The Bankwatch

It is fascinating to follow the news in Egypt and the growing sense that some kind of shift is occurring.  What is particularly fascinating though is the difference in news coverages from the American and British networks compared to Al Jazeera. 

Al Jazeera has been my go –to source over the last few days and that is for one simple reason.  They are more up to date and reflect what is actually happening on the ground in Tahrir Square and in Alexandria.

News is an interesting topic and many armchair ‘internet experts’ react to news as if it is one uniform homogenous thing.

In fact news is like a pyramid of stages such as breaking news, estimates of next events, background related events, political reactions, and finally analysis and likely outcomes.

What matters with events such as #egypt is first and foremost breaking news.  For example earlier today military jets and helicopters buzzed Tahrir Square in Cairo.  This occurred sometime between dawn and noon local time, or 2am and 9am EST.  The LA Times sent me their breaking news email on the jets buzz over at 12:41pm EST.  This is hardly breaking news.  The American networks in particular see all news through the lens of American reaction.  First let us get the facts straight so that the political reaction can be placed in proper context.

It is high time that North America got over the fact that Al Jazeera is somehow reflecting Arab and anti west sentiment.  They just do a really good job of reporting on the ground in Egypt, and from their offices in London, and Doha.  In fact the Doha office includes regular commentary from the local Brookings Institute representative Shadi Hamid.

Anyhow the Al Jazeera approach to news with a focus on reflecting what is actually occurring is something that is welcome and useful to news hounds everywhere.

I did up this post on evolution of bank business models last week in anticipation of reading Umair Haque’s new book, “The New Capitalist Manifesto”.  It was worthwhile and here are some thoughts after finishing it.

Banks have generally sufferred a great loss of trust and respect following the credit and banking crisis that centres on financial products and activities that feel to people as they are all for the benefits of banks and little for the benefit of people.

This is part of a larger thread that predates the crisis and really became highlighted following the advent of internet and the ready availability of information on almost anything.  Edelman have been keen followers of this thread by publishing the annual report on trust – Edelman Trust Barometer.  The trend was generally negative for western business in advanced economies. 

Business response over the last few years has been to focus on ‘social responsibility’ and to devote a section of the annual report to highlight those efforts.   Edelman confirms that has failed.

This is where Umair’s book comes in.  The theme of the The New Capitalist Manifesto can be summarised this way:

• companies have been focussed on a very narrow definition of profit and value creation.
• this narrow focus understates real costs, and maximises short term profits – he defines this as ‘thin value’
• the costs that are understated include costs associated with current society, future generations, and environmental impact
• he proposes a framework for aligning corporations with activities and thinking that builds a broader definition of value into everything they do – he calls this thick value.

Examples are needed to bring these concepts to life.  He notes that none of his examples are anywhere near perfect but that the positive examples are at least trying and there is evidence that they are trying to rebuild their business around a different set of principles that are focussed on thick value.  In simple terms thick value is more likely to have happier and more satisfied customers because the corporation is reflecting their beliefs and values.

A selection of examples from the book:

Insurgents (good)                                    Incumbents (bad)

Google                                                                  Yahoo

Apple                                                                    Sony

Lego                                                                      Mattel

Starbucks                                                              McDonalds

Grameen                                                               Vodaphone, HSBC

Nike                                                                      Adidas

The first thing that struck me is that many of those on the insurgent category were companies that had been crucified before for anti-societal or environmental activities.  The other and more important point is that the insurgents are all doing better on the stock exchange relative to the incumbents. 

This goes to the core of Haque’s book;  that thick value is genuine value for all both financially and otherwise. 

The other thing that rang true for me is that incumbent thin value companies are more focussed on marketing campaigns to highlight their value in the world.  Whereas the insurgent approach has little to do with manufacturing fake value in a campaign.  Those on the right are more likely to be seen in Super Bowl or similar ads.  Insurgents are more likely to have created entire new industries or completely redefined an industry.

I will quote one paragraph from the final chapter entitled ‘Constructive Capitalism’.

