GFH: A New and Improved Strategy

Not Proof of a Successful Strategy, Hard Work, or Integrity

If you’ve read GFHFG’s press release regarding 2016 net income, you’ll see that GFH has declared success in implementing the strategy it announced in December 2014--a scant two years after announcing what was described as a "long-term" strategy--and the  need for a new strategy.

Let’s let GFH’s top management set the stage for this post.

Commenting on the results, Dr. Ahmed Al Mutawa, Chairman of GFH, said, “We are extremely pleased to have delivered great performance for 2016. These results are a testament to the success of the strategy that GFH has adopted since 2014, and the commitment and integrity of the Board and management team. Our results were supported by the significant recoveries that saw $460 million of assets restored back to the Group, a major benefit for shareholders and one that will allow us to deliver stronger results for the years to come.

Building on the successful achievement of our strategy for 2014-2016, GFH’s Board of Directors has also approved and recommended a new strategy for 2017-2019, which focuses on accelerating growth by way of acquiring financial institutions, infrastructure investments and strategic assets. The new strategy will be presented for shareholder approval at the next General Assembly Meeting and are subject to final regulatory approvals.

Mr. Hisham Alrayes, CEO of GFH, added, “2016 was a year of significant progress across the Group and we are proud of the transformation that has been accomplished as demonstrated by our results.  During the year, we have delivered on our promise to shareholders and the market with regard to recoveries, which will effectively return to the Group all past accumulated and written-off losses of the last eight years.

We have also set the group foundations for the future by further strengthening our Investment Banking, Real Estate and Commercial Banking activities, and have taken sufficient provisions to make the Group’s balance sheet more efficient for future value extraction.

As a prelude to my comments, a recap of GFH’s 2014 strategy.

1. stable and recurring income, profitability and cashflow 
2. reduce holdings in “land-based” business  (real estate) from 50% to 40% in the midterm and to around 30% in the long term
3. ensure greater stability from global financial issues

You’ll find an excellent analysis of GFH’s strategy in this earlier post.

Now to my comments.

Chairman al Mutawa:

1. “Delivered great performance” -- According to my analysis GFH had an operating loss of some US$ 192 million for 2016.  The windfall earnings from litigation settlements do not reflect underlying performance or any fundamental change in GFH’s ability to generate income.  Operating earnings do.  And they evidence dismal performance and no substantial change. 
2. “Testament to the success of the strategy” -- Looking at the above key pillars, I don’t see that any of these were achieved.  Nor does the equivalent of buying a winning “lottery” ticket validate that strategy.  
3. “Commitment and integrity of the Board and management team” -- Frankly AA is puzzled how these two factors influenced the litigation settlement.    Since this was an out-of-court settlement, I suppose one could read this statement to mean that in conducting the negotiations GFH’s board and management team looked out for the interests of GFH and not the payees.  A strange comment to make. 
4. “Results supported by significant recoveries” – Excuse me.   The litigation settlement was the entire cause of the results.  As noted above without the settlement, GFH had a net loss from ongoing operations in 2016. 

CEO Al Rayes

1. “Proud of the transformation” -- What precisely has been transformed?  Certainly not the underlying business (see 2016 results from ongoing operations).   The windfall litigation settlement reflects nothing more than the successful conclusion of legal actions.  
2. “Laid the foundation”  -- One would expect a firm whose main business is real estate development to know that laying foundations and actually completing buildings are two different things.  Though I’m told GFH’s historic forte has been marketing.  There is I am told a lot of unfinished construction at the BFH – Villawhere as local wags have it.  Foundations laid buildings not completed.  Hardly a demonstration of anything except perhaps difficulties in persuading one’s lender to advance more funds. 
3. “Demonstrated by our results” – This is an even further stretch than “laid the foundation” as proving success of the earlier strategy. 
4. “Taken sufficient provisions to make the Group’s balance sheet more efficient for future value extraction” – Since impairment provisions are only to be taken to reflect the impairment of assets, this is indeed a puzzling statement.   Is Al Rayes admitting that GFH has overprovisioned in order to build up a “hidden reserve” to use to boost lower operating revenues in the future?  This could of course "demonstrate" the success of whatever strategy GFH claimed to be following at the time.  And as well the integrity and commitment of the Board.  Or is he admitting that GFH was severely underprovisioned?  

As regards the new strategy, mark AA as unconvinced. 

There seems to be nothing new here.   The touted potential acquisition of an Islamic bank in Bahrain and infrastructure development are fundamentally exposures to real estate. 

A glance at the Chairman’s report in GFHFG’s 2016 financials bears this out. 

Mentioned in quick succession are: 

1. Acquisition of a US-based  industrial real estate portfolio and discussion of existing US industrial real estate 
2. Jeddah Mall 
3. Villamar aka Villawhere? 
4. Harbour Row and Harbour Walk (also at BFH)
5. Tunis Financial Harbour
6. Gateway to Morocco
7. Mumbai Economic Development Zone

 A following post will take a look at the assets received in the litigation settlement. 

What is the quality of these earnings, a key issue for the Financial Group going forward.

