Finding out how it is without Clearing Bank customers!

So, I am sitting here in Julius Baer (JB) wondering quite what I should do. As a new bank, the team are dashing around trying to get things going but their focus is not on my activities but on the areas that they know and have contacts.

I think that, firstly, I ought to list the players. Firstly, we had Henri Jacquier as Managing Director. He had made his name as the Treasury Manager of Kleinwort Benson so he know his stuff when it came to merchant bank business.  The manager was David Mann who came to us from Hill Samuel. His world had been corporate financing. As assistant manager we had Peter de Muralt (or von Muralt). Peter was the JB appointment on the team and he was what we  would now call a "bright young thing". He was of Swiss origin and spoke English fluently as well and French, German and Italian (of course). His job, as I saw it, was to keep David Mann within the JB bounds rather than still living in the Hill Samuel world. Shortly after joining, they employed a back office manager - Peter - and Betty as an assistant for him. The rest of the team comprised two secretaries - Miss Pfaff (JB Zurich appointee) and an English one who was what we would now call a "Sloane Ranger" - very well spoken and OK-ish at her job.

JB had some great contacts and some of these provided us with our first run of business. I learned an awful lot in a very short time because I had never been exposed to the areas we were now to work in. I had never deal with the likes of Fidelity - a huge US based investment manager - or Pemex - a Mexican oil company, for instance. I will leave Fidelity to later but Pemex taught me a lot.  Pemex mostly raised funds by issuing bills of exchange. Now a bill of exchange is a nice piece of paper that is worth nothing until it is accepted by a credit worthy banking institution. The company issues what is effectively an open IOU, say for $1,000,000. This bill has an expiry date of say 90 days. So the company expects to get the million dollars on the day of acceptance and will repay it 90 days later. Pemex issues the paper and we (that is Julius Baer International - JBI) write on the back that this bill is accepted for payment by us on the due date and we, then, give Pemex their funds. It now ceases to be a Pemex debt but becomes one for JBI. There is a borrowing cost on this, of course. This borrowing cost is deducted, in full, from the proceeds payed to Pemex. Let us assume that the US$ 90 day interest rate at that time was around 6 1/2%. So the calculation goes like this:

1,000,000 *0.065 *90/360 = $16,250 deducted from the face value leaves $983,750.00 for Pemex.

This is known as buying the paper at a discount. My job was to sell this onto someone else at a better rate; i.e. at a rate lower than 6 1/2%. But, we had a trick up our sleeve. The market for this type of paper in London was always quoted at a "discount to yield". Humm. Have I lost you? I bet I have.

You see, if you think about what I have said, we have charged interest on the full $1,000,000 even though we only paid out $983,750. In the minutiae of banking transactions, this helps us make a bigger return. To explain, let us start out with the invested amount and see where we get.

We have invested $983,750.00 to get a $1,000,000 return. Thus, we should really be talking about the actual investment yield which is $16,250/90*360/983,750.00. Now this comes out at 6.607%. So, we are actually getting 6.6% on our investment. What we need to do now is to sell the bill on the market at the "discount to yield" rate (DTY). Assuming that Pemex can see the current market rates, they will know that 6.5% is off from the market because we would always have agreed a margin on market prices with them before starting any transactions. As they are Mexican and, at that time, Mexico suffered from having a poor financial reputation, we would probably agree something like a 0.5% margin over market rates.

Note for 2015: This is where LIBOR rates come in. LIBOR US$ rates were set, at that time, by taking a spread of rates for any one period from a range of sources and taking the average (normally after removing any outliers and also, probably, the highest and the lowest) and calculating an average. So, today's 3 Month LIBOR (assuming the 0.5% margin) would have been 6%; this being the average offered rate for US$  over three months.

My job would be to fund this bill by selling it on the market at a "discount to yield price of a little over the current LIBOR, taking into account the status of Mexico. let us say that the market will accept this paper at 6.25%. Using the standard DTY calculation, the amount that we will receive will be $984,615.38 showing us a small profit of $865.38. If we hadn't used our little trick, we would have made $605.54 so it was worth doing. Remember that we would be doing this for $10,000,000 tranches. Sometimes we would find that some counter parties would only trade at a straight discount so we had to forego the little extra but it was worth trying.

The one advantage of holding a bill of exchange was that, if the market moved such that you could   sell it on at a cheaper rate then, being a bearer bill (i.e. issued to the bearer of the paper rather than any specific institution) you could sell it on. You had to take care of the paper, of course, because we would pay whoever turned up with it on the due date!

