Fifty-nine percent of tier-one banks are implementing virtualisation in IT, according to KRC Research in a report commissioned by Microsoft.

Curious that Microsoft sponsored such a report – industry experts have long thought the company had a very limited interest in virtualisation because it would reduce the number of Windows licenses an enterprise needs. Microsoft bought Boston-based Softricity in 2006 and more recently it has acquired other virtualisation firms. More than one person has told me Microsoft bought Softricity to get it out of the marketplace. But with VMW taking off, perhaps the company had no choice.

Now Microsoft offers infrastructure virtualisation software as part of the Windows platform, withHyper-V and Terminal Services available within Windows Server 2008, along with a comprehensive management platform, Microsoft System Center, to manage both virtual and physical infrastructure and applications.

The KRC report says virtualisation is used across multiple IT infrastructures, including application (61%), networking (54%), machine operating systems (48%) and presentation (27%).

“Banks realize the impact virtualisation can have on operations, from the data center to the desktop, and how it should be embraced as part of an enterprise-wide infrastructure strategy,” said Rich Feldmann, managing director of the US financial services group at Microsoft. “Virtualisation helps create the foundation for innovative banking applications and channels by producing an agile infrastructure. While banks are known as early adopters of technology, this survey indicates that more than one-third are still on the sidelines waiting for greater value and ease of use before adopting.”

Virtualisation helps make more effective use of existing hardware investments and significantly improve IT agility, said Kathleen Khirallah, managing director and practice leader, Global Banking, TowerGroup. “These emerging technologies are helping today’s bank compete more effectively in an ever-changing market by helping people anticipate and respond to business challenges and opportunities rapidly and effectively.”

Fifty-three percent of those implementing virtualisation reported that it makes it easier to centralise deployment and manage applications, and an equal number reported that it produces cost savings while 51% reported that virtualisation makes it easier to respond to issues such as failures of applications or systems.

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With banks coming under pressure to take better care of customer data, and government organisations losing large amounts of information seemingly ever other day, perhaps the Italian authorities have found the solution.

For reasons of “transparency”, the Italian tax authorities have published the salary details of all tax-payers – not as high a proportion of the working population as the treasury might reasonably hope – on a website, allowing everyone to check on their neighbours, bosses, and relatives.

Simple: don’t lose or leak data, or risk having it stolen – just freely publish it.

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It’s a well-known marketing ploy in banking – offer free checking and then hit customers with outrageous fees when they bounce a check – £40 or so in the UK for what American bankers called non-sufficient funds (NSF). Now the High Court has ruled the fees come under laws on fairness of contracts, governed by the  Office of Fair Trading which has already suggested the fees are unfair. Banks had contended they could set the fees arbitrarily. At stake? Up to £2 billion. Banks may appeal, or they may pay up and replace free checking with a host of fees for services. 

Just one more reason not to trust bankers, in case anyone was looking for another.

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A tech vendor friend from New York was very pleased with the quality of attendees and the content at TradeTech 2008 in Paris. The show drew high level people who really knew the industry and were apt to be decision-makers, he thought. He didn’t mind the high price of £3,684 (€5,526). In fact, he thought that was a factor in making the conference a success – only serious people at a high level in their firms could attend.

The New York SIFMA technology conference has dropped off his list, by the way. Too many people, none with decision-making power, and the crowd just gets older and older, he said.

Part of the problem with SIFMA is that the show is free. I have written in the past about one elderly man who shows up with an empty trolley bag, races off the starting line when the doors open, and collects goodies around the show. An extreme example, but the show could benefit from some quality control on attendees. No need to extend quality control to journalist credentials, of course.

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Has USP just surfaced in Europe or is it emerging from a decades-long hibernation? I can’t remember the last time I heard the term before TradeTech 2008 in Paris were people were flinging around USP (short for Unique Selling Proposition) like there was no tomorrow. (Hmm, judging by the hoarse voices at panels on Thursday one suspects some revelers had been out entertaining Wednesday night as if there would indeed be no tomorrow. Wrong, they learned, as they struggled to achieve clarity in the face of unforgiving microphones).

Anyway, the term USP dates back to the 1960s and the ad agency Doyle Dane Bernbach, I think. The guys who did the VW Beetle and Avis – “We’re Number Two – We Try Harder.”

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As the equity trading industry gathered at TradeTech in Paris this week to discuss the latest developments in terms of liquidity pools, new trading venues, smart order routing or low latency, it is interesting to note comments made about financial markets by European political and business leaders in recent weeks.

The departing chairman of insurance giant Axa, Claude Bébéar, recently lamented the short-term view of equity investors, while French president Nicolas Sarkozy called for a “moralisation” of the financial system, lambasting “speculators” making profits “in a few hours” at the detriment of entrepreneurs.

Should the trading industry worry about its perception among the general public, whose understanding of its activities is limited at best? With the sub-prime crisis and the SocGen scandal, rarely has the image of the financial services industry been so negative.

