French Pickle

So let's see if we can get our heads around this one.

Junior staffer, lowly trader, working for large French Bank, bets the house (literally) on the movement of European Stockmarkets and gets it wrong. To enable these bets he does the equivalent of placing bets on all the other horses in this race (in the markets they call it hedging), but in this case he never actually gets around to placing the safety hedges and it is all placed "on the nose".

Only the markets don't perform as expected and the lowly trader gets into a bit of a pickle.

By the time one of his bosses has woken from his siesta and noticed that they might not be able to pay their electricity bill next month it is way to late. Not only has the stable door been left open, not only has the horse run off, but it appears he has taken all your credit cards aswell.

So what did they do? I think nowadays we can't say things like "typically French" etc. but it sure looks like it. Without letting on that this Junior trader had lost a thumping 1.5 Billion euros the bank quietly starts to sell off the entire position that the trader has created. Turns out that this sell off couldn't be on a worse day. The markets throughout the globe are tumbling and consequently the loss of 1.5 Billion euros turns into a loss of 3.7 Billion euros by days end.

C'est Magnifique!

So does this have anything to do with us? Can any of us imagine letting a "junior" employee have such freedom to operate in our business that they could bring the whole show down?

Have you ever considered the possibility? Are there substantial checks and balances in your business so that no one has the chance to play fast and loose? While the consequences might not mirror that of the hapless Societe Generale they could still be quite devastating.

Certainly food for thought.

Crisis? What Crisis?

With stock markets tumbling around the globe this morning you might be forgiven that the bloke on Oxford Street warning us that "the end is nigh" might have some insider knowledge. If you follow the financial press, events like this can be an adrenalin roller coaster.

But what of real business. The day to day trading around the world continues, stuff is bought and sold, insurance premiums are paid, people pay back their loans etc. Buildings will continue to be built and Tesco's will look for another field to site a supermarket. In other words, although there are certainly consequences to global stock market drops, they tend to be felt at the "Macro" level for the most part.

When do we get to feel it? When we go to the bank and ask for a loan and the manager looks long and hard and asks how many children we have. He will need at least one of them as security for the loan along with the home, the business, savings and any other thing you have had the good fortune to accumulate.

Oh, and then although interest rates appear to be on the way down, our loan will need to be repaid with an eye-watering 5 1/2% over base rate.

And of course we feel it when we look at our Pension statements. After years of being hammered by a persistent bear market, they have nicely recovered over the last three years. We will have to wait to see if yet again those large Pension provider envelopes remain unopened. When your pension is going backwards it is sometimes easier not to know.

Maybe then this is a good buying opportunity if you have some spare cash hanging around? I don't know about that. I am not sure that the fund managers (highly paid) wake up every morning and concern themselves with your welfare.

I think that this is a time for cash, investing in your own business and maybe it is now the time to take control of your pension once and for all and not leave your retirement income to the whim of the market.

Ooooh...what a giveaway!

So they've finally stuck their hands up and admitted it.

Your friendly High Street bank is really just like Comet or Debenhams or MFI. They want you to walk through their doors so that they can flog you overpriced add-ons to your banking needs.

A staggering 300,000 of us switch accounts every month and the banks are having to look to alternative ways of marketing to attract their share of this business. So they've looked to the retail sector and hey presto, you have the Bank's version of the January sales.

And of course, following the great tradition set by the big retailers, they are doing their darnedest not to actually give anything away.

The FT notes that some of these deals are really no deal at all. For instance the HSBC "25% refund on interest on their personal loans" is based on a loan rate of 8.3%! Even after the refund there are still many better deals on offer.

The reality is that you never really get the good stuff on sale. The banks know this and as a consequence their "sales" all have an emperor's-new-clothes feel to them.

But today maybe, depending on the courts, we will get a little bit of Christmas from the banks. Long frustrated by exorbitant fees for unauthorised overdrafts, bounced cheques etc. the public has finally had enough. Like parking tickets, these fees have the ability to really get under your skin.

Let's hope that the Judges have had a few bounced cheques and can feel our pain!

Careless talk......

Reading the newspapers over the New Year was a fairly dismal experience. For UK business the general feeling is that we are in for a rough ride over the next year. In fact I lost count of the amount of times the "R" word was mentioned.

On both sides of the Atlantic the effect of the slide in property values is expected to start seeping into the real economy.

And then on the business television news this morning the presenter asked a couple of guests whether they thought that we were in danger of talking ourselves into a problem. He was insinuating that it might not be all bad, but that somehow we could let our emotional reaction to all the bad news affect our day to day business decisions.

Duh!

Isn't all business emotional? The fact is that if you don't feel bullish and positive you will start to act more defensively, pull your horns in, tighten your belt and so on. It is this gut feeling that guides many business people. Understanding the prevailing economy, especially the demand from our clients is what keeps us in business.

Confidence is important, but so is paying attention to the marketplace.

Never truer is the old chestnut that the banks will only give you an umbrella when it is sunny. Making sure that you have sufficient facilities in place now, before the storm breaks, is the prudent option. If we are in for a downpour at least you are prepared.