Sunday, 8 May 2016

Chciwość - book review

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).

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