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Edited: Antony Currie
Many people assume that the millennium bug was beaten thanks
to banks' thorough preparations. A large caucus among non-IT-geeks
think it was a mythical monster in the first place, concocted by
techies to give easily frightened bank bosses nightmares.
In reality, it turns out that the Y2K gremlin scored at least
one bullseye. The "Citibanking" service to institutional clients
worldwide includes a daily electronic update on clients' holdings.
The computer programme deletes historical data that is over 45 days
old, so when it skipped to 2099 on New Year's Eve, all those
20th-century records must have seemed rather passŽ. It erased the
lot.
Most institutions who lost their records have kept schtum. It
would embarrass them vis-ˆ-vis their end-investors. This has
allowed the incident to go unnoticed...almost. One Citibank client
- let us call him Investor X - is sufficiently unimpressed to blow
the whistle.
A technical glitch can happen to anyone. The question is how
you respond to it. And was Citibank's reaction satisfactory? "Not
in our case," says Investor X. He heard nothing from the bank at
all, but plenty from other grumbling investors. Only on January 6
did Citibank call him to say that, by the way, he had a computer
problem. The bank handles insitutions with a three-dimensional
matrix approach, with separate teams covering clients, regions and
products. Investor X got the impression that each section thought
it was someone else's job.
The peeved investor says: "We know [Citibank] detected this
problem on Saturday January 1, so they were in a position to warn
clients before it was evidenced." He couldn't tell who to call,
thanks to Citi's ingenious 3D structure.
By January 11, Citi had installed Investor X's replacement
software and filled in the missing historical data. Luckily for
Investor X, he had taken the precaution of printing off a hard copy
of his holdings just before New Year, and so was able to carry out
the reconciliation of his year-end books unhindered.
Citigroup spokesman Duncan King says the bank spent "the
first several days" of the new millennium contacting up to 5,000
affected clients. It quickly set about designing and supplying a
fix, says King. "A small number of institutional clients were not
able to accesss historical data. This in no way affected these
customers' ability to transact business and receive operating
reports."
Investor X apparently was one of the "very few" who bothered
to complain.
Marcus Walker
Merrill's internet conversion
Now it's official: investing in internet stocks is not just a
fad for day traders. Merrill Lynch has finally launched an
internet-focused mutual fund in the US.
The full-service broking arm of Merrill was until recently
regarded as something of an internet Luddite, forever being
attacked for not having an offering to match the on-line investing
features of the discount brokers such as Schwab and E*Trade, let
alone having funds dedicated to the sector.
Executives including CEO Dave Komansky were temporarily
infected with foot-in-mouth disease, making disparaging comments
about the value of the internet, and its perceived threat to
Merrill's business. Their big fear was that Merrill's 15,000 or
more brokers, would leave and take business with them.
That's all changed. In December the firm launched its
$29.95-a-go online trading site. And last month it opened the
Internet Strategies Fund - in part a response to its brokers
clamouring for such a product while selling rival offerings to
their clients in the meantime.
It's also been set up because Merrill has enjoyed rapid
success with its offshore internet fund, the Internet Strategies
Portfolio, which opened last November. Run by Paul Meeks, who will
also handle the domestic fund, it has already attracted $1 billion
in assets and was up 48.2% at the end of the year.
Merrill, like other full-service brokers, has been suffering.
Last year there was a net outflow of $11.9 billion from its stock
and bond funds. Its traditional client base has come from a
wealthier, more conservative background than the discount brokers',
so its funds concentrated more on long-term value. But even
conservative clients can't ignore stellar results from growth stock
funds. Internet funds grew 1,700% last year, as opposed to 19.4 %
for US domestic fund assets, according to mutual fund consultant
Financial Research Corp.
Merrill is keen to portray its move as well timed and a
perfect fit with its traditional approach. "The internet has
evolved past being a short-term trading vehicle," says spokeswoman
Christine Walton. "It is a sociological sea-change that already has
made major changes in the way the world communicates, interacts,
and does business."
Antony Currie
The WestLB jet-set
A plane is chartered for a trip to Vienna for wine-tasting
and bingeing on Sachertorte. Another flies to Hamburg, for
champagne with former German chancellor Helmut Schmidt. Is this
business, politics or pleasure? When you're running a German
Landesbank or a region in Germany's industrial heartland of North
Rhine-Westphalia, the question is impossible to answer.
WestLB is hardly the only bank to entertain its business
associates in style. And you don't have to be as smart as Friedel
Neuber to twig that the flights-for-the-boys scandal, which forced
a local minister to resign in January, is a political exercise to
discredit the Social Democrats (SPD) a few months before close-run
state elections.
After 33 years of SPD rule in WestLB's home state, everyone
wears two hats. Heinz Schleusser, who resigned, was WestLB's deputy
chairman as well as the state's finance minister.
