MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for November, 2009

Reality Check on Proposed Asset Allocations

Thursday, November 26th, 2009

The most disturbing finding during our mystery shopping tour in the beginning of the year was that the proposed asset allocation varied extremely: We were stunned on how different the private banks our test clients visited reacted to one and the same story. Ok. We were at the heights of the crisis, but still the variance in the asset allocation was breath taking – especially in the equity portion: We got everything from a little more than zero percent in stocks to 95 percent. Inspite all the prevalent doomsday scenarios at this time we regarded the equity portion of most proposals as far to low, given the investment horizon and risk appetite of our test client. The last months proved our judgement: Just imagine how much the value of a portfolio with no stocks vs. almost all stocks will differ now ! Never forget: The choice of your adviser can be the most expensive or profitable decision in your investment life, so always take your time and shop round.


Top-Bankers Kept Wealth Despite Crisis

Monday, November 23rd, 2009

The New York Times discusses a new study about the effect of the financial crisis on the wealth of  top-investment-bankers. Yes, you guessed it right: The impact is rather small. Everybody can still keep those luxury condos, yachts, and expensive paintings (the exception being Bernie Madoff…). The study says that

“… it is an urban myth that executives at Bear and Lehman were wiped out along with their companies. Though the chiefs at both investment banks lost more than $900 million in their stock holdings, the professors argue that it is important to also consider all the riches the bankers took off the table in the years preceding the crisis.At Lehman, the top five executives received cash bonuses and proceeds from stock sales totaling $1 billion between 2000 and 2008, and at Bear, the top five received more than $1.4 billion, according to the study, which was released on Sunday night.”

Not very surprising, you might think. But if you put this situation in a historical context, you should think back to the days when all the big investment banks were private partnerships and a bankruptcy would indeed wipe out the personal wealth of the partners. Just consider how much things have changed over the last 30 years or so:

Prior to 1970, all NYSE members had to be partnerships (and in those days, stock brokerage provided the bulk of industry earnings). That meant partners had their wealth tied up in the firm. The line at Goldman was that partners lived poor and died rich. (….) Moreover, if a firm went bankrupt, as Lehman did, the partners were personally liable. The creditors could seize their personal wealth. And those pay based incentives DID matter. Goldman was incredibly risk averse, both from a legal standpoint and in how it was cautious about deploying its capital (that does not mean it was not greedy, please, but was greedy in ways that had low odds of hurting its franchise).

I guess if we want to avoid another financial disaster we have to somehow get these 1970s kind of incentives back into pay packages…


Stock Market Fads Since 1996

Friday, November 20th, 2009

This is a wonderful table every wealth manager should be mandated to show to every new client. It is hardly comprehensible how absurd some of these investment stories were. But then, who is without blame and can claim he never believed in any of them? And the price questions is of course what to fill in for 2010 ff…

Thanks go to the Reformed Broker!

Invest fads since 1996


The Bear Case

Saturday, November 14th, 2009

For the weekend I have collected a few interesting links for you who make a strong bearish case looking ahead to 2010: The Edwards strike back, The next economic bubble?, Dr. Doom vs. The Investment Biker (quite a funny piece).

In short, the story goes like this: The recession will come back vigorously next year, the market will go to new lows, US Dollar will reverse again and appreciate, carry trades playing on low and cheap Dollar will unravel. Big bloodbath all over. 1929 or 1934 redux. DEPRESSION!

But read for yourself….Next week we will present the BULL case. Yet it is up to you to draw the right conclusions, dear reader.


Why Warren Did It

Friday, November 6th, 2009

There has been loads of speculation why Warren Buffett has acquired the rail operator Burlington Northern (including to make a play on coal or to make it easier for his successor to run Berkshire Hathaway).

Yet in my opinion, the best analysis is that Burlington Northern is just undervalued - and at the end of the day will be worth a lot more than its stock market price reflects. Just like the old saying goes: Price is what you pay, value is what you get.


The US hosts the No. 1 Offshore Centre

Thursday, November 5th, 2009

A recent study ranks the U.S. state Delaware as the place with the most secretive jurisdiction worldwide. Or how the Guardian puts it in more practical terms: “(…) Top of the pile, beating the British Virgin Islands, Belize or Liechtenstein as the best place to hide wealth, is Delaware”.

Already last June we have pointed on this mostly overlooked fact in the ongoing hypocritical discussion on offshore banking and the witch hunt on countries like Switzerland or Liechtenstein. Learning: If you start an offshore centre and do not want to be punished you better be a superpower or at least a G-7 member.

BTW: London (yes, the capital of the other main country going after offshore centres) is ranked as 5th most secretive jurisdiction worldwide.


Billions of Mutual Fund Fees at Stake?

Wednesday, November 4th, 2009

This Supreme Court case can have siginificant implications for the US asset management industry. We estimate that a big junk of the USD 90 bn of fees that the mutual fund industry earns could be at stake. Here is an interesting summary of the court proceedings.


The Hunt for “Zwartspaarders”

Tuesday, November 3rd, 2009

The Dutch government has obviously joined its brethren from the US, Germany and Italy and obtained from a shady middle man “a list of hundreds of people who have evaded taxes with secret accounts at banks across Europe, and it plans to pay off the informant who slipped it the information“. In Dutch the term for tax evaders is “Zwaartspaarders”.

However, in another report the Netherlands were accused to be “in 15th place on a list of 60 most secretive tax havens in the world drawn up by the Tax Justice Network (TJN)“. Even a member of the royal family is allegedly involved in offshore businesses using the royal palace in The Hague as a business address.

Is this a case of moral double standard? One could definitely think so…

But in any case, it seems that the pressure of high-tax countries on countries who still have banking secrecy laws in place is not ceasing. Just last week the Italian Guardia di Financa has searched Swiss bank branches in Italy. We expect that all this activity will increase the outflow of offshore money from tax havens. The question is just how big and how quickly the assets will flow from offshore to onshore destinations. It is not even extremely unlikely that this change of circumstances will mean a lethal threat for the banking business model at several large offshore banking locations around the world. As of yet it remains an open question what it will take them to adapt.