Warren Buffett to inject up to $10bn into Goldman Sachs

“Start of the Super Banks ...”

Lloyd Blankfein, chief executive of Goldman Sachs, last night said he planned to raise up to $12.5 billion (£6.74 billion) of new funds by selling a stake to Warren Buffett and tapping other institutional shareholders.

The bank, which this week abandoned its investment bank status to become a traditional financial institution, is seeking to bolster its balance sheet with new cash as the US Federal Reserve, its new regulator, demands that it reduces its borrowings. Last night, Goldman Sachs said it had agreed to sell $5 billion worth of preferred shares to Berkshire Hathaway, the investment group controlled by Mr Buffett. Berkshire Hathaway has also secured an agreement to buy another $5 billion worth of stock. At the same time, Goldman said it was planning to raise $2.5 billion from other investors.

While banks such as Goldman Sachs do not need to raise the capital, it is seeking to address anxieties on Wall Street about the long-term future of financial institutions. However, Goldman is paying a hefty price for Mr Buffett’s stake, having agreed a 10 per cent coupon on the preferred stock. It is understood that Goldman can repurchase the shares from Mr Buffett at any time, but at a 10 per cent premium

In a statement, Mr Blankfein said:

“We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs.”

This week Morgan Stanley and Goldman Sachs got approval from the US Federal Reserve to turn themselves into traditional banks, relinquishing their investment bank roles. The difference in definition has two key implications. The first is that it allows Goldman Sachs the right to access emergency funds from the Federal Reserve’s lending facility on the same terms as retail banks, and the second is that it comes under the scrutiny of America’s central bank, which demands much more benign levels of debt.

Source: Times Online

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End of the Wall Street investment bank

“Goldman Sachs and Morgan Stanley last night abandoned their status as investment banks in a move marking the end of an era on Wall Street”

The two investment houses yesterday received the regulatory approval to transform themselves into traditional bank holding companies.

While the change appears to be a technicality, it means that both banks have equal and permanent rights to access emergency funds from the US central bank, the Federal Reserve. They will also be far more tightly regulated.

After the collapse of Bear Stearns, then Wall Street's smallest investment bank, in February, the Federal Reserve extended its emergency lending facilities — called the discount window — to investment banks as well as commercial ones. Investment banks were more limited with the types of collateral they could use as backing for the Fed loans so were at a disadvantage to their commercial rivals

The conversion of both banks is a watershed moment for Wall Street, effectively marking the end of the New York investment bank.

The credit crisis, which erupted on Wall Street a year ago, has shown that the business model of the investment bank no longer works. Commercial banks are cushioned by deposits from retail customers who hold savings accounts and mortgages. However, the bulk of business conducted by an investment bank is done with other banks, and such business can be withdrawn with a phone call.

Bear Stearns and Lehman Brothers, both investment banks, have collapsed, Merrill Lynch was acquired by Bank of America last weekend, and Goldman Sachs and Morgan Stanley have changed their status.

Source: Times Online

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Barclays and Nomura to decide Lehman's fate

“At least 700 investment banking jobs at Lehman Brothers in Europe appeared to be safe as Barclays and Nomura tabled their final offers ”

At least 700 investment banking jobs at Lehman Brothers in Europe appeared to be safe last night as Barclays and Nomura tabled their final offers to buy large swaths of the collapsed American investment bank.

Hundreds more of Lehman’s back-office and support staff could also find themselves new employers within the next 24 hours as the two banks submitted formal proposals to PricewaterhouseCoopers (PwC), the administrator for the bank in Britain and continental Europe.

Lehman employs about 1,500 staff in the cash equities business and the mergers and acquisitions advisory unit. The vast majority of them are based in Canary Wharf in East London, but there are also offices across the Continent and in the Middle East.

The two banks appeared to be neck and neck in the race for Lehman assets last night.

Source: Times Online

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Lehman set to go into insolvency

“Chapter 11 Bankruptcy looming for Lehman Brothers...”

Preparations are being made for US investment bank Lehman Brothers to file for bankruptcy protection. The firm was pushed to the brink on Sunday after UK bank Barclays pulled out of talks to buy most of Lehman. If no new financing is found before Wall Street opens on Monday, Lehman will have to seek so-called Chapter 11 bankruptcy protection. This could result in a severe shock to the global financial system, as banks unwind their complex deals with Lehman.

It could take weeks or even months to complete and put banks around the world in a state of extreme uncertainty. In the UK, accountancy firm PWC has been lined up to run the British operations of Lehman.

Potential implications
BBC business editor Robert Peston says Barclays' decision to walk away from a Lehman deal was a huge setback for the effort to rescue the fourth-largest investment bank in the United States. A source close to the talks told the BBC that Barclays was unlikely to change its mind.

Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday. Unless the US government does a U-turn and puts taxpayers' money into Lehman, the bank will have to file for bankruptcy protection.

Bad bank, good bank

The rescue effort for Lehman is being co-ordinated by the US Treasury and the New York Federal Reserve. In the light of the credit crunch and the parlous state of financial markets, Barclays feels it would be running a crazy risk if it took [Lehman's obligations] on without any protection right now

......

The US government had hoped to arrange a bailout under which other US investment banks - such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs - would finance a "bad bank" that would hold the most "toxic" investments of Lehman in the property and mortgage market.

The "good bank" or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK's Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks. However, it appears that this plan is falling apart.

The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers' money," a banker close to the talks told the BBC, but added that US Treasury Secretary "Hank Paulson has made it clear he doesn't want to do that.

Bank of America to buy Merrill?

Our business editor adds that in the light of the credit crunch and the parlous state of financial markets, Barclays feels it would be to risky to take on Lehman's obligations without any protection.

Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.

Instead, according to a report in the New York Times, Bank of America is in "advanced talks" to buy investment bank Merrill Lynch for more than $38bn.

Like other US investment banks Merrill has suffered losses of tens of billions of dollars in the subprime crisis, and has seen its share price plummet during recent months.

'Too difficult to value'

"No other large firm should buy Lehman whole - its toxic real estate and securities are too difficult to value," said Peter Morici of the business school of the University of Maryland.

Only a fool would think he could fairly assess their value, unless those are assigned them a value of zero.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm's share price has plummeted as fears over its future have mounted.

Unless a bailout deal can be arranged and another large bank steps up to buy the good bits of Lehman, the US firm will have to file for bankruptcy protection.

This would deal a severe blow to the global banking industry, which is based on the expectation that the other party will always honour its commitments.

It could take weeks or months to unwind Lehman's complex deals with and obligations to other banks, both inside and outside the US.

