The looming chicken wing crash

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The looming chicken wing crash

There are only three things in banking: deposits, loans and insurance on those loans going bad.

Bankers try to convince us it is all much more complicated than that, so they invent fancy names and fancy sounding schemes aimed at turning £1 into £2.

These work at least until they have taken their commission (in cash, not in whatever they were selling everyone else, of course).

Peak bank jargon is a sign that some things are about to go pop and I think we’re pushing up against that point.

Some headlines from recent FT’s:

1) Complex debt bonanza feeds appetite for juicy returns

This means: we’ve got the biggest boom in “complex” financial products since before the global financial crash of 2007. These include bonds based on sales of Bon Jovi songs and chicken wings.

Benjamin Fernandez at Barclays is quoted approvingly. He is “head of esoteric structured finance”, a job title invented to look funny later.

2) FCA attacked over mis-selling redress scheme

This means: the watchdog excluded “sophisticated” investors from compensation after interest-rate hedging policies proved too sophisticated and everyone lost their shirts (apart from the banks, of course).

3) US investor to sue over $17bn Credit Suisse bonds wipeout

This means: giant fund managers didn’t understand the Swiss banking system into which they had pumped billions and are suing over their own failure.

4) Reeves calls on EU to give greater access for City of London

This means: the Chancellor wants to loosen the leash on banks, seeing them as a source of growth rather than a source of trouble. This approach has never ended badly.

5) Oklahoma bank failure reveals double standard in depositor bailouts

This means: even the “sophisticated” venture capital and private equity investors in Silicon Valley Bank didn’t insure their deposits in a business they didn’t understand and got bailed out when it went bust.

6) Auditing errors lead to record number of restatements  

This means: company accounts are fiction.

In 2008, the emergence of all this type of chicanery – chicken-wing bonds and dodgy accounting – escaped most of the press, at least until later.

We didn’t understand it (though it turns out, neither did they).

At the high end, the financial press is way smarter than it was. The Bon Jovi bond kings can expect to be held to proper account this time around.

That’s my prediction for 2025. Some of these chicken schemes will come home to roost, as we are reminded that financial services is mostly a cost to the economy, despite its claims to be entrepreneurial.

It won’t be pretty; you just can’t say exactly when it will happen.

Those who think like this have a key piece of evidence in their corner.

They have always been right before.

Please send candidates for press release of the day to: Simon.english@roxhillmedia.com

Press release of the day

What’s driving the rise in inflation? It came in at 2.6% for November, higher than the Bank of England expected.

Petrol and rents are the main culprit, says the Resolution Foundation.

James Smith, research director, said:

“Britain’s run of disappointing economic data has continued with a second month in a row of chunky inflation rises.

“With headline and core inflation rising over the past month, while domestically driven services inflation is proving stickier than expected, this latest data shows the challenge Britain faces in squeezing inflation out of the economy.”

Stories that will keep rolling

1) What a Nissan-Honda merger could mean for the car industry. CNBC 

2) Economics can’t explain all the anger of voters. FT 

3) Brexit cost UK £27bn in lost trade. Guardian 

4) Guy Hands may be bowing out. The Times 

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