UNIT 7 •.•.

FINANCE

READING AND
LANGUAGE
II Which of these professions are paid high salaries or large bonuses in your
country? Why do you think they receive such high awards?

accountants air-traffic controllers CEOs of multinationals dentists

estate agents government ministers investment bankers school teachers
social workers top football managers TV presenters

II Which of these best summarises the headline of the article? Read the article
quickly and check your answer.
a) How large bonuses led to the fall of investment banks

b) The end of incompetent banking as we know it

c) The collapse of the financial world because bankers couldn't count

Day of reckoning for innumerate bankers

by Martin Taylor
The late Eddie George (a former
governor of the Bank of England)
was very fond of a little joke that
went as follows: 'There are three
5 types of bankers: those that can
count and those that can't.' Some-
times jokes capture profound truths.
In all the fuss about bank bonuses,
we have heard about labour market
10 'realities' (from the bankers) and
moral and political philosophy (from
everybody else). We need to think
more about simple arithmetic.
All businesspeople know that you the nature of financial businesses, try - and by extension societies that
15 can carryon for a while if you make 45 where labour always represented a 75 depend on it - been spending money
no profits, but that if you run out of major cost, while revenues were that is no longer there, it has been
cash, you are toast. Bankers, as pro- unpredictable. It therefore became giving away money that it only
viders of cash to others, understand essential to make labour costs vari- imagined it had in the first place.
this well. They just do not believe it able, as banks couldn't always Worse, it seems to want to do it all
20 applies to their own business. 50 guarantee high profits, and bonuses 80 again.
In general, banks have no mea- were the mechanism used to do this. How could they pay this imaginary
sures of cashflow that work for People in the City have always wealth out in cash to their employ-
banking. They do think about liquid- been paid well relative to others, but ees? Because they had no measure of
ity - can you borrow from other megabonuses are quite new. From eashfiow to tell them they were idi-
2') market participants, can you get 55 my own experience, in the mid- 85 ots, and because everyone else was
money from the central bank? Being nineties, no more than four or five doing it. Paying out 50 per cent of
turned down in the market means employees of Barclays' then invest- revenues to staff had become the
curtains - it happened to Northern ment bank were paid more than £lm, rule, even when the 'revenues' did
Rock in 2007 and Midland Bank a and no one got near £2m. Around the not actually consist of money.
quarter of a century before, and 1i0 turn of the millennium, things began 90 How did the shareholders let them
forced its sale to HSBC. to take off and accelerated rapidly - get away with this? They were
That means banks are not con- after a pause in 2001-03 - so that sitting on the gravy train too,
scious of making cash decisions of exceptionally high remuneration was enjoying the views from the observa-
the sort that other businesses face paid out between 2004 and 2007. tion car. How did the directors let it
daily. But, of course, they frequently 65 Observers of financial services 95 happen? Innumeracy and inability to
make decisions with cash conse- saw unbelievable prosperity and understand accounts. How depress-
quences, and in the mid-noughties, apparently immense value added. ing the shame and folly of it all is,
they began to splash out. The recipi- Yet two years later, the whole indus- when one considers that the system
ents were employees, in the form of try was bankrupt. A simple reason was brought down not because risk
40 bonuses, and, to a lesser but still 70 underlies this: any industry that pays 100 management was deficient (though
significant extent, shareholders, in out in cash colossal accounting prof- it was), nor because greed was ram-
the form of dividends. its that are largely imaginary will go pant (though it was), but because
The existence of bonuses reflected bust quickly. Not only has the indus- bankers could not count.
 UNIT 7 ~~ FINANCE

II The article was written by a former Chief Executive of Barclays Bank.

Read it again and say which of these ideas are those of the writer.
Which of the statements do you agree with?
1 As everyone knows, if a business runs out of money, it eventually goes bankrupt.