'Difficult decision'

Former Federal Reserve boss Alan Greenspan said the US government faces "very difficult decisions" over Lehman if it cannot secure a rescue deal that does not involve public funds.

"They [will then] have to make a very difficult decision as to whether or not they allow it to liquidate or they support it," he said.

Yet Mr Greenspan said it would be "unsustainable" for the government to bail out every US bank that got itself into difficulty. Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem. "The ordinary course of financial change has winners and losers," he said.

Source: BBC News

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Greg Fleming cracks the whip again

“Greg Fleming is in for a busy year, the 45 year-old Merrill Lynch president and chief operating officer is breathing fire on all cylinders, addressing bank's staff at a “town hall” meetings and “circle of champions” events”

Merrill Lynch stunned the markets last October when it revealed $5 billion in writedowns from risky bets on sub-prime mortgage assets. Ballooning to $29 billion (£14.8 billion) and resulting in 4,000 job cuts

The revelation cost Mr O 'Neal, then the chief executive, his job and the bank's executives, led by Mr Fleming, were forced to go cap in hand to a collection of sovereign wealth funds to raise emergency capital.

Fleming remains in buoyant spirits. Arriving in London last month to rally the troops and get them re-focused and back on track after the extreme turbulence of the past nine months.
In his “town hall” meeting ...

I said that we have come a long way and put a lot behind us.

He emphasised on getting back to the day-to-day blocking and tackling that everybody was thinking about last June or July before it all went in a different direction.

It's important for people to know that we feel like we are in a position to be on the offensive and build the business

The 16-year Merrill Lynch veteran argues that the violent adjustment of huge writedowns, followed so quickly by intensive capital-raising, have made him confident that recovery would be quicker this time than in previous crises.

The fact that you could write that much down and put the capital back in such a short period of time leads me to be more optimistic than some about the future.

At least he can be confident of his own role. The arrival of Mr Thain raised questions about the future of all senior executives at Merrill Lynch, including Mr Fleming.

The new chief executive has brought in a number of staff from outside the company but reaffirmed Mr Fleming's status when he unveiled his new line up recently. Now, to judge by the number of references to Mr Thain, it is clear that they work together well.

On several occasions Mr Fleming ensures that he uses Mr Thain's words when answering questions on sensitive issues, such as the speculation that Merrill will need to go back to Singapore, Kuwait and South Korea's sovereign wealth funds.

Mr Fleming is in no doubt about the value of the sovereign wealth funds' intervention - the funds injected cash more quietly than could have been achieved by a mainstream institution, for a longer investment term than hedge funds and with fewer demands than private equity.

Many of them [the sovereign funds] do detailed analysis before moving, but when they are ready to go, they are ready to go in the amounts required given the scale of the problems. So they have been a significant positive, which is why I believe there has been less political noise in the US than you would have expected.

Fleming is also upbeat about a recovery in the financial markets ... with a revival in mergers and acquisitions, albeit in at least six months.

What you need is well-capitalised institutions that are able to do the deals. As we work our way through this, we will have more and more of those and then it will pick up considerably, no later than the middle of next year. Regional US banks and small financial companies will go under the hammer, and the strong euro will fuel cross-border deals ...

On the likelihood of consolidation among Wall Street's big four banks.

There's only Goldman Sachs, Morgan Stanley, Lehman Brothers and Merrill Lynch left, so it becomes a conversation about culture, fit etc.

Mr Fleming is even unruffled about the accounting rules that forced global investment banks to cut heavily the value of their credit-related securities, even if the
underlying assets were unimpaired ...

Fleming claims Merrill Lynch is well-positioned to participate in the markets' recovery ...

Bank owns 49 per cent of Blackrock, the blue-chip asset manager, and client businesses such as M&A advisory and equity underwriting are high return-on-equity operations.

The mortgage origination business is gone, but Merrill Lynch continues to offer mortgage servicing to other loan providers.

The 94-year-old American bank further increases its reliance on markets outside the United States ...

Sixty per cent of its institutional revenues now come from outside the US and that's going to be 75 per cent within the next five to seven years. Mr Fleming goes on to say. In wealth management we want to triple our revenues outside the US over the next five years.

Merrill Lynch had a reputation for cutting and burning staff more viciously than most rivals in the bad times. In the aftermath of September 11, the bank shed more than 20,000 workers, then struggled to find the manpower to capitalise on the subsequent upturn.

Mr Fleming admits ...

There is a concern in our employee base, a feeling of 'here we are again', and John Thain and I are very focused on not having that happen this time.

He figures that the worst writedowns are over and that the price of leveraged finance paper is picking up. It is not going at close to face-value prices, but he says that buyers have come out that were not there in the first quarter of this year.

Source: Times Online

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FSA New Leadership, renewed Culture

“Lord Adair Turner needs his firefighting skills”

"The Financial Services Authority is the worst financial regulator in the world." ... But it is not so bad that it can’t be made worse by Adair Turner ... growled one of the City’s leading figures following confirmation that Lord Turner would be the FSA’s new chairman.

The statement may be on the extreme wing of City opinion. But it underlines the scale of the task Lord Turner is taking on. The supervisory failures over Northern Rock have blown the FSA’s reputation out of the water and led to a crisis of confidence in the organisation.

Morale is low and the FSA is said to be finding it increasingly difficult to recruit good people.

While the FSA still has many admirers on Wall Street, London's lead over other financial centres feels like it is narrowing. The fight against financial wrongdoing – as measured by fines and scalps – seems stalled. And perhaps the biggest prize of all, getting a fairer deal for ordinary consumers, seems as elusive as ever.

FSA officials seem to spend a great deal of time studying the fine print in financial advertisements. But they missed the biggest potential disaster since the the authority’s formation – Northern Rock’s business model – which was staring them in the face.

Increasingly now, the FSA has no one to blame but itself. It already has sweeping powers and when it asks for additional weapons, it gets them, in recent months winning additional powers in banking supervision and dramatic new powers to offer witnesses immunity from prosecution. It also has plenty of resources in the form of a 2,000-strong army of well rewarded and well qualified staff. What it lacks, is a can-do culture.

This is a bureaucracy that still measures effectiveness in terms of numbers of lever-arch files filled and length of meetings attended. It is an organisation with a bottomless capacity to create consultative documents but less appetite to root out bad behaviour and punish it. Its instinctive reaction is to create more rules for everyone, including the innocent majority, rather than to go out and challenge the guilty minority. Its senior people rejoice in issuing myriad warnings and sermons, but then tend to see their work as done.