Simple Math Stumps US Corporations - SEC Rides to the Rescue

Our Corporations Isn't Learning

As you'll recall, Section 953b of the Dodd Frank Act requires corporations listed in the USA to publish a ratio of the total compensation of the CEO to the median compensation of all other employees (excluding the CEO).

Self-proclaimed "captains of industry" objected to the onerous requirement of providing this ratio, but their pleas were ignored --though implementation was delayed till 2017.

Now with a kindler gentler administration in the White House and control of both the House and Senate in the hands of the GOP, they are getting a second hearing.

February 6 Acting SEC Commissioner Michael Piwowar:

The Commission adopted the pay ratio disclosure rule in August 2015 to implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires a public company to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive officer.

Based on comments received during the rulemaking process, the Commission delayed compliance for companies until their first fiscal year beginning on or after January 1, 2017. Issuers are now actively engaged in the implementation and testing of systems and controls designed to collect and process the information necessary for compliance. However, it is my understanding that some issuers have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline.

I encourage commenters and the staff to expedite their review in light of these unique circumstances.

Boldface above courtesy of AA.

Yes, this is indeed an almost insurmountable task. 

1. One has to figure out the total compensation of the CEO.  Oh, wait.  That's already done for the annual Proxy Statement. 
2. Then one has to figure out the median salary.  That's even more tricky because it involves two really "hard" steps.  
3. Big corporations have operations all over the world and pay their employees in a myriad of currencies.  How possibly could they figure out the US equivalent of Paris-based Jacques' salary or Frankfurt-based Heinrich's?  Oh, wait.  Corporations routinely convert local currency transactions into US dollars for their annual financial reports, including salaries paid to foreign workers.  Corporations also routinely keep detailed employee by employee payroll records for tax, pension, and other purposes so no new records have to be created.  What probably would be required is to add a column to figure out the US dollar equivalent salary for each employee.  
4. But, as no doubt many a beleaguered corporation will point out, then they have to figure out the median salary.  What's a median? An extremely challenging task.  One lists all salaries and then picks out the one that is smack in the middle.  This is the sort of things that computers were made to do.  Microsoft's Excel has a preprogrammed "median" function so this is definitely not rocket science.
5. So the corporation would have to consolidate US dollar-equivalent lists of salaries prepared by various operating units (foreign and domestic) and then sort them by amount and pick out the median.  Another automated process.

On its face, it sure looks like this objection is motivated by a desire to avoid providing this information because it's likely to raise uncomfortable questions about CEO compensation.

But, let's accept the manifest absurdity of this argument and assume for a moment the objection is true.  After all, we have a new Treasury Secretary who swears he can't fill out government ethics forms and other members of the Administration see things that never happened (3.5 million people at the Mall for the Inauguration, 3.5 million illegal voters, etc). 

On that score Mr. Piwowar "understands" that some corporations are having a problem.  It's not clear if there have been many complaints from companies, whether he is seeing things, heard about it from KellyAnne, or read about it on Breitbart.

Rule 953b was finalized 5 August 2015. 

That means that some US listed corporations have been unable to establish a system to calculate this ratio in the 17 months since then and believe that they will be unable to complete it in the additional 11 months remaining during this year (assuming most corporations have a December fiscal year end).

If this is the case, then 3 troubling questions.

1. In an era where complex calculations are at the base of product development and production, should a consumer purchase a product from a company that acknowledges its inability to do simple maths?
2. In an era where proper pricing of products, operations and risk management depend on the ability to perform complex calculations, should an investor buy the stock or bonds of a company that admits that simple mathematical procedures exceed its competence?
3. Should the average citizen and our government be worried that our self-proclaimed math-challenged corporations are clearly not equipped to compete with foreign corporations?

The SEC is taking comments on implementation of this rule.  Let your voice be heard.

SEC to Rely on FINRA to Monitor Brokerages

"Daddy, read me the story of the self-regulating market again"

If your daddy didn't read you this fairy tale when you were young, maybe your "Uncle" Milton told it to you at university.  Or a kindly professor relayed the Uncle's wisdom to you. 

If this didn't happen, here's a quick recap. 

Even if each businessman single-mindedly pursues his or her own profit to the exclusion of all other concerns, where there is intense competition of the "free" market (note that requirement) salutary outcomes result:

1. individual or overall market excesses are magically curbed 
2. firms offer the best service and prices, eventually competing profits away to zero unless, of course, they make improvements to products.  [Because profits never go to zero (except in bankruptcy) this no doubt proves the creative power of free markets to constantly improve products.]
3. those firms that do not lower their prices or improve their products are forced out of business

Since by definition, the market in the USA is not only "free" but "intensely" competitive, then with such miraculous powers there is little if any need for government regulation.  In fact by interfering with the market, governments are liable to do more harm then good as this quote attributed to Mitt Romney demonstrates. 

The invisible hand of the market always moves faster and better than the heavy hand of government.

This theory seems to be the rationale for this recent SEC decision reported this Monday by Reuters.

The Securities and Exchange Commission is leaning more heavily on partner regulator the Financial Industry Regulatory Authority to monitor brokerages as it devotes extra staff to oversee the rapid growth of independent financial advisers, a top regulator said Monday

What could possibly be a reasonable objection to FINRA taking over SEC duties?

