Sunday, 29 January 2012

Just leave Stephen Hester to shovel his shit

We give the man nothing but a pile of shit and a shovel and then complain, when he hasn't turned it into gold. I think he has been doing a lot of shovelling and not a bad job. Is it the appropriate amount, I don't know, but surely the people who should be penalised, if anybody, are the ones who hired him on terms we now don't like.

Anyway let's just consider what 'success' looks like. Basically the current targets are linked to share prices because that will provide an exit for the government, something that both government and banks are keen to see. BUT that doesn't mean long term improvement in cost to income ratios (profitability), it simply mean shares went up. But isn't that the same thing? No, certainly not.

With some simple accounting gymnastics you can for example make 2011 look a little worse than it is in order to make 2012 or 13 look a bit better than it is. Markets react strongly to both examples. Hopefully just enough to get over that threshold, so that you can collect your bonus and get rid of UKFI (the government).

I don't trade, I don't gamble, I don't even lotto, my brain cant handle the stress, but if I did, I would be keeping my eye on the above.

The thing to look out for is excessive loss provisioning (putting money aside for a loss that hasn't incurred and according to my theory wont incur) in 2011. Those banks might have a surprise for you in the next annual report.

So just leave Stephen to shovel his shit, reward him for that.

Saturday, 28 January 2012

Pitching to the super rich - do you want to be more rich or famous?

I work in retail banking mostly. That’s what I know and what I’m good at. However because we are involved with starting, acquiring and transforming companies I’m increasingly exposed to the world of investment banking. Now investment banking is a catch all for many different things, I’m not talking about trading but the scenario where you want to secure a very large amount of money for your venture, +100 million, you can’t just walk into your bank branch and get a business loan. You need investment.
So you go to an investment bank, they essentially act as the broker. Their job is to find people or companies willing to invest in you. If the deal goes through the investment bank receive a large fee. It’s very similar to selling a house except the money is bigger. My impression is that investment bankers aren’t the high flying sleazeballs they are portrayed as, I would rather describe them as clean cut, small round spectacle wearing, prep school boys. As a middleman you want to be credible but not too flamboyant.
So the investment banker will introduce you to a private equity firm. These tend to be small companies overseeing vast amounts of money. Often the PE firm is lead by rather more colourful characters, the super rich who have a sizeable chunk of their inheritance invested in the fund. If you are in the UK you’ll also encounter a certain amount of Lords and Sirs and other fancy titles here. I assume it has some sort of positive effect on their ability to attract money to their fund. Why? Well one theory would be that PE firm, handles money from many foreign wealth funds. One can perhaps assume that the 'royals' in charge of these eastern wealth funds have a soft spot for titles. If you are digging money out of the ground you are probably more interested in cool friends and status than more money.
So we go to the investment banker, the investment banker to the PE man and the PE man has what is called commitments from foreign wealth funds to allow him to draw some of their money to invest. It takes time and many many meetings to get your hands on that pot of gold at the end of the rainbow. Slowly slowly catchy monkey.
So what do they want in return? They like to get a return, yes, but the people we are pitching to already have more money than they can comprehend, so just telling them "I can make you a lot of money" doesnt really get them  excited, but "I can make you famous" does. They of course don’t want you to pee away their money either, so a plan for acquisition of a large amount of assets (their security) would probably go down better than a very ambitious start up. We have therefore concluded that a business case with a steady conservative return, considerable tangible assets and a very PR friendly proposition, is the best investment profile for us.
So ask yourself, do you want to be rich or famous? If you don’t care about the latter, find somebody who does, position yourself as the one who can help them achieve that ambition, somebody who has 5 billion and effectively don’t care if its 4 or 6, help them leave that legacy they desperately crave. The bigger the plan, the better the response and we have a pretty grand plan.

to be continued..

Friday, 6 January 2012

The year of the black dragon

2012. The year of the black dragon. 6 am,  on the train on my way cross country to the first board meeting (im a shareholder in a small legal services business) of the season.  I'm sitting here wondering what kind of year it will be.  2011 was a watershed year for me, a year where my wife and I defied the economic trend and spent/invested like never before, we got involved with a couple of businesses and they were, on balance, successful. I released myself from some of my old demons and could, for the first time in a long time, get a decent nights sleep without worrying about EVERYTHING and nothing. To all those aspiring entrepreneurs out there, who can build great things but forget all the smaller bits in the process, my advice is; get yourself a good wife (or husband) and a good accountant and let them manage what you can't or won't, it will do wonders to your sanity. It's been 2 1/2 years since I quit my job (one of those jobs where you spend most of your time on office politics) and turned myself into what some would call an entrepreneur but is much better described, by one of my customers, as a middle class hobo. For two and a half years, I have not had a week with 5 days in the same office, I have worked less, earned more and spent an enormous amount og my time in coffee shops.  During this period, I have worked for 3 different employers simultaneously. I dont have any debt and I rent EVERYTHING, so its very easy to pick up and go somewhere else.  When we have more, we spend more, when we have less, we cut down a bit. When there is work, its 24/7, and when there isn't we spend time together. We have also had a freedom to travel a lot, start new businesses and generally do what we want to do. However 2011 ended with a stark reminder that we, perhaps, can't live this way forever. We have illnes in the family now and it will require our emotional and financial support and I therefore started to consider taking a full time job again to get some more regularity into our life.

Financially this year could really go either way. Judging by the amount of communication, I have received over the christmas holidays and particularly the first few business days of january, my business partners have decided to come at 2012 all guns blazing. I hope we will all do that. Do what we do just a little bit better, and let our optimism rule the fear. Lets tame the dragon and ride it to more prosporous times. The Chinese certainly think it will be a lucky year and 1 billion optmistic workers and consumers might be just the medicine the world needs.

Officially the year of the black dragon doesn't start until February, so I will continue my hobo lifestyle a while longer until I get a chance to gage what kind of beast we are dealing with.