Lord Turner’s experience of business and bureaucracy make him an attractive candidate for the job. (Quite why he wants it is less clear). He has one foot in Whitehall and one in the Square Mile, but is not seen as too much of a City insider – in spite of his service over the years at Merrill Lynch, Standard Chartered and Paternoster. And as a fully paid-up member of the great and good on government working parties should help him to avoid the more obvious elephant traps of public life.

In the City he may be regarded with a little suspicion. His relations with new Labour when running the CBI in the mid 1990s were seen as a little bit too cosy at times. His pro-business credentials cannot be doubted, but some in the City see him as too cerebral and technocratic with little feel for the shopfloor of financial services.

It is providing leadership that may be Lord Turner’s biggest challenge. As part-time chairman, he cannot do much about the minutiae of the regulatory work.

But culture works down from the top. The FSA needs someone with the capacity to inspire the troops into enforcing better behaviour and preventing new disasters without piling up costs and stifling innovation. If Lord Turner can achieve that, he will earn his peerage all over again.

Source: Times 30 May 2008

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French bank 'had trader warning'

News ...

“French stock market officials warned Societe Generale about alleged rogue trader Jerome Kerviel late last year ...”

"There is a whirlwind of negative rumours and speculation, the worry for the financial markets now is what else is out there, which firms also have problems and when will it all come to light?

By any measure the world's leading financial firms are enormous organisations. Ahead must lie much more slimming ... organic growth have given way to large scale acquisitions fuelled by the booming global economy.

As in all industries scale confers a number of advantages particularly when aligned with profitable growth. But the pursuit of growth also has a downside, in some cases - that little red light that keeps flashing and suddenly falls off the radar - we must ask yourselves how do we manage organisations that become too big to be easily managed!"

With Mr Kerviel now released on bail, the prosecutor's comments increase the pressure on the bank to explain why his trades were not discovered earlier. Mr Kerviel is being investigated for breach of trust, falsifying documents and breaching computer security. Societe Generale says his actions cost it 4.9bn euros ($7bn; £3.7bn).

'Thrown to the dogs'

The bank, which says it only discovered Mr Kerviel's unauthorised trades 10 days ago, had been pressing for Mr Kerviel to face the more serious charge of fraud.

When there is an event of this nature, it cannot remain without consequences as far as responsibilities [of senior managers] are concerned
French President Nicolas Sarkozy

His lawyer, Elisabeth Meyer, on Monday called the judges' decision not to press for fraud charges a "great victory".

Mr Kerviel's other lawyer, Christian Charriere-Bournazel, said his client had committed no fraud, adding that Societe General's chief executive Daniel Bouton had no evidence to back up his allegations.

"The word fraud was used by Mr Bouton numerous times," he said.

"Mr Bouton held this unfortunate man up for public vilification, threw him to the dogs... and there was no substance to it."

'Invented deals'

Societe Generale says Mr Kerviel had a position, or a bet, worth about 50bn euros on the future direction of European shares. That was more than the bank's value - about 35bn euros - and about the size of France's entire annual budget deficit.

To avoid that potentially catastrophic loss the bank had to unwind Mr Kerviel's trades, but that still cost it 4.9bn euros. Societe Generale said Mr Kerviel's background in handling the administration of trades enabled him to fool those monitoring traders' activities.

It says Mr Kerviel invented deals that, on paper, balanced out his bets. Under French law breach of trust carries a maximum sentence of three years in prison and a fine of 370,000 euros ($546,637; £186,562).While a formal investigation has started into Mr Kerviel's actions, this does not automatically guarantee that a trial will follow.

SOCIETE GENERALE IN FIGURES
- Founded in 1864
- 467bn euros in AUM (as of June 2007)
- 22.5 million customers worldwide
- 120,000 employees in 77 countries

French President Nicolas Sarkozy has said that Societe Generale's senior managers would have to accept their share of responsibility for the scandal.

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SocGen’s €5bn rogue trader crisis

News ....

“Trust is a two way street”

Rogue trader Jérome Kerviel, a 31-year-old Frenchman, joined SocGen in 2000 and worked on the Delta One trading desk on the bank’s Paris trading floor. The bank said that because of the actions of Mr Kerviel and a €2.05bn writedown linked to subprime loans and bond insurers in the US it would launch an emergency €5.5bn rights issue. The massive trading losses were caused by positions taken in the European stock futures markets that backfired. This kind of activity raises serious questions about banks’ risk-management procedures and their ability to control their own trading positions. One analyst said: "This news will cast a dark cloud over the already troubled European banking sector." SocGen refused to give any details of the trader, who it said had confessed and been suspended pending a dismissal procedure !!!

Carlos Garcia at Fortis in Madrid:
"The most serious thing is that this puts into doubt the risk management systems at some banks. You can't suddenly announce from one day to the next a hit of $7 billion. In the light of this, what we've done is to downgrade banks that are very linked to trading income or whose capital base is weak."

SocGen boss said the rogue trader’s loss had been exaggerated by difficult market conditions this week. But he defended the bank’s risk-management processes. “All our models of stress-testing work perfectly well,”

My question is how can someone within a trading environment by-pass IT security let alone continue to operate fraudalently for a considerable amount of time, and not be noticed, whatever happened to random audit checks and monitoring ! ...

The losses raised eyebrows among other regulators around the world and provoked intense debate in Davos ...

John Gapper commented in the Telegraphy "Jérome Kerviel of Société Générale likeness to Barings is striking"

The comparisons between the trading losses at Société Générale and those which caused the collapse of Barings in 1995 are striking. In both cases, a young man responsible for trading exchange-traded equity futures on behalf of the bank ended up accumulating a big hidden position that the bank did not know about. In the Barings case, the trader was Nick Leeson, who was a trader on the floor of the Simex derivatives exchange in Singapore.

In both cases as well, the trader involved had formerly worked in the back office and was then given a promotion to a trading position. Mr Leeson earned his promotion because he was highly-regarded for his ability to solve clearing and settlement problems that had plagued Barings’ back office.

Jérome Kerviel was one of a few back office people who were promoted to the trading floor as part of the bank’s efforts to offer opportunities to people who worked in the less prestigious back office. He was allowed to trade only under strict limits and he only earned about €100,000 in compensation.

Both traders used their knowledge of back office procedures to conceal the true size of their positions from controllers at their banks. Mr Leeson was in charge of the back office as well as trading in Singapore, while Mr Kerviel logged into computers in the names of other employees to falsify the accounts.