Simply put, FINRA is an industry group and therefore has an inherent conflict of interest. 

Does this mean that it is certain that they will fail to do a proper job or that they have failed in the past?  No.  What it does mean is that a conflict could cause them to fail.

What are some of the potential trouble "spots"?

1. Setting professional qualification standards too low.  FINRA doesn't report the pass rates on its qualification exams (Series 7, etc).  The pass rates for the CFA, CFP, FRM are all reported and suggest these certifications are difficult to obtain.  Why is that?   
2. Restricting information on actions against brokers.  If you'll recall a while back, FINRA was criticized for failing to provide enough information in its Broker Check (BC) tool to allow investors to determine whether to work with a particular broker.  FINRA announced some improvements but just recently the  Public Investors Arbitration Bar Association found those improvements lacking and criticized FINRA because BC doesn't include reasons for a broker's termination by a firm, information about bankruptcies, tax liens and scores on relevant industry examinations.  PIABA noted that some of this information is provided by state security regulators (government agencies) which suggests (but does not prove) that legal liability issues did not motivate these omissions.  
3. Applying a light touch on penalties when perhaps a heavier one is justified.  In the past the maximum fine was $15,000 per "offense" in the NASD days. (FINRA is the combination of the "old" NASD and NYSE separate self-regulatory bodies).   This has changed. Fee levels have increased.   In 2016 FINRA is set for a record year of estimated fines of some $160 million due to some "supersized" fines.  ("Supersized" is defined as a fine $1 million or more).  The estimated 2016 total fines is less than the fines levied against Wells Fargo by government regulators for the "fake accounts" scandal. The last time I looked FINRA's largest 2016 fine was some $25 million against Met Life (2015 revenues $70 billion net income $5 billion).  See the analysis of these "ginormous" fines by Sutherland Asbill and Brennan here.  And here for K&L Gates' analysis of 2015 fines in which it's noted that most FINRA actions are resolved for less than $50,000.  It should be noted that FINRA fines individuals as well as firms and that many of the firms in the industry are minnows alongside the major brokerage firms so $50,000 could be a firm threatening fee. 

Just to be clear, I am not accusing FINRA of improper behavior.  I am merely pointing out a conflict of interest.

During his illustrious career, AA has seen a lot of conflicts of interest turn into conflicts of action. 

Here's one "sweet" story - not witnessed by AA.

Early warning signals of the coronary heart disease (CHD) risk of sugar (sucrose) emerged in the 1950s. We examined Sugar Research Foundation (SRF) internal documents, historical reports, and statements relevant to early debates about the dietary causes of CHD and assembled findings chronologically into a narrative case study. The SRF sponsored its first CHD research project in 1965, a literature review published in the New England Journal of Medicine, which singled out fat and cholesterol as the dietary causes of CHD and downplayed evidence that sucrose consumption was also a risk factor. The SRF set the review’s objective, contributed articles for inclusion, and received drafts. The SRF’s funding and role was not disclosed. Together with other recent analyses of sugar industry documents, our findings suggest the industry sponsored a research program in the 1960s and 1970s that successfully cast doubt about the hazards of sucrose while promoting fat as the dietary culprit in CHD. Policymaking committees should consider giving less weight to food industry–funded studies and include mechanistic and animal studies as well as studies appraising the effect of added sugars on multiple CHD biomarkers and disease development

Why take a risk with this conflict of interest? 

FINRA has a role to play.  

But should the SEC cede what is properly a government responsibility?

CIPS (China International Payment System) Hysteria Largely Dispelled?

AA Reporting from His Secure Location: Sometimes You Need More Than Just the Hat

When the PRC announced its intent to create CIPS--the China International Payment System, now renamed the Cross- Border Interbank Payment System--some trumpeted it as a replacement for SWIFT and another, perhaps, the fatal step in global de-dollarization, heralding the end of the primacy of the US dollar.  Here’s one particular brilliant “insight” cast in terms of “white and black hats” and “blessings”. 

Most of this commentary was ideologically-driven:  a preconceived notion in desperate search for  validation. When your ideology gives all the answers, analysis is not only very easy but very facile. You just fit the facts or what might pass as “facts” around the preordained answer.

My favorite exemplar of this way of “thinking” is the assertion that the ruble is fully supported by gold and thus in some way superior to the US’s “fiat” money.  That’s “supported” like Golden Belt Sukuk was “asset backed” –“way back” it turned out.  No doubt AA is missing the opportunity of a lifetime by not converting his deposits to rubles and depositing them in a Russian bank. What could possibly go wrong?  But then I resisted buying Golden Belt Sukuk so I have a track record for missing out.  

Some of it was based on the latent hysteria that often informs discussions of politics and economics, particularly when certain actors are involved.  Here there was a veritable trifecta:  possibly including China, Russia, and Iran – an “axis of evil” for some.  But as the video above shows for others an “axis of virtue”.  Count your blessings!   And note the white cowboy hat on the wall in the video!

