Més que un Club

 

Barcelona Football club is one of sports great icons and its motto in Més que un Club – translates as  “more than a club”. Why do they make this statement? Because they see themselves as a National team representing the “oppressed” people of Catlunya. To explain this and help to understand the sentiment I am going to start  with a little gentle geography and a short history lesson which I hope will be better than the ones I used to sleep through whilst at school! When I went to live in Spain twenty years ago I had a preconceived idea of the country which was, I guess, pretty uniform. A country blessed with 360 days of sun, a large coastline and primarily agricultural economy, which I had ambitions of contributing to but there lies another story. All my assumptions were quite accurate but what I hadn’t appreciated was the history of the country and the divisions that it had help shape. Spain covers over Five hundred thousand square Kilometres and is split not only by two mountain ranges running across the country, hampering communications in the past, but also by language and overhanging resentments of a bitterly fought civil war.

I first visited Spain, or I should say tried to, in 1972 when the Guardia Civil took exception to my long hair and turned me back at the border, ironically in Catalunya. That’s hard to envisage now that Spain is a fully paid up member of the European experiment and has a seemingly liberal government. In 1972 Spain was still under the authoritarian rule of Francisco Franco, a fascist dictator, who had collaborated with Hitler to acheive power in Spain in particular utilising the Luftwaffe on occasions one such was to destroy Guernica which ironically inspired Picasso’s great masterpiece. Franco ruled till 1975 and Spain was still struggling with democracy as late as 1982 when there was an attempted military coup led by right wing elements in the Army. The political feelings still run deep and old animosities still hold. Spain is divided into seventeen autonomous regions and roughly these can be divided again into four blocks  Madrid where the power is centralised , The Pais Vasco (The Basque country, home of the violent separatists ETA) , Andalucía in the South, ruled by Moors till 1492* and Catalonia which is primarily the North Eastern corner. Andalucía and Madrileños have slightly different dialects whereas the Catalans and the Basques, in particular, have totally different languages. Basque for example seems to share more with Hungarian than Spanish and Catalan appears to be a mix of Spanish, French and Italian.

There have been calls for many years for a return to the independence that Catalonians enjoyed between 1700 and 1935. The region that was particularly bullied by Franco during the civil war years and subsequently starved in an era, known in Andalucia, as the years of grass as that is all they had to eat. During this era immigrants flocked from the country to find work in Barcelona not only swelling its population but also, as often is the case, reinforcing its sense of independence. In more recent times Barcelona has seen an influx of South American migrants who feel strongly about oppression, understandably as they have often fled from it. The callsfor independence were really nothing more than rumblings and often exploited by the region to coerce Madrid into unlocking the coffers for municipal grants. Indeed Barcelona is a wonderful vibrant City famed for not only its football team bur also its food. When compared to the violence that the Basque separatists have frequently unleashed, killing over 800 people over the years, the independence movement has been a peaceful organisation and often just an excuse for a fiesta. There has always been a feeling amongst Catalans that they send more to Madrid in taxes than they receive back in services, it is worth noting that 7.5million Catalans account for more than 20% of Spanish GDP, this disenchantment with central government was fed by the withdrawal of the preferential status of the Catalan language in 2010.

Calls for an independence referendum were bubbling along relatively quietly until the Spanish leadership intervened in a heavy handed manner to try and block the vote , which by the way , almost certainly would have been a no. By the intransigence of Mariano Rajoy’s administration and the heavy handed intervention of the Guardia Civil (the paramilitary arm of the Spanish police) they have achieved the opposite of what they wished for. The originators of the call were the tax paying middle classes but the wider public, who may have been apathetic, are now exercised and rightly wish to have the freedom to express their feelings. However amusing it may be to see Disney cruise liners being disguised to billet Guardia Civil make no mistake their presence has reignited memories of the cruelty and murders that the hated Guardia served out during the Franco years. As one Catalan, who didn’t want his name revealed, told me  “if we have to die at the hands of the Guardia Civil we are ready to do so to honour the blood of our dead relatives”.