Another similarity is that both deceptions went on for a long time before finally being caught. Mr Leeson’s rogue trading position – in an account numbered 88888 – had been in existence for two years by the time that it escalated into the £860m loss that caused Barings’ collapse in February 1995.

The losses also escalated sharply right at the end of the deception. More than half of Mr Leeson’s losses piled up in January 1995 as the Nikkei index fell. Mr Kerviel built up a large hidden position earlier this month and the bank’s losses rose sharply this week as it struggled to close out that position.

Finally, Mr Leeson and Mr Kerviel appear to have been similar in not making a personal profit from their deceptions, beyond an impact on their annual bonuses from appearing to be successful traders.

Source: FT, Telegraph

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John Duffield has 'lost £100m'

NEWS ...

“New Star shares collapse by 31pc, the City wonders if the fund's boss has lost his magic.”

John Duffield, New Star's colourful boss, takes senior managers round London on an open top bus at night to review the fund manager's attention-grabbing billboard adverts. On these monthly evenings out, Duffield is on the prowl for the smallest imperfection in the way the adverts have been presented. If he finds any, the contractor can expect an irate call and a demand for a price drop.

In the cold light of yesterday's profit warning from New Star, many were saying the company's concern with marketing and presentation may have been its problem.

" New Star's shares were sold as a go-go stock, which had to be underpinned by massive growth. That has been fuelled by massive marketing of its funds," said one close observer.

New Star, whose shares collapsed by 31pc yesterday after it revealed a hefty outflow of funds and a dividend cut, was desperately trying to reassure the stock market and the thousands of clients whose money it manages that it is going through a rough patch, triggered by several setbacks coming at once, and will recover later this year.

But some are wondering whether the Duffield magic has worn off and if his own star is on the wane.

When Duffield launched New Star in 2000, he was flush from the success of Jupiter, another asset management firm he had created in 1985 with just £150,000 of his own money, selling it to Germany's Commerzbank in two slices in 1995 and 2000 for a total of £680m. The investment community had high hopes for the new firm.

Mark Dampier, head of research at independent financial advisers Hargreaves Lansdown, said: "Jupiter was a fantastic success. John brought great managers together and he was a brilliant marketer."

Now it is Duffield's talent for combining marketing flair with picking star managers that is in question. In addition to the growing suspicion that New Star may have been over-reliant on marketing, the shine has come off some of its star managers.

Alan Miller, Duffield's right-hand man at Jupiter, followed him to New Star but left the company last year after a disappointing run by his UK Growth fund.

Another long-standing senior employee, Richard Pease, is among the individuals whose poor performance recently contributed to yesterday's profit warning.

Meanwhile James Ridgewell, who has headed up a poster campaign for the group's "New Star's new stars" was demoted earlier this week from running the UK Special Situations Fund to a role helping Tim Steer, the former City analyst, run the company's strongly-performing Alpha Fund.

Duffield yesterday told The Daily Telegraph: "Nobody is more sorry than me - I have lost £100m from the peak to today - and it is pretty tough to lose £100m."

Few had much sympathy. Duffield has crossed swords with many in the financial world since he started as a stockbroker in 1961.

Most infamous was his bust-up with Commerzbank, which he referred to as a group of Nazis, calling members of the bank's senior management Hitler, Himmler and Goering, when they fell out over the sale of the final part of Jupiter in 2000. He has also had a fiery relationship with Jupiter's current head, Edward Bonham Carter, and yesterday some in the City reacted to the serious blow to Duffield's reputation with glee.

There is also a view that Duffield has a lot of work to do to put things right. "The company has grown too rapidly and it seems to be a place where there are lots of people who have joined as stars," said one person in the asset management world. "In contrast at other places a lot of people have joined as management trainees and there is a strong internal culture."

Another challenge at the company - which floated on Aim in November 2005 at 225p a share - is over whether it can keep key staff. The share incentive scheme which has locked in almost all senior employees makes its final pay-out next year.

There are also questions over New Star's decision last year to gear up its balance sheet with £250m of debt so that it could return cash to shareholders. Carolyn Dorrett, an analyst at Citigroup, said New Star should be able to retain enough funds under management to stay within its covenant to its lead banker HBOS, which lent it the money. "However, given the current difficult market conditions for fund flows, both across the UK and at New Star in particular, we will monitor this figure carefully going forward."

Ross Curran at UBS said that by slashing its dividend New Star is freeing up cash which it can use to pay off its debt, giving it breathing space with its banks. "However, a further 10pc fall in markets would make things tight," Curran said.

The final challenge is that New Star has found itself with large bets in many of the least attractive areas. Its commercial property fund was its biggest seller last year, yet its value has fallen sharply, reflecting the 10pc dive in property values in the past six months. Pease - whose historic performance in his European Growth Fund has been strong - has been hit by the fact that his holdings in medium-sized continental companies have had a bad run compared to large-cap stocks.

Duffield does not plan to force through significant change in the European or property funds, sources said. But they added that he has said in briefings this week that major changes can be expected on the funds managing UK shares, which have also been disappointing. Stephen Whittaker, who replaced Miller in charge of UK Growth Fund, and Toby Thompson, who runs the Higher Income Fund, are likely to keep their jobs, sources said, but Duffield may shift some employees sideways and hire more people to beef up his teams.

Howard Covington, New Star's chief executive, said plans for a new incentive scheme were well under way. "We have spoken to all of the big names and they are all on side," he said. But he acknowledged that there could be further ructions. "That is not to say nobody else will leave".

Taking the pressure off New Star a little is the fact that the fund management industry in general has been in turmoil. F&C only swung back into profit last year after its merger with Isis three years ago. Amvescap, which owns the Invesco brand, has had a bumpy ride in the past few years and Schroders has also changed its business model in response to heavy outflows of funds and a squeeze on profit margins.

Some observers believe that even if New Star's shares stay at the current depressed level, it will not be all bad for 68-year-old Duffield. The business, which is 35pc owned by its employees, could be taken private by the multi-millionaire and his senior circle.

Alternatively there are likely to be buyers for the business at its current price. Duffield may prefer to knock New Star back into shape in its current form, as much for his own reputation as for financial reasons.

Source: The Business

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Work Smarter Not Harder

NEWS ...

“Workers in the US put in more hours at work and take fewer vacation days than those in most industrialized countries”

... But the U.S isn't the most productive country in the world. When it comes to full productivity, according to The Economist, France wins, working only forty hours a week with lots of vacation. Conversations with clients and friends suggest people work hard, but, well, stupidly. We're busy, but our important priorities are falling by the wayside as we work hard when we should be working smart. Working smart means getting the same results in less time. To do that, you must change how you work. You'll get the most by changing your speed, increasing focus, and organising to do things in parallel.