At the time there were more balanced analyses like this one from the FT which cast CIPS  as an attempt to simplify the process of making cross-border RMB payments to promote internationalization of the RMB and perhaps lessen exposure to alleged spying and the threat of denial of SWIFT services.  As it turns out these latter goals appear not to have been met as will be outlined in a following post.  CIPS may well facilitate greater “regulatory supervision” (but not “spying” for sure) of offshore RMB-denominated transactions by PRC authorities.

SWIFT’s 25 March 2016 press release by and large put an end to nonsense about CIPS as a global replacement for SWIFT or should have. 

“The MOU sets out plans for a strategic collaboration to develop China’s Cross-border Interbank Payment System (CIPS) using SWIFT as the secure, efficient and reliable channel to connect CIPS with SWIFT’s global user community.”

But there are still holdouts.

Ideology is a powerful thing in the face of mere facts. Here’s one from Jim Willie over at the aptly named website “Before It’s News” carrying a dateline four days after SWIFT’s press release.  I guess the site name means the articles are written before looking at the news.

What’s clear or should be now is that CIPS is not a replacement for SWIFT.  It’s analogous to CHIPS – a New York-based bank-owned utility that makes the bulk of cross-border payments in the US dollar. That is, CIPS is a payment utility like CHIPS or CHAPS, not a secure messaging system like SWIFT. 

Why create CIPS? 

The PRC is looking to promote the internationalization of the RMB.  CIPS is designed to streamline the currently cumbersome process of making cross border RMB payments.  It is also a way to bring this payment “traffic” within the PRC.  As a result of bringing that traffic onshore, PRC authorities will have more visibility into offshore RMB payments than they previously had.  

But could we have figured out that CIPS was highly unlikely to replace SWIFT when CIPS was first mooted?  Yes!

Because there’s a lot of apparent confusion about precisely what SWIFT does, let’s start with some basic facts as they’re part of the foundation of the argument to follow.

SWIFT not hold any accounts, nor does it execute any payments.  It transmits payment instructions to financial institutions that then “make” payments either (a) through utilities (like CHIPS or CHAPS) or national payment systems (like FEDWIRE, CNAPS2—China’s domestic RMB payment system) or  (b) on their own books (book transfer) when they hold the account of the intermediary or final beneficiary. 

That is, assume Bank A receives a SWIFT message from Bank B ordering Bank A to debit Bank B’s account and pay Bank C for account of Person or Company K. 

1. If Bank A holds the account of Bank C, it will make payment on its own books (an internal payment or book transfer) unless Bank B instructs it otherwise. As the name implies, the payment is made within Bank A.  Bank A’s assets and liabilities don’t decline when the transfer is made.  All that happens is that the amount of the payment is moved from Bank B’s to Bank C’s account –an internal shift within liabilities.   
2. If Bank A doesn’t hold Bank C’s account, it will pay the correspondent Bank that holds Bank C’s account either through the utility or national payment system (in banker speak a “wire transfer”).  In this case Bank A’s assets and liabilities will decline by the amount of the payment and Bank C’s correspondent bank’s assets and liabilities will go up by the amount of the payment.  Here there’s an actual movement of funds out of Bank A to Bank C’s correspondent.

While SWIFT is probably the most convenient and most used method to send and receive payment instructions, it is not the only way.  If SWIFT denies a financial institution access to its system, that financial institution can use a variety of other methods (proprietary PC based systems that mimic SWIFT, or other methods like telex, facsimile, email, letters) to send payment instructions to its correspondent.  These will often be more cumbersome and costly and less secure, but if the correspondent is willing to accept them, the payment can be made.

What’s involved in creating a global replacement for SWIFT?  

First a side digression to place this question in context. Creating a bi-lateral alternative or regional alternative would be much easier.  Most internationally active banks offer their customers PC-based systems for transmitting payment orders and receiving account information though such services are limited to two-way communication between the specific customer and a single bank.  Banks in Russia and China offer these services and could easily set up a communications system. If there was a preference to avoid the internet, a cable could be laid.  But that would not be a global replacement.

Putting aside the not inconsiderable cost of creating a new SWIFT, one would have to build a system offering similar services at the same or lower costs, persuade existing SWIFT clients that there was a good reason to shift from SWIFT, and at least for now convince them to shift a large portion of their transactions to the RMB.  That of course would require that the banks’ customers shifted their transactions to the RMB away from the dollar or other currencies.  All this seems to AA to be well beyond a hard slog.

SWIFT works.  That’s why it is the global communication utility. It is as embedded in the payments world as Microsoft software is in the PC world, though I’d argue that SWIFT has the better product. 

Here’s the hill to climb.

1. More than 11,000 financial institutions in more than 200 countries use SWIFT. 
2. SWIFT supports more than 150 payment and settlement systems around the globe.  
3. In 2015 SWIFT handled over 6.1 billion messages related to payments (in a wide variety of currencies not just one), securities transactions, treasury operations (FX dealing, interbank deposits, swaps, loan syndications, gold trading), trade finance (letters of credit, collections).   With this sort of volume fixed cost per transaction is low.  Variable cost is very low.  How does an upstart match this advantage? 
4. SWIFT offers a robust range of products beyond “mere” payments, including financial messaging, bulk file transfers, secure internet browsing/web access for SWIFT members’ clients, a comprehensive suite of compliance and analytical tools --anti-money laundering, sanctions enforcement, etc. 
5. And does so with 99.999% reliability year after year after year.  Its credibility as a reliable partner is proven.

