Abigail Hofman: The credit crunch tornado

Stars of the industry such as Stan O’Neal, Chuck Prince, Zoe Cruz and Jonathan Chenevix-Trench have plunged into the abyss of has-been land. However, I am also underwhelmed by the performance of two individuals who are still employed: the UK chancellor of the exchequer, Alistair Darling, and the governor of the Bank of England, Mervyn King.

The Abigail with Attitude column calls for the heads of both Alistair Darling and Mervyn King. A source sniffed: "I would name Mervyn King as one of 2007’s biggest losers"

Last autumn, we were treated to the unedifying sight of Northern Rock depositors (some in wheelchairs) queuing for hours to retrieve their life savings. Darling then woke up to the fact that depositors are voters too and did a volte-face. On September 17, it was announced that all retail deposits in Northern Rock were safe. So from being the most risky place in Britain to have your money, it became the safest place to have your money. However, by guaranteeing Northern Rock deposits the chancellor was implicitly guaranteeing the savings of all other depositors with British banks. How could he justify differentiating between institutions? Northern Rock – fine; Alliance & Leicester – not fine? So effectively, UK banks are now quasi-nationalized entities. The downside is with the taxpayer, the upside with management, shareholders and, of course, depositors. Isn’t that a little bizarre?

To date, the government has pumped more than £50 billion ($97.4 billion of taxpayers’ money into Northern Rock without nationalizing the institution. The authorities bumbled along for four months and appeared to lack a definitive plan for recouping these funds. Attempts to lure suitors to take over the troubled and troublesome lender meander on. And now we hear about possible Rock bond issues guaranteed by Her Majesty’s Government in an attempt to salvage something from the rubble.

The unravelling of Northern Rock has been appallingly mismanaged by the UK authorities. The Abigail with Attitude column calls for the heads of both Darling and King. A source sniffed: "I would name Mervyn King as one of 2007’s biggest losers. King was the only major central banker to have lost credibility during a time of crisis and he caused the first run on a bank in the UK for over a hundred years." A New York-based chief executive was more measured: "Before all this, London was considered the model for a regulatory framework. Northern Rock obviously fell through the cracks and reveals a weakness in the system." It is undoubtedly true that accountability was blurred by the fact that three bodies were involved in the crisis: the Bank of England, the Financial Services Authority and the Treasury. In early January 2008, Darling set out a plan to improve British banking regulation. This might prevent another high-profile mishap but it cannot salvage the blemished reputation of London as a financial centre.

It might sound petulant but I am bored with being right all the time. As long ago as July 2006, I criticized UBS for permitting John Costas, the former head of the investment bank, to form an in-house hedge fund (Dillon Read Capital Management). And in December 2006, I said that Credit Suisse was starting to look a more impressive institution than UBS. Now I have been vindicated and everyone else is leaping on the bandwagon. The Financial Times devoted a whole page to this topic last November and the Wall Street Journal flogged a dead horse three weeks later when it ran an article entitled: "Credit Suisse hits stride."

UBS is still dealing with the aftermath of Costas’s dreadful dalliance with "absolute returns". Numerous top executives have been ousted (including Peter Wuffli, the bank’s former chief executive), there have been write-downs of $14 billion ("How can a supposedly conservative Swiss bank lose so much money?" one source wailed), and controversial capital injections from Singaporean and Arab investors. Some say that unless things improve rapidly, UBS’s chairman, Marcel Ospel, might also have to leave the firm. "In a way, they sacked Wuffli and [Huw] Jenkins [head of the investment bank] too soon," an outsider opined. "Now as the losses mount up who are they going to blame? And I wouldn’t be surprised if there is more pain to come."

Forty-three-year-old Marcel Rohner, UBS’s chief executive appointed last July, is not only struggling with major group issues but is also acting as the temporary chief executive of the investment bank. That is too much for any man (or woman): focus brings results, flitting hither and thither can be unproductive.

My sources tell me that a permanent chief executive of UBS’s investment bank will be appointed soon. The short list is said to include Tom Maheras, formerly of Citi; Thomas Montag, ex-Goldman; and various internal candidates such as Andre Esteves, Joe Scoby, Rory Tapner and Robert Wolf. Whoever is appointed will have a very demanding job: a head hunter would talk euphemistically about "challenges". I might use the words "land mines".

For all that, I don’t think that the life of Credit Suisse’s cerebral chief executive, Brady Dougan, is a bed of roses either at the moment. I doubt that he is skipping round his spacious corner office or turning somersaults of glee down the Bahnhofstrasse. Consider the third-quarter results of the two Swiss banks. Credit Suisse announced a pre-tax profit of SFr2.03 billion ($1.86 billion) from continuing operations, UBS had a pre-tax loss of SFr726 million. UBS’s share price is down about 46% from its 2007 peak, Credit Suisse’s is off 42%. Shouldn’t that differential be wider? Dougan, who by all accounts is a very impressive individual, maintains a low profile and might need to do more flesh-pressing with the press in order to reinforce the Credit Suisse brand.