Enough mind bending stuff. More later

New Job - New Home back in South London

Now, I have always regarded myself as a South London lad. In fact, I would often mock the expression that all City traders were barrow boys by stating that I came from "Sarf Lundun" and switch back to my normal voice (which may fix me as a South London boy in many people's eyes).

Aside: Is everyone else shocked when they hear their voice recorded? It seems that the brain lets you hear what you want to hear and the world gets the truth!

Well, back to the story. Leaving the District Bank meant leaving the flat in Watford so we were desperately looking for somewhere to go. Valerie's Mum mentioned that Valerie's Dad's aunt (Margaret) was soon to have a few rooms spare as her son, Basil, was leaving to get married. I was amused to hear that the flat was in Norbury which is about 2 miles from Streatham, where I was born. Back to my old stamping grounds as Roger and I used to do our Bob-A-Jobbing in that area. We went down to have a look and what we were offered was the upstairs of her house - sharing the bathroom. This gave us a living room, a bedroom and a kitchen. As there was just the two of us and the rent was right, we jumped at the chance. There was only one small problem - Valerie was working at the Wembley branch of the bank - a commute that was impossible. Once again, the District Bank proved that it looked after its staff by transferring her to their branch in Croydon - just as simple bus ride 3 miles down the A23.  However, I was back to travelling into the City from south of the river.  I had a choice, from Norbury station, of going into London Bridge Station and walking over the river or going into Blackfriars Station and getting back up Queen Victoria Street and across to Mincing Lane - where Julius Baer was sited. In the end, I used to get on the next train and not really care which station I went to.

Back to the flat. Auntie Margaret was a "funny" little lady but very quiet and undemanding as a landlord. The first thing that Valerie wanted was to redecorate the living room to match the large pair of orange curtains that she had got me to make at Watford. Her idea of matching meant that we had one wall and the whole ceiling painted orange and some trendy dark brown patterned paper on the rest. I wish I had a photo as the effect was "amazing" and you can read what you like into that word. Valerie was over the moon with the effect.  All of our furniture fitted so we had the nice pine table, chair, bench and my brother's bed settee in the room along with a large orange bean bag.

The kitchen was quite small but had room for a kitchen cabinet. It was very similar to this one:

Then we had the cooker, sink/draining board and our twin-tub washing machine. Remember twin-tubs? One side did the washing and the other side had a spin dryer. This one is similar to the one we had.

I was proving to be a bit of a handy man, even though I had never had any instruction from my Dad - who was definitely NOT a handy man. It was just as well because there was no power point in the kitchen (the cooker was gas powered). I found myself making up an extension lead to run enough power from a 13amp socket in the hall through to the kitchen so that the washing machine would work. Because of the power consumption, I had to make this using some high capacity mains cable. In fact, I did such a good job with it that it is still in use in 2015 powering the Bread Maker on our kitchen. It has been taken apart just once in its life to refresh the screw terminals.

We brought our two cats with us when we moved. Tweetsie was her usual serene self whilst Tinker, who was already a nervous wreck, took advantage of the peace and quiet downstairs to spend most of his time with Auntie Margaret. We left Tinker behind when we finally moved as he couldn't cope with any change or disruption. Maybe, if I had named him after a short line railroad, he would have coped better!

Life was quite good in Norbury. We were two short bus rides from my Mum and Dad and easy access to the train to get to Valerie's Mum and Dad although I have no memories of making that sort of trip. My Best Man, Roger lived a short distance away so he often came to stay over night. It was here that I really got into Hi-Fi in the proper sense of the word. The expression is over used nowadays for very mundane musical reproduction but in those days Hi-Fi was very different from what Mr. Average listened to. My first step on the ladder had me buying a Heathkit kit of parts to build an amplifier. This was a good quality valve based amp. that was well matched against my Garrard SP-25 record deck and Decca Deram ceramic cartridge. I also made up a pair of speakers from a plan in one of the Hi-Fi magazines. These turned out really well and we kept them for quite a while. I learned an awful lot about soldering and making electronic bits from the Heathkit kit and the end result was well worth the effort. However, fairly soon, I was able to consider upgrading to a transistorised amplifier. Oh, Wow. How exciting the world was then with all of these electronic marvels coming along. We had  a great Hi-Fi shop up in Streatham High Road just by St. Leonard's Church. I spent quite a lot of money in Frances of Streatham.

So, I am in a new job, Valerie is in a new branch and we are both in a new flat. Interesting times!