The start of the year seems to have been full of uncertainty for European financial markets. This seems to apply to everything from Greek debt to bankers’ bonuses and, despite access to so much information about what is happening globally, it remains difficult to understand what is certain fact and what is not. Perhaps the answer is that in such a complex interconnected world, facts are much harder to distil.
The solution to the Greek debt crisis has passed several 11th hours and had barbers dancing in the streets with the mentions of millions of haircuts – but at least we now understand that those haircuts and the forced losses on some bondholders has triggered a default. Of course, whether the haircuts are enough to save the Greek economy is dependent upon the execution of a new set of austerity measures as well as economic growth. Whilst the measures being put in place undoubtedly reduce the Greek debt, the question is whether they lower it to a point where that debt can be serviced by an economy that is struggling to enter a growth phase and which is hindered in doing so by continuing austerity measures. Whilst short term liquidity may now be assured, especially in the light of backdoor quantitative easing by the European Central Bank, medium term solvency remains uncertain. Already the question is being asked about further bailouts and which country is next to come under the spotlight.
The last quarter has seen the banking results season provide plenty of scope for uncertainty, be it bonuses, underlying performance or future prospects. Bonuses hit the headlines well before the first bank reported through the Stephen Hester debate. I will not enter that debate here, except to say that I remain convinced that “appropriate” targets and rewards can drive the right behaviour and attract and retain the right people. However, some of the headline reporting of bonus percentages and averages can be entirely misleading and create confusion amongst a firm’s customer base. Not a great place to be when all banks are trying to rebuild trust.
On this topic, the Financial Ombudsman Service published its numbers for the 6 months to December 2011. On the whole, these showed a reduction in numbers to 94,250, a positive trend. However, after stripping out PPI related cases, there was actually an increase during the period of 16 percent to 47,550, a worrying trend given the efforts firms are taking to improve customer respect and trust. Many pundits are looking for signs of the “next PPI/endowment miss-selling” (don’t get me started on Foreign Account Tax Compliance Act at this point). Fortunately the Investment product area which many, including the regulator, feel could be a source of consumer detriment has not shown signs of increasing numbers. So, whilst headline numbers have reduced, it is far from clear whether the underlying causes of complaints are really being addressed by the industry. Latest issues surrounding interest rate swaps sold to small and mid-size business customers would suggest a new problem may be about to hit the headlines.
The industry is also gripped by the future impact of Basel III / CRD IV. It was interesting to see very different approaches to sharing this information with the banks’ shareholders as results were announced. At one end of the scale, Barclays announced that projecting beyond 2013 was pointless with so much uncertainty in the execution of the Directive; other firms made attempts to go further. Perhaps the only thing that is certain is that its impact is uncertain!
Finally, on a more positive note, at least for the global view of the world. As I sat through the banks’ briefings to analysts last month, it was not until I listened to the HSBC presentation that I was reminded that other parts of the world outside much of Europe is actually seeing GDP growth. Let’s hope that we see some contagion of that positive signal into our part of the world -- a world that is becoming much smaller and more uncertain.