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UBS revamp after sub-prime losses

“Swiss Investment Bank UBS plans to shrink its investment banking business ...”

"I know that 2007 was a year that challenged and tested us all individually and collectively," UBS CEO Mr Rohner said.After huge losses caused by exposure to problems in the US sub-prime housing market. UBS makes further job cuts and scale back on its more-risky strategies, Marcel Rohner outlined in today's internal memo.
UBS has written off about $14bn (£7.1bn) in debts linked to sub-prime loans and has warned of further losses. The dramatic plans to streamline operations at UBS centre on the division responsible for its distressed mortgage-backed investments.

These holdings will be gradually wound up, as the no longer attractive sector they invested in has suffered badly.

Staffing levels in the division will significantly reduce, and the amount of capital the bank commits to that area of business will also shrink by two-thirds.

In an internal memo, seen by the BBC, Mr Rohner also said he wanted UBS to focus on its clients rather than on using the bank's capital to boost its profits.

Bond and currency trading business will also be restructured to cut costs and transfer capital to more profitable areas.

Tough times

The changes come as UBS struggles to better position itself after becoming one of the worst victims of the global credit squeeze.

Last July the firm layed off 1,500 jobs, sacked its chief exec Peter Wuffli and replaced him with his deputy Marcel Rohner. Like many of its troubled peers, UBS has turned to wealthy state-backed funds in the Middle and Far East for financial support.

Singapore's investment arm has bought shares in the bank for almost $10bn, while an unnamed Middle Eastern investor, thought to be the Oman government, has also taken a stake.

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Hedge fund industry in good shape despite credit crisis

NEWS ...

“latest data on hedge fund performance reinforces early signs that the $1.8 trillion (£917bn, E1.2 trillion) sector can look back on the past 12, turbulent months with relief.”

Based on a database of around 7,000 funds (out of a global total of more than 11,000), Hedge Fund Research’s broad composite index of returns shows total average returns, after management fees are deducted, of 10.36% in the 12 months to 31 December. That just surpasses returns – based on reinvested dividends and share price gains – of 9.04% from the Morgan Stanley Capital International (MSCI) World Index of equities.
The ability to beat a broad market index (if only by one percentage point) is a reminder of why hedge funds have expanded so rapidly in recent years. They use leverage – punting on assets with borrowed money – and short sell equities to help earn steady returns over the long term, even in turbulent markets.

(Short selling is when a fund borrows stocks, sells them and then repurchases them at a cheaper price to make a profit.)

But performances such as this are unlikely to be good enough to allow hedge funds to continue charging their high fees, with criticism from the investment industry mounting last year. Hedge funds typically charge an annual management charge of 2% and a performance fee of 20% or more, considerably higher than traditional long-only funds.

Last year’s best performers were funds that focused on the emerging markets of Asia, chalking up total returns of 35.88%. Emerging market hedge funds as a whole, which embrace not just Asia but also Latin America and Eastern Europe, achieved an average return of 23.17%.

Energy-linked funds – which bet on sectors such as natural gas – were also notable high performers, with average returns of 16.47%. It is a stark contrast to 2006’s performance, which was dominated by the collapse of Amaranth, the American hedge fund that suffered heavy losses after incorrectly calling the natural gas market.

There were some black spots in 2007: funds that focus on financial services companies were hit as the sector was clobbered by the credit crunch. Here returns were negative, at -5.88%, which means investors lost money on their original capital.

So the hedge fund industry did not pass through 2007 unscathed by the credit turmoil. But this latest data demonstrates that the industry as a whole, having endured a torrid summer, is overall still in decent health.

Source: The Business | Wealth Management

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What’s in store for global banking

“Banking around the world may now be passing through a major cyclical correction”

• ... Global banking may be passing through a major cyclical correction at the end of 2007 ... but new McKinsey research suggests that in the longer term the industry’s revenues and profits—poised to continue growing faster than the rate of GDP growth—will double by 2016.


• The historical part of the analysis, which examines global data from 2000 to 2006, reveals a rich mosaic of regional, national, and product diversity. There is little global convergence: different factors seem to drive different markets, which have surprisingly varied structures and uneven growth patterns.


• In 2016, the market capitalization of banks will likely be $12 trillion higher than it is today. As consolidation in the sector accelerates, winners will be able to outmaneuver their competitors by developing a deep, bottom-up understanding of the idiosyncrasies of markets and by understanding the vital importance of being in the right place at the right time.

Introduction ...
With the midsummer credit crunch taking its toll, 2007 turned into a bleak year for the world’s big financial institutions, and 2008 may not be much better. As executives respond to the immediate pressures, however, they should maintain a clear perspective on the long-term outlook, which in our view is considerably brighter. Despite the current correction, we believe that during the next ten years the growth rate of the global banking industry will exceed that of GDP. Driven by powerful basic trends, such as demographics and the math of wealth accumulation, the industry will likely more than double its revenues and profits over the period.

Just as strikingly, McKinsey research also indicates that the industry’s patterns of growth will be diverse and uneven. Our comprehensive analysis of data since 2000 suggests that banking is one of the global economy’s few large industries that isn’t rapidly converging around a single structure or following the same market dynamics everywhere. Indeed, banking’s revenue performance has varied sharply and unexpectedly within regions, countries, subsectors, and product groups—and will continue to do so.

More than in other major industries, it appears, long-term success in banking hangs on being in the right place at the right time. Over the last ten years, for example, 88 percent of the growth in the revenues of Europe’s 20 largest banks was attributable to market momentum—in other words, competing in or entering territories and market segments that enriched everybody. Moreover, timing is critical. Buying into retail-banking markets across Asia in 2000 would have destroyed value over the next four years, as falling stock market multiples more than offset revenue growth. Buying into them in 2004, however, would have been richly rewarding.

In the text and exhibits that follow, we explore the global banking industry’s rich mosaic and highlight some of the core characteristics identified by our research. Our conclusions offer bank strategists and other senior executives a more detailed understanding of the size and composition of different banking markets, as well as insights into future profit trends.

