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Nick Ogden

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Nick Ogden - ClearBank

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Meltdown Monday and so in God we Trust

03 November 2008  |  2912 views  |  1

I was in Reykjavik, Iceland on the Monday when the Icelandic economy meltdown occurred.  By co-incidence I was also on Wall Street when the 1997 crash happened and being in both locations was, I promise, purely co-incidental.

In 1997 I was with professional investors, where $400m loss hurt but they didn’t die. In 2008 in Reykjavik the only experience that I have ever felt that could describe the atmosphere, and grief displayed by the Icelandic people as they watched their Prime Minister announce at 4 pm that the country was in meltdown, was when Princess Dianna died in the tragic car crash in Paris. 

One waiter at the hotel that we were staying at literally cried as he explained that he had worked all summer to save up for a University course that he had to pay for in euro’s and now he couldn’t afford his course, his krona savings had devalued by 17%, that day.

Late on that Monday night I heard that on the Tuesday morning Landsbanki was going the same way as Glitnir, and even then there was still some hope left. Travelling back to the airport on Tuesday lunchtime after a board meeting a call regarding RBS brought home the crisis to me in a real way. Did the call mean that RBS about to fail as well and what impact would that have on my business and employees as we bank with them? I guess if you owe the Bank money and they go broke its one thing, but the bank owing you is a totally different ball game. I’d already seen on the Tuesday morning the effect of the Landsbanki take over by the Icelandic Government and the snow ball effect that had already started in Iceland even before the tsunami hit the many Icesaver account holders. 

Whilst I understand that many of the UK Icesaver account holders should get their cash back as many of the deposits were under the £50,000 protection level I wonder actually how many people really realised, less than a few weeks ago, how at risk suddenly we all were. I would bet that most people really didn’t know that money in a Bank isn’t actually safe, and for a business with substantial cash deposits, if the Bank goes broke, arguably so does your cash, your business and your life. Apparently all this started because of bad payers in the US sub prime mortgage market. But is that completely true? I was at a Retail Banking conference in Thailand 2 weeks ago chatting to a prominent US Banker and we talked about this very point. According to him 97% of all US mortgages are now performing and are current, and honestly, I believe him.

On the way back to Bangkok airport I put my Thai money back into my currency holder and got out UAE Dirham’s ready for my return flight to our R+D centre in Dubai. I dropped a single US dollar bill in the car and picked it up noticing that on the back, it says “In God we Trust”. Whoever wrote that and convinced the FEDS to put it on their banknotes surely, and sadly had remarkable foresight.

TagsPaymentsRetail banking

Comments: (1)

John Dring
John Dring - Intel Network Services - Swindon | 14 November, 2008, 09:07

Couldn't agree more.  It all certainly shook up our trust in what we thought was solid. 
I have always resented the unfair standing that the public has in the matter of finance - its always the little people that suffer when these events happen.  It won't take much for people to go back to putting money aside under the mattress at this rate, because not only do they no trust the banks, but their investments there either return so little or attract taxes in any case.  I mean, BT shares were worth less recently than in 1984 when they were floated - over 3 decades of telecoms at its height, and BT one of the biggest.  Now as a small invester, its quite possible that you had sat on BT shares all that time - it would have been better to stuff it in a pillow.

Anyway the real point I wanted to make as that I also don't believe the US Subprime Mortgage mess is at fault any more.  It may have started the thinking and navel gazing, but I think they realised a lot more than that, and what had been built up was a pack of cards waiting to tumble.  Lender to lenders who lent to more lenders, who lent to borrowers with little more than a 'trust me, I will make you money' business plan.  The mortgages at least have some asset behind them. These other lendings don't seem to have, and the money has been frittered away as 'operating costs', salaries and bonuses, never to be seen again.  Somewhere, back up the chain, that's our money and we are the ones that stand to lose it when these cashes happen.  These business ventures come and go, but each of us is stuck holding the baby, so to speak.  Banks just got greedy trying to 'keep up' with the relentless drive to keep doing deals.

 

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I am passionate about business change and have been fortunate to have had some success with my various start up ventures. I am also fortunate to be a director of the UK Faster Payments Scheme.

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