16 February 2010

Are Regulators asleep again?

There is still more talk than action in banking reform. We do not seem to be alone when making this observation. Volcker rule, Basel III, contingent capital - all these buzzwords are worthless if nothing gets implemented at some stage. News of generous bonus pools give the impression that all is back to normal in the banking world but when we had a look at the capital ratios of some large banks we were genuinely surprised - if not shocked - about the abysmal capital ratios that some of them reveal. Balance sheet totals seem to expand and the simple ratio of pure equity is in the low single-digits, and falling! So investors have to be more vigilant than ever when deciding how to allocate their investments. More than ever it is not the return on the investment that counts but the return of the investment.

15 February 2010

Are there still any 'safe' Investments?

This question is often asked these day. And with good reason. A large part of investable assets are the debt obligation of states, regional governments, companies, private individuals and banks. While most bank deposits are guaranteed by governments that just pushes the ultimate responsibility for the repayment of bank deposits further up the chain. Only property, company shares and gold are assets that are not the liability of someone else. This explains the resilience of these assets in face of a shaky financial outlook.

9 February 2010

Financial Adviser taken hostage

A group of German senior citizens took a financial advisor hostage that they blamed for causing them a loss of Euro 2.5 million. Now while we do not condone this behavior we do at least have some understanding for their frustration with the legal and regulatory system that all-too-often is slow moving and seems to favor those perpetrating investment frauds. It also seems only fair to use extra-judicial methods to get your money back when the governments of several countries seem to be willing to buy supposed bank details that were obtained illegally. (We stress the word supposed as they data may well have been created out of thin air in order to cash in on gullible tax authorities or to get even with people one dislikes).

8 February 2010

Who stands behind failing Hedge Funds?

News that a number of - sometimes quite large - hedge funds are moving their operations to Switzerland or other locations (or are in the planning stage) in order to help their promoters or employees avoid taxes they deem to be excessive raises the question of the new host country's ability (or willingness) to stand behind the funds if they get into trouble. As the example of Iceland has shown, the size of the host country should stand in a reasonable relation to the size of the financial institutions that the regulators of the country have to supervise. In case of fraud or other malfeasance investors are well-advised to study the small print in the legislation regarding the regulatory structure of the host countries: Does regulation involve more than box-ticking and are investors able to claim compensation from a well-financed scheme in case of fraud or default?