Banking on new local realities

The difficult rebirth

Getting my mail out of the post box the other day there was a letter from a once familiar organisation with I had not communicated for about 4 years, because then they sent me a letter that they were being absorbed by another bank.

This one had a new logo but more or less the same name it had from when it was an autonomous entity – the credit crunch is doing things radical to the banking sector, in this case Fortis Bank which is now essentially a public utility rather than a bank since it needs government support has had to regurgitate the ingestions it took in over the last few years.

All these onetime seemingly well run banks that were acquisitive with reckless abandon using management models that made the acquired banks look like they were being run by charlatans now all seem to be run by charlatans – it is appalling to say the least.

Show me the building

So, my mortgage bank that was once in the belly of Fortis is now back as an autonomous entity alas I do not get a bailout that closes my mortgage book and lets me consider other things to do with my money.

Though we are all keen on the flexibility and convenience of online banking, I like to know that my money can still be found in some building built of bricks and mortar able to weather storms and having some human being with whom I can converse if I have issues.

I do however commiserate with those who had to queue up for miles round the streets for hours to get into their bricks-and-mortar bank when things seemed to be going belly up – a man cannot be persuaded of a greater cause to run to than to know that there is a run on the bank that he banks in.

Fought for by four

Walking down through the local shopping centre where I live we have 4 automated cash machines representing four banks, one of those banks – PostBank – has now formally absorbed in the bigger ING Group conglomerate but the cash tills have been retained – letters declared that too, sometime ago.

So we have PostBank, ABN Amro, ING Bank and at the far end of the shopping centre, RaboBank, all with walk-in offices apart from PostBank which is now part of the ING Group.

ABN Amro, the subject of the worst banking constipation and expectoration including the discomfort of food poisoning that could hit any bank, the nemesis of the Royal Bank of Scotland in the United Kingdom and Fortis in the BeNeLux had always had the longest opening hours including Saturdays.

Imagine my surprise when I found that my local ING Bank had refurbished its offices, extended its opening hours for the shopping evenings and also will open on a Saturday.

Crunch is global, service is local

Amidst the global consequences of bad banking decisions made by professionals who had forgotten the fundamentals of client service and risk, I would presume the seedlings of competition on the high street have been sown once again between banks.

Less of the adventurism that left many shipwrecked in waters far from home and back to the trusty, thrifty, parsimonious simple local customer who needs basic services, wants easy answers to nagging questions and likes to see the manager rather than being fobbed off by some personal assistant that has created the mystique of financial deity around the boss that their hubris resulted the chaos we now grapple with.

Methinks one should call in on Saturday for a hair cut even though I have none to lose – there should not be much between banks and the barbers, we have all been given severe hair cuts already – now, if I decided to move my account from some far-flung place to my local bank, there might just be a beer mat and pen in the bargain – such extravagance for pennies with the potential of pounds.

On reflection, I think Not!

Cleaning up tough Bare Stains

No prophet of economics

The layman observer economist in my dreams suddenly acquired a mitre to my collection of hats.

In fact, the economist part is not so much the science but the basic observation of human character and nature; the mitre infers the accident of prognostication.

Before anyone beats a path to the church of the prophetess of sub-prime consequences, I have nothing to offer you about the lottery numbers for this weekend or any other weeks in the future, the ones for last week, even you can find out.

Dishonesty breeds distrust

I had before mentioned in a series of blogs regarding the sub-prime mortgage crises; that the activity started off with dishonesty regarding means and ways, it lead on to greed regarding acquiring economically unsound customers and this was given a false copper bottom by slicing up the debts and repackaging it with the best ratings on the market.

In a bull market, a good number of banks bought that bull and have now been caught out without the bull but a pair of paper marché horns.

For over six months, banks have been wary of what other fellow banks have gotten into and how much of bull or horns they have got left. So, no bank is willing to lend to another just in case the money goes into a black hole – that is the loss of trust.