2 Despite banks being concerned about liquidity and borrowing money, they have no
systems in place for managing their own cashflow.
~
3 The financial crisis arose not because consumer spending was out of control, nor
because the banks were out of control, but because the government was spending
too much money. I
4 The fact that some investment bankers received more than f2m in bonuses in the
1990s is not only unacceptable but also incomprehensible.

5 Professionals in banking and financial services deserve to be paid 50 per cent of revenues.

6 It is shameful to think that neither shareholders nor bank directors were able to
!
prevent the financial crisis of 2008-09.

iii Match these definitions to the words and expressions in bold in the article.
1 are in trouble because of something you have done are toast (line 17)
2 an action that is very stupid and likely to have serious results folly (line 97)
3 part of a company's profits divided between people with shares in the company dividends (line
42)
4 when there is a lot of something bad, such as crime or disease, and it is very
difficult to control rampant (line 101)
5 when a business or person has money or goods that can be sold to pay debts liquidity (line 23)
6 extremely big colossal (line 71)
7 area in the centre of London with many banks and financial institutions the City (line 52)
8 sitting on the
being part of an activity from which people can make money without much effort
gravy train
9 attention or excitement that is usually unnecessary or unwelcome fuss (line 8)
(line 92)
10 used to say that something will end (informa{) means curtains (line 27)
11 go bankrupt go bust (line 72)
Exercise E 12 feeling of being publicly embarrassed because of something wrong you did shame (line 97)
1 continue doing
2 use all of something
and not have any left II What do these multiword verbs mean in the article? What other meanings do
3 refuse an offer, request you know for turn down, take off, give away, get away (with) and bring down?
or invitation 1 carryon (line 15) 4 splash out (line 38) 7 give away (line 77)
4 spend a lot of money on 2 run out of (line 16) 5 take off (line 61) 8 get away with (line 91)
something
5 suddenly start being 3 turn down (line 27) 6 payout (line 64) 9 bring down (line 99)
successful
6 pay or give money
(literal meaning)
D Which of the multiword verbs in Exercise E don't take an object? With
7 give something without
verbs that do take an object, when does the order of the particle and object I
change? Use examples from the article and your own examples. I
asking for any money,
rather than selling it to I:l Language reference: multiword verbs page 135
them)
8 not be caught or
punished when you have II Discuss these questions.
done something wrong; 1 Which well-known banks or financial institutions have gone bankrupt or have run into
also, get away with financial difficulties in recent years? What happened?
murder 2 How good is your organisation at managing its spending or cashflow?
9 cause the collapse of
3 How much money would you need to feel happy and prosperous?

69
UNIT 7 Finance
- -

FINANCIAL RESULTS -

Before you read

Ust 10 ~slons that you might find in an article about a (ompany'"s tina ndal ~tJlt5.

Reading
Read th~ article from the RIl6ltdtJt rrmo!$ by Rose Jac,ob$and do 'tM exercises that follow.

FT LEVU Of DIFFIC.lJLTY •• 0

AI- ayed goes out · ty Ie a Harrods

leap 40 per cent
.I.wi»
I MoJiamed Al-Fayed's swanson
tlfianci.aJ resuJts at Harrods revca.lc:d
tbat the departmellt [Ole aw
bong growth in profilS in lbc final
year under it colourful owner.
Mt AJ.-Fayed and • lop directors -
wllo re igned i May follewing
the sale of 1he grOdP to Q 1M'
Qve~ign w dl fu '0
cu to r foy Ily ehem and
refurbi ame I of the group'
Knightsbridge lore 85 a few of the
f ree behind a J2-per-cenl ri
in ale and 40-per-cenl e
in profit.
The 178m 123m) in PIC-ta
profit reperred for th yc to
J LIAr)' 31 are two-and- ·half times
the Harrod earned ill I 5. 4
when Mr Al-fla)'ed outbid £1••••1
i Tiny Ro land of
group. prompting a polilical furore.
When Hiding. aclirea joy -
nl vebicl ~ 1 tILe Gulf te,

