The extent of the banking scandal and the latest report on a High Yield Portfolio.
With the resignation of Bob Diamond, the rate-fixing scandal has been high on the agenda again this week. One of the main questions obviously is -- just how widespread might the problem be?
It's probably not limited to Barclays. As a BusinessWeek article reported, US and UK authorities are pursuing "sanctions in a global investigation of more than a dozen lenders". But what about all the other banks?
JakNife -- a banker by profession, (and a dedicated foe of financial scams and swindles of all forms) -- wanted to put that into some context:
"[The article] suggests that another 6 are implied to have done the same thing, which (noting that Barclays would be 7) is 11 short of "all". So on the face of it less than 40% of the banks that contribute to LIBOR are implicated and of course we shouldn't forget (unless of course we want to appear to be biased) that there are hundreds of other banks outside of the LIBOR panel.
"Did I say that not all banks are Barclays, that we are not all Bob Diamond and that there are very few of us that actually are vampire squids?"
(Which is rather unfair on vampire squid, as they're actually relatively harmless.)
Unsurprisingly, there followed a lot of more-or-less heated discussion of just how much of the banking profession might be considered "corrupt", which seemed to range from blaming a handful of banks, to a condemnation of "the level of misconduct, criminality and lack of basic integrity" exhibited by the whole profession.
Round-up regular -- and ex-investment banker -- avidya chimed in:
"This won't be popular to say, but in some ways all this hand wringing over LIBOR manipulation seems pretty strange to anybody who’s operated much in money markets. ... anybody even vaguely close to money markets knew back in 2007-8 that LIBOR was being reported at artificially low levels... The people who knew this certainly included the BoE and the regulators, none of whom wanted LIBOR to be reported at the true levels because of what that would have said about the funding strains in the system.
"... But I think the real issue here is not really about LIBOR, it’s what it says about the way banks operate. In my experience Barclays is an extreme example of this. It’s that banks act as short term profit maximizers and many are increasingly dominated by an investment banking culture which emphasizes maximizing profit from own account transactions rather than acting as agents in the longer term interests of customers."
To be closely followed by CasperCCC, speaking for the non-investment bankers among us:
"I think that the anger might be because it seems to confirm what so many suspect. That there is a small number of people who lie and cheat, who think that rules are for other people, who behave in an utterly amoral way, and with the sole interest being in making themselves even richer than they already are. 99% of people are locked out of this world.
"Comments that read a lot like "I don't know why they're all getting so het up about it - in the industry, we all knew it was totally rotten" doesn't help that perception. It tends to confirm the perception that there's a small cabal of insiders who are playing by different rules to the rest of us. Pointing out that the regulators must have known about it really, really doesn't help. When even the people who set the rules don't care that the rules are being broken, the people who don't have a Bloomberg screen are left feeling pretty impotent, and pretty angry."
And with a parliamentary enquiry in to the rate-fixing scandal now agreed to, the debate just looks likely to run and run...
A bad year -- but hope for the future
High Yield Portfolio (HYP) stalwart Gengulphus was back with the "Year 4 report" on his demonstration HYP. So how's it all gone over the past 12 months? Sadly, not so well:
"All in all, not a very good year's relative performance. As noted above, I believe it's mainly due to Aviva, FirstGroup and Tesco. None of them has done anything seriously wrong on the dividend front yet during this portfolio's ownership period - all increased their dividends, though FirstGroup's dividend cover is starting to look suspect (1.7 times according to the company, but that's using adjusted EPS) and Aviva and Tesco only sub-inflation 2%ish increases. But clearly the market has taken a dislike to them. Whether that dislike is justified remains to be seen, but in the meantime it has had its inevitable effect on capital value."
But there are grounds for hope, looking ahead
"The FTSE350HY [a nominal index of companies in the FTSE350 that rate as high-yielders] has significantly outperformed the FTSE100 over the last year. Specifically, the total return version of the former has risen from 4021.22 in the year 3 report to 4215.67, a 4.8% rise, while the corresponding change for the latter is from 3838.64 to 3799.17, a 1.0% fall. This particular HYP hasn't really managed to benefit from that outperformance due to Aviva, FirstGroup and Tesco, but hopefully it bodes well for other HYPs outperforming the indices."
Maybe you're thinking of starting your own HYP? If you are, in a post variously described as "super", "fantastic" and "very helpful", Luniversal provided his personal guide to the "HYP's midsummer sale":
"If I were buying for a HYP, and I soon may be, these fifty-seven shares are where I would direct my researches. Like other retailers, Mr Market is becoming desperate to shift inventory; since beginning to look at high yielders systematically two or three years ago, I have not found so many bargains for starting income streams."
So what are the fifty-seven shares? You'll have to read his post to find out.
Truth in advertising
Advertising is another profession that's often derided for its 'flexible relationship' with the truth.
But, as squiffs posted this week, sometimes it gets it absolutely spot on.
Last week's round-up: A Postcard From Greece