ATEL, the Association of Corporate Treasurers in Luxembourg, recently published a very good article with a very different perspective from that of the "Western" world. It's name "Finance and ethics: the Islamic View" gives a hint. Enjoy with the compliments of Francois Masquelier et al.

"I Can't Get No Satisfaction..."

"...if I can't raise the tax burden. Heyheyhey that's what I say."

Sometimes that is what comes to my mind when I hear raising taxes is the answer-to-all-problems. That seems also to be the case regarding the tax on financial transactions.

Facts:

1. The collected tax has to come from somewhere, those imposed will charge it to the next party in the chain ending up that the consumer will have to pay, in the end. The expectations are 10th of billions of EUR in tax revenues. From where shall that be taken and for what will it be used? 

2. Implementation of a tax on financial transactions in Sweden in the 1980-ties was a severe failure and therefore abolished in only a few years

3. Volatility will increase since market liquidity will decrease. I was a bond dealer in Sweden at the time we had the tax. The Reuter screens stopped blinking overnight and each large trading post made the price jump up or down when market makers pushed it like a hot potato onto each other

4. There is a dispute among different country leadership risking legal problems

5. Market liquidity will decrease making it more costly and difficult hedging commercial exposure from corporates

6. Financial transactions will move out of the EUR area learnt from Swedish empirical evidence. Is that something we will benefit from at this stage?

What shall we, the corporates do, to make the EU leadership understand the consequences on the real economy of their decisions?

First Smells of Victory

Today the Financial Times and Reuters refer to the French and German ministers of Finance wanting to relax Basel III to steer off any possible negative effects on the real economy. Especially on the SME...

A wish come true, or maybe "be careful what you wish for"?  Wishes are powerful, you see.

LINKS
Basel III for Dummies!
Basel III posts
Posts on Regulation

Basel III Survey Results

Getting the Financial Incentives
right is crucial in a company
as well as in society. We need
to steer right, not just steer.
Take the "Highway to hhh..."?

I found these very interesting survey results from Eurofinance on corporate expectations from the Basel III implementation. The fact is that many corporates have already prepared themselves and reduced dependence on funding for growth. Interestingly a majority of the respondents didn't believe the regulatory bodies understand the effects on the real economy. It is a strange situation that the corporates do not rely on the ruling elite's ability to create good conditions for growth and welfare generation in the private sector . Let's think of that for a while...

Regulation Forces Corporates Become Banks

Keeping eyes and ears open
for the corporate perspective

I talk to treasurers and many of them realize that in the future they will not any more be able to rely on the banking system for funding. Basically all funding needs to come from the capital markets, through working capital management and own cash generation. Decreased leverage is therefore a trend that will continue. As one peer puts it: "Cash sourcing will be the big issue in the future, the cash is no longer available in the places we have been used to. The treasurers job will be to re-invent the way we secure cash." For the large and cash rich corporates that is further challenged since they also have to consider that the strongest part of the supply and demand chains needs to take a much stronger role in financing. 

Pushing through the
regulatory glass walls

Thus Regulation Forces Corporates Become Banks.

When regulation is putting banks in the role of being cheap ATMs for the public sector, it is time for a Radical Rethink. We will continue presenting more players reinventing the financial system for corporates, a system where banks play a much smaller role than yesterday. The corporates will push the glass walls .

The regulators and ruling elite need to understand the corporates are pragmatically adapting to reality, not trying to change it. The regulators and ruling elite have therefore a huge responsibility to create rule sets benefitting growth and prosperity of the corporate sector. 

Euro Contingency Planning

With the kind permission from the UK ACT I here post a link to a very good structure for analyzing your effects of a possible EUR breakup.

Enjoy the "Final Countdown" on "broken wings with a heart of stone".

Rock on Merkozy for a Radical Rethink!

Basel III Faces Serious Opposition

Othmar Karas
MEP EU Commission

It seems as if Basel III is getting serious opposition by members of the EU commission in Othmar Karas. They are starting to realize the liquidity quotas cannot contain only sovereign bonds. 

In the US they have realized Basel III cannot be implemented in all banks, instead only the largest, showing understanding it is not the best construct. 

Us corporates shall be very content and feel the support. Thanks Othmar et al.