It feels that whatever the central government does the vote will go ahead and it is a binding result with no minimum, so a low turnout by activists could mean that Catalonia will declare independence on 1st October. Rajoy has the nuclear option to simply declare that the vote and decision are illegal and overrule it. His problem lies in the fact that his government relies on the Ciudadanos Party to support it in parliament and, here lies the kicker, Ciudadanos was originally started in Catalonia as an opposition party to independence but they are Catalans and whether Rajoy’s weak government could survive such a heavy handed approach is doubtful.

Whilst Europe appears to be embarked on a voyage to greater and greater integration to form a super federalist state it is interesting that there are strong feelings not only amongst the Catalans but also the Poles and Hungarians for independence and indeed the United Kingdom is in danger of splintering mainly through divisions on how it faces Europe in the future. Whilst the Catalans haven’t expressed a clear view on their role in Europe if they become independent it feels like once again the independence of a nation is having one last kick at freedom from the yoke of centralised power. Will the unelected bureaucrats listen in Brussels to what the people are saying? I don’t think so. Whilst all this plays in the background and threats of further civil disobedience lurk in the background I would not rush to buy Spanish stocks, in particular companies based in Catalunya or any Spanish bonds and whilst the Euro seems to be the beneficiary of safe haven status at present (God alone knows why) I would keep an eye on developments, many not reported in the press, in Spain and the old communist countries such as Poland and Hungary. When Poland calls for war reparations of One Trillion from Germany surely there is surely something untoward stirring in the wood shed and action to protect oneself is the wise route.

The Baseball cap challenges the Bowler Hat

 

Arguably the song that launched Bob Dylan into the public consciousness was called “For the times they are a-changin” and the lyrics to it are as pertinent now as they were in 1964 when it was written. Whilst the social change that he was referring to is still under way the lyrics are just as relevant to the long overdue changes in banking which are being spearheaded by some of the Fintech companies that I referred to in my last column. Having spent a frustrating morning trying to contact an employee with a brain larger than an amoeba at Lloyds business banking last week my thoughts turned to the role and efficiencies of the challenger banks and the fact that the introduction of new methods of banking are being embraced and welcomed.

In 1964, (I will own up and admit to being 9 years of age in that year) I used to go to the bank on a Saturday morning with my late father. Every week we went to the same branch of Barclays Bank and each time we saw the same cashier, if I think really hard I will remember her name, who I can still picture. They were deferential to each other whilst he conducted his business and there was a kind of churchlike hush to the whole process. In fact oddly I can still remember the smell the branch. The point is that the system worked and there was respect between both parties. A banker was a respectable member of society on par with a Doctor, Accountant or Lawyer. Over the intervening years antipathy towards bankers has grown quickly and being a derivatives broker I saw first-hand that by the late 1980s many banks had simply become addicted to gambling. And as in any Casino the house wins but this time the house not only won but it destroyed not only their reserves but also their reputations. It seems unbelievable now but the banks didn’t know what they were gambling on or how much they were gambling. Ten years ago this month (this week past?) queues began forming around Northern Rock reminiscent of those that my mother had seen in 1929 in Seattle. The problem was not caused by derivatives with Northern Rock but none the less the overriding reason was the stupidity of not understanding the risks that they were running by borrowing short and lending long. An age old recipe for banking disaster.

Ten years after the crash the banks are more cautious than they were and have, of course, overshot in the other direction. Lloyds were forced into a disastrous merger with HBOS and whether this has caused the problems they have with customer service is open to debate but for sure they have problems just the same as all the major banks. The issues are twofold the respect for banking has gone and they are now no better thought of than a real estate agent (apologies to any of those reading) and certainly staffed and run by intellectually challenged individuals operating antiquated legacy systems . Why do I have to spend 30 minutes to speak to someone 300 miles away who doesn’t know me, doesn’t understand my business and doesn’t care? Why when the same person rings back to make some time wasting appointment to speak to me again to review my situation do I have to go through the same barmy identity questions that I had answered 15 minutes previously ? Do they think my mother’s maiden name has changed in that time? All I wanted was to find out how to reset the banking app on my new phone and not raise my blood pressure.