cDPearson Education Umlted 2011 IIIIOTOWPLAIU

 NK'" UNITl

t th ughtIJe ote ilrtJde to mate the 4 fin nounsin erdse 3 to mat ch 0

fl res (1-9) to the thlnp ttl t they refer to thes deftn tlon .
In H rreds' eeeunts (a-O. i!I) something that is aYailable or sale
1 £2.5m a) incr ase in sales over the b) when you im prove the look of something (bro
2 £30f1il previous yea r e pressio )
3 f35.6m b) increase in profit over th () wh n you make something bigger
prevleus year
4 £5H.5m d) whe you offer new products using lhe pre tlge,
c) price paid bV Qatar Holding to tc. of your ,astin products
5 f519.Bm
buy the company
6 E78m ) hen you put money inta something for proHt
If) revenue worldwide
7 £1.5bn f) hen you spend money on something
~ profits before ta.x
8 12 percent
f) revenue in Japan 5 Choose th best lte tiv (. or c) to
9 40 per cent
g) money put into improving the replace each of the express ons In ltatlc from
store paragraph 5. k pingthe dos st m anln •
h) profit made In 1985 1 Mr AJ..Savedhas not spoken bout th
0 revenue In the UK conclusions dnwrn from th rev; w.".
a)endings of b) results of c) effi ct of
2 Decide h th rthese statements about 2 ~ but th company is d vela in its fashion
expression In ragra s 1 nd 2 ar true porto', afmln to cre.at~ a serious rival to onll e
o marlcet leader Net·a·Porrer.
) If something Is your swonsotlg, it's the last time a) website b) .service provider c) doorw y
that you do It. 3 eanwhil. while managers have 'Said th y would
b) Ifyoud scribe so oneascoloUiful, you mean Ii, e to open a Harrods venue' n Shanghai ~>

that they are boring. ill meet! Ilg pllKe b) concert hill <) store
c) If x is described as Q force behind v, x Is the " .•.- a move that would capitalise on growing
cause of.,.. demand fer luxury goods from Cll'n e shoppers
d) A surge i.s a large in rease, - no plans have be n announced.
e) If yo 1.1oulbjd 5o'Omeone when buying som tiling. ~ invest In b) amortise c) exploi
you offer mor for it. 5 In 2009, £SH.Sm of the compa '(s £519.8m
f) Aturore is a mild dlSilRre ment. n was (j, rlved(rom Harrod 'UK opfrations ....
g) Sam thing p~5tigious 1.5of 'gh quality and is f) resulted in b) drew out from () came from
famous. 6 .~ with Japan as the next biggest contributor, at
h) A portfolio is a coil don of di re t investments, £2.5m.
o The economlc cycle is a m ns or transport. a) SKOnd highest source ofproftt5
b) second! mos.t important source of revenue
3 Camp tethistab e c) ecoM gre test profit centre .
paragraph 3:and ~,
I noun verb
, oe to you 1
Investment Go ba,k to B lore you mid. and the list of finandal
1
refmblsh expr lollS that you m de. How m ny olthem ctullly
expenditure •••••••••• J ocw rred In the artie ?
makeover .......... .......~..• .-

.......... , OVer to you 2

expanslen

--------- •
.•
,
..........• .......... 1 offer
mend
Thin of notheJmalLerth tyou are Int rested in.
Re rch Its Anantial results for the I est ve rand
compare them with thoH or H rreds,

PHDTOCOP ABU' COPearson Education limited 2011 1

I Text bank

.IUII'II Finance and banking

International banking 1 Level of difficulty: ••• 1

Before you read

What are the biggest banks operating in your country?