# Big and getting bigger
# Diverse and likely to remain so
# Business mix
# Growth drivers
# Capital market multiples

Full Article: Mckinsey

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Women still face Glass Ceiling

“Barclays Bank appoints 5 women among 80 managing directors”

Barclays Capital, the investment banking division of Barclays, has been forced to defend its record as an equal opportunities employer after it emerged that it had promoted 80 managing directors, of which only five are women. BarCap, employs about 15,700 staff across offices in 26 countries, took out a full-page advertisement in the Financial Times 10 Jan, to announce the promotions, covering public relations executives as well as bankers in locations from London and New York to Madrid and Singapore.

The investment banking unit, led by Bob Diamond, specialises in the corporate credit markets and has been one of the fastest-growing City employers. It accounts for more than a third of Barclays’ annual profits, which last year topped £7 billion, and employs a little under half the group’s 33,000 staff.

Two of the new female BarCap MDs are in London. The other three are based in New York, Jakarta and Singapore.

Employment commentators said that the promotions underscored the perception of the City remaining a male-dominated environment. Nevertheless, they were loath to judge BarCap, pointing out that the decision about whether to pursue a banking career is also a lifestyle choice, tending to involve long hours and a gruelling travel schedule, albeit for considerable financial rewards. It emerged yesterday that, after meeting performance targets, Mr Diamond was on course to collect a £14.8 million payout covering the past three years. The payout means that Mr Diamond is likely to have received about £75 million in pay, cash bonuses and share awards since he joined the board in 2005.

Heather McGregor, a director of Taylor Bennett, the recruitment consultant, said: “Investment banks do struggle to find women for senior positions because very often women have other agendas and choose not to make their careers a priority.”

Of the 358 executive directors at FTSE 100 firms, only 14 — less than 4 per cent — are female, according to Manifest, the proxy shareholder voting specialist.

A spokeswoman for The Equalities and Human Rights Commission said that it was disappointed but not surprised by the lack of female appointees at BarCap: “It’s not a simple question of discrimination — it’s also about working practices.”

Siobhan Loftus, a media relations executive at Barclays Capital and one of the new managing directors, defended the promotions, which she said were based entirely on merit. “We are a meritocracy. In our diversity policy we would hope to promote irrespective of any gender bias,” she said.

“We would always look for the best person for the job. We want to provide an environment where people feel comfortable irrespective of their background, gender, sexuality or race.”

Food for Thought:

Economist "Women in Business" 2005 ...

It's 20 years since the term “glass ceiling” was coined by the Wall Street Journal to describe the apparent barriers that prevent women from reaching the top of the corporate hierarchy; and it is ten years since the American government's specially appointed Glass Ceiling Commission published its recommendations. In 1995 the commission said that the barrier was continuing “to deny untold numbers of qualified people the opportunity to compete for and hold executive level positions in the private sector.” It found that women had 45.7% of America's jobs and more than half of master's degrees being awarded. Yet 95% of senior managers were men, and female managers' earnings were on average a mere 68% of their male counterparts'.

Ten years on, women account for 46.5% of America's workforce and for less than 8% of its top managers, although at big Fortune 500 companies the figure is a bit higher. Female managers' earnings now average 72% of their male colleagues'. Booz Allen Hamilton, a consulting firm that monitors departing chief executives in America, found that 0.7% of them were women in 1998, and 0.7% of them were women in 2004. In between, the figure fluctuated. But the firm says that one thing is clear: the number is “very low and not getting higher”.

Source: Times Online

In August 2006 Forbes reported that 70% of women and 57% of men believe an invisible barrier -- a glass ceiling -- prevents women from getting ahead in business, according to a study of 1,200 executives in eight countries, including the U.S., Australia, Austria and the Philippines were the findings of a study conducted by
Accenture.

Women aren't as worried about the pay gap as they were five years ago, says Carol Gallagher, president of the Executive Women's Alliance and author of Going To The Top: A Road Map for Success from America's Leading Women Executives. Gallagher, who is also an executive coach, says Gen Xers and Yers don't think any barriers prevent them from getting to the top.

And baby boomers are now looking toward retirement, not obsessing about pay. When Gallagher published her book in 2000, there was a huge demand for information about the gender gap. At the time, almost all her executive coaching clients were women seeking the secrets of corporate success. Now 70% of her clients are men. "There [isn't] a need for as much of the women's group stuff," Gallagher says.

To some extent, there's a disconnect between American women and their counterparts abroad. In a study of American executives by Catalyst, a research and advocacy firm, women were just as likely as men to say they aspired to senior management positions. "Women want the responsibilities and rewards that come with top positions," says Sheila Wellington, a professor at New York University's Stern School of Business, who was president of Catalyst when the survey was conducted.

But a global study, also conducted by Catalyst, found that men worldwide desire the top jobs more often than women.

Even in the U.S., some experts say the glass ceiling doesn't affect job satisfaction. Women make sacrifices at work in exchange for greater happiness in their lives as a whole, says Warren Farrell, author of Why Men Earn More.

His book offers 25 reasons for the pay gap: Women work fewer hours, for example, and they don't stay at jobs as long as men do. Whether it's nature or socialization driving their decisions, women tend to choose lives that allow them to spend more time with their families, Farrell contends.

Even ambitious women don't measure success in high salaries and fancy job titles. Relationships with colleagues and giving back to the community are more important to women than salary, according to "The Hidden Brain Drain: Off-Ramps and On-Ramps in Women's Careers," a study by the Center for Work-Life Policy, which was published in the Harvard Business Review last year.

"They want to feel satisfied and good about their work, but also want to feel satisfied about other things in their life," says Melinda Wolfe, head of global leadership and diversity at Goldman Sachs Group (nyse: GS - news - people ).

Even if most women don't want to break the glass ceiling, Wolfe says, the few that do shouldn't be ignored. Sometimes their ambitions have been tempered by a corporate culture that stifles their success. Sometimes they choose circuitous career paths, taking some time to care for children, prepare for a career change or work in the nonprofit sector.

There's another reason why the pay gap has barely budged in the last five years: Women don't ask for more money. "They don't think they deserve it," says Lois Frankel, president of Corporate Coaching International and author of Nice Girls Don't Get the Corner Office. She adds, "We don't have the [negotiating] skills. We see it as something smarmy."

But Susan Solovic, CEO of SBTV, a Web site that creates video programming aimed at small-business owners, offers another reason why women aren't complaining about the pay gap: They've decided to work for themselves. The number of women-owned firms grew 17% between 1997 and 2004, according to the Center for Women's Business Research, while the total number of firms rose only 9%. Says Solovic: "There is really no glass ceiling when it comes to owning your own business."

Source: Forbes

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Citigroup to cull thousands more jobs

“Struggling banking giant Citigroup is set to dismiss 32,000 more workers in a bid to cut costs.”

