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Thursday, 23 October 2014

Getting the UBS sack: On sharks, toast and school-gate dads

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If you swim with sharks, you have to be prepared to get bitten. That appears to have been the broad consensus after the initial “shock reaction” to the old trick of cancelling fired staff’s entry passes to let them know that their services were no longer required which UBS pulled yesterday. Over the past two and half decades, I have both fired and been fired and, you know what, quick and decisive has much to be said for it.

Anthony Peters, SwissInvest Strategist

In the Hollywood film “Up In The Air”, George Clooney plays a character who is hired to professionally fire people. It deals with trying to create the illusion that there is a gentle way to do it. The conclusion is that elegant solutions can be found to soothe the employers’ consciences but that for the fired employee it might be best to simply get on with it. Promises that alternative positions are being sought internally and what-not really do not add to the process.

When you know you’re toast, all you’re really interested in is to know what the package is and when you can get down to looking for an alternative place of work. If you have other sentiments, you were probably the wrong person working in the wrong place to start with.

Nevertheless, I was deeply disappointed when I heard Alpesh Patel of Praefinium Partners Ltd on the radio this morning. Alpesh has a firm opinion on pretty much everything and most of what he says makes a certain amount of sense, even if one does not necessarily agree with him. However, this morning he opined that the fired bankers would not be troubled as they would receive three or six months of redundancy and would surely be flying off on holiday to a warm place before long. That is a nonsense.

However, the men and the boys are soon separated as it does not take long to find out who had real clients and who was just riding the bank’s franchise.

To start with, bankers have been taught that salary means nothing and that “total comp” is the sole measure of income. As domestic expenditure is in most cases based on income and not on base salary but redundancy packages are based on the latter alone, a three or a six-month package might be a lot less than it appears. I still belong to a generation when salaries were for living on and bonuses were for saving but that is largely no longer the case.

There are families where the base salary, post tax, just about covers the mortgage and school fees for the children; the rest is funded out of the “total comp” package. Perchance, I dined with a senior portfolio manager last night who was telling me that of his little group of half a dozen “school-gate dads”, he is the last one in gainful employment.

First it was the mines, then it was the steel-works, then the car plants and now it is the banks. Most of the people who were left on the door-step at UBS yesterday will struggle and many of them will never work in a bank again. Nevertheless, if they are half as bright and a quarter as entrepreneurial as they think they are, they will find ways to move forward.

We are in the middle of a recalibration of the financial services sector and the banks’ business is open for cannibalisation. As opposed to coal, steel and autos, the entry costs to investment banking services are low as the many boutiques which have been and still are springing up attest to. However, the men and the boys are soon separated as it does not take long to find out who had real clients and who was just riding the bank’s franchise. Trust me, there are many surprises to be had out there – the highest paid are by a far not always the best.

Any worth looking at?

Not all is gloom. As the news about the events at Broadgate was doing the rounds, I had my first enquiry from a big cheese at another investment bank whereby he asked me I knew whether there was anybody amongst those who had been chopped who he should be looking at – there is never a bad time to grasp the opportunity to upgrade your own team. As is, most of the people I knew at UBS were fired years ago, the big cheese included.

Meanwhile, although New York was closed, markets here in Europe traded nicely with a stiff bid for risk assets. How much of that was just a technical rebound from the weaker sentiment of last week is a moot point and month end technicals will have played a role too – the Dax will still close down on the month so a bit of index buying cannot be ruled out although both the CAC and the FTSE will be small up over the period.

All of the economic data we have seen out of the States this week has been stronger. The CaseShiller Home Price Index reported at 145.87 for August and is creeping up on the four year high of 148.88 which it saw in July 2010, itself the highest since December 2008. The Labor Department has also confirmed that it will release the Payroll Report on Friday as scheduled.

The NYSE intends to open again today but with public transport to and from Manhattan still patchy, I’d take it to be more token than real. However, markets never sleep, do they?   

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