Sameh El-Shahat’s Blog

The Financial fallout has provided an excellent opportunity for little countries in Europe to show the big players, humbled by the global recession, who’s boss.

This is a salutary tale of how and why you should think carefully before badly treating a small country, however harmless it may seem. Not so long ago, 65million years to be exact, the dinosaurs thought they had the Earth to themselves and  thought nothing of riding roughshod over little creatures called mammals that were all to intents and purposes insignificant. Then came the Asteroid (the precursor to the sub-prime crisis) and wiped out the big dinosaurs leaving the meek to inherit the earth. History could be repeating itself.

Here are two sobering tales from our times:

How Switzerland Turned on Germany To Teach The Americans A Lesson

This is a truly bad time for Germany. In classical Götterdämmerung style, it is being assailed by its friends and allies for money.

Only yesterday, I wrote about how its Euro-area partners are trying to fleece it, so that they may carrying on living way beyond their means. To fill up its rainy day chest, beleaguered Germany is being forced to turn on small tax haven Liechtenstein to claw back some of the money stashed away there by its rich barons.

Don't Mess With UBS!

And now, in a typical kick’em-while-they’re-down fashion, Switzerland has entered the fray as the latest country asking Germany to bail it out, and it is doing so in a very imaginative fashion. We’ve been dumping on the Swiss for a while now about their banking secrecy laws, so it seems that they are fighting back to secure a future in a rather bleak financial future.

The Swiss are neither in the Euro nor in the EU. They also have no natural resources to speak of, aside Milka cows, fresh air and great scenery. For their fabled chocolate, they have to depend on some pretty dodgy African countries for supply, and for their legendary timepieces, they need a constant supply of people with at least two free wrists to wear them, if the business is to remain sustainable.  So they had to be resourceful. First, they invented secret numbered bank accounts where, behind the façade of respectable cute family-owned banks that looked like something out of Legoland, anyone could hide their money and have access to it with no questions asked. But then the Americans and the Germans turned on them to try to get them to divulge the assets of their nationals. And so, in an attempt to show they are still in control, the Swiss have unveiled their new and deadly weapon.

Swiss Chocolate may be innocent for children,but the Swiss secret service has been using it as their weapon of choice for seduction and espionage for centuries. Ever wondered how a country could live off chocolate?

The Swiss Gigolo.

The Swiss Treasury, together with their fabled Nestle-fed Secret Services have sent their best agent first to seduce and then blackmail Germany’s richest woman who is heiress to the BMW fortune. The Swiss Secret services must have planned this operation very carefully, and they counted on certain German national proclivities. For example, they Swiss are obsessive about time-keeping, and so are the Germans. And so it was most natural that Ms Susanne Klatten, a member of the reclusive Quandt dynasty, and a major shareholder of BMW, would fall for suitor whose charm lay, largely, in being punctual and arriving on time for their secretive trysts. If there is one thing the Germans love, it is punctuality. A punctual yet unimaginative lover from the clock making Germanic  races could easily trump a constanly late but more ardent latin lover. If there are two things the Germans and the Swiss adore in a partner, they would be constancy and punctuality. The Swiss then asked their chocolatiers to produce to the most aphrodisiacal confectionaries for their man to ensure that his prey would offer no resistance.

He is considered "good-looking" by German matrons, and she's a good catch if you're a nerdy looking Swiss spy on the make. But he always "came on time", and that's what really made her fall for him. She became his "Swiss Made"

Having sold her some cockamamie story about running over some US mafia kid and the mafia dad asking for EURO10 million to care for his daughter. He would put up EUR3m and she the remaining EUR7m, which she did. Then he asked for her to leave her husband and place EUR290m into a trust fund for their future lives together. When she refused, he threatened to show intimate videos of them making love (punctually, of course). She reported him to the police, he was arrested and just sentenced to six years imprisonment by a Munich court.

It turned out that Ms Klatten was nothing more than the fourth wealthy woman he had seduced then conned and duped into coughing up the cash. He had been practicing for his big hit. While this may seem like a failed mission by the Swiss secret service, it is in fact a very successful mission. The Swiss wanted the Germans to know that they can strike at the heart of the industrio-financial complex. BMW had been penetrated (excuse the pun). What of Mercedes?

Unbeknownst to a German car manufacturer with a similar logo, this the coat of arms of the Swiss secret service. It stands for Blackmailing Married Women

This was also a shot across the American bow. UBS, the Swiss bank has been forced to hand over a few hundred client account details under duress by the US with the threat of criminal action. The Americans want details of 52,000 more clients who, they say, are flouting America’s stringent tax laws. For the Swiss, banking is their means of survival and they will defend it at any cost. Is it any coincidence that the Sgarbi case has been made public now? No, they Swiss are simply warning the Americans. Every American leader of industry, major banker, or politician, must now be wondering if his wife is currently being seduced by a suave, charming, and very punctual Swiss agent masquerading as an “attentive” lover, as Ms Klatten touchingly described Mr Sgarbi. Every package of Swiss chocolate entering the US can now justifiably be considered a tool of industrial espionage, aimed at giving the Swiss an unassailable advantage over the Americans.