Most businesses still conceive of superiority as being better than a cohort of immediate familiar competitors.  But thick value says that just being better than the next guy, the next ten guys … isn’t good enough for competitive superiority in the twenty first century.  Constructive capitalists aren’t merely seeking to be better than rivals in yesterday’s terms.  They are fundamentally redefining what success means to encompass the well being of people, communities, society, and future generations; to return what you might call profit “plus”; profit plus social, environmental, human, and as yet unknown – unexplored kinds of – returns.

It is a thought provoking and worthwhile read.  Every bank needs to be thinking how they can redefine the industry.

When I listen to the disappointment about Obama’s speech tonight there is a thread that fits with The New Capitalist Manifesto. 

When I say Obama’s crisis is one of management, here’s what I mean.http://bit.ly/5muiCI

Poor Obama. He actually looks confused and scared at the end of the speech. Sad. His crisis is one of management.

What Obama’s proposing isn’t even a fraction of what’s necessary to reboot the American economy. "Within 25 years?" Visit China sometime.

Obama’s story: internetz, tech change, wrecked the american economy. 100% Wrong. Broken institutions did. Diagnosing the wrong disease.

umairh 1 hour

The thread is that there is a fundamental disconnect between old world and new world.  That thread equally applies to the old GOP and Obama. 

The State of the Union is a magnificent occasion.  Yet tonight was not just a yawn.  It was not just a GOP vs Dem ‘who is right’ kind of thing.  It was about the reality that behind the political bickering, no-one is willing to address the debt problem that America faces, and that implies all American banks.

I am going to pick up a copy of “The New Capitalist Manifesto” tomorrow.  I have been following @umairh for some time, and he is an enthusiastic writer on the problems with companies today.  I will be honest and state that parts of the argument can appear to become hyperbolic.  They can sound emotional and become associated with those that choose to create riots at G20 meeting locations.

That is why I have thought more than written on this.  Having said this, the focus of this blog, banks,  leaves lots to be desired about their characteristics.  They appear completely disassociated from their customers, 100% driven by quarterly results and stock market impacts, and are driven by shifts in marketing programmes which are quite obviously attempts to paper over the same organisation.

Then again the people inside banks, the employees actually want something better.  When you look in the eyes of a bank employee, their intention to help is real, their constraint is the banks process and technology.  Those people are real.  The ones who are involved in charity events, local social clubs that provide charitable donations are also real.

What is not real is when the bank takes credit for those donations.  This finds its way into speeches and annual reports and becomes a tick in the box of social accountability for the bank.  This from Michael Porter.

The Big Idea:  Creating Shared Value

Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

Lets go deeper.  It is well documented and known by each of us, that trust in institutions and banks in particular is at a low point.  There is nothing that we can see that will make that better in the future trajectory of business.  This is however introduces a dichotomy for people.  On the one hand they understand the mistrust in organisations but they also understand the need for their pension plan to increase in value and that is based on profits.

Trust in business (and banks) will not return unless we have a new model.  The very idea of a new model is in itself a paradigm.  We have a capitalist model, stock exchanges, dividends and share value appreciation.  How can that be changed?

Again from Porter.

The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again.

Creating shared value (CSV) should supersede corporate social responsibility (CSR) in guiding the investments of companies in their communities. CSR programs focus mostly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run. In contrast, CSV is integral to a company’s profitability and competitive position. It leverages the unique resources and expertise of the company to create economic value by creating social value.

Relevance to Bankwatch:

I actually do not have a complete answer yet to the question of what banks need to do and even if they can, which part of me actually doubts.

I do know that banks cannot expect to succeed forever under the current model.  If we look out 50 years, it only makes sense that in 2061 we have a different and better model that will have overtaken the model that is exemplified by JP Morgan that actually has more impact on us all than we care to believe.  More power to them, but that will never be good for people who want bank accounts, debit/credit cards and mortgages.

More to come.

PS:  The Maya Message – from Collapse – Jared Diamond:

Maya kings sought to outdo each other with more and more impressive temples, covered with thicker an thicker plaster – reminiscent in turn of the extravagant conspicuous consumption of modern American CEOs.  The passivity of Easter chiefs and Maya kings in the face of the real big threats to their societies completes our list of disquieting parallels.