Ten per cent of its workforce is expected to be sacked, although analysts say this will not keep the bank afloat.

Citigroup's new chief executive, Vikrum Pandit, may also decide the bank needs to sell off non-essential parts of its business. Meredith Whitney, an analyst at CIBC World Markets, said that Citigroup would need to sell Smith Barney, the broker, at a price of around $25 billion to fix its funding problems.

Ms Whitney told The Times:

"In these markets banks can only sell their best assets. The sale of non-core ones would not be material enough.

"To really reduce their leveraging, Citigroup have to sell a chunk of their mortgage or card portfolio, but there is no market for those assets. The only asset they could sell of any size is Smith Barney."

The broker has been eyed up by JPMorgan Chase in the past and Ms Whitney believes Credit Suisse would be interested.

Analysts predict that Citigroup will announce writedowns of $18.7 billion for the fourth quarter of the year and cut its shareholder dividend by 40 per cent.

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Bear Stearns loses boss

Type your summary here

“Bear Stearns CEO steps down following Q4 loss of $854 million”

Jimmy Cayne, is set to walk from the bank, after a miserable year with substantial losses the first in its history and the company's stock dropped 57 percent in New York trading during the past year, more than any Wall Street rival. The 73-year-old will hand over the reins to Alan Schwartz, who is currently Bear Stearns' president. Mr Cayne told the bank's board that he hopes he can stay on as non-executive chairman and Bear Stearns directors are set to discuss this option.
Bear Stearns announced fourth-quarter losses of $850 million last month after the bank was forced to write down $1.9 billion on mortgage-related assets.

At the time, Mr Cayne took responsibility by waiving his annual bonus, but experts expect more losses to be made. Shares in Bear Stearns dropped 14 per cent in value over the past week and halved their worth over the past year.

Mr Cayne has been involved in the bank for 14 years and replaced Warren Spector as chief executive. Other top bosses to leave their posts in the wake of the credit crisis include Peter Wuffli at UBS, Chuck Prince at Citigroup, Merrill Lynch & Co., Stan O'Neal.

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Is the credit crunch finally over?

“So is the crisis over, or are there still some big problems remaining?”

Bad Debt data embedded in complex systems ... the chaos began to unravel in 2007 for pension funds and hedge funds businesses and continues to create a storm of destruction in its path

WHERE'S THE BAD DEBT?

The crisis began when US mortgage companies made hundreds of billions of dollars of inappropriate loans to individuals with poor credit histories.

These debts were then packaged up and sold to financial institutions around the world, who then sold it on to pension funds and hedge funds.

We still don't know where these bad debts are concealed in the financial system.

And until we do, banks will still be reluctant to lend to each other, and investors will be suspicious of the health of the financial sector.

UNFREEZING THE CREDIT CRUNCH

The reluctance by banks and other financial institutions to lend money, because they are not sure how risky it might be, is gumming up the financial system.

Despite the injection of hundreds of billions of dollars and euros, interest rates on inter-bank lending are still unusually high. And banks are tightening up on their lending to individuals and companies, restricting the amount of lending as well as making loans more expensive.

There are also hundreds of billions of dollars worth of short-term debt obligations that will fall due in the next six months, which could further depress the market if no buyers can be found for them.

WILL THE HOUSING MARKET CRASH?

The overhang of bad mortgages is depressing the US housing market. Thousands of people are having their homes repossessed, and with a glut of homes on the market prices are dropping.

Mortgage companies are finding it difficult to raise money even to lend to sound borrowers. So despite a pledge by the US government to help, house building is at a record low.

Although there are far fewer sub-prime mortgages in the UK, mortgage lenders like Northern Rock are also finding it difficult to raise the cash to pay for additional mortgage lending. So it could become harder to get a mortgage, and it could cost more - and both these expectations are lowering house price inflation.

WILL THERE BE A WORLD RECESSION?

A big slowdown in the housing market could have serious economic consequences.

Construction is a big part of the economy, and people who move house are also more likely to buy consumer goods like washing machines. The tightening up of credit and worries about mortgage repayments may make everyone more nervous about borrowing money to buy big-ticket items like cars.

There are already signs of an economic slowdown in the US, the world's biggest economy. And if it deepens, it could dampen down the economic recovery underway in Europe and Japan. The UK, as a major exporting nation, would also be affected.

WILL THE DOLLAR PLUMMET?

The effect on the rest of the world economy could be worse if the US dollar begins to fall in value.

The dollar is already weak because of the huge trade deficit the US runs with the rest of the world - nearly $1 trillion - which has been a big boost to the world economy. But if the US economy slows, and interest rates are cut sharply, the dollar will become a less attractive currency and could fall further.

This in turn would make imports into the US more expensive, and make it harder for exporters like Britain to win orders. A big decline could also force countries like China, which hold $1.3 trillion in currency reserves, mainly in dollars, to diversify their holdings, further depressing the greenback.

WHO'S TO BLAME?

Politicians and financial institutions are trading accusations about who is to blame for the crisis.

In the UK, the governor of the Bank of England is under fire for not intervening earlier to prevent the Northern Rock crisis from getting out of hand.

In the US, the central bank, the Federal Reserve, is under fire in Congress for not regulating sub-prime mortgage lending properly.

And both bankers and politicians have blamed the credit rating agencies for certifying as safe many of the bad debts which had been bundled up and sold. There is a growing move to tighten up international regulation of the financial sector - but worries about whether this can be done without inhibiting financial innovation.

IS THERE A SILVER LINING?

Many economists believe that the crisis is also an opportunity for rebalancing the economy, which has become overly dependent on consumer spending financed by cheap credit and government borrowing.

An increase in household savings, encouraged by higher interest rates for savers, could lead to more long-term investment.

And a mild economic slowdown in the US, coupled with a gradual reduction in the value of the dollar, could help rebalance the world economy, which has become overly dependent on the US as the engine of world economic growth.

Source: BBC September 2007

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The Case for a Unified Service Model

Why IT Needs a Blueprint ...

“Blueprint (blōō • prĭnt) – noun: (1) something intended as a guide for making something else; “a blueprint for a house”; (2) photographic print of plans or technical drawings.”

When building or making changes to a house, construction professionals rely on the architect’s blueprint - the tool that translates the needs of the homeowner into instructions for the builders, carpenters, electricians and plumbers. General contractors pull together the various blueprint elements, electrical plans, plumbing plans, floor plans and cost schedules, to build or modify the house according to building codes, to build it on schedule and on budget,. They also communicate with the owner on a regular basis, reporting on progress and making necessary adjustments along the way, always staying aligned with the home owner’s needs.
IT professionals also need a blueprint to translate the needs of the business into practical instructions. In this way, developers, systems administrators, and network managers can convert hardware, systems, applications and their multiple connection points into an enterprise computing environment that provides a company with clear economic value and sustainable competitive advantage.