Reading
Read this article from the Financial Times and answer the questions,

Why Deutsche resists national

champion status
by Patrick Jenkins is a top-ten operator, For Mr Siemens abandoned initial plans
Ackermann, it is the age-old to shift up to 5,000 jobs overseas,

E
ver since Deutsche Bank tussle between what Germany and BASF promised to avoid
discovered that operating demands and what investors and compulsory redundancies.
abroad - particularly in the analyst community want to 6 Deutsche's difficult relation-
investment banking - was more hear namely that he is ship with the German estab-
profitable than much of its root- undertaking serious measures to lishment is long-standing. Despite
and-branch business back home, reach his goal of a 25 per cent pre- carrying its nationality in its
Germany's biggest bank has had a tax return on equity, on a par with name, it no longer regards itself
difficult relationship with the USrivaJs. as a German bank, and these days
local establishment. For a nation 4 'Deutsche Bank is supposed to employs more people - and makes
that demands patriotism from be a national champion,' says more money - abroad than at
its big companies, Deutsche's David Williams, an analyst at home. To compound matters,
announcement recently that it Morgan Stanley in London. 'The Mr Ackermann is not even
would be laying off 6,400 people - trouble is that the definition of a German. Despite reasonable links
even though it had made record national champion differs inside to government, advisers say
profits of €2_5bn - was hard to and outside Germany. Deutsche Mr Ackermann is obliged to
swallow. can only really play in the top tier maintain a degree of distance
2 Politicians of all parties have if its profits, share price and in his political and corporate
accused Josef Ackermann, the market capitalisation are com- networking in order to avoid
bank's affable Swiss-born chief parable with the best. But inside being drawn into unprofitable
executive, of 'immorality' for Germany, all that matters is for a patriotic business.
putting profits before jobs. Yet bank to have a big balance sheet, 7 Morgan Stanley believes the
politicians - especially those employ a lot of people and lend political outcry over the Deutsche
preparing for important regional money to anyone who wants it.' jobs saga carries a resonant
elections against a background of 5 That kind of tension does not message. 'This kind of political
a record 5 million unemployed - only apply to Deutsche Bank, but interference is derailing capita-
were always likely to criticise to any company that pits itself lism in Germany,' says Mr
Deutsche over its job cuts. For against an international peer Williams. 'It is social engineering.
Deutsche, the real trouble is that group and puts pressure on jobs And it is delaying much-needed
the German social ethos fits while being highly profitable. For consolidation in German banking.
uncomfortably with global Deutsche, though, it is more It is a big deterrent for potential
shareholder value principles. acute, analysts believe. Siemens acquirers from abroad.' For
3 Deutsche might have made last year extracted longer hours Deutsche, in particular, senior
record profits last year. But, when for no extra pay from several managers believe the debacle has
compared with its global peer thousand staff in its mobile and exacerbated the 'German
group, a pre-tax return on equity networks operations, while BASF discount' attached to the share
of 19 per cent and a market said in November it would cut price. That is the last thing Mr
capitalisation of barely €35bn put 3,600 jobs despite recording Ackermann needs as he tries to
it outside the lop 20 - even forecast-beating profits. Yet both play catch-up with his
though, in terms of assets, Siemens and BASF appear to have international rivals.
revenues
league-table
and investment-bank
performance, it
avoided a political onslaught by
being open to compromise. FINANCIAL TIMES J
© Pearson Education Limited 2006 'Qlti1i.,.,j,lfmrw
 Text bank I

Finance and bankin

1 Read the whole article and complete this summary using d) total value of a company's shares
BETWEEN ONE AND THREE words from the text in each e) things belonging to a business that have value or the
space. power to earn money
Deutsche Bank is Germany's a) bank, but there are f) money a company receives from selling goods or
increasing tensions between the expectations of German services
society and the bank's strategy to become a leading player g) expert who studies financial data and recommends
in international banking. German b) are accusing the business actions
bank of giving more priority to making profits rather than h) at the same level, value or standard as
saving jobs. i) participate at the highest level
j) document showing a company's financial position and
Although the bank made record profits last year, it is not
wealth
one of the c) investment banks in the world in terms
of share value. For this reason, Josef Ackermann, Deutsche's 5 Read paragraph 5. Which statements refer to Siemens,
CEO, needs to increase pre-tax return on d) from BASF, both or neither?
e) in order to compete with f) banks. a) increased working hours without increasing salaries in
Two other German companies, g) , suffered similar some divisions
pressure when they planned to cut jobs in Germany, and b) introduced longer working hours throughout the
both had to h) In reality, Deutsche is a German company
company in name only, since it now employs more people c) made bigger profits than expected last year
and makes more money abroad. Experts at Morgan Stanley d) planned to reduce the workforce in Germany
believe that German banking is in need of i) but that e) received the same strong criticism from politicians as
j) is making this difficult. Deutsche
f) will transfer about 5,000 jobs outside Germany
2 Read paragraphs 1 and 2, then match the two parts of these g) decided not to move thousands of jobs to other
word partnerships. countries
1 investment a) establishment h) agreed to ask which staff want to leave their jobs in
2 root-and-branch b) value return for a payment
3 local c) off
4 laying d) profits 6 Read paragraphs 6 and 7 and say whether these statements