How The Central Europeans Finally Got To Screw Austria

Up until less than a century ago, Austria had reigned supreme for over a thousand years over large swathes of Central Europe. The Holy Roman Empire, in the hands of the Hapsburg dynasty, kept a tight rein over the whole area. From 962 to 1806 (when it was dissolved by Napoleon). Then it was revived again briefly and managed to keep going till WWI when it was finally laid to rest.

So it was quite big, as you can imagine.

The Holy Roman Empire would eventually become a Wholly Austrian Mess

The Austrians, in typical Imperial fashion, lorded it over the Central Europeans and treated them like they were some oafish backward louts. They did have a favourite in Hungary, but generally treated the whole area with the disdain reserved for exotic diseases. They waited and bided their time, these Central Europeans, and they knew that eventually, they would have the last laugh.

The WWII came and went, and they all fell under the Soviet Yoke and got even more abused. Then the Iron Curtain fell and they were free again for a while, and then they saw their opportunity. Austria was so near, and yet so far.

In 2004, a whole bunch of them joined the EU where Austria had found refuge. A rump state and a far smaller one, but still a haughty one, all the same. Their revenge would be sweet.

http://www.eurointelligence.com/Article3.1018+M545e0be824a.0.html

They all then secretly agreed to start building shakiest and most advanced banking system that money could buy, and they made sure that they didn’t use their own money. In effect, the Central Europeans got Western Europeans, with Austrians at their forefront, to buy them a banking system from scratch. Then, in a concerted action that History will remember as the true end of the Hapsburgs, they encouraged their citizens to borrow their mortgages in Euros and Swiss francs, where the rates were lower than local currency banana republic rates. The Central Europeans then went on the kind of profligate shopping spree that one only does with other people’s credit cards! When the financial downturn came, all the local currencies collapsed, and all the mortgage repayments became huge as the local currency value of the foreign currency loans shot up sky high.

When people talk of the banking system of Hungary being screwed, they are in effect saying that Austria’s banking system is screwed. That is because Austria, in a last fit of imperial grandeur, thought it its god given right to recreate a financial Holy Roman Empire all over again. They fell into the Central Europeans’ trap. Austria got burned badly and the Central Europeans know that the Austrians, much as they would love nothing better than see them go to hell, must now bail them out as that’s the only way to save the Austrian banking system.

“After leading the way in providing credit to the eight former communist nations that joined the European Union in 2004, Austria’s banks are now on the hook for 201 billion euros ($254 billion) in loans, equal to about 71 percent of the nation’s gross domestic product. International investors rank Austria’s bonds as less safe than those of Italy, Spain or even Slovakia”. ©Bloomberg 2009

http://www.bloomberg.com/apps/news?pid=20601085&sid=aSskJbEPpc4A&refer=europe

Who’s having the last laugh now??

© Sameh El-Shahat 2009

After the UBS debacle, The Smurfs took advantage of the vacuum in the market, and entered the market with their own brand of private banking. Private will soon mean "UNDER YOUR BED"

As an ex-UBS man, I am distraught. These are dark days for UBS and the Swiss banking sector in general. First, we had UBS’s dalliance with the US market end in utter betrayal. UBS, an essentially conservative private bank at heart, wanted a piece of the global investment banking action. They ploughed money into building a huge US network and got into all kinds or risky endeavours. The only thing they forgot to pack before they set off on their endeavour, was a modicum of good risk management. It is a well known fact that the Swiss are an admirable nation whose sense of probity, austerity and realism is peerless. They are however not known for taking risks, hence their excelling in private banking. It therefore stood to reason that a risk-taking swashbuckling UBS US investment banking operation would be akin to a thin crust Italian  pizza put together by a sauerkraut chef from Leipzig, namely without soul.

For UBS, falling back on its private banking expertise and experience would make more sense. Then, to add insult to injury, or in Swiss terms, to rub salt into their chocolate, the US government takes action against UBS over the fact that the latter allegedly helped US citizens evade taxes in the US.

http://www.iht.com/articles/2009/02/20/business/ubs.php

Reading some of the details, I am really at a loss as to what some of my ex-colleagues (I was at UBS, but not private banking, as I was considered neither obsequious nor sycophantic enough) were thinking when they engaged in some of the acts they are accused of. Apparently, Swiss private bankers created a code to deal with their client in their communications so as not to leave incriminating evidence should the US authorities get hold of the documents. So “orange” stood for the Euro currency, while “blue” stood for sterling. A “nut” apparently stood for USD250,000. Now if I remember right, you have to have many multiples of that amount to be accepted by UBS private banking as a client. This would render both the clients and their bankers technically “nuts”. In fact it makes me wonder whether the Swiss were ever good at secrecy, if these laughable attempts at code and cypher were their idea of subterfuge. The secret services of Smurfs (an equally small nation) would have done a far better job.

