Big brother is back to take control.

For this blog I would like to focus on bankers and their bonuses. I choose this topic as it seems rather vital to me, not just due to the recession but also due to peoples and the government’s reaction to it.

For this I have red several articles and was amazed to find how all of them were pro the possible new law coming out restricting the bankers bonuses in the United Kingdom and giving more power to the “people” and the government.



The law which was also discussed by the Queen and Gordon Brown should be passed through parliament at the next general elections, by June next year. The law would only be applicable to future contract which would make excessive bonus contracts void under the law. It would furthermore empower the FSA in controlling bonuses and calling contracts that encourage bankers to take risk by making their bonuses dependant on a certain return on investment. It would also reduce bonuses and no longer allow for millions to be spent on “pinstriped robbers”, who are reckless and failures that the public had to bail out. This in turn would allow for more security and accountability in the financial sector. Forgein banks operating within the United Kingdom shall also have to abide to this law, however other subsidiaries, even those of British banks will no not have to follow this law. Is that really fair? And how does this encourage someone to work in London and not for the same bank just in a different location?





The story has been regurgitated so often they i do not feel the need to go into the exact details of the new law but shall focus more on the styles and approaches the newspaper articles took for this story. The BBC story was the most straight forward and detailed article, however, it as well as the others had a clear pro this law and anti bankers attitude, stating that bankers should be “struck off the same way that doctors are struck off in the case of misconduct. The article also had a proud air to it, stating that the United Kingdom was the first to do this and this it was setting example by taking actions while other countries only talk about it. The articles uses a lot of quotes in their favour, against the bankers, although they do briefly mention that the bankers association believes that it might cause London to lose its power financial status and lose out on recruiting future talent. The author of the article seems to be thinking he is talking from a public perspective who has enough of the power that banks have, it also seems as though he has a personal grudge against banks, as he ends the article with how this law would give people the power to over banks and their high charges. The article also mentions that this law would hinder banks from encouraging customers to borrow more money than they can afford, neither may banks send out unrequested credit card checks. I believe that such restrictions, would cause banks to lose a lot of money, banks are pillars of our society that is why the government had to save them in the first place, so is it wise to weaken them? Having more transparent yes that is needed, put pulling the carpet away from underneath their feet might not be the right thing to do.


From reading the Times i thought that it was interesting that the parliament used the Queen and her influence over people to address the topic further. Although the Queen no longer has the power or support that the royal house once enjoyed, she still has some influence. This article had more and better details then the others with some good pro contra arguments. As this is a very debatable subject , if it back fires it could become a big problem, however looking at other students from this university or others, many of them still wish to be working in the financial sector, so maybe this will not have as big an effect as claimed. Or maybe it does and people will not want to work in England anymore but in other countries where these laws do not apply. The article creates some bad blood among the readers saying that bankers personally do not believe that this law shall hold up and that they shall always be loop wholes. Yet at the same time they state that the “trust between the people and financiers” is to be re-established. The article is trying to calm down the hatred that Bankers have received since the crises, a good example of this is the G20 summit held in London, where bankers were asked to work from home or to come into work with casual wear in order to hinder violence.
This articles also has a rather Interesting title, showing the power struggle that the government is experiencing with the banks. “Labour tries to tame...” taming, one tames a wild animal, have banks gone wild, have we not created more transparency, can they really blame all of it on the banks, they were allowed to roam free during the good years, so they are not the only ones to blame but the game keeper to.

The Daily mail article was quite harsh on the bankers, calling them “pinstriped robbers”, portraying them as mobsters nearly, who need a “watchdog” over their shoulders, protecting the civilians from the criminals. The new law shall give the FSA the power to tear up bankers, not their contracts but the bankers, again seems like they are criminals where the government has to tear apart their lives to get to them. The article tries to create a lot of bad blood by quoting a lawyer who says that bankers shall never be touched, as the government does not have the calibre or muscle to take them down should bankers go to court. Saying that this new law is not enough, it is only a “blunt instrument”, and that it shall not stop bankers from “ripping off” the public and creating a win/win situation for themselves on every account. The article really calls upon readers to be outraged and angry at the big bad robbers and criminals we call bankers.



