Unleashing a whirlwind

Standard & Poor's says it is to be sued by the US government over the credit ratings agency's assessment of mortgage bonds before the financial crisis.

The civil lawsuit would focus on S&P's high ratings in 2007 for some mortgage-backed securities that later collapsed in value, said the agency.

S&P says the case is entirely without factual or legal merit.

The suit would be the first such case over alleged wrongdoing by a ratings agency tied to the financial crisis.

So in today’s world and the threat to the world’s stability comes not from the Mad Scientist but from a new nemesis, best described as the Rogue Banker.

 

Working away not in laboratories but behind banks of computer screens these would be Masters of the Universe were also trying to dominate the world through their own form of financial engineering.

 By developing trading instruments and programmes of ever increasing complexity such as Collaterised Debt Obligations (CDOs), they created monsters which just like Dr Frankenstein they could not control. 

 

 

Symbiotic relationships key to survival

 

All too often the focus on the current economic background is negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial Customer/ Supplier relationship. 

As increasing numbers of business operate on a just in time inventory basis it is vital that a good understanding exists between supplier and Consumer. 

In as much as a Supplier will be prepared to go the extra mile to ensure that his Buyer receives his goods on time and in good order so it behoves a Buyer to ensure that he pays as required and is not abusing the goodwill of his Supplier by “pinching” some extra period of credit. 

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term.

 

 

Opportunity and risk - the ying and yang of commerce.

Every business transaction contains an element of risk, yet at the same time how adequate are the mechanics and systems that are in place to manage these risks?

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions be they large corporations or smaller SME’s.

In the never ending quest for larger profits many of the saner measures of business were jettisoned.

An analysis of the most spectacular flame outs all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings.

There has never been a more pressing need to examine all areas of exposure.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

It is far better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3^rd Party appointed to do it for you .

 

Taking the pitcher to the well once too often

The most important component in any business relationship is the question of trust.

 

The ultimate demonstration of trust and good faith is when a Supplier delivers goods to a Customer on Credit terms.  

It therefore is incumbent on the Buyer that they acknowledge this act of trust and observe the agreed payment terms.  

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall. Once a Supplier feels that their Buyer is taking undue advantage the relationship is damaged sometimes irreparably.  

For any relationship to be sustained there has to be mutual benefit. When a Buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.

 

Value your assets

As I undertake assignments for companies ranging from SME’s to publicly listed corporations, I am struck by the attitude of many senior managers towards the Company’s most important asset namely it's Staff.

Presently we are being bombarded with negative news- failing economies, the squeeze on domestic budgets, the spectre of unemployment etc

This constant drip feed of bad news has a very negative impact. Morale in the workplace at present is generally at a very low point and yet this seems not to have percolated into the mainstream of management thinking.

All too often the attitude of the management seems to be that the current backdrop will of itself be the motivating factor.

Obviously as companies struggle with their profitability, it is not a question of throwing money at the workforce but what is required is more of an attitudinal change.

Bringing the staff on board may well be as simple as communicating the company’s situation in a clear and concise manner rather than the heavy handed “if you don’t like it there are plenty of others ready to take the job”.

It is no coincidence that the companies who emerge stronger from challenging times have been able to do so largely as a result of the efforts of a committed and diligent workforce.

Failing to act aka acting to fail

 

The macho mantra “failure is not an option” is widely heard these days. A more appropriate maxim for these times would be, “Inertia is not an option”.

Very few companies implode like a supernova. The distress signals are visible for some time before the flame out.

When faced with mounting problems it is obvious that the solutions will of necessity be painful. However, radical and decisive surgery is often the only way to ensure a patient’s survival.

Many companies adopt the Mr Micawber attitude that “something will turn up”. In the overwhelming majority of such cases the only people likely to turn up are the administrators/liquidators.

Be it merely inertia or fear of addressing the issue the outcome will remain the same.

Lords of Miselling

The big four High Street banks have been ordered to begin reviewing all interest rate hedging products they may have mis-sold to small businesses.

The Financial Services Authority (FSA) said Barclays, Lloyds, HSBC and RBS would seek to identify and provide compensation to all those customers who had been mis-sold products.

The FSA's announcement follows its own review of 173 such sales last year, of which more than 90% broke regulations.

The products were typically sold to "protect" borrowers from rising rates.

In many cases, banks insisted that small business clients, such as care home providers, veterinary surgeons and pub landlords, had to take out the hedging products as a pre-condition for receiving a loan.

Businesses that bought the products before the 2008 financial crisis were then unable to benefit from the Bank of England's decision to cut interest rates to a historically low 0.5%. Many found they could not terminate the arrangement without paying enormous fees to their lenders.

In some cases, the product was for a larger amount or lasted many years longer than the loans they were supposed to be hedging.

In former times it was easier to spot crooks they typically wore striped jerseys and a mask these latter day highwaymen opt for pin striped suits.