The Bankwatch

What I like about BMO approach is that it immediately works across all handsets. I continue to believe browse based apps that lever HTML 5 will be the winners.

For now they have chosen to go live with this framework. Then when they add new features and functions those will come to all platforms simultaneously.

Bill payment was delayed due to a system wide upgrade. Most interesting though is alerts. Mobile banking needs to be way more than balances and transfers. The ability to lever devices that always with the customer offers greater and new utility that would not be useful on the laptop/web app.

Anyhow, a great start and kudos to the team.

EDIT 11th April, 2011:  Interim report issued 11th April – for my first look click here

The UK Independent Commission on Banking will report 11th April, and things are heating up.  They are expected to propose (the obvious) separation of retail and investment banking.  This is placing pressure on the coalition government, and it will be interesting to see how much we remember 2008 versus political realities.

Push to keep peace on UK bank reform

The Independent Commission on Banking, chaired by Sir John Vickers, will present its interim findings on April 11, with the final report due in September. Bankers have already expressed alarm at the possible radicalism of the commission, fearing it could recommend the separate capitalisation of universal banks’ investment and retail banking arms, which they say would be costly and complex to implement.

This will be a test for the UK coalition government, and a strong signal to the world about the direction for banking.  They are considering a wide view of potential outcomes, which have been covered here over the past 3 years.  For example the narrow banking concept, on page 33 of their Issues Paper (pdf):

Proponents of “narrow banking”3 or of “limited purpose banking”4 would go further than Glass-Steagall. Under narrow banking, retail deposits are 100% backed by safe, liquid assets, of which government bonds of short-to-medium maturity are the prime example. Retail deposits would have public deposit insurance, but the government would not bail out any other banking activity (though a narrow bank might be allowed to be part of a larger bank holding company). The core “utility” services of banking – transaction services and retail deposit-taking – would thereby be isolated from risky activities undertaken by banks, decisions about which would therefore not be distorted by considerations of moral hazard arising from implicit state support.

The mention of utility banking first came up during the crisis.  By the way, this is why Dimon is so excited right now.

Jamie Dimon, who you will recall was seen here looking a little more contrite, in Feb 2009 when they were being bailed out by TARP, is on a rampage to remove government control of banks. 

Lets face it, banks as they exist today, only exist because of close government co-operation.  This is carefully managed through the window of the central bank, the Federal Reserve, Bank of England, Bank of Canada, etc.

He is right in that all banks are not the same, but he is wrong in that all banks operate at debt to equity levels that would never survive in the ‘open market’ meaning without government provided deposit insurance and implicit government guarantee of the entire institution.

I refer to the 4th quarter results and this shows JP Morgan with debt to equity of 11.02 : 1 – in plain english shareholder equity represents 8.3% of total assets.  Consider GE at 5.0: 1, or Microsoft at 0.86 :1.  GE is on the traditional higher end of the scale when we are talking about ability to survive economically and weather good times and bad.  Microsoft is the traditional strong balance sheet. 

JP Morgan is in much stronger shape than most banks in the world. There are many European banks in the 20: 1 or worse range. 

Davos WEF 2011:  JP Morgan chief Jamie Dimon lashes out at bank critics | Telegraph

Today, he is quoted warning of a ‘nail in the coffin’ of banks and proposing a reduction in the capital that JP Morgan holds (they are at 9%)

Urging regulators to make a quick decision, he said the slow progress meant banks were already shrinking their balance sheets on the basis of “anger and the shrillness – and Switzerland says it’s got to be 19 per cent and people in the UK say it’s got to be 15 per cent.”

“If you think that’s helping growth, it’s not,” Mr Dimon said, adding that a 7 per cent capital ratio would be adequate.

Relevance to Bankwatch:

I am as sympathetic to banks as the next banker, but the arguments Dimon uses and the objectives he promotes are self serving.  Yes a company will be more economically efficient at a lower capital ratio, ergo return on equity will be higher with more assets employed to produce return.  But and this is the key …. but that lower capital ratio is only feasible with a government guarantee for your organisation. 

So, in effect Dimon is insisting on government support forever.  One is left to wonder who will benefit in the world he promotes and when he says higher capital ratio’s would hinder growth, is he actually referring to GDP or some other growth metric.  Lets not forget, JP Morgan paid out 7% of capital as bonuses in 2009.  It does not seem equitable for this to occur on the back of taxpayer support.  I cannot but but recall the words of Umair Haque about thin value, and how Dimon epitomises.

A final important note.  This shrillness against regulation is accompanied by a lack of anything about innovation or new business approaches that might actually be good for people and businesses.