The feelings of disenchantment are widespread within the public and this has encouraged the phenomenon of challenger banks or in plain English new banking kids on the block. In the area where I have some experience , dare I say expertise , Foreign exchange the main banks have given up the pretence of offering anything like a sensible service to individuals or SMEs and by doing so have opened the door to companies such as FairFX , Transferwise and Revolut. It is open to question whether these companies and other payment solution providers are challenger banks per se but what can be said, with a degree of certainty, is that they have stripped out a lucrative niche for themselves from the moribund banking systems by being user friendly, quick, cheap and efficient. Four adjectives that you certainly wouldn’t attach to the mainstream banks.

Other challengers that are after the traditional banking business of deposits and general banking have entered the scene some with funky new ideas such as Metro Bank whilstothers such as Starling are internet based. The internet based “banks “ range from those that hold, or are in the process of obtaining ,full banking licences to those that are cannibalising the existing systems to provide a better service and are aimed at specific parts of society such as the lower paid. By the clever use of an electronic money licence, to create an e-wallet and buying a sort code from a clearing bank they can appear to be a bank – nothing illegal and the deposits are covered by the FCA insurance scheme. These so called bank in a box offerings probably don’t have the legs to last the course but certainly the likes of Metro Bank and some of the digital banks will survive and prosper as the big banks , like a big old steam driven ship are too slow to turn .

Over the next few years we will see which of these challengers will survive and whether they can prosper outside of the UK for as yet there seems to be few new banks emanating from the USA or Europe. Bob Dylan observed “The slow one now, Will later be fast… And the first one now, Will later be last” and when the new banks are looked at these words ring true .Not all will prosper and it is certainly hard to pick those that will. As the banking system creaks in Europe the concept of new banks can surely only be a short time away whilst in America it is possible that the cross state banking laws may have restricted the growth. Whilst London and its businesses, and my column is not immune to this criticism, are often accused of being “London centric“ the growth of new banks and methods of transactions will benefit all levels of society. From Liverpool Street to Leeds, Holborn to Hull the lowering of costs and raising of efficiency will benefit all society whether it’s the lower paid being able to open bank accounts to small businesses getting cost saving benefits and better service these challenger banks are universally a good thing. If the old high street banks don’t adapt they will wither, whether they are too late too remains to be seen but without doubt the times they are a-chngin in Lombard Street and thankfully one is now much more likely to see a baseball hat  than the traditional Bowler hat.

Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.

 

 

Unicorns thriving in their London Ranch

Unicorns thriving in their London Ranch

I was sitting enjoying the last rays of the evening sun last weekend when I heard news of a Toxic cloud enveloping parts of Sussex, near where we reside. I rushed inside, shut all the windows and waited and waited. Nothing appeared as the light breeze didn’t carry it far enough inland to affect us. The next day there was much speculation as to whether it was a ship or a plane discharging waste or indeed a French factory belting out poisonous fumes on a Sunday evening. My money, naturally being English, is on that it was a toxic cloud from France which would align nicely with the toxic gesturing towards Great Britain emanating from M Barnier and the rest of Europe’s elite, but unelected, leaders.

If one believed the majority of the media, be it social ,TV or press, England is rapidly declining and will soon become a total basket case both economically and politically, indeed a Banana republic without the Bananas. Sadly what is not reported, because it doesn’t fit the doom and gloom narrative, is that the UK is still a magnet for new businesses and in particular Fintech. Indeed there are 18, so called Unicorn, companies valued at $1bln in the UK compared to just one in France. Just to put this into perspective London has four Fintech Unicorns whereas the rest of Europe combined hosts two. To finish my allegory a cloud of toxic rhetoric hangs over the UK and is covering the great strides that the UK is making going forward. Europe, in particular Germany and France, has designs on taking industry away from the UK and are making no bones about it and if you believed the press they are succeeding. Well simply put, sorry but they are not.