The telegraph took a different approach to the situation, they were not as harsh but still absolutely in favour of the government. Making the new law into a making it into a pretty little package, it seems to harmless what the state is doing. Saying that banks are rip offs for the public and this law will give the public more power. Stating that banks shall have to pay back and own up to thousands of customers. Although not as in your face style as the Daily mail, the telegraph is still hipping it up in order to obtain support. As this new law will cut individuals’ legal costs and give them added muscle against banks that levy unfair charges. Stating that this is a necessary measure as bankers believe themselves to be superior but that they are actually only “fellow citizens” that had to be bailed out of their failure.
The telegraph also awarded one article stating what bankers believe this new law should bring to the United Kingdom, however they still argue in favor of the law saying that it does not matter if talent is discouraged from coming to London, as it shall only discourage those who seek to take advantage and we do not want these in our country anyway.


Whatever the newspapers are saying i have to ask myself; is it really wise to give the government so much control, especially over the financial sector? In the long run this shall be in the public’s disadvantage, the state being able to access all your records etc.. Are we not already controlled enough? big brother seems to want to get into every part of our lives.



The sun articles was very weak , but again for the public and stating how this law will give them power and not stating it as it is, that it shall give the government power not the little man. They also had a clear disliking of bankers calling them “fat cats” and that the bonus system is “ludicrous”.
The comments on the paper from the readers were rather harsh, calling labour a failure and that no one believes that they can hold their weight for anything that they are just “suckers” and do not believe that this plan shall be good for business but that it is “alien to business success”.

S

Sources used:

BBC news
'Reckless' bankers face bonus cut
15.11.09
http://news.bbc.co.uk/1/hi/uk_politics/8361372.stm

Times Online
Labour tries to tame banks with plan to outlaw controversial bonuses
16.11.09
http://www.timesonline.co.uk/tol/news/politics/article6917982.ece

Daily mail
http://www.dailymail.co.uk/news/article-1229361/Reckless-bankers-contracts-torn-tough-new-laws-crack-bonuses.html
20.11.09
Reckless bankers will have contracts torn up in tough new laws to crack down bonuses.

Telegraph
Bankers warn laws on pay and bonuses will scare off talent
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6576390/Bankers-warn-laws-on-pay-and-bonuses-will-scare-off-talent.html
15.11.09

The Sun
Block on bankers in bonus scandals
16.11.09
http://www.thesun.co.uk/sol/homepage/news/money/2731331/New-laws-mean-big-bonus-bankers-will-have-contracts-torn-up.html

Telegraph
Now State takes over bankers’ contracts
14.11.09
http://www.telegraph.co.uk/finance/6570841/Now-State-takes-over-bankers-contracts.html

Survival of the fittest, or is it those whose who merge who survive?

There are no doubts many positive aspects about a merger, economies of scale, synergies etc... But there are also certain pitfalls. Is it wise to merge to hurting giants together, or shall they drawn themselves in sorrow?

Mr O’Leary from Ryanair welcomes the merger of British Airways and Iberia, saying it shall leave more passengers for Ryanair, as the merger of the two is “like two drunks supporting each other on the way home from the pub”. Clearly there is a least one person in favour hoping to pick up the pieces (passengers) when this who affair fails. Some are not so content on the matter Richard Branson for example names it a “monster monopoly”, that should not be allowed. The Virgin team are afraid that merger shall be successful and that they shall dominate the market forcing other airlines out.