The idea of an “IT blueprint” has become increasingly compelling as the complexity of IT has continued to increase. Business Service Managers, an increasingly common new role in IT organizations, are the General Contractors of IT and are being called on to translate business requirements into the guidance other IT professionals need to create services and to ensure that those services perform reliably over time. An IT blueprint shows how the various infrastructure components inter-relate to each service and provides the insight necessary to ensure more business-critical services get priority treatment. With this guidance, the IT organizations can make informed prioritization decisions that effectively meet the needs of the business -- whether those decisions have to do with requests for new IT services, support for existing ones, or the disciplined management of change.

Consider, for example, a large retailer with a highly redundant, secure IT infrastructure supporting its online storefront. The firm decides to offer a special promotion during the holidays and expects order volume to spike. Business managers want to ensure that the promotion goes smoothly and generates additional revenue. IT professionals must determine how to do this without disrupting the other services being delivered over the existing infrastructure.

An enterprise “IT blueprint” enables an IT organization to have a complete view into the services provided to the business. For example, an IT organization can determine whether additional database storage is needed---and whether it may be necessary to increase network capacity between the firm’s datacenter and key access points across the U.S. IT can translate the requirements of the business into a specific set of actions, such as an instruction to the network team to increase the bandwidth.

Leading IT organizations consider the use of an “IT blueprint”– often referred to as a Unified Service Model – to be a best practice for ensuring the delivery of high-quality, high-value services on a consistent basis. With this holistic view of IT services, IT professionals have a practical set of guidelines for how to best work with the applications, networks, systems and databases to fulfill their individual responsibilities and best meet the needs of the business.

The blueprint of a business service is not a static “snapshot”. It is a dynamic model that any IT professional can use to determine the ideal course of action when adding or changing some aspect of that environment. Since change requests are a constant fact of life in IT, a Unified Service Model t is something IT professionals need on an almost daily basis.

A Unified Service Model provides insight into the service definition—that is, the assets, people and processes that support each service--and key information about each service such as costs, service levels, problems, incidents, events and projects related to the service. A Unified Service Model is typically implemented via a CMDB with significant integration to other management tools that provide deeper insight into service attributes.

As an example, an insurance company may discover that for competitive reasons it must reduce by 50 percent the time it takes to provide quotes. With a Unified Service Model, the company’s IT organization can take a 360-degree view into how quotes are delivered, which IT assets support them, what changes are needed to achieve the faster processing times, and how those changes may impact other services. IT can thereby respond to this request with a dollar figure and an impact assessment, so that an informed decision can be made about whether to pursue a full 50 percent reduction in processing time – or whether a smaller improvement is more financially prudent.

The concept of an “IT blueprint” has been a long-time coming, but its time appears to have finally arrived. Business users and IT professionals alike recognize the central role that technology plays in driving the business. By implementing a Unified Service Model, these two groups can reap the benefits of having a common language for keeping technology spending tightly aligned with the real needs of the business.

Source: Helge Scheil | CA’s Business Service Optimization

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Is the M&A Boom Over?

“That’s the question McKinsey poses in Dec 27th McKinsey Quarterly.”

M&As tend to boom when interest rates are low (it’s easier to borrow money) and when companies are undervalued (they can be split up and resold at a profit). But the wave of European deals in 2006 noted by Ian Scott of Lehman Brothers “seem to be more about industry consolidation and the political desire to create national champions in sectors such as energy” - “if companies are getting together for reasons other than valuation or financial consideration, I suppose that isn’t quite such a good sign,” so whilst buyouts continued to dominate the headlines on a weekly basis back in 2006, and following James Rossiter September 2007 Times Online comment ... Restructuring has been named as the "the hottest game in town" according to ... the M&A boom is over, 2008 is shaping up to be a tough year.

Deal making in 2007: Is the M&A boom over?

* A wrap-up of 2007 M&A activity finds that the volume of mergers and acquisitions reached new heights during the year but then fell precipitously after the subprime-lending crisis made credit tighter. Nonetheless, suggestions that the M&A boom has met its demise may be premature.

* Most of the decline in M&A since August was concentrated in private-equity deals; corporate acquisitions continued apace. In a market characterized by tighter credit and a heightened appreciation of risk, this M&A boom will continue only if the more fundamental forces behind it, such as the surging activity of acquirers in emerging markets and increasing cross-border activity, continue as well.

* Furthermore, deal makers largely continued to exert greater discipline in M&A, as evidenced by metrics for the value that deals created and by the smaller number of acquirers overpaying for acquisitions.

McKinsey Exhibits:
*1: Slow-down in M&A over the last few months of 2007 concentrated largely in the private-equity sector.
*2: M&A deals continued to generate strong value in 2007.
*3: The acquirers’ share of the overall value created by deals has improved somewhat.
*4: The levels of value created by deals in different sectors and geographies continue to diverge significantly.

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Common dilemma company grows, leadership roles change

“Symptoms of a personal/professional misalignment may include”

* Frustration.
* Lack of energy.
* Not enjoying going to work.
* Feeling as though you're leading two lives.
* Not feeling lucky.

When a CXO's individual goals are out of whack with corporate objectives, it undermines your passion, which is an important source of persistence and creativity.
What's more, a lack of passion on your part affects the synergy and energy of your staff. When employees see that their leaders aren't committed, they back off on performance.

Goal alignment revolves around:

• Mission. Why are you doing what you're doing?


• Vision. Where are you headed? What specific milestones are you aiming for? (This is especially important for partners to agree on.)


• Values. What's most important to you? What makes you feel satisfied and happy?

If you're not touching the parts of the business that you love, it can be a big problem and cause a disconnect

Balancing Act
Aligning personal and corporate goals fuels growth, leadership and creativity.

Guideposts for growth
Goal alignment benefits CEOs in a variety of ways.

• If you're clear on goals and values, you're not going to be sidetracked
  
• If employees embrace your corporate goals and values, they'll be proud to be there every day, they'll respect the work that they're doing — and they'll respect each other.

That creates synergy for the organization; the whole group can move together and push to new levels.

Guiding Behaviour
Values are the meat — they're where your goals come from

Reconnecting
Introspection is an important part of goal alignment. Take the time to examine your level of commitment.

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