Once I have
reviewed here another book by Paweł Reszka, one of his two (only) famous ones,
with Daleko od Miłości, a bleak depiction of Donald’s Tusk as prime minister,
being the other, unread by me. After a few years without meaningful
accomplishments, Mr Reszka hit the audience with a new book on 27 April 2016.
Soon after I learnt about the existence of the book and its subject matter, I
rushed to order it online, picked it up on Monday, read from cover to cover,
jotted down some important stuff and wonder whether I should recommend it as a
valuable read. The book is not a “must”, but if you have some spare time, would
not hurt to reach out for it, nevertheless, 28 PLN spent on it (could not find
it any cheaper in e-bookshops) could have been expended in a more pleasant way
;-)
For the
sake of clarity, the book’s focal point are malpractices of financial
institutions in their dealings with clients, retail clients.
Although I
am employed in the financial sector, I am totally unfamiliar with the world of
retail banking illustrated in the book. From what I have heard and read,
asserting that work in a bank outlet in Poland is unrewarding is an
understatement. Low basic salary, junk contracts, unrealistic targets, mobbing
and high staff turnover are the order of the day in that world. Yet for some
reason, not the nascent investment banking, not classy corporate banking, but
world of small bank outlets scattered too plentifully across Poland is now
compared with infamous stories by the Cityboy or The Wolf of Wall Street.
Testimonies
of people who used to be a pillar of a system they hate today have left me with
mixed feelings. As the author rightly points out, all his interlocutors have
not felt guilty of the mis-selling they were involved in. They have all claimed
they were a part of an evil system and had no choice but to swim with the tide.
Actually their intentions were to earn money, rather than to fool clients. Had
indeed they been intent for the latter, they would not have convinced their
families and friends to buy products they were distributing, products they
genuinely believed were suitable and good for clients.
The very
naivety in such reasoning speaks volumes of salespeople’s competencies. It is
not a secret staff in retail banking do not need to be graduates of economics.
Even if those people possess university degrees, their diplomas are earned in
dead-end majors, such as political sciences or sociology. No wonder then they
could not understand what they were selling and no wonder nobody cared. They
were meant to meet targets, nothing (broader) beyond that.
I was kind
of astonished when I read about bonuses of top-performers. When I hear “retail
banker in Poland”, I have in mind a poorly-paid (basic salary) mobbed, lousy
guy in a doghouse. Majority may fit into such scheme, yet the book gives two
figures: one guy thanks to superb “output” earned one month 120 thousand PLN
before tax and another guy who in a good year earned 320 thousand PLN before
tax. Both numbers are still out of reach for me, let alone an ordinary Pole for
who such earnings are outrageous…
While
proceeds are on one side, on the other one comes spending. The book goes to
show what happens when boors (usually sly guys from provincial Poland) begin to
get paid like lords. As they feel the dough flowing in, they usually begin to
show off, live beyond their means and cannot even make use of the short-lasting
lucky streak to save something. They become a part of the tribe and need to
keep up with fellow meatheads, swank about, party wild… Incidentally,
descriptions of what bank-sponsored parties look like are far cry from what I am familiar with; same about families broken up on account of sinful lifestyle
or because of working overtime habitually – in civilised part of Poland’s
financial sector such things happen no more often than among representatives of
any other profession…
So if
wicked bank(st)ers and wicked banks were earning so well, had a client any
chance to make a profit? Two most popular toxic products massively sold to
retail customers in Poland were: CHF-denominated or CHF-indexed mortgage loans
and unit-linked insurance policies (for no apparent reason known as
polisolokaty, a misnomer, since polisolokata was a name for life insurance
policy working exactly like bank deposit when such products allowed to
circumvent capital gains tax).
The former
product was attractive for mortgage borrowers who benefited from lower interest
rates in CHF and therefore could take out higher loans. Unlike many claim,
banks were indifferent about fluctuations of CHF/PLN (they did not report
losses when PLN was appreciating against CHF until July 2008). They earned on spread
between bid and ask rate. For example, if CHF/PLN was 2.00, at loan
disbursement a bank used CHF/PLN = 1.94 rate, while when first instalment was
repaid, though the exchange rate stayed level, the customer repaid it at
CHF/PLN = 2.06. So banks were making huge money on spreads while being immune
to FX rate variations. Though most clients today are worse-off than their
PLN-indebted counterparts on their CHF mortgages, they turned worse off in 2013
when interest rates in PLN went down. By that time, despite PLN depreciation,
their to-date instalments were lower than those paid by mortgage debtors with
loans in PLN. I personally also know a guy who took out a CHF mortgage in 2004
and converted it to PLN in 2008 and whose debt shrank by nearly PLN 100,000.
And be sure the bank which had lent him money earned decently on him as well!
The latter
product, with mechanics described in the book, could give a chance to earn only
if returns on the aggressively invested money were as good as in golden years
before 2008. The reason for being bound to lose is the fee structure. With
insurance company (ultimate service provider), bank (structuring party) and agent
(intermediary) to be paid, fee schedule was high enough to wipe out ordinary
profits. If load fee from each and every contribution is 5% and you gave
management fee on top, a rough calculation tells you an average return of 6%
per year is needed to break even. Today, with risk-free rate of 1.5% such
return is achievable only if sizeable risk is taken.
Oddly
enough, many bankers who genuinely believed in superiority of CHF-mortgages and
unit-linked insurance plans are victims of those instruments.
And oddly
enough, I have never been aggressively foisted upon toxic products. Salespeople
from banks call me from time to time and ask me politely whether I am
interested in a toxic product, I politely but firmly refuse. I do not remember
being duped by any salesman in a way described in the book. Maybe they know who
they talk to and as a matter of principle do not play such tricks with people
from the same industry…
The book
also made me recall one event which deserves to be erased from my memory. In
October 2008 a friend of mine recommended me as a potentially interested in a
job as distributor of the most lousy investment products. Out of curiosity I
made an arrangement for an interviewed. I was interviewed by my peer (aged 20
or 21 then; for the first time a guy of my age would address me “pan”) and upon
hearing from him as a branch manager and team leader he earned PLN 20,000 and
drove Audi A3, I simply finished the meeting. Indeed, the biggest misfortune is
when a boor comes into big money suddenly…
For readers
less familiar with finance, the book contains a glossary / guide which in
simple words explains e.g. what the difference between a CHF-denominated and
CHF-indexed loan is, or how a unit-linked insurance works. Laymen then are
advised to start their read from the back cover ;-)
The timing
of the premiere might bring out suppositions the book is to be harnessed in a political
discussion on conversion of FX-mortgages. I doubt this happens. Firstly, no one
in the book takes pity on CHF-borrowers, claiming they should pay for their
greed and stupidity. Secondly, it reminds who was in favour of sustaining the
CHF-lending unrestricted (PiS politicians: Przemysław Gosiewski, Zyta Gilowska
and Kazimierz Marcinkiewicz) and who insisted on clamping down on it (banks).
No comments:
Post a Comment