Throwing in everything

The horses have already bolted, I say, meanwhile, someone is trying to lock the gates anyhow. The black hole no matter how minuscule was created when banks and customers veered from trustworthy contracts at the beginning of sub-prime deals and this is just one of the many causative issues in what we now know as the credit crunch.

Escaping the gravitation pull of the black hole is tending towards to seriously expensive with almost $1 trillion thrown to the beast with sub-prime, credit-crunch, recession and inflation heads in monetary stabilisation, socialist amelioration, write-downs and bale-outs with no let or give of respite.

Bare Stains

So, whilst the Northern Dust in England received emergency funds that resulted in a bank-run last September, we have Bare Stains (Bear Sterns) granted such emergency funds sending a shudder through the markets and giving us a feeling of foreboding that we are no where near the end of the economic crises.

If honesty were still not the best policy, especially in business, what other policy do we have to do business and avoid this mess?

These are just bare stains which cannot be easily wiped off with emergency funds; the real muck is still somewhere out there waiting to be unveiled, no amount of throwing money and policy at it would solve it till the truth is out about how everyone got caught out.

Baling out trust

No man’s worthy word

Never has there been a situation where a bank and the whole financial infrastructure that supports the banking environment wanted to seek refuge and find strength in the credo “My Word is My Bond”. This is the motto of the London Stock Exchange which in Latin is “dictum meum pactum”.

It takes no rocket science of convoluted mathematical equations that govern the arcane and complex financial instruments popularly known as Collateralised Debt Obligations to realize that the man ingredient for any business transaction is integrity based on trust.

Trust is key

This may sound old-fashioned, but there is a need for trust in many undertakings of everyday life especially the old-time favourites as your priest, your doctor and your bank manager because they underpin a sense of guidance in life, quality of life and affordability in all eventualities; things that have subsumed into a compelling cynicism of humanity in recent times.

The credit crunch that is suffocating the financial markets like a large cloud of rolling mustard gas is a victim of the loss of trust, the fundamentals that allow banks to run through inter-bank lending mechanisms has seized up because banks cannot assuredly guarantee that the borrower banks are not overly exposed to the sub-prime mortgage frauds in the United States.

This becomes a problem when the borrower bank relies more of this borrowing facility than on savings it has accrued, such that in the case of Northern Rock the Bank of England instituted its first bale out since 1970.

Collapse of trust

This was supposed to signify that the Bank of England believes that the situation at Northern Rock is not as critical as to be irredeemable, in fact, it is confidence reposed in the bank and its business model that once this credit crunch is over the bank would be able to continue to continue business as usual.

Unfortunately, after the pensions mis-selling and other financial debacles where the governing bank, financial governance institutions or governments have been slow to guarantee or underwrite the risks that trusting citizens have had in their supposed protectors, people are no more willing to listen to assurances from the bank, the Bank of England or the government.

It is therefore no surprise that people have queued up at branches of Northern Rock to withdraw their nest eggs because if the bank does collapse the people would get nowhere near what they have put into the bank.

Vicious circle begins

There is too much of a track record to show that people have great cause for concern as they have shown with taking about GBP 1 billion out of the bank such that its value has fallen by a third which would eventually increase the need for the bank to draw on support from the Bank of England further diminishing confidence in the whole banking system, the makings of a vicious circle.

We have not heard the last of this matter because there is no doubt that more banks are exposed and as still using all sorts of financial subterfuge mechanisms to cover their exposure till it becomes untenable and the paps of the Bank of England are up for another suckling bank that has been engulfed by a global crisis that shows no sign of going away like a bad storm.

All because of the collapse of trust, the core ingredient for businesses to survive regardless of papers, contracts and assurances.

We need to return to these old-fashioned elements of integrity and good reputation because therein lies the redemption of this economic fallout – the quest for filthy lucre must not be above the need to maintain confidence and trust by doing things according to the rules, transparently and honestly.