Counting the cost

Swiss bank UBS has announced it is cutting 10,000 jobs worldwide as it tries to cut costs and slims down its investment banking activities.

The jobs will go over the next three years, and amount to 16% of its current workforce of 64,000.

Meanwhile the trial of a former UBS trader Mr Adoboli continues in London. Charged with fraud and false accounting at one stage he was in danger of losing the bank nearly £7.4bn. 

It was claimed that Mr Adoboli made false entries to make it seem as if the money he was gambling had been balanced by money coming into the bank. 

The trial once again highlights the basic problems of extremely poor level of Management expertise/control whilst furthermore illustrating the culture of greed which prevailed in the banking community.  

As the alleged fraud had been conducted over 3 years it begs the question where the controls both were internally and externally i.e. the Auditors. 

Before this latest black hole was discovered at UBS you can be assured that the trader responsible for this latest flame out was being lauded and applauded and the only calculations which were being scrutinised by the Bank’s management was the size of their forthcoming bonus payments.

 

Time to cut the cruise control

During my various assignments one observation holds true – whilst there are  undoubtedly many businesses where the strategy is fatally flawed there are  also many which would benefit from a fresh input.

One of the biggest handicaps facing any business is inertia but when you are personally involved it is not always easy to change direction or take appropriate remedial action.

This is where an “outsider” can be of assistance – an objective appraisal can very often mean the difference between merely drifting as opposed to decisively moving forward.

 

Time to lighten up

 

Daily we are seeing clear cut evidence that the last months of 2012 will be a difficult time for business as Consumers further reign in their spending. Without doubt now is the time to tackle potential problem areas with some effective housekeeping.

One of the first areas for scrutiny is the level of inventory which you are carrying. Make sure you are achieving the best level of Stock Turn and that you are not carrying any obsolete Stock. Rather than face a “fire sale” it may well be prudent to lighten up now with some innovative marketing strategies.

How is your Company’s cash position? With the ominous backdrop surrounding financial institutions and Governments alike, don’t expect the Banks to readily provide additional finance- it is an absolute priority to maintain positive cash-flow and this can only be achieved by keeping Debtors under control.

Undoubtedly, the casualty rate will climb in the final weeks of 2012 ( e.g. Comet Group) – now is the time to do everything you can to ensure your Company doesn’t become part of these statistics.

The ongoing pain in Spain – the banks must take the blame

 Spanish bank Santander has said its quarterly profits fell by more than 90% after taking provisions for bad property loans in its local market.

Net income fell to 100m Euros (£81m) in the third quarter from 1.8bn euros in the same period last year, it said.

The bank also commented that UK profit fell 21% to 337m Euros in the three months.

So far this year Santander has set aside 3.5bn Euros for provisions for property losses - a problem facing all Spanish banks.

The Spanish government has found itself in financial difficulty since the 2008 global financial crisis caused a big crash in the country's over-heated property market, and many fear that it will need a full bailout on top of the banking loan that has already been agreed.

Santander said that total problematic property assets amounted to 18.5bn Euros.

The jobless total in Spain has now reached a record 25% and Greece will shortly apply for more funding and assistance on its debt programme against this background the Euro woes look set to continue for some considerable time.

Avoiding the trap

A combination of recent market volatility coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual ordering patterns, delays in payments etc. Very few businesses fail overnight and there are usually enough warning signals which should enable a supplier to reduce its risk

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.

 

Liquidity crisis - still not out of the woods

The governor of the Bank of England has given his starkest warning that banks in what he calls the advanced economies, including British banks, still have too little capital to absorb potential losses on bad loans. And he says that the economy will remain weak till they raise the needed capital.

He commented that the reason banks, including some British banks, have found it difficult and expensive to borrow, and therefore have found it impossible to provide the credit needed by households and businesses, in the right quantities and at the right price, is that they have "insufficient capital".

Sir Mervyn warns that "just as in 2008, there is a deep reluctance to admit the extent of the under-capitalisation of the banking system in many parts of the industrialised world".

Here is his stark and gloomy warning: "I am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values and recapitalisation of their financial systems."

He continues: "Only then will it be possible to return to a more normal provision of vital banking services so crucial to an economic recovery".

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

 

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation. 

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely. 

Ironically it is the activities of Banks themselves who have once again precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

Beyond this place there be dragons

 

A combination of recent market volatility, the continuing spectre of failure in
the Eurozone coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Rigorous monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guarantee as to future performance. Very few businesses fail overnight
and there are usually enough warning signals which should enable a supplier to reduce its risk. Be on the lookout for early warning indicators such as unusual ordering patterns, delays in payments etc.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised
companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.