Suddenly, the clouds converged and the warm spring sunlight dimmed. This was how I felt when I read that 47-year-old Pietro Ferrero, chief executive of the Ferrero group, and heir to one of Italy’s biggest fortunes, had died of a suspected heart attack. Ferrero died while bicycling on a coastal road near Cape Town during a break from a business meeting in South Africa.
US treasuries
This story intrigued me. It reminded me that you can have material success and yet be unlucky. It also reminded me that even when everything looks perfect, danger lurks. I wonder if US Treasury secretary Timothy Geithner had a similar wake-up call in mid-April when he learnt that Standard & Poor’s was downgrading its outlook for the US’s triple-A long-term credit rating. This is a momentous event: we always used to talk about US treasuries as the risk-free rate. Treasuries are no longer risk-free. Of course one can quibble that the rating agencies lack credibility after their myopia during the financial crisis. However, it would be foolish to behave like an ostrich and deny that the US is spending profligately and keeping interest rates at unnecessary emergency levels.
|
"I wonder if US Treasury
secretary Timothy Geithner
had a wake-up call in mid-
April when he learnt that
Standard & Poor’s was
downgrading the outlook
for the US’s triple-A long-
term credit rating. This is
a momentous event: we
always used to talk about
US treasuries as the risk-
free rate. Treasuries are
no longer risk-free" |
Alan Greenspan, the previous Federal Reserve chairman, unleashed two bubbles (dotcom and housing) on the US economy by keeping interest rates too low. Might Ben Bernanke be following in his predecessor’s footsteps?
Independent Commission on Banking
The interim findings of the UK’s Independent Commission on Banking were hardly a bolt from the blue. In fact, some of the key points seem to have been leaked to the media. After months of speculation and stamping of bejewelled booties by British senior bankers, the panel has produced a damp fire cracker, albeit a well-written and thoroughly researched damp fire cracker. Am I being too harsh if I complain that there is a whiff of compromise, consensus and "don’t rock the boat"?
In essence, the commission proposes that UK universal banks ring-fence their retail operations within separately capitalized subsidiaries. This stopped short of forcing the big banks to divest their investment banking divisions. The commission also suggested introducing greater loss-absorbing capacity for systemically important banks.
The panel was an eclectic group. Chairman Sir John Vickers is an academic who has worked at the Bank of England and run the Office of Fair Trading. As warden of All Soul’s College, Oxford, he is obviously brilliant but probably a supporter of the establishment. His colleagues were Bill Winters, previously co-head of JPMorgan’s investment bank; Martin Wolf, the chief economics commentator of the Financial Times; Martin Taylor, who used to run Barclays Bank; and an obligatory woman, Clare Spottiswoode, a former regulator of the gas industry. Of these five musketeers, the only person who might have wanted to shake things up could have been Spottiswoode. However, her radical voice might have been drowned out by others with greater knowledge of the banking industry. The ultimate test of the commission’s work will be the next financial crisis.
Lloyds
There is a discrepancy between senior bankers, who grumble that they have been made scapegoats for the financial crisis, and the general public, who think senior bankers are untethered goats who should be boiled in a large vat to make shoe leather. The commissioners did try to win popular acclaim by bashing Lloyds Banking Group. Poor old Lloyds, which has become the poster child for all that went wrong in the era of excess, has now been told it might have to sell more branches than was agreed with the European Commission.
I wonder if urbane António Horta-Osório keeps a dartboard in his office with the faces of the unfriendly commissioners glaring down at him. When the frustrations of running a lumbering public-sector institution (UKFI owns some 40% of Lloyds) overwhelm him, Horta-Osório can take careful aim. "I have limited sympathy for Lloyds," a mole sniffed. "They tried to do a sweetheart deal to buy HBOS and circumvent the competition requirements. They’ve taken a lot of pain with that acquisition and now they want some pleasure. Well, the commission has put its foot down. Unfortunately, Lloyds was the puppet of the Labour government’s muddled response to the financial meltdown. But don’t forget, the previous Lloyds management – Eric Daniels and Sir Victor Blank – were complicit in this shameful episode. Horta-Osório is clearing up the mess after the football hooligans have vacated the pitch."
Have you noticed that now they seem to have got their way, UK bank chiefs are keeping a very low profile? "That’s exactly as it should be," a source said. "None of us want to hear from these overpaid egomaniacs."
But isn’t it a bit boring that we don’t have any more episodes of ‘Big, bad bank CEO versus little, down-trodden UK citizen’? Apart from a dark hint that the H and S in HSBC might be of consequence when it came to where the bank was headquartered, we’ve hardly heard or seen Stuart Gulliver. Lloyds’ Horta-Osório is the new boy and so is ducking out of sight. And as for RBS, am I the only person who has difficulty remembering the name of its chief executive? One has to secretly give thanks for the glamour, in an otherwise grey world, provided by Barclays’ Bob Diamond. The Financial Times recently devoted several paragraphs to a story that the sparkling Diamond had hosted a fundraising cocktail party at his Chelsea home for New York senator Kirsten Gillibrand. The paper claimed that 25 people, mostly London-based US financiers, paid a $2,500 "requested donation" towards Gillibrand’s re-election campaign. Now I wonder if that was $2,500 a couple or $2,500 a plate? Obviously if you amortize the entry fee over the number of canapés nibbled, the return on equity devoured would be paltry. But which of us would not have loved to be there?