A report from UK Fintech said that industry investment has increased by over 50% each year since 2008. There are, of course other hubs in the UK such as Cambridge and Edinburgh but London is the leader. There is twice as much growth in the UK as in the Silicon Valley, which houses some of the world’s largest technology companies and Brexit hasn’t materially affected it. Abdul Haseeb Basit, the Innovative Finance’s chief financial officer, had this to say about Brexit: “We saw a period of uncertainty over the summer last year but I would say that by around the third quarter, things were starting to recover,”

Fintech covers a wide gamut of products many of which are true innovation as well as some which are a few old bits of technology cobbled together to produce a new product. The challenger banks such as Monzo and Starling seem to be growing from London and seek to serve a definite need whilst clever apps that bridge the gap between social media and banking are also present in one form or another. Apps such as Transferwise have gained huge publicity and valuations which when one looks at the advertising spend is hardly surprising. A cynic would say that they are an old idea that has been presented brilliantly but none the less it was nurtured in London. More innovative businesses such as Moneymailme see the advantage of having a sales office in London. 3M ( Moneymailme) is an app that links sending money with socialising – sort of Whatsapp meets Transferwise – is also interesting in that it secured a senior figure from the retail currency markets ,Mark Bolsom ex Travelex , to head up its London office . I asked Mark why they had chosen London and he told me it was “because of London’s unique position as a dynamic, cosmopolitan city but also as financial and technological hub. Over 30% of people living in London come from overseas and Moneymailme can naturally help when it comes to sending or receiving money with friends and family back home. London is also the place to be when it comes to exciting developments in Fintech, sourcing partners and also securing investment. London remains the place to do business.” He added , when asked why he had switched to an app based business that  “Moneymailme was the first app that I saw that understands the social role that money plays in everyday life and makes it easy to share both money and the experience.”

The U.K. and London in particular, have unique attractions for Fintech companies and the fact that in the first half of 2017, £433 million had been put into Fintech in the UK leaves the U.K. only behind China and Silicon Valley for inward investment. The government now prioritises Fintech which already employs 60,000 people and creates £9bln for the economy. The attractions of London can be split into two distinct parts that dovetail neatly and produce a hotbed of creativity. The UK tax regime is, despite my many personal complaints, in truth a pretty benign regime and has very generous tax breaks for Research and development (roughly companies can claim 33% of development expenditure back from the government) and when combined with business friendly labour laws it is understandable that London is the European centre for Fintech. The second main influence is historical. London has been, and remains, the preeminent financial centre in Europe due to a mixture of language, a culture of innovation, experience and sensible regulation. The FCA (The UK regulator) is also business friendly and helps test new ideas within a “sandbox” with real consumers, an idea now being copied by the Swiss authorities in an attempt to compete. In short the infrastructure is present and it is no coincidence that the Fintech hub, Silicon Roundabout in Clerkenwell, is based on the edge of the financial district where the all needed facilities are located. Whether its high speed broadband capacity, lawyers, banks or staff they are all on the doorstep and all used to dealing with innovation in the financial markets.

London is nearly always the European centre through which funds are raised and distributed into industry and in this instance into new technological ideas. There are good tax breaks for UK investors through enterprise investment schemes and London is also at the forefront of crowdfunding. In conclusion one would think it’s all looking very rosy for these new businesses. I do however want to sound a slight note of caution to investors because, unsurprisingly, investing in an idea is risky and having seen some angel funding at very close quarters it certainly was not rigorous enough in its due diligence. Secondly some of the valuations are , in my opinion, optimistic and with Transferwise being valued at £1bln a comment I made to my granddaughter Poppy comes to my mind , just be careful when you buy a Unicorn and certainly don’t try leapfrogging one.

