Wednesday, January 13, 2016

Author Michael Lewis discusses The Big Short and the future of finance

Author Michael Lewis discusses his book The Big Short: Inside the Doomsday Machine, the future of finance as he sees it, and his thoughts on whether today's business students have a chance at changing it. Part of the Dean's Speaker Series, co-sponsored by the Center for Responsible Business as part of its Peterson Series on Sustainable Finance. (September 13, 2010) The University of California Berkeley Haas School of Business is one of the world's leading producers of new ideas and knowledge in all areas of business - which includes the distinction of having two of its faculty members receive the Nobel Prize in Economics over the past 15 years. The school offers six degree-granting programs. Its mission is to develop innovative business leaders - individuals who redefine how we do business by putting new ideas into action, and who do so responsibly. The school's distinctive culture is defined by four key principles - question the status quo; confidence without attitude; students always; and, beyond yourself.

Get The Kindle Edition with movie tie in here

After thirty five years on Wall Street, what I believe was a critical part of the cause of the Financial Crisis has been told in a book by Michael Lewis, which is now a movie. "The Big Short": author Michael Lewis on 'betting on Armageddon' during the global financial crisis; making of star-studded new film. Read more at Here...

Friday, January 8, 2016

Bank Custody - The Sub Custodian Network

Within the Global Bank Custody space is a key component, The Sub Custodian Network. As a  Global Custodian, you can have the best systems and best people to manage the client space but if your Sub Custodian Network is weak, this can cripple your business.

The settlement of securities and cash is heavily dependent on your Sub Custodian Network. These are the contacts overseas that ensure that your Cash and Securities settle on time.

You may find that all of your trades (cash and securities) are failing in a foreign market. It may be a time to ensure that your Network Management team is evaluating the service being provided by your Sub Custodian Network overseas. The scorecard show continually low marks, it may be time to change your Sub Custodian. Another Sub Custodian may be settling securities and cash in a more timely manner than the Sub Custodian you are currently using.

Why is this important? You Custody Clients.  If your client does not have an Investment Manager, they may decide to move the business to another Custodian. If your client does have an Investment Manager they may have the Manager move the business to another Custodian.

Again, you can have best systems and people, but your trades are failing in one market and no steps are being taking at the Network Management Level, you can lose the business. The clients may not be satisfied with,  "Settlement is slow in that market", particularly if they have an Investment Manager and find that other custodians are settling their trades in that market on time using a different Sub Custodian.  Your task at the Custodian Level is the make the steps if necessary to change the Sub Custodian and communicate the change to the client before the issue reaches a level that causes the client to move the business away from you.

There can be caste strophic issue with a constant failing Sub Custodian in a particular market.  Quite often your clients depend on the proceeds of a Sale of a foreign security  to fund a potential overdrawn currency balance. If the sale fails, the currency account never get funded unless it's a contractual account that funds the proceeds whether or not the sale settles.  Even in this case you may have to claim the interest earned in the foreign currency back from the client as "undue enrichment" if the failing trade was due to the client and not the sub custodian. These scenarios may happen in any event, but why not make sure your Sub Custodian Network is strong to eliminate that ever being a question?

Have a Strong Sub Custodian Network with a Network Management team rating the timeliness of settlement along with communicating changes to Settlement Instructions is critical to the custody business.

By Mike Holman