Beyond these obstacles there is another very serious impediment to getting banks to embrace CIPS as an alternative to SWIFT: currency.

CIPS is likely to be limited to a single currency—the RMB.   Today only about 40 percent or so of SWIFT payments are in dollars (Page 5).  What do foreign banks do with the other 60% of their payments?  Run two communication systems?  SWIFT for everything but RMB? And CIPS for RMB?  That’s operationally cumbersome and thus expensive in an environment when cost minimization is key.

On top of that the RMB is less attractive than the dollar and likely to remain so for a long time because of concerns about transparency, business ethics and fair dealing, legal redress, market size (availability of sufficient investable RMB denominated assets), and their liquidity and credit quality to name just a few of the challenges the PRC faces in making the RMB a true alternative to the US dollar. 

Don’t mistake this comment as a Pollyannaish view that the dollar’s place in the world economy is unassailable.  It isn’t.   Sadly, our “own goals” are likely to be the main factor in the dollar’s fate.  Richard Dunne step aside for the real pros!  Any alternative currency will also have to offer the same or greater benefits than the dollar.

Next post will discuss some of the issues arising from how CIPS is likely to operate.

Societal Worth of US Big Banks Part II Beyond Advertising

Actions Speak Louder Than Words, At Least That's What Some Folks Say

In a previous post, I noted the advertising campaign that major US banks had launched to rebut no doubt unfair characterization of them as “reckless” and “too big”.

Ads are fine but sometimes the most compelling argument is how you live your life or conduct your everyday business.

Turning back to the Grey Lady’s coverage of this story, a quote from Jamie Dimon of JP Morgan Chase pictured above, doing his best for humanity, sets the stage.

“When Mr. Dimon was asked in February how he would explain to an analyst’s mother-in-law the benefit of being a large bank, he conceded, “We have a hard time explaining those things to the public.”

Mr. Dimon went on to say: “We make loans. We help companies. We help communities. We are the Rock of Gibraltar in the tough times.”    

In just a few powerful words, he’s made the case for the big banks. 

The central justifying theme is “helping”.  Or "doing one's best for humanity" as in an interview with Fox News 13 January 2015 which you can watch here. 

Of course, banks also have a duty to make an honest profit for their shareholders. 

As Krimes v. JPMorgan Chase Bank NA, 2:15-cv-05087, U.S. District Court, Eastern District of Pennsylvania (Philadelphia) no doubt shows there doesn’t have to be a conflict between an "honest" profit and "doing one's best for humanity" or "helping communities".

In 2008 JP Morgan won a no-bid contract to provide ex- convicts from all Federal prisons in the US prepaid debit cards which they could use to withdraw money they had earned in prison or money that had been sent to them while they were incarcerated.

According to Fortune magazine,

“But when the convicts were freed and tried to access their money, they found that they had to pay huge fees for what seemed like ordinary services.

The former prisoners had to pay $24.50 if they wanted to get a lost card replaced quickly; $10 to withdraw money at a teller window; and $1.50 if they didn’t use the account for a month, according to the Financial Times. They even had to pay $0.45—or the equivalent of two hours of work in prison, the FT notes—if they wanted to check their account balances.”

AA side comment: $0.45 doesn't sound like much until you scale the fees to the convicts' wages per hour to get an idea of the relative cost of the service.

Bloomberg quoting an unnamed ex prisoner:

“I left prison with $120,” an unidentified former inmate said in the complaint. “Because of the fees, I was only able to use about $70 of it.” 

More here.    And here.

Success in achieving goals is a function of attitude and aptitude so they tell AA. 

Perhaps, encouragement to "try harder" would be in order as AA is confident in the presence of aptitude at JPMC.

Department of Manifest Absurdity: Big US Banks Launch Ad Campaign to Demonstrate Their Worth to Society

If You Can't See the Obvious Link to Big Banks, Take as Many Looks as You Need Until You Can.

The New York Times reports (and when the NYT reports AA pays more than his useful careful attention even when the  reporting doesn’t cover metals) that big US banks are engaged in a major advertising campaign to demonstrate their societal worth and why they should be more loved

Not one to usually share the spotlight AA will uncharacteristically let the NYT speak for itself.  The Grey Lady’s comments are in quotation marks.  AA’s thoughts are indented and in italics.

“At both the Democratic and Republican conventions, the nation’s biggest banks were again cast as the bad guys, criticized as being too big and too risky.”

AA:  Note the charge “too big” and” too risky”.   How will the banks prove that they’re not reckless and a danger to national economies?   Glad you asked.

“This week, as the Olympic Games begin in Brazil, one of the big banks, Citigroup, is offering a rebuttal with a series of prime-time television and digital ads featuring images of sweaty athletes, the Space Shuttle and an early A.T.M.

[AA: Heartwarming video here, but be warned if you're a sensitive sort, you might break down crying.]

