achieve the requird implementation level by 2019 the costs of achieving so would rise significantly impacting the profitability of these banks. Secondly the investment banking divisions would have less cash for their own operations and would therefore have to rely more on borrowed funding pushing the funding costs higher and thus impacting profitability.
More updates to follow!
Proposed by the independent commission on banks set by the UK treasury some of the salient features as I understand are as follows:
- all retail operations to be ring-fenced into a separate unit and quite possibly within separate subsidiaries
- the ring fencing would have the option to include big corporates
- trading in high risk products and financial instruments would be outside the ring fenced operations (that was going to be obvious!)
- the ring fenced operations of the retail side will have their own Boards and will have to maintain a minimum 10pc capital
- lending to the investment banking division would only be in a similar manner as to any other banks on an arms length basis and such that the capital resources do not fall below the 10pc level
- loss absorbing capacity for all big banks between 17 to 20pc of risk weighted assets (this could be a significant one!)
In my view whilst all banks would achieve the requird implementation level by 2019 the costs of achieving so would rise significantly impacting the profitability of these banks. Secondly the investment banking divisions would have less cash for their own operations and would therefore have to rely more on borrowed funding pushing the funding costs higher and thus impacting profitability.
More updates to follow!
Sunday 4 September 2011
US Government suing British and other banks
The news was out late on Friday 2nd September 2011 that US Government (through its Federal Housing Agency) is to sue 17 banks which includes at least 3 British banks. No points for guessing which three banks those would be but nonetheless HSBC, Barclays and RBS are those 'lucky' ones!
The three British Banks are collectively being sued for a grand US$ 41.5bn.
Besides these banks, there are other European Banks such as Deutsche, Credit Suisse, SocGen and the remaining are mostly US Banks.
What are they being sued for
The Government Agency alleges that at the time when the housing market was at its peak and everyone was making money, these banks misrepresented to the US mortgage giants of that time mainly Freddie Mac and Fannie Mae for the mortgages that were sold to them. Effectively, the practice in those days was to package a bunch of mortgages which were used to issue notes and then effectively sell those notes on to the investors. These notes were picked up by the two 'FM' and hence they incurred huge losses when the housing market came to a collapse. The Agency view is that the Banks packaging these mortgages and selling them onwards failed to do appropriate due diligence and hence misrepresented the quality of the assets being sold.
Immediate impact
The immediate impact would be a severe market downfall as one would expect given the market may anticipate the compensation included within these lawsuits to impact the individual bank's profitability. The amounts being huge the impact is going to be material and therefore a huge risk that each of the banks will miss their profitability and return targets that they have so promised to their shareholders.
Medium/ Long term impact
In my view, the analysts would wait and see how the law suit and the outcomes turns out to be. It may be a big impact to these banks severely impacting some of them to an extent that potentially we may see another banking crisis looming up! Although I hope it doesn't happen again as those of you who would remember the previous crisis (that hasn't fully gone yet) had severe impacts on jobs, markets and the general economic indicators.
The other potential impact could also be on the rating agencies as these packaged mortgages went through the process of being rated and mostly being rated AAA were then sold on to the market. The banks may argue their point on this basis and again a possibility that the lawsuit may fall on these rating agencies.
Whatever the outcome may be, I do not think it is going to help the world revive from their economic woes in the short term. I think it may also result in senior Government level negotiations potentially to save yet another bigger crisis that may just be around the corner!
The three British Banks are collectively being sued for a grand US$ 41.5bn.
Besides these banks, there are other European Banks such as Deutsche, Credit Suisse, SocGen and the remaining are mostly US Banks.
What are they being sued for
The Government Agency alleges that at the time when the housing market was at its peak and everyone was making money, these banks misrepresented to the US mortgage giants of that time mainly Freddie Mac and Fannie Mae for the mortgages that were sold to them. Effectively, the practice in those days was to package a bunch of mortgages which were used to issue notes and then effectively sell those notes on to the investors. These notes were picked up by the two 'FM' and hence they incurred huge losses when the housing market came to a collapse. The Agency view is that the Banks packaging these mortgages and selling them onwards failed to do appropriate due diligence and hence misrepresented the quality of the assets being sold.
Immediate impact
The immediate impact would be a severe market downfall as one would expect given the market may anticipate the compensation included within these lawsuits to impact the individual bank's profitability. The amounts being huge the impact is going to be material and therefore a huge risk that each of the banks will miss their profitability and return targets that they have so promised to their shareholders.