Trends in Corporate Treasury

Dave Robertson

Petr Polak

I have published an academic paper together with my dear friends Dr Petr Polak, Associate Professor in Finance at Universiti Brunei Darussalam, and Dave Robertson at Treasury Strategies. The title is: "The New Role of the Corporate Treasurer: Emerging Trends in Response to the Financial Crisis". Hope it proves useful to you.

ECB On Right Track

The complete
ECB logotype

Stressful situations requires boldness, cold mind and a warm heart. During stress a leader must be able to take risks and point out the direction despite not having time to perform complete analysis and he or she even has to take unexplored routes. This is what the ECB (European Central Bank) did on the 21 December when they granted a 3-year 490-billion financing to the banks, at the unbeatable rate of 1%. This action is proof of bold leadership and may not work without hiccups but with the information we have today it seems to be a clever thing to do. It will certainly counter some of the liquidity quota problems in Basel 3.

Mario Draghi

This is a quote from a Financial Times interview with Mario Draghi, new head of the ECB: "The objective is to ease the funding pressures that banks are experiencing. They will then decide what the best use of these funds is. One aspiration is to have them financing the real economy, especially small and medium sized enterprises (SMEs). What we are observing is that small and medium sized banks are the ones having the biggest funding difficulties, and they are generally the ones who provide most of the financing for the SMEs. And SMEs account for about 70 per cent of employment in the euro area’s corporate sector". 

I have had some discussions with people in the industry and there are two main scenarios as to how effective this program will be.

Optimistic Scenario
Since the European leadership previously has done several blunders unnecessarily escalating the debt crisis to unforeseen levels, something had to be done. Too many investors are leaving the European debt markets, they have especially stopped investing in sovereign and bank debt. A similar operation is planned on February 29, 2012. The credit institutions may use this new cheap resource to finance governments, corporates (remember the emphasis on the SME, often being the weak links in the supply chains) or households, or merely to anticipate the refinancing of most of the banks own 600-billion debts maturing in 2012. In both cases, this operation will provide them with a few dozens of billions of Euros of additional profits over the next 3 years, some easy money to facilitate their recapitalization. 

Pessimistic Scenario

Will the Transmission Effect
work this time?

Draghi does not say that this money will go to the SMEs or weak, but important lenders, he says that ideally it should go to them. However the banks can do whatever they want with this money. Many people working in the banking sector or in the capital markets don't believe banks will use these funds to finance the economy instead they will keep them to refinance their own debt maturing next year and deposit them with the central banks and finance old lending only. That is actually what they did with the hundreds of billions injected in 2008-2009 blaming a sharp fall in credit demand and surprisingly got many central banks believing them. 


Recommendations
This huge bank financing scheme could have been combined with a method to limit how much a bank can deposit with the central banks to ensure the so called Transmission Effect remains effective. 


The ECB might also consider introducing certain quotas of collateral originators, e.g. x % for SME, the banks have to submit to receive the funding. This could be expected to ensure the ambition to steer the funding to the ailing sectors. 

Missing Tomas and Season's Greetings

This Tuesday Tomas, a very dear friend passed away. He had been ill for quite some time and fought bravely and forcefully his lethal disease. Tomas was wonderfully crazy and always full of ideas. Talking constantly sharing his thoughts with everyone. He was very particular with whom he spent time as if he wanted to optimize to whom he gave his energy. Tomas is a role model of how to live a life and a great source for inspiration. Meeting Tomas was always extremely energizing. I'm very glad he could be active, making plans and starting projects to the very end. He left this life as he had lived it, full of ideas, positive, and energized. I also want to send special greetings to Tomas' wife, another dear friend, with same qualities as Tomas. She described Tomas as someone who didn't regard life as a problem to solve, instead as an opportunity to enjoy. 

/Magnus

Starting this blog has been a very valuable experience. It has taken us places, made friends and acquaintances we could only have dreamt of before. To all of you reading and supporting this blog, we thank you. To all of you who have joined our private network, the Peer Group, we are proud of being in your network. To all of you who sign up to our ambition to create an optimal global financial regulatory environment, we thank you. 

Look forward to talk to you, to meet with you and to work with you in the coming year. We are always available for a call.

Aneth Eriksson, Magnus Lind, Susanna Bondéus

We wish you a wonderful Christmas and a Happy and Prosperous and Healthy New Year!