According to the latest revelations, local premiers including
Johannes Rau, now president of Germany, and other ministers enjoyed
mile-high junkets at WestLB's expense between 1985 and 1999. The
cost may have exceeded Dm2 billion ($1 billion).
Congratulations, then, to WestLB for striking an impressive
bargain. In return, Neuber has the state government's passionate
support against Brussels' attack on the bank's public guarantee,
worth at least Dm1.5 billion a year. In late January, state premier
Wolfgang Clement again went to Brussels to negotiate with EU
competition commissioner Mario Monti and persuaded him to wait even
longer for WestLB to pay back Dm1.6 billion in free capital. Let's
hope WestLB didn't force the poor man to fly scheduled.
Laura Covill
Chicago's catch-up
After years of resisting the changes demanded by new
financial technology, Chicago's two futures exchanges have finally
taken notice.
Last year they saw Brokertec set up by a consortium of seven
investment banks to offer cash and futures broking for the
inter-dealer market - the Chicago Mercantile Exchange (Merc) and
the Chicago Board of Trade (CBOT) are two of its main targets.
(it's due to go live before the summer) And Eurex finally overtook
CBOT as the largest futures exchange in the world: electronic
trading had finally bested open outcry.
CBOT chairman Don Brennan, a former soybean trader, having
championed the anti-Eurex camp at the start of last year, now had
to eat his words and resubmit, successfully, the plan to form an
alliance with the European exchange. Now they're sorting out those
antiquated governance structures, which give too much power to
local brokers, to the exclusion of the big liquidity providers
(although the locals will always take issue with this).
Last month CBOT announced its plan to go public, devised with
advice of Merrill Lynch, one of the founders of Brokertec. CBOT
would split itself into two publicly-traded entities, one
electronic, one open outcry, in the hope that this will allow both
to realize their full potential. In other words, it wants to allow
seat members - effectively the shareholders - to make some money
before the CBOT loses more business to electronic trading, and
hence more of its value.
It's not a bad plan, except for the timing: members won't be
able to vote on it until the fourth quarter of the year, by which
time Brokertec could be up and running.
That puts CBOT some way behind the Merc, which is about to
vote on IPO plans announced last November. But as one banker puts
it: "At least with its link to Eurex the CBOT has
donesomething."
Last month, James McNulty stepped in as president and CEO of
the Merc. McNulty comes from the erstwhile Chicago futures trading
house O'Connor, (now part of UBS Warburg) where he was co-head of
corporate analysis and structuring. He's apparently a popular
international speaker on "shareholder value creation, cost of
capital, capital structure and dividend policy". Just what the
demutualization process needs.
AC
Deutsche's triumph
Rival publication
IFR'sannual awards dinner last month brought a touch of
Oscar glamour and the bizarre to a raw London winter: a scantily
clad woman dangled from cords above the tables where the great and
good of the financial markets chomped their food, while an acrobat
inside a steel wheel rolled across the ballroom like a giant
hamster.
All we needed to complete this London variety show was a
member of the royal family. Sure enough, Princess Anne showed up to
raise money for her international charity,
Save the Children. The investment banks competed to get
their names on a tombstone listing the biggest donations. Citigroup
was morally obliged to head it (with a sum of £225,000), since
IFRhad named it "Bank of the Year". Just over £1 million was
raised. Guests at a Goldman Sachs table amused themselves
calculating £1 million as a fraction of the collective bonus pool
of those in the room.
The Citibank-Salomon combine got the overall Oscar for best
bank, even though a few others including Chase seemed to pick up
most of the individual awards for specific markets and products. It
was all too much for an emotional Don McCree, Chase's head of
European syndicated finance, who privately berated the
arbitrariness of journalists.
A high point came when Deutsche Bank's head of global
markets, Edson Mitchell, leapt onto the podium to receive his
prize, to the triumphal strains of Wagner's
TannhŠuseroverture. Mitchell was the only product chief to
get such loud cheers and whistles from his team. Overheard at a
nearby table: "Now that's the kind of loyalty only money can buy."
David Shirreff, MW
Frank and free ...
It took him some time, but last month Frank Newman, who
steered Bankers Trust into the arms of Deutsche Bank, called
Euromoneyto complain about references to him in a story we
published last September. He says they were "frankly a lot of
balls". Far from enjoying "huge unpopularity" at Bankers Trust he
could point to a list of people who thought he was really quite a
nice guy. He could only assume
Euromoneyhad talked to a narrow sample of disgruntled
employees. "If you had called me I would have put the record
straight."
But we did call you Frank and your secretary Millie said you
wouldn't comment.
Moreover, he goes on, a reference to his wife's
"high-handedness with the expense account" was untrue. "Liz didn't
have an expense account." A lot of misinformation crept into the
press, he complains, for example the story that Mrs Newman hired
the cast of a Broadway show to perform after a working dinner.
"They were invited by a group of the bank's partners, who
asked her if she'd introduce them," he explains. Thanks for putting
the record straight, Frank.
David Shirreff
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