Sarkozy said on Thursday he intended to work with British and German counterparts to promote a “European economic model” and talked of working with G8 counterparts to impose new “rules.” A few months ago, German chancellor Angela Merkel sought Sarkozy’s support to regulate hedge funds.

A backlash against modern forms of trading could indeed potentially be a regulatory one, from increased taxes on short-term holdings to restrictions on the creation of new derivatives, to name just a few possibilities.

It might be a good idea, therefore, for the industry to address this negative perception and explain the beneficial aspects of what it does, notably in the financing of what critics call the “real” economy.

More thoughts on the subject in the May issue of Banking Technology…

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IT professionals will be happy to learn they can now count star (or is it “rogue”?) trader Jerôme Kerviel as one of their colleagues.
The French media revealed yesterday that Kerviel had been hired a couple of weeks ago by an IT consulting firm, LCA. The company’s owner, Jean-Raymond Lemaire, told Agence France Presse Kerviel has been working as a consultant since the beginning of April.
The SocGen trader had stayed at Lemaire’s home when the trading scandal came out earlier this year and was initially banned from meeting with him, as part of his conditional release from prison. Lemaire said the restriction was no longer in effect.

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The London-based Observer supports bailing out the banks, but with strict conditions.

British banks deny that they have messed up and are asking for state rescue, notes The Observer, which disagrees with their assessment.

“But the reality is that British banks are guilty of systematic arrogance and complacency. They relied on credit from each other to pump mortgages into the consumer market. They then took those debts, packaged them up as ‘securities’ and traded them with each other. As business models go, it looks like a cross between alchemy and pyramid selling. The regulators, meanwhile, did not know this was happening, or did not understand it, or did not care. How, then, were the customers who took out mortgages on the High Street expected realistically to evaluate the risk they were undertaking? Those that now face negative equity, or even repossession, can legitimately feel bamboozled by the City and let down by the government that failed to keep its excesses in check.”

It suggests some capital adequacy rules on the wholesale side but gets a little fluffy when it hits issues around the retail side—the mortgage holders.

“But the changes must go beyond regulation. There must be recognition that banks have social responsibilities. Lenders must give assurances that they will treat defaulting homeowners sympathetically, that they will introduce measures to ease the burden of debt for ordinary people. Banks must show their customers the same generosity that, like it or not, the taxpayer is obliged to show them.”

This does get sticky, and perhaps owners whose mortgages are underwater will have to take a loss. But realistically, banks lose money on foreclosures—they often get stuck with houses that are damaged by owners, or get damaged while they sit empty. Banks out to accept the losses, or some losses, on some mortgages, leave the owners in place, and write down the mortgage to realistic post-bubbled levels.

Maybe someone can write the software to automate the process so it can be done quickly and cheaply.

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Heather McKenzie’s blog entry on April 10 underlines the need of corporates for adequate banking relationships. It reminded me of a column published at the end of 2007 by the French association of corporate treasurers,  AFTE, which poked fun at the apparent chaos the arrival of MiFID had caused in their banks’ customer relationship departments.

Indeed, French corporates were rather surprised when they started receiving somewhat inconsistent letters from their investment services providers about the MiFID client category in which they had been put, toward the end of last year.  For instance, some companies were put in  several different categories by their various banks, with the same firm seen as a professional client by one institution, and as an eligible counterparty by another.Some corporates were even assigned client categories that do not exist under MiFID, such as “qualified client, informed client, or retail client.”  

What is more, treasurers received letters not addressed to their name, but to their function, “as if banks didn’t know the names of their clients.”

Asked about the letters, the corporates’ account managers often had no idea what their client was talking about.  The treasurers’ association expressed its astonishment at the improvised  manner in which banks seemed to have approached their MiFID  paperwork obligations, despite ample forewarning. 

So, beyond transactional innovation, maybe what corporate banking really needs is indeed better customer relationship management technology. CRM was one of the buzzwords of the beginning of this decade in the retail banking world. Perhaps is it time for it to try crossing over to the corporate side.  

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The Basel Committee has announced a series of steps to help make the banking system more resilient to financial shocks. These include:

Enhancing various aspects of the Basel II Framework, including the capital treatment of complex structured credit products, liquidity facilities to support asset-backed commercial paper (ABCP) conduits, and credit exposures held in the trading book.

Strengthening global sound practice standards for liquidity risk management and supervision, which the Committee will issue for public consultation in the coming months.

Initiating efforts to strengthen banks’ risk management practices and supervision related to stress testing, off-balance sheet management, and valuation practices, among others.

“The key building blocks to core bank resiliency are strong capital cushions, robust liquidity buffers, strong risk management and supervision, and better market discipline through transparency.” said Nout Wellink, Chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank.

The Committee is introducing a number of measures to help ensure sufficient capital, to capture off-balance sheet exposures more effectively and to improve regulatory capital incentives.

Enhancing market discipline through better disclosure and valuation practices.

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