“Our business is helping Americans make progress,” the ad’s narrator says, as a runner with a prosthetic leg sprints down a track.

AA:  Impeccable logic. .Show hard working folks at their tasks which no doubt have something to do with banking.  What precisely isn’t clear.  Used an ATM? Have a credit card?  In any case a powerful rebuttal against "recklessness" and "riskiness". And one which shows big banks’ virtue.  Smart move as I believe there were some no doubt unfounded allegations about big banks’ ethics and morality.

AA understands from thoroughly unreliable sources that JPMorgan is preparing its own commercials.  Jamie Dimon, known for his no nonsense suffer no fools approach, is reportedly going to appear in a series of ads featuring animals.  Among the ads planned, one features Jamie with whales off the coast of London or Washington state (location yet to be finalized).   Another with cuddly puppies, ice cream, and adorable children.   Tag line:  “Banking making a kinder gentler future for all of us”.

As a banker, AA knows the value of getting a fee for advice, but in a spirit of reckless (I am a banker after all) generosity (here the analogy breaks down), some ways this “geometric logic” could be applied to other cases. 

Goldman is reportedly assisting the US authorities with inquiries into its conduct and fees (a cool half a billion) for the US$6.5 billion in notes (bonds to the layman) it arranged for 1MDB in 2012 and 2013.   Two of the note issues were to fund-–well at least partially—1MDB’s acquisition of power generation assets.  AA sees a compelling ad featuring Malaysian farmers toiling alongside their water buffaloes.  Sweaty and tired after a hard day’s work, they settle back to listen to one of the fireside chats given by Malaysia’s prime minister.  One old chap speaks up.  “I remember when we didn’t have power”.  Tears in his eyes, he turns to the camera, “Thank you, Lloyd”.

Several Malaysian businessmen—LOW, TAN, AZIZ--have been charged with misappropriating 1MDB funds (to use the US Department of Justice’s happy turn of phrase).  Some of the funds are alleged to have been used to acquire works of art as well as fund a Hollywood blockbuster.  Key the camera.  The Parthenon, the Coliseum (Rome), Hagia Sophia, the Pyramids.  Voice over by an actor with an appropriately sonorous voice (Morgan Freeman?)  “Culture is what defines a civilization.”  Pictures of The Rjiks Museum, Museuminsel, The Louvre, The Tate, The Metropolitan Museum of Art.  “Reflected in great art that is still accessible to us today.”   Pictures of the three gentlemen named earlier.  “Art patrons before they are businessmen.  Supporting culture in all its forms”.

And then there is the Islamic Republic of Iran.  Perhaps a harder case with some audiences.  I see a testimonial by Candy Charms who recently visited for some cosmetic surgery.  Nose, if you're interested. According to the Mirror, she said.  "Loved Tehran. The people are so kind and generous.  "Really overwhelmed by the whole trip. The people are so amazing.  Tag Line: “Amazing Iran.  Friendly people.  The most advanced medical care at a reasonable cost”.    Let’s go local with the link on this story from Gulf News as the Mirror article is accompanied by some unsuitable pictures.

The "Developed" West - Burger King Kids Banking

"First-Class Business in a First-Class Way"

It's got to be gratifying to work for a first-class firm that labels you a "Burger King kid".

Also on the subject of documentation, which is a frequent rant here, the rule should be very simple:  No note, no foreclosure.    

If making a mistake in drafting a contract is  rookie behavior, losing one's contract is below the level of incompetence.  The Burger King Kids, as the bright executive had it, may be in the executive suite.

Department of the Tragically Absurd: A New Structure for Arab Joint Action on the Table

It's Got to Hurt When Only a Few Recognize Your Completely Imaginary Genius

As Emirates 24/7 informs us:

Chairing the opening session, the Libyan President Colonel Muammar Al Gaddafi welcomed the Arab leaders and said that the summit would discuss a new structure for Arab joint action.

He added that a five-member committee under his chairmanship was formed during the last summit in Sirte to oversee implementation of the new structure.

Another decisive step forward.  A new structure.  Proven visionary leadership.  What could possibly go wrong?  (For one thing see picture above).  

Who could possibly object?

Amr Moussa voiced some skepticism and warned that steps should not be taken which would undermine the highly effective Arab League.

But as the report tells us several critical breakthroughs were made at the meeting:

HH Sheikh Mohammed Al Maktoum had several very important visits.

1. He visited Egyptian President Mohamed Husni Mubarak on Sunday for a session filled with Hope.
2. He met with Syrian President Bashar Al Asad also on Sunday.  While we're not told,, I believe this session was about Change. (Quite a busy day, it seems).
3. On Saturday the Bahraini Deputy Prime Minister and his entourage visited HH  and his entourage and conveyed the greetings of King Hamad of Bahrain!  That was, if I'm not mistaken. one of the major achievements of the conference.
4. Though there were no doubt many more,  perhaps more than could be recorded.  One of note,  that was, was a visit to a heritage market.

This event certainly lived up to its billing as the  extraordinary Arab summit.

Despite the many imaginary achievements of this remarkable event, I am left with one nagging doubt.  What sort of people make a habit of indulging a psychotic in his delusions?