The feeling of the people seems to be mixed, passengers are afraid that the quality they are used to from British Airways and their award winning cabin space and service shall no longer be at their disposition, as Iberia simply cannot match the high standard. The Spanish do not seem to enthusiastic either, as one person compares British Airways with Titanic only with more holes in their pension plan.
Oh yes that pension plan is a big problem, with a deficit of £3 billion, if the merger is to be successful, Mr Walsh has to address the fund problem and has to come to an agreement with all 12 trustees. Although the prognoses seems to be rather sunny skies, as the trustees seem to want the merger to happen, as it could secure British Airways future. Mr Walsh assures the pension fund shall not stand in their way and that within the next two to three months the trustees and British Airways shall have attained an agreement.


Well let’s look at what this merger entitles, what it means for both parties, and their passengers. The two airless shall merger in a similar style and structure as KLM and Air France did in 2002; the structure was seen to be very complicated, yet successful. Can this be the case for this merger as well, it seems less likely, 2002 was still a booming year, where everything and anything was possible, and can this still be said nowadays? Anyway the airlines companies shall remain two separate brands (allowing them to continue to show the flag and follow through with their special contracts with certain countries or airports), under one umbrella holding company named TopCo. TopCo interesting choice of words, are they really the top, I think not. Personally I am not a big British Airways or Iberia fan, they are constantly late, lose one’s baggage, rude, bad food and service, shall I go on? TopCo you wish! TopCo shall have its operation centre in Madrid with Iberia’s CEO, taking the high seat and Mr Walsh shall take care of the Headquarters situated in good old London. British Airways shall hold 55% and 45 shall go to Iberia. Apparently the first talks were more like 60/40 but Iberia was able to pressure Walsh with the pension fund deficit.


The merger is to be executed in the first quarter of 2010. So what shall that mean for the airlines and their passengers? First and for mostly it shall help cut costs, Mr. Walsh is setting a goal of £400 million within the next five years, this should be done through cost cutting such as reducing staff cost, but also through removing duplicating functions such as head offices maintenance and sales force. The unions do not seem to be too happy with that, the Spanish union immediately demanded a 4% salary increase, already adding to their extremely high pay grade comparing to other airlines. The BA union threaten that they would commence strikes as of the end of November. Although they are willing for the merger to go through they expect and demand that no more people shall be made redundant, they have already suffered enough this year. However, Mr. Walsh announced that; as of Monday 3000 cabin crew staff shall be working on a part time schedule only, two year pay freeze, reduced holidays and 1000 will take voluntary redundancy. I am sorry but does that even exist, ok maybe one person says that they feel they shall be better off somewhere else but one thousand I doubt it. I just hope none of you are planning to take British Airways to go home for Christmas, if you do I suggest you take a blanket to the airport, as if strikes commence you shall never know if you shall actually be flying.


However do not despair there are positive sides to this merger as well. It shall present the airlines with the opportunity to drive down costs and boost revenues. It shall allow them to challenge other major players such as Star Alliance and the KLM, Air France, which in this recession period could become the only possibility of surviving. So what would be worse not having a national airline or simply having less cabin space as you are flying with Iberia?


Through this merger the airlines shall be carrying 62 million passengers a year and employ 60,000. It shall enhance the network of both companies, giving it greater flexibility and access to over a 100 destinations. However this might only be the beginning as apparently talks are underway to incorporate American Airlines into the merger, as through this the TopCo Company shall be the major player in the Atlantic. Whatever happens within the continent the airlines especially Iberia are not able to compete with other transportation methods such as the trains. So will the Atlantic be enough for 3 global players?


Personally, I believe that the industry has been hit so badly by this recession, that their survival might well depend on the merger. It might be a bad time, especially since both companies together shall write a £600 million loss this year alone. It is wise for two companies whole clearly have cracks on their foundation. Well what else is there to do? How can they ensure their survival otherwise? Most other companies are merging or have already merged; therefore it might be a most.


