Shifting sands

Posted by Janice McGinn in on Fri, 27/11/2009 - 09:29

Dubai dreams were built on shifting sands.

It wasn’t a great Thanksgiving for the trading hub of the Middle East but was yesterday’s nightmare such a surprise? The Dubai scenario was based on several years of inflated growth and easy credit. The markets crashed after Dubai World (the government’s main investment vehicle) said it was delaying debt repayments.

Investors got scared, the bond market is now in turmoil and a very conservative estimate is that over $700b of assets are managed according to Islamic investment, the complicated sukuk bond.

It’s a clear indication that global economic recovery is chequered and vulnerable, as IMF chief Dominic Strauss-Kahn, said earlier this week. It’s the kind of scenario that could all too easily be replicated across the globe throughout 2010 and one of that we must plan for, as the CBI discussed last week.

Tory leader David Cameron said he was concerned, “about a recovery stopped in its tracks ...even the risk of tipping back into recession”.

Of course, UK investors’ desire to flee was hampered by the London Stock Exchange’s systems crashing and the exchange didn’t do any business for about three and a half hours. The LSE’s IT strategy has been an expensive failure for years and this was the last thing it needed given its precarious, competitive position. Every 21st century business is both dependent and driven by effective technology investment.

There’s a strong argument for all businesses to be performing fundamental reviews of alternative IT investment strategies and if the business focus is on cutting costs and enabling new business development, shared services, outsourcing and Cloud Computing should be high on the CFO agenda.

Still, all was not gloom in the Square Mile since the long awaited Walker Report didn’t really please or displease anyone. It was neither draconian enough for the fiercest critics nor sufficiently understanding of the banks special (oh, so special) relationship with risk.

There’s a possibility that some of the requirements are too prescriptive, that too many layers of regulation will put UK institutions at a competitive disadvantage; but banks are not required to name their big earners, so financial institutions are still free to attract the best talent. The rest of the report, on governance mainly, reads like a code of best practice.

And maybe it’s all the better for that.

The Bottom Line:If Mr Cable has his way...

"If Mr Cable had his way, all the big banks would be broken up and bonuses would be virtually eliminated - a sure-fire way in my view of guaranteeing an end to the UK’s ability to compete as an international financial centre. Let’s not forget that this is a man who is on record as saying that everyone who works in a bank has an ‘aristocratic lifestyle’ clearly demonstrating his lack of understanding of the sector." A tough line on bankers’ bonuses could make a brain drain of financial talent a distinct possibility, warns Paul Marsden. Read more

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