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| Abigail’s biography |
Unlike what the new Fed chairman, baffling Ben Bernanke, offers, each of DT’s words is carefully weighed, and needs to be scribbled down immediately for scrutiny later. DT is the person who told me to buy gold in 2003 when it was languishing around the $350 level.
I discussed his advice with several other senior financiers. They all insisted only crazies invested in gold: it was a fad for fetishists. At the time, central banks were looking to lighten up on their gold holdings. The Bank of England auctioned 395 tons of gold between 1999 and 2002 at an average price of $275 per troy ounce. Today, gold is trading at $580 a troy ounce
I scampered on to the tube and met DT at the appointed assignation venue. Bad news, I’m afraid. He’s extremely gloomy. “All stock markets are going down,” he intoned. “And it’s not a shake-out, it’s a sea change. The markets will grind lower through the summer and then, in September, there could be a major credit blow-up. Get into cash. Buy some gold. Be diversified as regards currencies. This is about capital preservation, not capital accumulation.”
And with that he was gone. I looked around. It was a perfect summer day: clear blue skies and a gentle breeze. “Could DT be right?” I asked myself. “Maybe he’s seeing ghouls and gremlins where none exists.” What do you think? I was reminded of another balmy summer: that of 1998. I had returned from holiday in mid-August to find mayhem in the markets. Hedge fund Long Term Capital Management was going down, credit spreads were going up and Russia was going out of business. The Russian government declared it would be unable to honour its short-term, rouble-denominated debt (GKOs).
All this was a disaster for the burgeoning Barclays Capital (Barclays’ markets division), which in 1997 had risen from the ashes of the BZW funeral pyre. We had substantial Russian exposure and overnight it was worthless. In September 1998, Barclays announced £250 million of Russia-related losses. The jackals of the British press descended. And they had a point. Why was a conservative British bank dabbling in risky emerging markets? It was no excuse to say: “Sorry sir, all other investment banks made the same mistake.”
The share price shrivelled. And Bob Diamond, chief executive of Barclays Capital, was in a dark place. In fact, he was probably the most unpopular man in the bank, given that a lot of employees had share options. What is surprising about the next few months is that Bob survived them. Bad things happen to all of us. What distinguishes the successful from the supine is the way you react under pressure. Bob battled on.
Martin Taylor, however, chief executive of the Barclays group (and Bob’s boss) floundered. Taylor had sold most of the investment bank, BZW, in 1997. His decision to keep the fixed income division now looked ill advised and was heavily criticized.
Having been lauded as a hero for his whole career, Taylor couldn’t cope with his new incarnation as villain. As far as I can tell, one day he suddenly stood up and stalked off into the dark blue yonder, leaving Götterdämmerung behind him. This was a body blow for Barclays. To be leaderless, in crisis and grappling with turbulent markets was ugly.
There is a wonderful adage that I cling to in troubled times: “This too shall pass.” And it did. Sir Peter Middleton became acting chief executive of Barclays and, with his customary sang-froid, started methodically sorting the mess out. One source relates that Sir Peter was a senior civil servant at the British Treasury in 1982 when Argentine forces occupied the Falkland Islands. Margaret Thatcher, the indomitable prime minister, summoned Sir Peter. “Peter,” she growled. “You will run the country whilst I run the war.” Apocryphal? Maybe. Believable? Absolutely. For Sir Peter, dealing with a bank in chaos was a little local difficulty.
A chastened Diamond went back to his desk. And kept a very low profile. I have two words for you: clever and clogs. If you want to be a legend, it’s vital to know when to court the press and when to scorn it. And so began the ‘build years’: building the reputation of the firm and rebuilding the reputation of Bob.
Barclays Capital was a one-legged maverick during this period. The big boys were playing the M&A and equities big dipper whilst we were sidelined to dreary debt products. Think minnow in the land of the mighty. If people stayed during those years, it was because of Bob. And if people joined during those years, it was because of Bob.
But as I noted last week, we never know what lurks round the next corner. And what lurked round this corner was a collapsing house of cards: dot-com bubble, Enron and an avenging Eliot Spitzer. Essentially, the markets moved Barclays Capital’s way. From 2002 on, it was not so risible to be a firm focused on fixed income.
Bob was out there extolling the virtues of the Barcap model. “Focus is the price you pay for excellence,” he once told me. And because Diamond is charming, engaging and a great salesman, the press bought the story. The Brand of Bob was born – the charismatic lecturer turned banker and a diehard Boston Red Sox fan. There was a lot of coverage. Sometimes it felt like a case of “Read the book? Now see the movie.” But no one could argue with the results: in 2003, Barclays Capital made over $1 billion in pre-tax profits. Not bad for an outfit that was struggling to survive five years before.
Bob Diamond has hired many people in his career. But the best hire he ever made was Hans-Joerg Rudloff, previously chairman and chief executive at CSFB. Hans-Joerg is a revered elder statesman of the capital markets with the energy and hunger of a young Turk. And he is an expert on Russian business, mores and banking. Indeed in 1994, he founded MC Securities, a company specializing in Russia and eastern Europe.
Rudloff, chairman of Barclays Capital, has been appointed an independent director of Rosneft, the Russian state-owned oil company. Rosneft is planning a sizeable flotation (around $10 billion) in July on the London Stock Exchange. The operation is contentious because Rosneft benefited from a land grab when it bought Yuganskneftegaz (which was owned by Yukos) in an opaque auction, 18 months ago. Yuganskneftegaz accounts for a substantial portion of Rosneft’s oil output. The previous owner of Yukos, Mikhail Khodorkovsky, is incarcerated in a Siberian prison camp after a trial for fraud and tax evasion. With me so far?
In early June, Vladimir Ustinov, the Russian prosecutor general who oversaw the attack on Yukos and the trial of Khodorkovsky, resigned. Kremlin watchers claim this is negative for Igor Sechin, chairman of Rosneft. Rosneft gained as Yukos dwindled. The Financial Times reports that Ustinov’s son is married to Sechin’s daughter. A marriage made in heaven or a marriage made in the Kremlin?
These Kafkaesque complications have proved too much for some investors: F&C Asset Management has threatened to boycott the flotation. A spokesperson said: “We don’t pretend to understand it and if we cannot understand something, we won’t invest in it.” George Soros has also criticized the IPO, arguing that it “raises serious ethical and energy security issues”. And into this bubbling witches’ cauldron, Hans-Joerg merrily skips.
I find it troubling. But it is always foolish to underestimate Rudloff. It will be a must-see spectator sport to observe how the Rosneft listing fares. Many banks have a lot riding on its success. Those leading the IPO – ABN Amro, Dresdner Kleinwort, JPMorgan and Morgan Stanley – are also the arrangers of a $7.5 billion bridging loan made to Rosneftegaz, a Russian–state holding company, last July. Barclays was also an arranger of this loan.
I have a lot of questions. But the most important is this: if Deep Throat is right and Armageddon looms, where does that leave the Rosneft flotation? Could Rosneft be the final drink at the wonderful party we’ve all been enjoying for the past three years? Remember the BP flotation in 1987 – and it all came tumbling down!
I hope to glimpse Hans-Joerg in the melee of the Euromoney global borrowers and investors forum next week. Perhaps he will put my mind at rest.
Next time: advice to Anda – don’t go back. And Bob looks upwards.
Please send news and views to Abigail@euromoney.com
