SCwatch


FINANCIAL INSTITUTIONS: BECOMING LIKE ‘SANTA CLAUS’?

I do recall vividly many years ago the very positive media coverage on the Republic of Ireland (or Eire) when it came to its economic policies.

Its growth and attraction to foreign investment were second to none and with its open and friendly immigration rules, professionals of all nationalities, including Malaysia, flocked to the country of Dana, Ryan’s Daughter, Catholicism,  and everything Irish …. except when they become a member of the British Lions Rugby Union squad …. especially when Northern Ireland is still annexed!

It was therefore quite a set-back for me to read about the crazy lending carried out by the Irish banking industry in the last decade resulting in bail-outs using taxpayers’ money (Click HERE).

Closer to home, after the last major economic crisis in the late 1990s when banks required ‘help’ in the form of Danaharta, you would have thought that lessons would have been learnt such that basic mistakes would not recur.

So when the new CEO of Kuwait Finance House Malaysia was reported to have not only ordered an audit of its lendings over the past years, but also requiring its employees to go on leave whilst the audit is being carried out ….. alarm bells ala’ red flags flagging would be the order of the day! (Click HERE)

The subsequent capital injection of US$150 million by its parent company together with the audit, in order to prevent a ratings down-grade for KFH’s bonds only confirms that KFH has got a problem on its hands!! (Click HERE)

Unless proven otherwise, costs of capital for KFH is going to rise significantly that would hurt further their already poor margins.

I recall how the conglomerate, General Electric, under Jack Welch, constantly achieved profits above analysts’ expectations …. primarily to maintain its AAA ratings …. which would in turn ensure GE obtains the cheapest of funds …. resulting in better than expected results …. hence placing Jack Welch on the mantle of GOD!

Not any more, though!

A few months’ ago, the Securities & Exchange Commission of the United States finally fined GE US$50 million to settle accounting fraud charges with respect to its unit, GE Capital, its key profit generating unit. Tip of the ice-berg? (Click HERE)

I was once told that GE emphasized (‘over-emphasized’ is a better description) on ‘team work’ amongst its employees …  and did not encourage any ‘prima-donnas (except for Jack Welch, I suppose).

Well, it’s for all to see now why this was so …. GE obviously did not like the checks and balances!

And all this reminds me of an old banker once commenting at a conference that:-

‘ ….. in banking, you don’t really need very smart people to run the banks …. all you need are HONEST people!’

Unfortunately, ‘Honesty’ ….. as in Billy Joel’s hit song of the same title… is described as follows:

“Honesty, it’s such a lonely word

Everyone is so untrue

Honesty, it’s hardly ever heard

And most of it, I need from you”

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