Regarding the reading for this week, well I thought it would be interesting to follow the story over the week to see how, why, from which angle and how often the newspapers would cover the story. I think Times online was the winner on that last point, they brought out 9 stories over a 2 day period, seeming to be very anxious of what the outcome shall be and what effects it shall have. Each looking at the merger from a different perspective, although what they had to say about BA was not all peaches and roses; they definitely were on the more nationalistic side. It was also interesting to see what peoples comments were, it generally was not the best, calling it a messy affair. The language varied from being more tabloid style quoting O’Leary and his somewhat nasty comments, to being more news worthy, it had a questioning style to it throughout the different articles, making it all a little more interesting. However, in general it gave a good overview, with the pros and cons for both sides. I would say it tended to be more pro BA, but let us not forget that this is their flag flying airline, how can they not be in favour of them. The Daily Mail was very funny read, as apparently the deal is already through, they are very positive about it and are as they say in constant contact with Mr Walsh himself. Way to go fellas! The Swiss article was straight forward and as objective as can be, stating the details of the merger, the why, how and when, it was a goof informative read, but I could not detect any bias. Reuters and Bloomberg focused on the financial aspect and did not care much for the passengers and their lack of cabin space. It covers the increase in the share prices since the announcement of the merger and that BA share are raising faster than Iberia’s. They talk about the unions and the likelihood of strikes. Bloomberg also incorporates opinions of different analyst and other airlines such as Virgin.


The Telegraph was rather pro merger and was quoting Mr Walsh every word it seemed and nobody else’s, however they also covered the pension plan deficit, yet were happy to say that the affair could be regarded delta with.


The titles also said a lot about what the articles thought of the merger this week, the Times focused on Iberia and the negative sides they would bring “more routes but less class”, or that BA shall “still be able to fly the flag”. The Swiss newspaper named it the struggle for the skies, also stating that this move might be more of a must then a want. Reuters and Bloomberg’s heading focus on the financial side, that the merger might not be enough or that the pension fund is a bigger issue than many other newspapers claim. The Daily mail as said before was rather positive about the merger happening soon, “British merger with Iberia imminent”. The wording is also rather interesting, as it is a whole country and its people (British) merging with just an airline (Iberia).


Whatever the newspapers say the merger is not over yet, there shall still be some interesting stories to come. I wish them luck and hopefully for me the soon to be new additional power of the skies shall help push airfares down from other companies, as wouldn’t that be splendid!


Till next week,



S



Sources used:
Times online
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6915425.ece
Ryanair's O'Leary welcomes BA-Iberia merger
13.11.2009

Times online
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6916739.ece
More routes but less class
The merger of British Airways and Iberia is not one of equals when it comes to product quality
14.11.2009

Times online
http://business.timesonline.co.uk/tol/business/article6916561.ece
Merged group will still be able to fly the flag
14.11.09

Times online
http://business.timesonline.co.uk/tol/business/columnists/article6915006.ece
BA taking a bit of a flyer with Iberia deal
13.11.09

Times online
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6916756.ece
Destination for Europe’s biggest airline
14.11.09

Times online
For Spaniards merger is seen as a bad move
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6915018.ece
13.11.09

Times online
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6916635.ece
Iberia’s costly crew will be the focus of attention for Willie Walsh
14.11.09

NZZ
Drei Grosse kämpfen um die Lufthoheit
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/drei_grosse_kaempfen_um_die_lufthoheit_1.4011789.html
13.11.2009

Reuters
BA, Iberia merger hinges on pension deficit
http://uk.reuters.com/article/idUKTRE5AC0XD20091113
13.11.09

Telegraph
http://www.telegraph.co.uk/finance/newsbysector/transport/6557766/BA-Iberia-4.4bn-merger-creates-Europes-third-largest-airline.html?utm_source=telegraph&utm_medium=TD_baiberia&utm_campaign=Finance1311
BA-Iberia £4.4bn merger creates Europe's third-largest airline
13.11.09

Bloomberg
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKD1nSQQefAs
British Airways May Need AMR Alliance More Than Iberia Merger
13.11.09

Daily mail
British merger with Iberia imminent
http://www.dailymail.co.uk/money/article-1227347/British-Airways-merger-Iberia-imminent.html
13.11.09

Welcome back Gordon Gekko !

