Indian Banks

These days bankers no longer perform the ritual of visiting the Capital with their quarterly performance files. And, they hardly miss that chore. Neither do they get moral persuasion doses (read diktat) at regular intervals from their owner on what their asset-liability committees should do.

Bankers are also glad that the boss – Finance Minister Pranab Mukherjee — has directed his officials to speed up the appointment process for top jobs in public sector banks. Earlier, the post of chairman, managing director or executive director would lie vacant for months. But now, the message from the North Block is that the appointments should be made at least a month before the post falls vacant.

Mukherjee succeeded a man who kept the bankers on their toes all the time. P Chidambaram, now the home minister, was known to act with the professionalism of a chief executive officer who had important statistics of any bank on his finger tips.

Mukherjee’s style is much more relaxed. Because of the many hats he wears – the chief of them being the government’s main troubleshooter — it took bankers about three months to meet him. The quarterly meeting rituals were given a quiet burial. In November, Mukherjee planned to meet bankers separately in four groups, classified on the basis of four regions, but only the East zone meeting took place. All other meetings were indefinitely postponed due to the minister’s preoccupation.

But bankers said their initial impression of the new finance minister being a distant person faded away soon. “He may not meet us regularly, but when he does, he is quick enough to respond and resolve our problems,” a public sector bank chief says. “He is not into micro management, but has a vision,” said another. Mukherjee’s fast track decision making also helped Kolkata-based United Bank of India (UBI) overcome a major hurdle in its effort to list the bank, which just launched its initial public offer.

The number of independent directors on the bank’s board is less than what Clause 49 of the listing agreement mandates. But, with the finance minister’s intervention, the Securities and Exchange Board of India (Sebi) has now allowed the bank for listing with an undertaking that the bank will increase the number later.

In the Union Budget also, bankers are looking for finance minister’s intervention for enabling them to raise long-term resources. Indian banks, which are increasingly getting worried due to asset-liability mismatch, have sought the government’s approval to float tax-free bonds. Though this demand was there in previous years as well, the need for such an instrument gained prominence this time around, as average tenure of deposits got shorter in the last one year due to unattractive rates for longer maturities.

But, banks’ expectation and requirement from the finance minister will not end with the Budget. Government banks face a bigger challenge in raising capital to fund their growth requirements. Though the World Bank has approved $2-billion (around Rs 9,200 crore) loan for recapitalisation of Indian banks, the government is yet to draw a roadmap on how the funds will come. Banks are now avidly awaiting word from the government about the time and schedule of the World Bank funds which will enable them to boost their capital and support economic growth.

(BS)

Popularity: 1% [?]

Bank of America Corp and UBS AG, which eliminated jobs over the past two years as they received government aid, are luring bankers in London from competitors by as much as doubling base salaries, recruiters said.

UBS is offering managing directors in its securities unit base pay of as much as £300,000 ($470,000) compared with at least £150,000 last May, said three people with knowledge of the matter. Bank of America, Merrill Lynch’s owner, raised London managing directors’ base pay to about £230,000, from £150,000 in 2009, said the people, who declined to be identified because the terms are private.

“Some of these firms were hemorrhaging talent, and those gaps are being filled in a hurry,” said Simon Hayes, London- based head of financial services at Odgers Berndtson, a 45-year- old recruitment firm. “The likes of Merrill and UBS in London and elsewhere have been hiring very aggressively to deal with the losses of the previous 18 months.”

Both banks are no longer taxpayer owned, leaving them free to set pay themselves. The Swiss government sold its 6 billion-franc ($5.6 billion) investment in UBS in August, while Bank of America has reimbursed the $45 billion it received. The firms are targeting rivals still subject to pay limits. They are also hiring traders that moved to brokerages during the crisis. “In the world of investment banking, it’s a simple case of who pays wins,” said John Purcell, managing director of London- based executive search firm Purcell & Co “Institutions that are fairly directly under political control are facing significant difficulties retaining staff.”

Royal Bank of Scotland Group Plc, 84 per cent owned by the UK government, handed control over its bonus pool to the Treasury in November in return for a second bailout. The percentage of “high achievers” leaving doubled in 2009, Chief Executive Officer Stephen Hester said in December. The lender hasn’t raised managing directors’ salaries by more than the rate of inflation this year, said a person familiar with the matter.

UBS hired about 350 bankers worldwide in the past 12 months, mostly for its fixed-income businesses, according to a spokesman for the Zurich-based lender.

In November, the firm named former RBS banker Rob Jolliffe co-head of its global debt capital markets unit, based in London. Last month, the bank also hired ex-RBS trader Brett Golledge as head of index options trading in London. Index options enable investors to bet on the performance of equity markets without having to buy individual stocks.

Investment banks are also hiring traders that moved to brokerage firms during the credit crisis. David Knight, who left Citigroup Inc to join ICAP Plc’s equities division in February 2008 as a sales trader, joined UBS last month to lead a team of salesmen catering to hedge funds.

UBS cut about 18,700 employees from 2007 to 2009, while Bank of America cut more than 46,000 from 2007 to 2008, according to data compiled by Bloomberg. The firms declined to disclose how many staff they have cut in London.

The banks are raising salaries as they cut bonuses. UBS’s bonus payouts dropped 71 per cent to 2.9 billion Swiss francs in 2009 compared with the peak 9.92 billion-franc payment in 2007.

