Archive for July 29th, 2009

UKFI Leadership Change at this point of time?

July 29, 2009

UK Financial Investments Limited was set up to manage all the equity positions UK govt has taken in the various UK banks. It is fully owned by the UK govt.

Y’day, a press release (see Treasury press release as well) from UK said that both Chairman and CEO of the firm are being changed. FT reported :

Alistair Darling stunned top City bankers on Tuesday by announcing a new team to run the taxpayer’s stake in the banking industry, raising fears of a “massive hole” in the management of a portfolio that could eventually be sold for more than £100bn.

The chancellor said John Kingman, chief executive of UK Financial Investments, was stepping down, relinquishing his role as chief shareholder in RBS and Lloyds Banking Group for a move to the private sector. Mr Darling announced simultaneously that Sir David Cooksey, the businessman and venture capitalist, would replace Glen Moreno as chairman of UKFI. One of his first jobs will be to find a City high flyer to replace Mr Kingman.

Telegraph said Klingman wanted to join pvt sector 2 years back but decied to stick on and help the govt manage the crisis. He also is likely to get a much higher salary going forward (but obvious).  Another FT article has more details:

John Kingman jokingly called it his “little start-up”. From a room in the corner of the Treasury, UK Financial Investments manages bank shares equivalent to £3,000 for every household in Britain, with a remit to sell that stake at a profit. Yet less than nine months after UKFI was set up, Mr Kingman, the high-flying civil servant who became its first chief executive, and Glen Moreno, acting chairman, are leaving.

“UKFI is one of Britain’s most powerful bodies and these changes at the top come at a very sensitive time,” said Vince Cable, Liberal Democrat Treasury spokesman.

Treasury insiders say they knew two years ago that Mr Kingman wanted to move to the private sector, even if the news came as a shock to some in the City. One senior banker said on Tuesday he was “gobsmacked” to hear the news. Mr Kingman’s departure leaves the biggest hole, since he was the Treasury permanent secretary who masterminded Northern Rock’s rescue and was intimately involved in the deal to save RBS and Lloyds.

His tough negotiating style was described by Sir Fred Goodwin, former RBS chief executive, as like a “drive-by shooting”. His intellectual manner was seen by some MPs on the Treasury committee as arrogance. Mr Kingman’s friends believe he stayed in the civil service because it was more “fun” than working in the private sector; they insisted he was not motivated by money. But his priorities may have changed: his return to the private sector is likely to be lucrative. City figures speculate he could move to an investment bank, although he says he does not have a job lined up.

I hope there is no irregularity in the finances of UKFI. Otherwise, UK Govt has had it. Moreover, I don’t know why would you leave such an important office to join pvt sector at this point of time ? It is bound to get criticism and people would look at it from all possible angles.

Another issue is if Klingman joins some finance firm, the problem of fluid movement froma top job in finance to a top govt job and vice-versa continues. It was not seen as a problem till now and was considered healthy as both pvt and public sector gained. This crisis has changed the belief and is seen as a major impediment to reforming finance and bringing it under some control. Tough tough times for govt officials. They should be very careful of their moves.

SEC bans naked shortselling permanently

July 29, 2009

SEC has banned naked short-selling permanently. In 2005 , SEC’s view of naked short-selling was more sober:

Naked short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market.

However even in 2005 it was concerned over naked short-selling being used for manipulative practices, but could not decide on it. In 2009 it banned naked short-selling altogether as a lesson from the crisis.

RBI Governors’ press statement – ushering in more transparency

July 29, 2009

I had commented y’day about RBI getting more transparent and above all communicating more effectively. I discovered another development which adds to the transparency point.

 RBI Governor talks to the press after the mon policy and this statement is a record of the same. The practice of publishing the press statement was started by Dr Subbarao. It was first put on the website for his first monetary policy meeting in October 2008. January 2009 statement is  here, April 2009 statement is here.

From April 2009, the statement started a new trend. It started reporting about Central Bank’s meeting with commercial bank heads. It said:

“This morning, I had a meeting with the chiefs of major banks where we announced the annual policy of the Reserve Bank for 2009-10. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each others’ perspectives. 

RBI released July 2009 statement of the Governor. July 2009 statement goes a bit further than the April 2009 one:

“This morning, I had a meeting with the chiefs of major banks where we announced the monetary policy of the Reserve Bank for the remaining period of 2009-10 in the light of the macroeconomic developments so far. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each other’s perspectives.

Bankers generally welcomed the Reserve Bank’s policy stance. They felt that the status quo on policy rates would anchor interest rate expectations that could spur investment demand. They indicated that they are seeing signs of revival in the domestic economy and expect credit demand to pick up in the second half of the year.  In this context, I emphasised the need to increase the flow of credit, particularly to agriculture and micro, small and medium enterprises. 

Banks were concerned that their liability structure is getting shorter with the reduction in the term structure of deposits, while the asset structure is getting elongated on account of the increasing share of long-term loans, particularly infrastructure. Several banks also indicated that the share of current and savings (CASA) deposits has been declining, which would put pressure on their net interest margins (NIM).  As regards credit quality, banks were of the view that non-performing assets (NPAs) are expected to increase, particularly, in the unsecured segments, although they will remain manageable.  Going forward, public sector banks emphasised the need for raising capital as risk-weighted assets expand in their asset portfolio.

So, this time discussion with central bankers is shared witht he public. It tells you about the concerns of commercial bankers in the crisis which is a useful value addition. In all, I think RBI is getting more transparent with each mon policy. Great developments.


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