Reading between the lines of economy and business stories confirms that the massive injections of government money (Quantitative Easing) over the last 3 years is coming home to roost as expected in higher interest rates and inflation.

Look for 1983 style interest rates (in some countries), inflation and sovereign defaults in the next few years.

Britain triggers global inflation alarm | FT

Data this week showing the UK’s consumer price index hit 3.7 per cent in December fuelled that concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.

Canadian Banks never really got engaged in blogs, but all of a sudden four are now engaged in Twitter at different levels and with different approaches that clearly reflect their risk profiles and willingness to engage in the medium.

craigsebastiano Craig Sebastiano

@BMO just started using #Twitter yesterday. @TD_Canada, @CIBCnews and @RBC are also tweeting but #Scotiabank is not

@BMO is the latest to join beginning earlier this week on 17th January.  Its obviously very early, but I was impressed with this tweet.

BMO BMO

@CatheP sorry to hear you’ve been a victim of identity theft. If you DM me your contact info I’ll have someone contact you asap.

Relevance to Bankwatch:

You can infer, from reading the four banks that are there, the degree of control from Corporate Marketing versus customer focussed folks.  As I say, it is too early to infer much, but that tweet about identity theft is dead on for this medium.  It does not impart any confidential information, yet reuses the medium (DM me your contact info) chosen by the customer to develop a solution.  Nice.

The thing that surprised me about this view of worldwide internet penetration was India particularly compared to China considering both countries have similar populations.  I am aware of the poverty in India and is that the reason?  Is India that much more poor than China who have 1/3 of their population online? I wonder if there is something more in terms of lack of infrastructure.

Just curious – anyone with additional insights on India?

For the full graphic, go here to thenextweb.

UPDATE:

I found this here that indicates there is an enormous difference in the degree of poverty between India and China by a factor of 10 times.

India’s per capita earning is US$440 per year against US$990 per year in China
As per the World Bank, the poverty line definition is US$1 per person per day or US$365/person/year, for underdeveloped countries like India, China etc. As per the official data from both governments, China has 3% population below the poverty line, compared to India’s 26 to 29%! Only better governance will help.

I thought this quote from David summarised his article perfectly as we watch the second bear market of the century wend its way.

Why this market rally will end in tears | DAVID ROSENBERG Globe & Mail

‪Just as the 2003-07 bear market rally was built on a shaky foundation of unsustainable credit and house price appreciation, the current bear market rally has been built on even shakier ground of surreal public sector intervention. This may well have “saved the system” or “prevented a depression” back in the opening months of 2009, as many like to believe. However, the reality (and even former Communist regimes figured this out a few decades ago) is that there is no such thing as a free lunch.

He speaks of the lack of basic underlying support from demography, or returning vets, that accompanies a true bull rally such as the:

long-term bull run such as 1949-1966 or 1982-2000.  It (2003-07 bear market rally) was a classic bear market rally, and it ended in tears because what drove the market upward was phony wealth generated by a non-productive asset called housing alongside widespread financial engineering, which triggered a wave of artificial paper profits.

There is an interesting post on the American Banker Bankthink blog that references an article in AB about safety of and access to information stored in the Amazon ‘cloud’.

The reference point is the closure of Wikileaks site by Amazon at the apparent behest of the US government.  The article refers to this as censorship and sees it as a hurdle to cloud adoption.

They have this all wrong and here is why.  The ‘cloud’ is no more than a big server and set of services.  At some levels it is theoretically equivalent to a server in a co-location facility;   it just happens to be a server with built in features, services and capabilities that you do not have to programme yourself or at least it makes it much easier to programme and to add capacity. 

If Wikileaks had been hosted in an ISP co-location facility in Milwaukee the US government can still require that ISP to kick Wikileaks out.

That’s what is being missed here.  This is not a cloud issue.  Your data is probably safer in the cloud because with built in Amazon encryption it is much harder if not impossible for the authorities to access your data, than it would be on your homegrown server in Milwaukee.

Today Banco Sabadell presented its new mobile banking release, including remote deposit capture and a specific Android version.

Here is a a nice supporting video demonstrating their new app for cheque capture and deposit using iphone.   Watch carefully and see it pick up the transit, account number and amount.    For more go here.