5 record e) ethos are true or false.

6 social f) banking a) Deutsche was on good terms with the establishment

7 shareholder g) business until recently.

b) Mr Ackermann's nationality has helped improve the
3 Match the expressions from Exercise 2 with the correct bank's relationships with the establishment.
definition. c) Mr Ackerman doesn't maintain close ties with the
a) set of ideas and moral attitudes that are typical of a establishment so his company doesn't have to get
particular group involved in loss-making businesses.
b) highest ever level of money gained from doing business d) The angry protests about Deutsche's job cuts has a
c) principle which states that the first consideration in deeper significance in German business.
business decisions is the interests of people who own e) Mr Williams believes that the government is interrupting
company shares plans to make German banks stronger.
d) group of people in a society who have a lot of power and f) Mr Williams thinks foreign buyers are becoming more
influence and who are often opposed to any kind of interested in German banks.
change or new idea g) Top management in Deutsche feel that the political
e) the complete network of local offices that are part of the situation is helping to increase the bank's share price.
larger organisation
f) activity of buying stocks and shares and then selling Over to you 1
them to the public; also offering advice on mergers and
takeovers Do you think the national government and establishment are
g) stop employing someone because there is no work for right to put pressure on national companies? What are the
them to do potential risks of this level of political interference? What are
the advantages?
4 Find the words and expressions in paragraphs 3 and 4
which mean the following. Over to you 2
a) group of companies or products that can be compared
because they are similar in a number of ways Use the Internet to find three or four of the leading investment
b) amount of profit made on an investment banks in the world. Choose one and find out how the firm is
c) capital that a company has from shares organised and what careers are on offer within the company.

• • , ••. , - © Pearson Education Limited 2006

-------------------- -----------------------------------------------------------------------
 Reading and Writing

READING TIPS
j:IICI
ITI PART TWO
>
C
- Read through the whole text first so you get an idea of how it flows and what it's about.
- Make sure that the sentence you choose fits grammatically and in terms of the meaning of
Z
Ci') the text with both the sentence before and the sentence after it.
>
z - Remember there is always an extra sentence which does not fit anywhere.
c
:IE
j:IICI
• Read the article below about sustainable investment.
• Choose the best sentence (A-H) to fill each of the gaps.
:::!
z • For each gap 1-6, mark one letter (A-H).
Ci')
• Do not use any letter more than once.
• There is an example at the beginning.