A new report from World Bank released today draws the connection between African migration, and the resultant need for payment remittances which in turn generates economic benefits for local economies.

African migration generates win-win benefits, says new report | World Bank

The report, Leveraging Migration for Africa: Remittances, Skills, and Investments, presents data from new surveys. The report finds evidence that suggest migration and remittances reduce poverty in the origin communities. Remittances lead to increased investments in health, education, and housing in Africa. Diasporas also provide capital, trade, knowledge, and technology transfers.

Leveraging Migration for Africa: Report (pdfs)

• Complete Report as one file (pdf)
• Table of Contents

Bank of Canada speeches are often very illuminating and clearly written.  While this speech fades off in the 2nd half, the first half has some very clear descriptive bits that nicely sum up globalisation and why it matters to us all.

The Paradigm Shifts: Global Imbalances, Policy, and Latin America | Bank of Canada

on supply of labour;

Although this paradigm shift to a multipolar world is fundamentally positive, it is also disruptive. Labour, capital and commodity markets are changing rapidly. The effective global labour supply quadrupled between 1980 and 2005 and may double again by 2050.¹

on capital flows;

Cross-border capital flows have exploded, growing at a rate almost seven times the peak during the last wave of globalization.²

on demand for commodities;

Rapid urbanization underpins this growth. Since 1990, the number of people living in cities in China and India has risen by nearly 500 million, the equivalent of housing the entire population of Canada 15 times over (Chart 4). This process can be expected to continue for decades, since urbanization rates in China and India are currently 30 to 50 percentage points below those in Brazil, Mexico and Canada.

Relevance to Bankwatch:

I wrote before about the root cause of the economic crisis being one of labour shifts based on a paper I cam across.  The statistic that the world labour market has grown by a factor of 4 is astounding.  As a bank focussed on the western, developed world the future of your customers is one of relatively lower incomes based on that statistic alone.

While Canada feels like it is doing well at the moment, it is one of those countries being pulled negatively one way by the labour shifts and positively the other way by the commodity ‘supercycle’ according to BofC. 

In yet another sign that nothing has been learned about banks, NR is back tot the securitisation market. 

Why is this important?  Securitisation allows NR to convert mortgages into cash with some discount for market value including predicted bad debts.  Note that Moodys classify the NR issue as triple A so discount will be reduced.  This is what occurred pre 2008.  Then the mortgages that were included in securitised issues turned out to have less value than Moodys classification, so there were losses that had to be covered by an inadequate capital base. 

In other words securitisation is another form of leverage with all the attendant risks that brings and current regulation for that off balance sheet leverage does not take sufficient account of it in the balance sheet of the issuer, and again, this was one of the major issues in 2008 causing markets to freeze because bank value and ability to support there commitments became an unknown.

Northern Rock returns to selling bonds

The bank on Tuesday said it would sell its first mortgage-backed bonds since its nationalisation in a deal that will also mark a new step in the gradual recovery of the securitisation markets – a key source of bank funding before the crisis.

Executives will hold investor “roadshow” meetings in London and across Europe in the coming fortnight to discuss the bonds, of which it could sell up to £370m.

Basel 3 brings in new regulation over the next few years.  This one particular market entry from NR may not be too big of a deal in and of itself, but the direction is set.  There is no indication that this market re-entry will be accompanied anything other than the new Basel 3 rules (which are future oriented).   Markets have such short memories, and do governments.  NR is owned by the UK government, which probably explains the triple A rating.

The World Bank has a positive view on the Japanese economy despite the awful impacts of the earthquake and tsunami.

Singapore, March 21, 2011 Japan real GDP growth will slow, but the slowdown
will likely be temporary, as a result of the earthquake and tsunami and growth
should start picking up after mid-2011 as reconstruction efforts get underway,
says the World Bank in its latest East Asia and Pacific Economic Update
released today. While it is still too early for a full assessment, Japan痴
past experience suggests an accelerated reconstruction effort, and the short
term impact on the economies of developing East Asia is likely to be limited.

Press Release in English (pdf)
http://media.worldbank.org/secure/eap/eapupdate-mar11/PressRelease-EAPUpdate-
March11.pdf

East Asia & Pacific Update March 2011:
Complete Report (pdf)
http://media.worldbank.org/secure/eap/eapupdate-mar11/EAP2011V1_EMB.pdf

Supplemental Piece – Japan Earthquake and Tsunami : Implications for East Asia
http://media.worldbank.org/secure/eap/eapupdate-mar11/EAP2011V1_JAPAN_EMB.pdf

This is an amazing post.  We are watching the Japanese Defense Force on NHK blowing water on to the Fukushima Daichi nuclear plant to cool the reactor.  As they sit in the truck so close to the reactor, they are being exposed to immense radiation.