The hedge fund scandal continues, as newly arrested are already pleading guilty.






I chose this topic, as it represents the world we are living in, not only because these men were able do actively pursue insider trading, but that we are living in a world full of witch hunts. The government is trying every possibility to get their hands on money, to blame others for their failures. First it was the large bonuses, then the Swiss banks and the apparent tax evasions, now its hedge funds, what next?



Let’s be honest who doesn’t want Bud Fox, Gordon Gekko's assistant to get away with insider trading in the epic movie “Wall street”? Deep within us, we all want to succeed one way or another, we want to be on top and stay there. There will come a time when we decide what path to take and I do not condemn those who take the wrong path, one can so easily be lured into it.
Maybe this is just my Swiss heritage talking; I believe my entire University year knows how absurd I find the allegations about the tax evasion and abolishing tax havens, as I had rather heated arguments about it with my International Business Teacher. Where there is a tax hell as in Germany people will seek havens, its how we are designed.

But let’s look at it realistically, insider trading is morally wrong! There is a platform of integrity, devotion and professionalism, these are the founding pillars of every job, every company and every industry. That should be no different for a hedge funds, where a fair and competitive environment is quite simply a must. However, the fact of life is that someone shall always have an advantage over another person or company in one way or another. Hedge funds reward on returns over professionalism, so how easy must it be to stray from the path?

Looking at the headlines this week, one could not miss the Galleon scandal, another fourteen have been accused, bringing the list to 20, making this the biggest Hedge fund scandal of all times. Of the accused five have already pledge guilty, in the hopes of obtaining some sort of deal. Although this scandal only involves $40 million, it has far reaching effects, as this is the beginning of a more controlling and action taking era on behalf of the government, compared to before when hedge funds were kept on a rather lose leach. This was the case a, it is a very difficult process to follow on a daily basis, a company like Galleon used to do more then a 1000 stock trading’s a day, how does one analyse such data, how does one know which of those are insiders? Authorities claim that more of these cases are to come e.g. S.A.C. Capital Management and are asking anyone who has been involved in insider trading to come forward voluntarily. This insider trading arrests were handled in a rather uncommon way, phone tabs were used, wiring etc… these people are now treated like criminals, like mobsters… The scandal does not stop at Galleon and its employees but further involves high rolling firms such as McKinsey, IBM, Google, Hilton hotels and also lawyers as well as investors, amongst many others.

The funder of Galleon, Mr. Rajaratnam from Sri Lanka, denies any allegations and was released for a bail of $100 million, could there be a more outraging sum? However, the court was afraid that he might skip out on them and leave the country. Yet it has been proven through phone call conversations, although they were very prudent using pre paid phones, that he was actively involved, there is also an ex employee who has become the main witness against Mr. Rajaratnam, who shall allegedly prove his guilt. However, to date those who have pleaded guilty do not in anyway inflict Mr. Rajaratnam, they do not say that they traded on behalf of the Galleon company, but merely for themselves.

I believe that this has become such a sore subject as people feel betrayed, they are losing everything, unemployment has reached the 10% the highest rate since 1980, so way should somebody ride on the wave in an unjust manner if they can not? It is more an outcry for some sort of justice from the population and an outcry for a scapegoat for the government, trying to hide all the other things that are going so wrong.

Looking at the different sources, this was an interesting read; this week I focused more on how the newspapers approached the topic. The Swiss newspaper NZZ, as always gave the facts and was very neutral, stating who was arrested why and what shall happen, rather briefly. This was written for someone who is already acquainted with the topic. They also give a brief quote of the FBI, but they are truly trying to stay objective. The New York Times is written like a gossip paper giving loads of overdosing information, things that are completely unnecessary. It is extremely details, giving information about every single arrested person and also writing a whole article on Mr. Rajaratnam himself. They are trying to bring the news to the people. They also have many quotes from the FBI, and from the attorney working the case. It nearly seems as though they act on behalf of the government, trying to smoke out other insider traders. To be honest if one is really interested about the topic this shall give you the most detailed information, although I thought one could erase three quarters of it.

