Archive for July 9th, 2015

A Tale of Two Ousted Bankers: Anshu Jain and Antony Jenkins..

July 9, 2015

This blog had wondered earlier on what led to the quick decline of Anshu Jain,  not long ago a highly celebrated banker.

This article provide more details on the decline of Jain along with that of another banker – Jenkins of Barclays. Interestingly both followed opposite approaches, Jain looked at everything in banking as an i-bank and Jenkins as a commercial bank:

What kind of chief executive does a big modern bank need? Apparently not a traditionally hypercompetitive investment banker like Anshu Jain, who lost his co-CEO job at Deutsche Bank last month — but evidently not a quiet retail banker like Antony Jenkins, Barclay’s freshly ousted chief, either.  Perhaps the reason it’s so hard to find a leader who can credibly run all the diverse parts of a big universal bank is that such institutions are doomed.

Jain and Jenkins had opposite ideas about which businesses were core to the crisis-racked banking empires they inherited.

True to his high-octane Wall Street personal history, Jain concentrated on investment banking and scorned the retail part. In his April presentation on Deutsche’s strategy, there were four slides titled “Reshape Retail,” but two of them dealt with divesting Postbank, the omnipresent German Main Street lender that Deutsche had acquired in 2010, and one of them focused on making Deutsche’s retail operation more like its investment banking one, turning it into “a leading advisory bank.”

Jenkins, who had only ever worked in retail and corporate banking, declared that the investment bank built up by his flamboyant predecessor Bob Diamond would be “a smaller part of the group going forward.” In an interview last year, he said 85 percent of the assets he wanted to “exit or run off over time” were from the investment bank. The U.K. retail bank remained his favorite, and he took an obvious pleasure in its technological rearmament. So the investment banking part of Barclays’ business struggled, providing 12 percent less net revenue in 2014 than it had in 2013, while the retail and corporate part showed the kind of placid growth this business is capable of, 1 percent in the same period.

Neither bank’s board was happy. Jain’s investment banking focus looked obsolete and dangerous as the bank paid one multibillion-dollar fine after another for all sorts of trading shenanigans. “Saint Antony” Jenkins’ love of commercial banking, for its part, appeared to hamper profit growth, and his management style seemed too timid when it came to cutting costs and too consensus-oriented for quick progress.

They could have done better if they stuck to their specialised businesses and not mixed the two different models. Then tech played a role too:

Deutsche Bank’s former co-chief executive paid lip service to universal banking. Two years ago, Jain argued that universal banks were “uniquely placed to finance the economy.” He noted that they’re diversified (so there’s less risk concentration), they provide essential liquidity to financial markets, and they provide a broad range of services that smaller companies would otherwise be forced to source from different banks. Jain told his audience of students:

Imagine you had to manage your loan account, your checking account and your savings account each with a different bank; and that not all of these banks have a branch anywhere near where you live or study. Would this make it easier to run your life? Imagine that for a company, or a city, or a national economy.

Jenkins, in contrast, unequivocally declared last year that “the universal banking model is dead.” To him, it was a matter of technology: With more and more banking done over the Internet and with mobile devices, Jain’s picture no longer made sense.

The modern customer can easily maintain multiple accounts at banks without much physical infrastructure, investing savings with the likes of Lending Club, using an online-based institution like Germany’s Fidor Bank for business and personal debit card spending, making international transfers through TransferWise, and otherwise taking advantage of the way the tech industry is slicing and dicing the traditional banking business. 

In this new world, universal banks have to remain competitive in every area, and that’s a superhuman task. There are probably executives out there who can handle it, but they’re so rare that the banking behemoths set up before the technological revolution are struggling to recruit them. The departures of Jain and Jenkins vividly illustrate the challenge.


Interesting times. The discussions on banking move from “what is an appropriate banking model” to “who is suited to run these global arrogant banks”? The real issue though has been banks have for sometime stopped playing the staid role they were playing in economies. Instead of being a channel of real economic growth, it started to think of itself as real growth. This has pushed banking into a highly  noisy industry with words of bankers being celebrated and eulogised. Earlier, no one really cared for all such celebrity bankers. The crisis was a wake up call to correct this image but unfortunately hardly any lessons have been learnt.

The 5+2 Solution: Is a faster doctorate a better doctorate?