Then we saw this post from a twenties guy in Northern Japan suffering from Leukemia.  He is going through chemo and he says he has a large truck license.  He has emailed Tokyo Electricity Power Corporation asking that he be allowed to drive those trucks.  All he asks is that he can sit down once in a while.

What can I say.  Wow …

心のケアが求められる時期です～

Interested volunteers Fukushima Daiichi Nuclear Power Station.

I have this simple task, but have high numbers of radiation away places. Working in a place like that, I would like to help.

I look leukemia. The end of a nutshell. There is no fear of becoming exposed to the leukemia so. Now, as the symptoms of leukemia 動Kemasu healthy subjects and they calm down. Much as I wish next few hours. There is no evidence, then I feel you can withstand some exposure.

Large vehicles, especially large, we have also acquired vehicle-type license.  Please contact not encourage you to accept.

I liked this post.  Felix hosted a panel at SXSW and the topic was disruption of the banking system.  The panel comprised:

1. Sean Harper from Fee Fighters
2. Noah Breslow from On Deck Capital
3. Shamir Karkal from Bank Simple
4. Suresh Ramamurthi actually went and bought a tiny bank in Kansas

Disrupting the banking system | Felix Salmon Reuters

All four of these companies are doing very interesting things, and I’m sure the first three will take some small amount of market share from the big banks by offering friendlier, cheaper, and more efficient services. But my main question for the panel was whether they would actually change the financial system at all, or whether they will always be operating at the margins while the huge players continue to do what they’ve always done, and innovate on their own terms at at their own speed.

Its the right set of questions (emphasis mine).  The banks have incredible size, physical scale and brand power.  All 4 of the panelists may be amazingly successful, but Felix asks; what is the nature of a new model such that it has the capability to have an effect on banks that we have seen on industries such as book stores, newspapers, or classifieds.

It is an interesting question.  Book stores were disrupted because of online book purchasing.  But it was more than that:  it was new physical infrastructure comprising warehouses and automated supply chain management.  Newspapers were disrupted because online updates allow us to read things live and not wait till tomorrow.  In effect newspapers disrupted themselves, but it was inevitable because it would only take one newspaper to publish news online and the rest will be disrupted.

The common element to those disruptions are advanced use of new technology tools, but at the core it is because of internet and real time access.  It is also because books and news are commodities.  I am ambivalent about where I get my book.  What I value about Amazon is how I get it, including instantly and electronically.

Financial services are an interesting combination of proprietary and commodity.  My money is mine – that is proprietary.  Advice and suggestions are a commodity.  Servicing of my money, eg payments are a commodity.

Relevance to Bankwatch:

A while back I wrote something about bank services becoming fractured and that we can expect to use multiple servicers to manage our money.  I find Bank Simple an interesting model because it seems to leave aside the proprietary aspect (money), and confine that to bank(s).  Then new models can disrupt bit by bit the commoditised parts such as payments, cards, pfm (personal financial management), personal lending, mortgage processing, and deposit gathering.

Interestingly such a model would allow banks greater flexibility in balance sheet management.  Their service would potentially lean more toward fee based service and less associated with spread management.  It could offer a way for banks to distance themselves from interest rate risk.

A future such as this has parallels in the disrupted book and newspaper world.  News still needs reporters, and books still need authors. 

In summary perhaps Felix was asking the wrong question.  Disruption is not always as complete as we think once we drill down into the facts.  And disruption is not an overnight event either.  When Amazon began in the 90’s it was the people (older) who today own kindles that were saying books will never disappear. 

So if we break down disruption, I think Felix is wrong.  The panelists he interviewed and their companies might well be on the forefront of bank disruption. 

Reuters reporting that Mizuho Bank have no ATM access and no internet banking transactions.  There are suggestions that this is not connected to electrical issues, but to bank liquidity issues.  The Bank of Japan is injecting billions ($389 bn in 3 days) into the system, and I wonder if they are winning that battle.

(Reuters) – Mizuho Bank said on Thursday that all of its automatic teller machines (ATM) throughout Japan and its Internet transaction system have stopped working.

A spokesman for Japan’s second-largest bank said the reason for the outage was not known, although he doubted its was due to this week’s power outages in the Tokyo area and eastern Japan or last week’s massive earthquake.

Shares of Mizuho Financial dropped more than 4 percent to 130 yen, although they pared losses to trade down 2.2 percent at 134 yen, in line with the benchmark Nikkei 225 average which lost 2.5 percent. (Reporting by Mariko Katsumura; Editing by Edmund Klaman