The Daily Mail was an interesting read, as they had two articles on the subject, one with the usual slandering, outrages attitude and the other rather straight forward, no harsh words, just facts. However, the articles seem rather badly research or they are trying to push outragesness to another level, as the $4 billion that the hedge fund managed, suddenly turned into $7 billion, that’s quite a difference. In the second one the language is also what one expects from this newspaper, “savvy managers”…. Their perspective is rather juicy, whole phone call conversations are listed. Reading it, everyone is as guilty as possibly can be, it leaves no doubts. It really is selling the story, cost it what it may. The Telegraph also used this outrages approach, 20 offenders suddenly become 35, they also go in depth how these people managed to get away with this insider trading for so long. Exactly detailing how and which sim cards where used what code names etc… They are also mocking the government and the system of sorts calling it a merely “casual betrayal”. To me these two papers were a rather amusing read, I like the outrages, the blown out of proportion, I can literally see people sitting at their kitchen table making themselves an absurd opinion based on these article, it actually is rather sad.

I red the Economist just for background information, it was as usual a little dry, but gave all the information I was seeking. The Reuters article was different to its usual style of writing; they were making fun of the whole process, comparing it to the Sopranos TV series. They are rather descriptive but not of broad facts, stating what we can expect, or how this came about or anything of that sort, they are concentrating mostly on the ridicule of the situation and of the people involved. They are also completely in favour of the state; I wonder why the articles this week are not as objective as usual? I also red a German newspaper N-tv ,just to really get a good idea of how different media is covering this topic in different region, countries and continents. The first three paragraphs are word for word the same as the Swiss newspaper, I wonder who copied who? However, after that it takes a different focus on the topic as the others, focusing more on the fact that Mr. Rajaratnam was set free and what does that imply. They also define and state why this is wrong why one should not commit insider trading, are they having such problems themselves? Or do they feel that the German nation shall not have an as harsh opinion on the subject as many other countries? Who knows!

There shall always be a Gordon Gecco, in all industries, the sooner we accept this, the sooner we can look at the world as it really is, full of flaws, as we are flaws and yet it remains a miracle in itself.

Till next week,

S





Sources used:

NZZ
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/insider_usa_hedge_funds_1.3977157.html
An der Wallstreet fliegen immer mehr Insider auf
05.11.2009


New York Times
http://www.nytimes.com/2009/11/06/business/06insider.html?_r=1&scp=2&sq=insider%20trading&st=cse
14 Charged With Insider Trading in Galleon Case
05.11.2009

New York Times
http://www.nytimes.com/2009/11/02/business/02insider.html?scp=3&sq=GALLEON&st=cse
01.11.2009
For Galleon Executive, Swagger in the Spotlight
NOT EVERYTHING AS IT SEEMS


Daily Mail
http://www.dailymail.co.uk/money/article-1225603/Galleon-probe-leads-arrests.html
Galleon probe leads to nine more arrests within insider trading network6.11.2009


Daily Mail
http://www.dailymail.co.uk/news/worldnews/article-1221034/Six-face-insider-trading-charges-Billionaire-hedge-fund-manager-arrested-20million-scam.html
Billionaire hedge fund manager arrested over $20million insider trading scam19.10.2009


The Economist
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14710676
All at sea
22.10.2009

Telegraph
http://www.telegraph.co.uk/finance/markets/6510167/Further-arrests-in-US-insider-trading-inquiry.html
Further arrests in US insider trading inquiry
05.11.2009


Reuters
http://www.reuters.com/article/hedgeFundsNews/idUSLNE5A501M20091106?pageNumber=2&virtualBrandChannel=11604&sp=true
U.S. insider trading probe widens
06.11.2009


N-tv
http://www.n-tv.de/wirtschaft/Immer-groessere-Dimensionen-article578602.html
Geständnisse in Hedgefonds-Affäre
05.11.2009