Medium/ Long term impact
In my view, the analysts would wait and see how the law suit and the outcomes turns out to be. It may be a big impact to these banks severely impacting some of them to an extent that potentially we may see another banking crisis looming up! Although I hope it doesn't happen again as those of you who would remember the previous crisis (that hasn't fully gone yet) had severe impacts on jobs, markets and the general economic indicators.
The other potential impact could also be on the rating agencies as these packaged mortgages went through the process of being rated and mostly being rated AAA were then sold on to the market. The banks may argue their point on this basis and again a possibility that the lawsuit may fall on these rating agencies.
Whatever the outcome may be, I do not think it is going to help the world revive from their economic woes in the short term. I think it may also result in senior Government level negotiations potentially to save yet another bigger crisis that may just be around the corner!
Sunday 13 March 2011
Earthquake in Japan
All of you must have heard about the horrific earthquake in Japan last Friday (11th March 2011) - It was a routine normal day for most of us but not really for the thousands of people who live in the coastal areas in the North of Japan where the tsunami resulting from this massive earthquake occurred. Whilst I am no champion of these sort of events, I have personally viewed quite a few websites, news-clips etc and have noted some really horrific scenes - mostly of the tsunami that occurred as a result of the earthquake.
It was a 8.9 magnitude quake which struck off near the coastal areas of Japan. What I have done below is compiled a few videos which are really horrific and give us an idea of the scale of disaster. I have tried and quoted the source of the video where available.
Watch them and pray for the wellbeing of those affected!
It was a 8.9 magnitude quake which struck off near the coastal areas of Japan. What I have done below is compiled a few videos which are really horrific and give us an idea of the scale of disaster. I have tried and quoted the source of the video where available.
Watch them and pray for the wellbeing of those affected!
Sunday 6 February 2011
Football crazy!
It was about 5 years ago when I landed at the Heathrow Airport in London. Not knowing what life has in store for me I was neither very happy nor very sad. Just a little bit nervous. Life had its ups and down during this time but there is one thing that had me changed significantly.
I was a big cricket follower and occasionally played other sports, mostly being table tennis and very rarely used to watch a bit of football but mostly world cups and big tournaments. I had never heard of club football!
During my work, socializing with friends, newspaper stories all talked about football but had no clue how it all worked. I gradually picked up a team Chelsea for that matter and started following it. During those days the top 4 teams were Chelsea, Manchester United, Arsenal and Liverpool. Gradually got into it and started reading about the key players, how it all works. Speaking to friends and work mates how the English Premier League (EPL) works and it was a matter of time only when I had a full hang on to how EPL works and was so into football that I did not want to miss any key football matches whether Chelsea played or not and even got a full Sky Sports HD package installed at home!
Since then, I am starting to forget Cricket and following club football more closely. Mainly the way it is marketed, the way transfer window works and the millions that exchange hands during those days. Above all, its just a 90 minute game and creates a lot of excitement as it is. Its not just the English Premier League but also Spanish leagues, Champions trophy, FA Cup, Carling Cup you name it and I am a keen follower of those. I tend to read all football news in the Metro and Evening Standard daily, I tend to wait for football matches during the day and look out for the fixtures and results section in the Metro each day to find out which clubs are playing.
After all these years, I now know more footballers than I know cricketers. What a sporting change a few years in England has brought to me!
I was a big cricket follower and occasionally played other sports, mostly being table tennis and very rarely used to watch a bit of football but mostly world cups and big tournaments. I had never heard of club football!
During my work, socializing with friends, newspaper stories all talked about football but had no clue how it all worked. I gradually picked up a team Chelsea for that matter and started following it. During those days the top 4 teams were Chelsea, Manchester United, Arsenal and Liverpool. Gradually got into it and started reading about the key players, how it all works. Speaking to friends and work mates how the English Premier League (EPL) works and it was a matter of time only when I had a full hang on to how EPL works and was so into football that I did not want to miss any key football matches whether Chelsea played or not and even got a full Sky Sports HD package installed at home!
Since then, I am starting to forget Cricket and following club football more closely. Mainly the way it is marketed, the way transfer window works and the millions that exchange hands during those days. Above all, its just a 90 minute game and creates a lot of excitement as it is. Its not just the English Premier League but also Spanish leagues, Champions trophy, FA Cup, Carling Cup you name it and I am a keen follower of those. I tend to read all football news in the Metro and Evening Standard daily, I tend to wait for football matches during the day and look out for the fixtures and results section in the Metro each day to find out which clubs are playing.
After all these years, I now know more footballers than I know cricketers. What a sporting change a few years in England has brought to me!
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