Friday, Feb 03, 2012
Convenient whipping boy
Independent: Don't be distracted by Goodwin's dishonour
Having shown its impotence over Hester's bonus (its face saved by his waiving it) the government went for popularity by stripping an already discredited banker of his gong. Will this lead to an exodus of talent? Martin Taylor, former CEO of Barclays, said they pay themselves from imaginary profits - spreads on credit taking no account of default possibilities (done on a much bigger scale in recent years), unrealised profits on illiquid instruments on the trading book and calculating the net present value of non-existent future income streams. On the last two there's no income, merely 'booked revenues'. (Main link leads to the full Taylor quote.) Then of course they measure return on equity, which can be high when there's little equity and dangerously high leverage.
3 Comments
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1. Ccamper said...
"Will this lead to an exodus of talent?"
There is not a shred of evidence that there is any talent in the banking sector.
2. mark wadsworth said...
Did a former Barclays CEO really say all that? That is awesome!
3. Maske said...
What's embarrassing about that, is not the quote, but it's glaringly obvious by those sweeeping, generalised statements, that this CEO doesn't actually fully understand the products being sold.
Those statements may have some element of truth, but they are mostely crap.
1. What should a trader do to realise profits? Close every single position? If a a trader is correctly hedged in the equity world, his profit should be realised from comms and spreads. If a trader is prop....different story.....but prop business is laregly gone or going from big banks.
2. What is more accurate than PV, or fair value on a derivative? It's as accurate a picture as you can possibly get using not only the underlying, but interest rate curves, and fx curves. And again, if you are hedged interest rate swaps or fx forwards, it doesn't matter in the slightest.
3. non existent future income streams? What does that even mean? if a trader trades a swap or option with a cpty of course when it unwinds or expires in the future there will be profit or loss on that instrument.....which again, will be hedged.
As usual all traders and banks are tarred with the same brush in the article as the idiots in credit who broke the system. If traders and sales guys at an under fire bank consistently made millions of pounds every year for the bank, why would they not be paid a bonus? If they got nothing, they would just go and make someone else millions of pounds instead and be paid applicably, leaving the old bank in even more trouble.