Money, banking & insurance

Sustainable banking

After years of hearsay and conjecture, the environment debate has finally made it onto the front page of the newspapers with a growing group of financial institutions "going green", looking to educate their staff about the issues, taking steps towards sustainable practice and signing onto various guidelines. This move is seen in part as a real effort to take a sustainable approach to banking, as an effort to stay relevant to "green" businesses and industries, and as an exercise in green washing - with those embracing green philosophies using it as a marketing tool for both attracting employees and selling products. Rowan Dolwand at Mecu, an institution moving in this direction, suggests contemporary issues for bank customers are, "housing affordability, high levels of indebtedness,� water conservation, global warming and climate change." However, the most recent Australian Bureau of Statistics survey (in 2004) suggests customers are less and less interested in issues associated with the environment, with only 54 per cent of the Australian population stating they were concerned about environmental problems, down from 75% in 1992. Well known Australian economist Ross Gittins agrees. Yet the trend for sustainable banking is increasing. HSBC is becoming the world's first carbon-neutral bank - offering to plant 10 trees for every shareholder who chooses to read its annual report online (oh please!); UBS, in an effort to reduce carbon emissions from air travel has implemented extensive video conferencing, and Wells Fargo has become the largest corporate purchaser of renewable energy in the US. Mecu bank offers a home loan that encourages homeowners to install water and energy conservation features and produces its credit cards from more environmentally friendly PETG plastic. Westpac has committed to the "Equator Principles", established to ensure banks only provide loans to projects that are developed according to sound environmental practices and is promoting this move with the slogan 'Every generation should live better than the last' (Why?). The bank suggests it is looking closely at becoming carbon neutral.

Pension trends

America's private pension system is in crisis. General Motors for instance is some fifty billion dollars behind in the money it needs to fulfill its healthcare and pension promises. So too many British pension schemes continue to run at an alarming deficit (quoted at GBP 36 billion pounds in July for the country's 100 biggest companies), and with people living longer and working longer there are some significant demographic shifts for the scheme to yet negotiate. Life expectancy for British men is forecast to climb from 84 (as actuaries assumed in 1999) to 87 years and 6 months - an estimate that, if correct, could add more than GBP 25 billion pounds to this deficit. The ‘dependency ratio’, defined as the relationship between the number of people who aren't of working age and the number of people who are in a population, is key to understanding the pension business. The dependency ratio is cited as a critical driver of Ireland's economic miracle - when restrictions on contraception in Ireland were lifted in 1979 the birth rate began to fall (from 3.9 children per woman in 1970 to less than two in the 1990s), and in doing so freed the country from the enormous social cost of supporting, educating and caring for a large dependent population; likewise a similar analysis of population structure can help explain the East Asian Boom. And the logic also applies to companies that struggle to make payments when pensioners outnumber workers, a problem exacerbated by firms' 'past service' obligation to employees who are hired later in their careers, the fact that negotiated increases in pensions are applied retroactively, and the expense associated with America's largely privatised healthcare system. Some doubt the very fundamentals of the company-based pension scheme. In an article entitled ‘The Mirage of Pensions’, printed in Harper's in 1950, Peter Drucker questioned how pension plans could ever work: “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years. But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?”

The new black

The rich are getting richer, with the world's ultra-rich (those with investable assets of more than US $30 million) now numbering 30,000 in the United States and nearly 50,000 elsewhere in the world. Bankers around the world are getting rich serving these people too - UBS announced a rise of almost 50% in second-quarter earnings in August and the world's largest private bank by profits took $25.2 billion net new money from rich clients in the quarter, a 12% annualised growth rate. But it's not all fair play. Littered through reports identifying the ultra-rich is reference to illicit activities and links to corrupt politicians, Triads in China, the Russian Mafia and other so-called 'undesirables'. The IMF has estimated that drug use alone accounts for 5 percent of the global gross domestic product and believes that $100 billion of illegal money moves annually from the undeveloped world to the developed world through illegal trade. Add to this trade in illegal arms and precious stones, money spent by terrorists, fraud and counterfeiting, and one could estimate that $2.5 trillion is now swilling around the black economy, much of it paid into, or through global corporations, with banks and other financial institutions implicated in the money laundering process - a merry-go-round that sneaks black cash between the crevices of corporate and banks' anti-money laundering systems. The process not only sees huge sums of money being corruptly extracted from the world's poorest countries, but also companies and individuals using the world's tax havens and banks in the process of shuffling around and hiding huge sums of money. A report coming out of Hong Kong suggests West Asian countries have amassed $2.73 trillion of foreign-exchange reserves, but rather than invest it in their own region, they are investing it abroad, largely in American Treasuries - a plentiful pool of liquidity that then makes its way back into Asia via institutional portfolio flows and foreign direct investment. A US Senate subcommittee has estimated this activity to be costing the Treasury as much as $100 billion a year in lost taxes with elaborate semi-legal scams being used to effectively hide cash from the IRS. Operating in places such as the Cayman Islands and the Isle of Man. Concurrently, the UK has been singled out by some of the world's rich - particularly from the sub-continent, East Asia and the Middle East - who are turned off the US by cultural insensitivity and their prudent monetary and fiscal systems. This is making the UK the destination of choice for the many of the world's multi-billionaires.

Car Insurance by SMS

First we moved online, now we're getting mobile. In the UK, insurance firm swiftcover.com is moving with the times, offering customers insurance quotes sent to their mobile phone by SMS. You just text your name, postcode, the number of years of no-claim-discount that you have racked up, plus your date of birth and car registration number. Then sit by the phone and wait for a return text with your quote - a process they claim will take less than five minutes and geared, one would think, to appeal to a younger market. If you are happy with the quote, you can then use the quote ID to purchase a policy online. Meanwhile, Mastercard is developing wristbands that can be preloaded with a credit of up to US $25 for use at sports grounds as a way of trialling contactless technology in a device other than a card. The wristbands were offer to some 5000 fans at a game in New York recently. They come in your favourite team colours, but presumably the idea has applications well beyond the football field. Especially useful, one presumers, if you are getting rowdy and tanked at the football.

Green loans (oh no, not again)

The Citizens Bank in Canada has introduced the Clean Air Auto Loan, compiling a list of 13 loan-eligible models of gas-electric hybrid, electric, and diesel vehicles with low CO2 emissions in a move that not only saves the environment, but also offers borrowers a considerably cheaper (loan) rate. Low emission vehicles and hybrid vehicles are becoming more appealing to a more mainstream group of Canadian buyers, partly due to price reductions associated with tax incentives offered in British Columbia, Ontario and Prince Edward Island. The list of eligible vehicles was based on Natural Resources Canada's (NRCan) annual ranking of all motor vehicles sold in Canada, according to their CO2 emissions. Citizens Bank is a wholly owned by Vancity Credit Union. Now call me an old cynic, but where does the electricity come from to power these 'green' electric vehicles? In the case of Canada it may well be hydro but in most cases it will come from power stations that burn oil, coal and gas - none of which is really green is it? I smell a rat and a faddish bandwagon.