Crisis, which crisis ?

I had the pleasure to recently travel to London. London should be one of the cities in the world most deprived by the current crisis. Shops should be empty, people should be queuing to get some subsidised bread. Not at all. On a bright Sunday afternoon and for the first time in my life, I saw at least 5 cashing machines with people queuing in front to get their money. It was not like 1 of 2 persons queuing, it was a queue of at least 10 to 15 people waiting on average 10 to 15 minutes to get this precious and rare product (ie. pounds). My hypotheses are the following:

1. they have not credit card any longer and have to pay cash (most improbable)
2. they are afraid not to get they money from their accounts on Monday because their bank will go bankrupt and have chosen to empty the cash machines instead (it is Monday and nothing seems to have happen so far according to the FR).
3. it is a new religion (worship of cash, as cash is king will they have heard from their boss).
4. they need money to spend (is it the return of consumption?). Spend? I thought that we had a crisis.

To top it, I read an article in the Sunday edition of the Times. Headhunters are calling bankers and offering them new jobs, promising to double the highest bonus they have ever received if they accept the offer. These guys will never learn.

I am ready to start the new pyramidal game, just tell me how much, where and when I should invest. You better be in the first row to get out and reach as soon as possible. Starting a ponzy scheme, call me office in New York.

PS: why is this game with three cups where you have to found out where the bean is hidden not allowed, when such games happen everyday in the financial industry?

Once again with my car accross the border

I had recently the pleasure to travel once again accross the border with my Austrian car. The employees at the border are getting more efficient (and the traffic was limited), so that I had not waiting time. Where I did have to wait was to get through the "vignette" control, one of the most inefficient system of toll road in the world. The purpose of the 4 stage process is to sell me a "vignette" if necessary and the cost of the process is hugely high.

Let say for the sake of the argumentation that there are 10 main border crossing to Bulgaria. Let say that at each of these border crossing we shave this most stupid system and that 1 employees works at each stage. Then we need 4 employees times 5 shifts ==> 20 employees + at least 5 for sickdays and holidays. Let say that this shift has a shift leader and a deputy shift leader (10 bosses). These are then 35 employees. Multiplied by 10 crossing points, these are 350 employees. Add at least 20 to 30 IT employees plus some central management employees and you reach the phenomenal number of 400. Multiply by € 5000 per year (which should be the approximate full cost of one employee and...

€ 2.000.000

This is the employee cost of the system.

Divided by € 35 for a yearly "vignette" ==> the first

57.000

cars "vignettes" just for covering the cost of the system.

And I am not counting the time lost to cross the border. Of course if you believe that you are something special, as it is often the case in Bulgaria, you do not wait in the queue, but just drive in front by the "vignette" and drive further.

Why are the Bulgarians not reacting to this improper conduct of so-called important and rich people. Is it a cultural question? Are they afraid? Are they willing to lose their time?

I am very happy to propose a detailled analysis and solution of the vignette issue to the government and get paid 10% of the savings. Please do not hesitate to contact me.

Situation of Austrian banks is getting worse

The situation of the Austrian banks is getting worse. They are slowly acknowledging that the crisis in Eastern Europe will cost them a huge amount of money. They are repeating a typical mistake that most banks have done in past crisis. They are not recognising at once the risk of their portfolio, but pretend to be safe with the provision they have made, just to annouce a new amount of provision a few months later. There are many reasons to explain this difficulty to recognise the level of risk in their portfolio.

1. The first one is that they do not really have a balance sheets that would allow them to recognise their risks at once.
2. The second one is that they do not have an operating risk department allowing them to analyse their credit risks properly. This is especially the case in Eastern Europe where the credit managers have never gone through a capitalistic crisis.
3. The third one is of course that the overall level of risk is increasing with each annoucement nourishing a deadly loop.

In 1990 it took about 2 years for the Swiss banks to recognise the real amount of risk they had in their portfolio of simple Swiss credits. I am wondering how many more months will be necessary for the West European Banks in Eastern Europe to recognise the severity of the situation and take the necessary measures.

The problems of these delays is that they prolonge the crisis and will kill most of the production companies in the region. Our discussion with our Bulgarian customers do not give us hope that they have a future.

Bulgaria Banking System Is Stable - Report (Novinite.com)

"The Bulgarian banking system is stable, liquid and profitable, and banks have enough provisions against defaulting loans.
This statement was made by Violina Marinova, the chairperson of the managing board of the Association of Banks in Bulgaria and CEO of DSK Bank, in an interview for the Bulgarian Information Agency (BTA).
Marinova commented on the announcement made by the rating agency Moody's that there was a possibility for downgrade in the ratings of the Bulgarian banks, DSK and First Investment Bank.
"At the moment the Bulgarian banks in general and DSK Bank in particular are stable and we have nothing to worry about," Marinova told BTA.
In her words, Moody's review of the two banks' ratings will last three months and a rating action is not expected before that.
Defaulting loans make up 8,2% for the whole banking system, which is a reasonable level, Marinova commented.
She added that there was no data to show that Bulgaria is in recession".

Then why to worry? The customers we have that have seen their sales drop by 80% to 90% are probably some unlucky exception. We have been in discussion with some large international banks during the past weeks to help them sort out their credit problems. They have a very different view of the situation in South-Eastern Europe. But these again "unlucky" banks will probably have collected all the bad credits in the region, which of course the local banks would not have done as they are "well" managed.

I can tell you the story of at least one large bank that looks like a Ponzi Scheme.

It reminds me of the story of Werner K. Rey in Switzerland during the last real estate crisis (see Wikipedia: His career took a turn during the 1990/91 recession, and, while no allegations of wrongdoings were raised against Werner Rey in connection with the collapse of his multi-billion Omni Group, he was charged in 2001 with a controversial judgment for attempted fraud in relation to the public offering of Inspectorate in 1986 at which both the underwriting bank (witness of the prosecution) and the shareholders incurred spectacular gains of up to triple of the stock’s nominal value. After fleeing Switzerland for a four year stay in the Bahamas, Rey was arrested and deported to Switzerland where he spent the next four years in gail).

At the time I was working for the restructuring department at UBS and we were very happy, that for some strange reasons, nobody had financed him (lucky we).

I would suggest to the Eastern European banks to have a look at their credit portfolio and think again about risk valuation. Start to organise your workout department before it is too late. We can help, we have been through 3 capitalists crises during the past 10 years, which very few people have done in Eastern Europe.