Department of Sycophancy: "Sheikh Mansour Emerges as the Arabian Warrent Buffet"

الشيج واران بوفيت منصور

So we're told by Arabian Business.

When I think of Warren Buffet I think of many things:

1. A determination to succeed and lots of hard work.  Warren began his career delivering newspapers from his bicycle (which he duly depreciated on his tax return!).
2. A ferocious pursuit of deals, many originating from "cold calls" on firms.
3. A generally single-minded focus on a particular investment philosophy (value investing as taught by Benjamin Graham).  
4. A cool rational head not swayed by whatever was the then current irrational exuberance.
5. A painstaking building of a fortune.  Earning money, saving, reinvesting, making a profit, and repeating the cycle
6. Many highly profitable and visible deals.
7. Despite all of this, little affect on his ego or lifestyle.  He lives in the same rather modest house in Omaha that he bought long ago.

Arabian Business is silent on all but the sixth point so we can only imagine how the other six apply to the Sheikh.

What we do learn from the article apropos of the sixth point is that:

1. He owns Manchester City Football Club.  How this came about and how it was funded are presumably too well known to require recounting, which is perhaps sad because we are left not knowing how he displayed his legendary skill in closing this transaction.  Did he begin with a paper route for The National or perhaps more likely Akhbar Al Arab?  Save his first earnings and by repeating the cycle amassed the GBP 300 million to buy the Club?
2. "He" made an investment in Barclays in the dark days of 2008 and has now made US$3 billion on an "exit".   One that we learn that leaves "the sheikh exposed to any upside in the share price and completely protects him from any downside."  

The latter deal sounds almost miraculous.  He exited Barclays yet retains upside in the shares.

So how can we understand Arabian Business's statement: he "completed his exit from this cool investment"?    Frank Kane has an account here.  As the words suggest, risk has been hedged but not eliminated.

First, PCP3, not the Sheikh,  will continue to own the shares.  PCP 3 has entered into a derivatives transaction with Nomura.  In effect risk on Nomura has been substituted for Barclays.

And as always with derivative transactions the devil is in the details.  What are the conditions for exercise?  Any restrictions or limits on the number of shares to be "put" at any one time?  What is the strike price (or its equivalent) on the transaction?  Current market price?  Something lower?  Is there a time limit at which point the (derivative) contract expires and Nomura is no longer obligated?   Will PCP3 need to roll the derivative forward to maintain its protection at that future date at a price to be determined?    And perhaps very importantly what did the derivative cost?  Are there future costs associated with it?   One presumes Nomura priced for the risk they're taking considering both price and time.  So this isn't a costless transaction.  But then PCP3 gets to keep the upside.

Still a remarkable return.  One worthy of much praise.  Especially when one considers such debacles  as one SWF's investment in Citibank convertible securities.

But before Arabian Business rushes to describe the Sheikh as the Arabian Warren Buffet, it may be appropriate to wait for the development of a consistent track record.  

Not so long ago, Maha AlGhunaim, Esam Janahi and others were lauded for their investment prowess.  And like many a legend, time has not been kind to these.

Reuters: How Dubai Got Serious?

An interesting report from Reuters:  How Dubai Got Serious.

A deliberate choice of headline?  Or perhaps an unintended indication that at one point Dubai was not serious?

To whet your appetite some quotes.  My comments follow each quote.

The auditors' task is to investigate exactly where the money went, who lined whose pockets, and what other financial landmines might lie in store. Forensic audits at state-linked firms, such as Dubai Holding, are part of a wider corruption probe that has targeted senior figures from Dubai's boom years.

Lots of commissions to track down to say nothing of more simple misappropriations.

Abu Dhabi's ascendancy began in the wake of 2008's global credit crunch. Reports about debt trouble in Dubai's flagship companies had been circulating within government from as early as 2005, though most people seemed happy to ignore them. In 2008, the end of a six-year oil-fueled boom burst Dubai's real estate bubble while the global financial crisis left the emirate unable to refinance looming debt obligations.

Lenders merrily rolling over loans and pretending everything was OK.

 "The announcement was a disaster for Dubai. They were told 'don't worry, Argentina has done this, Venezuela has done it. People forget and they start lending again.' But what they didn't take into account was that those are real economies. This is not a country.

Ouch!  But right on target.  Not a country in several ways. 

"Nakheel's books were so screwed up it wasn't even funny."

"No-one knew the magnitude of what was owed, then the complexity of it," the former adviser to Dubai World says. "A lack of experience -- and ego -- made it hard to admit defeat."

And still make it so for the "Dubai's back" crowd.

Almost two-thirds of Dubai World's debt is held by six banks, four of them British: HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered, and local lenders Emirates NBD and Abu Dhabi Commercial Bank.

Another great moment in banking!  There's no fool like and old fool.  And then there are bankers.

"They believe that now the problem is solved," says the former Dubai World adviser, who is critical of creeping complacency just a year after the crisis. "The problem is not solved, they still owe the same amount of money. They will have to pay the same amount, only a little later."

See above "We're back".