Bond never trusted the Swiss bankers with his money, opting to leave hazelnuts and other dried fruits in his Swiss deposit boxes as decoys...

http://www.ft.com/cms/s/0/df3eeb9c-feb7-11dd-b19a-000077b07658.html

UBS has agreed to settle with the US government, in return for paying a USD870m fine and surrendering account details for 250 US citizens. The government wants the details of 52,000 US citizens. UBS says it will fight these ludicrous demands. However, UBS and the Swiss banking secrecy system that has made Switzerland what it is were effectively dead from the moment UBS agreed to surrender the details of the first client.

http://www.businessweek.com/ap/financialnews/D96FIN4O0.htm

The only thing that set Switzerland apart was their code of secrecy in banking. Without it, Switzerland relative advantages become chocolate-making and watch-making. A Swiss Account had become the byword for wealth and exclusivity. Now it will just mean that you are a tax dodger. Swiss chocolate still has a great cachet, and the Swiss would do well to start switching from being private bankers, to being private chocolatiers. You can have your own personal chocolate maker, confectioning the most delectable sweet mouthfuls of that brown paste for your private pleasure. I am not sure how that this will help the Swiss economy, though.

Without Swiss banking, the Swiss can go back to being successful mercenaries. They were the best in the world and that is why the Pope will only have Swiss Guards protecting him (unless they are all his private bankers). Switzerland will have to revoke its neutral status and get its hands dirty in all the world’s conflicts. They are already the most military-trained people in Europe, if not in the world, per capita. There’s always money in guns.

Realistically speaking, without secret private banking, Switzerland will have no reason to exist as an independent nation with national values worth preserving. Chocolate and cuckoo-clocks can no longer justify a serious European nation unless you’re Latvia, in which case you’d be lucky to have chocolate to stave off economic meltdown. So either Switzerland joins Africa, where it will become the most powerful nation there at a stroke with such amazing assets and where wars abound, or it can join the EU. When you’ve become an economic and political basket case, the EU means being in good company and also safety in numbers for the mediocre. Which brings me back to UBS. On my first day there, I was reminded that the acronym UBS stand for U’ve Been Screwed. How sadly true…

© Sameh El-Shahat 2009

Citibank and Bank of America are in meltdown. It seems that there is nothing they can do right. Nationalisation is the way forward for them.

I used to be a banker and I must tell you that I am getting rather fed up with everybody blaming bankers for their economic woes. The fact is, we are all to blame. We delegated all our financial authority to banks without reading the small print. We all contributed to making bankers semi-divine omnipotent beings that we could only admire. We dreamed about having their lifestyles and thought them very clever and beyond fault or reproach. We gave them the kind of unquestioning, absolute and unconditional respect we don’t even give to doctors or politicians. We only have ourselves to blame.

We could have gotten away with it had these bankers lived up to our expectations of them. But in truth, most were fallible and very mediocre. I can tell from my own experience, my managers and bosses were some of the most unoriginal people I had ever met. Is it any wonder UBS ended up being taken over by the smaller SBC back in 1998? The only exception was me. I was so original and semi-divinely omnipotent that I decided that I had better use for my time away from these losers. So I moved on.

Fast forward to the present, Citibank’s Chuck Prince and Robert Rubin didn’t have the flair of people like Sandy Weil. He was a builder, they were the dull and mediocre inheritors who squandered it all. The tragedy of CITIBANK’s clients is that they believed in these schmucks, who in turn ended up believing their own hype. Rationality escaped them and they started to think they really were gods…They had a business plan that never foresaw a bear market…Duh!  We allowed bankers to achieve the status of gods when they were really quite…human, just like us. Now there must be a price to pay.

It is ironic how we want democracy in our political life, but in our economic life, the basis of our politics and prosperity and everything we really stand for, we are will tolerate tyrants who are above accountability and applaud them. Now we want their blood.  We are the schmucks. The problem is what when your banker too is a schmuck, then two schmucks create a disaster. 

Citibank Risk Management Taking a Break from Filming the “CITI NEVER SLEEPS” Campaign Ads

I remember Citibank’s famous motto: CITI NEVER SLEEPS…and now we know why they weren’t sleeping. They were snoozing on the job all the time… You snooze, you lose…

© Sameh El-Shahat 2009