July 9, 2015

Rebecca Schuman, an education columnist for Slate, has a terrific piece on wannabe PhDs in social sciences.

She reflects on the recent decision by Univ of California Irvine to increase the official duration of PhD programs from 5 years to 5+2 years:


Staggering Cost Of ECB and Troika’s mistakes

July 9, 2015

The title of the article is Grexit: The Staggering Cost Of Central Bank Dependence. But should be titled as this post has mentioned – Staggering Cost Of ECB’s mistakes.

Prof. Charles Wypsolz in the piece point to ECB’s mistakes in the whole Greece episode. Not to forget how the whole world hyped Draghi’s magic to settle markets:

More generally, the ECB must accept its share of responsibility for the disastrous management of the Greek sovereign debt crisis. It was the ECB that refused in early 2010 a write-down of the Greek debt (Blustein 2015). Counterfactuals are never fully convincing, but a good case can be made that this decision is the reason why the Greek programs failed. An early write-down would have provided enough relief to avoid the deep and front-loaded fiscal stabilization that plunged Greece into a long lasting depression. An early debt write-off would have reduced its borrowing needs and the steep debt build-up that followed. Today’s debt could well be perfectly sustainable.


Furthermore, by joining the Troika, the ECB also chose to play a strange role. In normal programs, the IMF sits on one side of the table while the country’s authorities, the government and the central bank, occupy the other side. By being on the lenders’ side, the ECB found itself in the position of imposing and monitoring conditions. This is one aspect of the more general point made by De Grauwe (2011).

The deep reason for the Eurozone sovereign crisis is that the euro is a foreign currency for member countries. It also provides an example of how deeply politicized the ECB has become. No other central bank in the world tells its government what reforms it should conduct, nor how sharp should fiscal consolidating be. As a member of the Troika, the ECB was instructing Greece to carry out deeply redistributive policies, for which only elected politicians have a democratic mandate. In the end, it must accept the blame for poorly designed policies that have provoked a deep depression and its political consequences.

The decision to freeze ELA is taking this politicization process to a new height. In effect, the ECB is pushing Greece out of the Eurozone. Politicians may debate about the wisdom of making Greece leave. As non-elected officials, the people who sit on the Governing Board of the Eurosystem have no such mandate. A charitable interpretation is that they felt that many governments would harshly criticize keeping the flow of liquidity to Greek banks open after the Greek government in effect closed the negotiations by calling a referendum. This is true, but central bank independence is designed to prevent this kind of pressure.

All over the place. And you never know. If Draghi is replaced with some more hyped chief who could reverse the sentiment temporarily, perception might change overnight.

Further, there are issues on ECB independence (no matter how misplaced the term is one keeps hearing it):

On paper, the ECB enjoys full independence. Its Board members cannot be revoked and their long eight-year mandate cannot be renewed, so that they do not have to please member governments. Yet, they reluctantly violated the no-bailout clause to please member governments. Then, it took three years to decide on the Outright Monetary Transactions (OMT) Programme – which brought immediate relief – because some member governments opposed it. For the same reason, they started QE seven years after the Fed, probably contributing to the longest period ever of no growth in Europe. And now they are triggering Grexit, which will radically transform the Eurozone. Adopting the euro is no longer irrevocable, a fact that is bound to agitate the financial markets with unknown consequences. Greece is not the only victim; the governance of the Eurozone has been shattered.

As American counterparts would say, the governance played a huge role in setting up a flawed union. So it is a fitting tribute to them. Just that nothing much will happen to those who governed the mess and most burden to be faced by citizens. This always has been the case in global politics and economic history. Seldom do designers and policymakers face the brunt. Infact, they only grow more powerful as brilliantly etched in this book.


German economists thinking becoming more American over the years..

July 9, 2015

Thomas Fricke (Chief Economist, European Climate Foundation) has a piece on INET blog. Well, as one of the commentator on the piece said “German economists? What is that?” Actually such pieces reflect on the evolution of economic thought which depressingly is becoming just American over the years. No economist is considered worthy of his salt if he has not studied and worked in US. Post-US experience, the whole world is open to you and people easily become govt advisers/ heads in their home countries. Whereas those who study and spend times in home countries just end up scratching their heads.

Same is going on in Germany as well. A country which actually had made some mark in economic thought as there was a German school (Ordoliberalism as well) is getting lost in oblivion.


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