Trick or Treat

Trick or treat in the Markets

 

By Richard Matthews, 29 August 2017

 

With the seemingly early Autumnal weather in London my mind has drifted towards the fast approaching celebration of All Saints Day and the now widespread practice of Trick or Treat played on that evening. But what has this children’s game got to do with the markets? Well In February 1637, the price of the recently discovered Tulip Bulbs reached extraordinary heights and then collapsed with some bulbs reportedly reaching the price of a house. The events surrounding this event are described in Charles Mackay’s “Madness of Crowds” and are universally accepted as a textbook case of false asset price inflation, trick or treat on an industrial scale . Speculative bubbles have ballooned and burst many times over the centuries, and there has nearly always been an element of Spoofing. In plainer English speculators offering to buy or sell markets without any intention of actually doing so. To some part and parcel of any market but increasingly frowned upon by the authorities.

 

Most seasoned traders first experience of learning how to spoof was believe it or not from a game played and enjoyed in pubs and bars wherever traders gather. It’s certainly still played and as a colleague pointed out, when I asked him about spoof “how would you ever decide who pays for the taxi without it?” Simply explained a number of traders, in this instance let’s say three, get together and put three coins in their hands. The hands are then placed behind the back and a number of coins out of the three are moved around, after a period of time each participant holds a fist out containing between zero and three coins. If there were 3 people playing the maximum coins in the three hands would obviously be nine and the minimum zero, then everyone calls out a number that they believe is the total number being held in the playing fists. The skill is in calling out a number which doesn’t expose the number you are holding and keeping a straight face. The winner is the person who guessed the correct number and he would then drop out of the game. The loser is the last man standing and their forfeit? Well it is to pay for the next round in the bar, a taxi fare or maybe even a meal accompanied by a wish that they had taken trick or treat more seriously as a kid.

 

On the old trading floor locals, banks and brokers would show huge orders above the market or just below to try and influence its direction. For example, a local may have shouted five for a thousand when there was only a small offer at six hoping that gullible players would pay six and the market would head in his direction. Did he really want them? The only way to find out was to try and lift the offer and then watch his reaction – either a look of panic would creep over his face or smug satisfaction that he had suckered you in. All fair in my book and I would venture the books of most professional traders. You played or died on your ability to read people and markets and react quickly enough not to get hammered. Believe me people did spoof and get caught, be it in the futures, commodity or FX markets and paid the price.

 

A simpler more straight forward time I hear you argue and the advent of electronic trading, algorithms and chat rooms have indeed changed the market forever. The CFTC in America has for a long time taken a dim view of the practice of spoofing and see it akin to market manipulation which at times it is .Under section 747 of Dodd-Frank the CFTC and the largest futures exchange, the CME, were given the ability to crack down. The act amended the Commodity Exchange Act making it unlawful for a person to engage in any trading, practice or conduct subject to the rules of a registered entity such as a futures exchange that “is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).

 

The innocent trader’s game of holding undisclosed numbers of coins in your hand has changed significantly with the rapid incursion of technology into the markets. It is no longer always a human brain behind the spoofing indeed more often than not it’s an algorithm designed to publish orders and kill them in the same instant. Alongside this there are increasing cases of traders colluding through chat rooms to actively rig the markets through spoofing. As these cases have increased so have the punishments and they are indeed, at times, draconian. Continual spoofing of markets by specially written computer programmes and coordinated spoofing through collusion are without a doubt damaging and seem to be being taken seriously by the authorities but does the punishment fit the crime? In previous incarnations as far back as one can go in the markets the punishment for getting caught spoofing was that you ended up wearing the position and taking the financial implications of that decision. But times have changed. Whilst Michael Coscia, the first person convicted under the anti-spoofing provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, petitions the US federal appeals court that recently upheld his conviction (Three years imprisonment) for a re-hearing, it’s hard not to realise that the game has changed and its deadly serious for those who now play.

 

 

Richard Matthews, who began in career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.