Boosting base salaries as a percentage of total pay marks an attempt to assuage public anger at large one-time payouts, according to Shaun Springer, CEO of Square Mile Services Ltd, which advises London financial firms on pay. Banks are also pre- empting moves by the Group of 20 nations to limit bonus pools and require bonuses to be deferred and subject to clawbacks.

“Higher salaries are being used to compensate for lower bonuses and to readdress pay cuts and pay freezes, which have been in place over the past 18 months,” said London-based Paul Venables, group finance director at recruiter Hays Plc.

Boosting base salaries may strip lenders of some flexibility to reduce compensation costs were revenue to drop.

“The more you increase it, the less flexibility you have and also, to a degree, the motivation for people to put extra effort in,” said Chris Roebuck, a visiting professor at Cass Business School in London.

Bank of America hired Michael Guy as co-head of distressed sales and trading for Europe, Middle East and Africa from Credit Suisse Group AG in September. He will be based in London. The firm also hired Thierry Groell from RBS Sempra Commodities LLP for its raw materials team in London. He started in November.

A spokeswoman for Bank of America in London declined to comment. Both banks declined to comment on individual bankers’ compensation.

Bank of America is still replacing employees after at least three dozen senior investment bankers quit following its purchase of Merrill Lynch. Executives who followed Merrill CEO John Thain and President Gregory Fleming out of the firm last year included London-based Mark Aedy, who ran corporate and investment banking in Europe, and London-based health-care banker Richard Girling.

“This is not wholesale hiring, rather it’s tactical hiring to rebuild decimated businesses,” said Springer.

UBS aims to generate about 40 per cent of the investment bank’s total revenue from the fixed-income unit in three to five years, or at least 8 billion Swiss francs annually. That would return fixed-income revenue to the levels achieved before the credit crisis led to record losses at the bank.

“UBS has been concentrating on recruiting candidates on base pay only,” said Jason Kennedy, CEO of Kennedy Associates, a London-based recruiting firm. “The target candidates, in general, have been ex-UBS employees and other candidates who in the past moved from the bulge-bracket firms to the small broker dealers and now want to move back to the larger firms.”

The bank is already benefiting from the hires and gaining market share in fixed-income and equity derivatives, JPMorgan Chase & Co banking analyst Kian Abouhossein said.

“They had an exceptionally tough time and fired a large amount of people,” Kennedy said. “Still, people believe UBS is a stellar name so they have managed to attract some talent. The base salary has become a big thing for them.”

(BS)

Popularity: 1% [?]

The country’s top lenders today said they would review the future of fixed-cum-floating rate schemes in March.

The limited period offers, which have come to be known as teaser rate schemes, are due to end by March 31.

“We will review it (special home loan scheme) sometime in March and see what kind of (credit) offtake has taken place, what kind of liquidity we have, what is the view on lending to various sectors and where we think the cost of funds is heading,” State Bank of India Chairman O P Bhatt said at the Business Standard Banking Round Table. He added that the effort would be to keep interest rates down, but if it hurt the bank, then rates would have to go up.

ICICI Bank Managing Director & CEO Chanda Kochhar and Axis Bank Managing Director & CEO Shikha Sharma said the lenders would review the rates closer to the expiry date.

The Reserve Bank of India had earlier expressed concern on the teaser rate schemes and asked banks ensure proper due diligence while extending these loans. There is expectation in the market that the schemes will end, as the RBI had tightened liquidity in the system by increasing the cash reserve ratio, the proportion of deposits that banks set aside, by 75 basis points to 5.75 per cent.

SBI, the country’s largest lender, had pioneered the fixed-cum-floating rate scheme, with interest rate in the first year fixed at 8 per cent. In the second and the third year, the rate is fixed at 8.5 per cent and then moves to a floating rate from the fourth year.

Others who had criticised SBI’s scheme then came out with similar products.

Axis Bank’s Power Advantage Home Loan scheme and ICICI Bank’s special offer came with a fixed interest rate of 8.25 per cent for the first 24 months.

A senior SBI executive said liquidity would be the key determinant. And, if RBI raised policy rates, the bank would have little room to continue the scheme. Last week, Bhatt had said SBI had an excess liquidity of Rs 75,000 crore. With Reserve Bank of India (RBI) deciding to hike CRR by 75 basis points in two stages by February end, this will impound Rs 36,000 crore from the system.

Punjab National Bank, which is nearly half the size of SBI, had said the CRR hike would soak up the bank’s liquidity by around Rs 1,800 crore. HDFC Bank had said it would be impacted to the extent of Rs 1,500 crore. (BS)

Popularity: 2% [?]

UK Chancellor of the Exchequer Alistair Darling said bankers should stop complaining and get to work

Darling, who spoke today to reporters before meeting bankers at the World Economic Forum annual meeting in Davos, Switzerland, said, “my message would be, is rather than feel sorry for yourselves the best thing is to work with governments.”

“It’s in their interest to get off the front pages and do what they’re supposed to do — provide credit to the economy,” he said.

Leaders of some of the world’s biggest banks met in Davos to plot how to reassert their influence with regulators and governments a week after US President Barack Obama shocked them with plans that may force large banks to limit their size and curb investments in hedge funds and private equity.

In the UK, Darling imposed a 50 per cent tax on bonuses of more than £25,000 ($40,310).

“There’s a recognition among a number of bankers that can see the bigger picture that maintaining a stand-off, swapping insults, doesn’t work,” he said. “Banks have to operate in the same world as the rest of us.”

Popularity: 1% [?]