Damas - Standstill Extension Signed

Damas announced another remarkable bit of progress and as well yet another "vote of confidence" from its lenders in its proven business model.

Here's the PR from Nasdaq Dubai this morning.

Following the announcement by Damas International Limited (the "Company") on 19 September 2010 that the steering committee of the Company's lenders had, in principle, approved an extension of the standstill agreement to 30 November 2010, the Company announces today that the Company has signed an amendment agreement dated 30 September 2010 to the standstill agreement dated 24 March 2010 (as amended pursuant to two amendment agreements dated 27 April 2010 and 13 July 2010 respectively) between the Company and the steering committee so as to formally extend the standstill to 30 November 2010.

A Company spokesman commented that "the agreement of the steering committee to the standstill extension shows once again the confidence that the bank lenders have in the restructuring process and the strength of the underlying business model of the Company".

If you believe the press release, and I hope you don't, Damas has scored yet another vote of confidence from its lenders.

 

Actually, it has not.

 

If there was a vote of confidence from its lenders, it is when they agreed the extension not when they signed the agreement.  Not when they signed to document that agreement.  Sorry, Damas, you only get one vote from this.

 

But more importantly this is actually a vote of no confidence in the local legal system. 

 

Rather than say no and refuse an extension.  Lenders realized that recourse to local courts would greatly diminish their already worrisome recovery prospects.  So they went along with another extension on the 19th and signed it today.

Update - Republican Senate Candidate Admits to Dabbling in Witchcraft

If you're worried, don't be.

Luckily the Republican Governor of Louisiana is a home-schooled exorcist.

Idiocy Knows No Borders: Mice with Human Brains

Hidden Camera Picture from Inside NIH Laboratories

Well, just when you thought you'd heard everything, something new pops up.

The Republican candidate (who else of course) for Senate from the great state of Delaware apparently rang the warning tocsin of a manifest danger to our nation back in 2007.  Sadly though it appears no one heeded her:

"They are -- they are doing that here in the United States. American scientific companies are cross-breeding humans and animals and coming up with mice with fully functioning human brains. So they're already into this experiment."

Now I suspect many of you out there are wondering if this could possibly be true.  I'd point out that Ms. O'Donnell made her remarks on Bill O'Reilly's show.  And if that doesn't settle the issue for you, I'm not sure what other arguments would.

One thing we can be sure of from this story though is that we have pretty conclusive proof that scientists have been successful in their efforts to cross-breed humans with mice brains.  I think Ms. O'Donnell's words speak for themselves.

You may also be wondering who "they" are.  I'd tell you but I'm pretty sure I can here the very faint "whump, whump" of the black helicopters circling overhead   I did ask the real estate agent if we were outside the range of the UN spy satellites.  She assured me we would be.  But I guess she didn't know or, perhaps, may have been in on the plot.  

 Outside my window, right now.

Additional posting may be delayed today.  I'm going to nip out to the local store.  While I did line my enormous tarboush with tin foil last week, I think it's time I put tin foil on the walls around the area in which I blog.  One can't be too safe. 

If  I don't post again, well you'll know what happened. 

And for God's sake keep your eyes open for mice on bicycles!

Threat to Capitalism Warning Notice: Regulatory Overkill Again

No sooner had I begun to relax than I read of another manifest danger.  No, it's not ill-conceived regulations of the financial sector as one concerned bank CEO calls them.

It's regulatory overkill for offshore drilling.

In today's FT the Lex column thundered:

Regulatory overkill after BP's drilling accident has understandably soured the mood.

I've boldfaced two words from the quote.  A "drilling accident".  Sounds benign.  A company dedicated to "best practice" and with a highly environmentally friendly logo is drilling and for some unexplained reason there's an accident.  Probably not their fault at all.  Hard to see what all the fuss is about.

On the front page of the FT in an article hysterically titled "BP Cited for Safety Lapses on North Sea", I did learn that the newspaper had filed a request under the UK's Freedom of Information Act and learned that:

"All but one of BP's five North Sea installations inspected in 2009 were cited for failure to comply with emergency regulations on oil spills, raising questions about the company's ability to manage a disaster in the area."

Now some of you cynics out there might use this information to criticize the good folks at BP.  You might say the instead of describing the Gulf of Mexico as an accident, this bit of information suggests criminal negligence.

I for one look at this last bit of news with a less condemning eye.

1. If there's an accident here, it's likely relating to the one out of the five wells in the North Sea.  BP has a pretty consistent record.  Besides preparation for disasters is a waste of shareholder funds, because in well managed operations disasters never occur.
2. BP's disaster management abilities (or lack thereof) have been pretty well demonstrated and documented.  There's really no need to raised questions now to which we already have the answer.  The information obtained by the FT is therefore not explosive (at least in a news worthy sense).  

It's high time that pointy-headed bureaucrats in Washington and in London get off the back of the financial and oil industries.

They've demonstrated a remarkable rhetorical capacity for imaginary self-regulation.  It's time to end regulatory overkill.  Next thing you know there could be crackpot schemes for food or mining safety!  All this could wind up killing our very way of life.  That is, of course, if you're able to continue living after an economic and environmental collapse, assuming you didn't die from food poisoning first.