FT
PRIVATE BANKING - ALTERNATIVE INVESTING -
Next generation of opportunities is sustainable and story-led
by Yurl Bender
Clients are being steered to a Baer's chief investment officer. 65 potentially diverge in 2015. He
range of non-traditional options. 'We will favour those countries continues, 'This leaves scope for
Wealthy clients of Swiss private 35 that truly understand sustainable interesting opportunities for more
bank Julius Baer gather in the development, at a political trading-oriented investors.
5 lobby of The Crystal, one of the and economic level. That idea For 2015, the bank thinks
world's most ecologically friendly embraces the responsibility we 70 clients should revisit emerging
buildings, located in London's have as investment managers.' market equities, particularly
Docklands. (0) H 40 This approach has been as Asian countries will benefit
The Julius Baer initiative, adopted by other private banks. from lower oil prices and the
10 supported by Boris Collardi, With traditional portfolios wealth this generates is likely to
its youthful chief executive, expected to deliver only single- 75 spill over into greater consumer
marks the start of a race among digit returns, recommending spending. However, Mr Kuehne
banks to be seen as relevant to 45 a handful of smaller ventures recommends clients seek stock-
a changing society, and willing has also been embraced by US picking opportunities rather than
15 to invest outside the limits of bank Citi, which recently held broad investments in a country
traditional portfolios. (1)_ a seminar in London where 12 80 or sector equity tracking fund.
Showing its wares at the start-ups pitched to its clients. (6) Their concerns relate to
Next Generation Conference 50 Bankers involved in the Citi risks of eurozone stagnation plus
was SenseCore, manufacturers event say the companies were fears of liquidity-fuelled assets
20 of wearable technology. (2)_ not high-tech enterprises, and that could see violent corrections.
SenseCore has so far received instead were well-managed 85 Investors must seek global
€10m in investment from the 'old economy' companies companies less dependent on
bank's clients. 55 involved in oil exploration, car macro headlines, says Mr Duret.
Other Julius Baer projects parts manufacturing and clothing 'In a hesitant recovery, industry
25 include supporting 'smart cities' retail. (4) matters more than geography.'
and electric technology for Thesestory-led opportunities 90 Yet Swiss private bankers such
Formula E races, the first of which can be used to tempt clients out as Pictet say client memories are
was held in Beijing in September. 60 of a cash-hoarding mentality. still raw from equity downturns of
(3) 'In the next few decades, (5)_ But the cost of holding 2002 and 2008, and they are now
30 weare not just looking at the excessive cash will become ultra-cautious.
rise of China, India and Brazil,' starker as monetary policy
says Burkhard Varnholt, Julius and economic growth trends

14
 UNIT7 ~~ READING AND WRITING

A Iazmln Sawyers, the UK's long jump silver medallist in the 2014 Commonwealth Games,
demonstrated the clothing, which analyses respiratory, heart and temperature data, helping
improve performance and detect ailments.
B The 'great rotation' from bonds into equities has not happened, says Didier Duret, Chief
Investment Officer at ABN Amro Private Banking, who says investors are clinging to cash.
e However, they say that there are plenty of initiatives in the tech space, but that clients show
particular interest in investing in the nuts and bolts of the economy.
;:ICI
D Among markets he has recommended are allocations to the US, japan, China and the rest
of Asia.
>
""
C
Z
E Instead of the 60:40 equity-to-bonds formula so beloved of wealth managers, julius Baer's Ci')
focus on direct investments in smaller ventures is attracting clients. >
Z
F The Swiss bank believes these sustainable, futuristic investments make sense in a world of c
low bond returns and unpredictable equity markets. :e
;:ICI
G 'A modest exposure to cash for future investment opportunities makes sense in a client
:::!
portfolio,' says Daniel Kuehne, Head of Investment Solutions and Markets at julius Baer. z
Ci')
H They are attending a summit dedicated to new ideas, long-term profitability
and sustainability.

WRITING TIPS
PART TWO
- Read all the instructions very carefully and underline key words.
- Check the format required (proposal, letter, report, etc.)
- Use clear headings and subheadings, and a range of business words and linkers.
- Write at least 200 words. If you write fewer, you will lose marks. You do not get extra
marks if you write more than 250 words.

• Your bank has been asked by Mr jones, a local businessman, for a €200,000 loan to extend
his jewellery workshop and employ two new people, as he cannot keep up with the online
orders he is now getting. The bank has asked you to write a letter to Mr jones to explain why
it is only prepared to lend €50,000.
• Write the letter to Mr jones:
- explaining why the bank can only offer €50,000
- describing the positive aspects of his business
- suggesting where Mr jones could possibly get other investment.

• Write 200-250 words.

15