Abigail with attitude: Cutbacks in the City and Bumi hits a bum note


Abigail Hofman
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As Fisher gets hot under the collar, many investment bankers are starting to shiver in their boots. A theme of this column for several years now has been that most big investment banks are vastly overstaffed and in denial about the need to cut jobs and costs. When UBS announced their newest ‘new strategy’ in November 2011 – a supposed response to the unauthorized Kwaku Adoboli trading loss – I criticized the bank on the grounds that the action was not drastic enough. I remember a conversation where I reiterated that view to a senior UBS banker. Although courteous, the senior banker obviously thought I was exaggerating and that the industry would continue to chug along with slightly diminished staffing and compensation levels. But now it seems the great train ride might indeed be over. An email crossed my desk recently and the author, a head-hunter, bemoaned the "lean pickings" in the fixed-income, commodity and currency world. "It all looks bleak," hunter wailed. He went on to speak about bonus pools being savaged by 30% to 80% this year and job cuts cascading into October. Hunter ended on an unhappy note: "For now, we are seeing very limited new hiring plans." I hear that banks as diverse as Barclays, DeutscheCredit SuisseUBS, JPMorgan, Bank of America, Nomura and BNP might all reduce headcount before the year-end. In other words, we will see industry-wide cutbacks. Economic forecaster CEBR predicts that in 2013 there will be only 250,000 investment bankers in the City of London, 100,000 fewer than five years ago and the lowest number since 1996. I don’t mean to be brutal but my reaction would be: "That’s more like it!"

And talking of brutal, have you noticed what has happened to the share price of Bumi? The company listed on the London Stock Exchange in late 2011 (under the name of Vallar) and the share price soared to £14 in April 2011. Today, the shares are changing hands at around £1.45. So within 18 months, investors have lost 90% of their money. Why am I interested in Bumi? Partly because any white-knuckle ride is fun to observe, if you’re not a passenger. Partly because at the time of the offering, the press hailed the deal as the apotheosis of corporate engineering: bundling emerging market assets into a respectable entity listed on the rigorous London Stock Exchange. And partly because pukka firm JPMorgan Cazenove put its name to the deal. And then there is the glorious cast of characters associated with the convoluted transaction. Nat Rothschild, son of the revered Jacob Rothschild, and the influential Indonesian Bakrie family worked together as co-founders to reverse the Jakarta-listed mining companies, Bumi Resources and Berau Coal, into a cash shell, Vallar, which was listed in London.

Since then the wheels have definitely come off the Bumi wagon. Last autumn, the Bakrie family was unable to meet a margin call on a loan that had been guaranteed with Bumi shares. The founders then fell out when Rothschild publicly criticized the Bakrie family’s corporate governance standards and stepped down as co-chairman of the company. This September, Bumi announced that it had uncovered irregularities in its Indonesian assets, and an Indonesian director, Ari Hudaya, a close confidant of the Bakrie family, resigned. Commentators also point out that the Indonesian company, Bumi Resources, might have difficulty repaying some $600 million of a loan owed to China Investment Corporation as planned this year. Apparently, Bumi is paying an annual interest rate of 19% on the loan. Come back payday loans for little people – all is forgiven!

Oh, and did I mention that Aburizal Bakrie, the head of the family, has been nominated to run for president of Indonesia in 2014? It would not look good if financial irregularities were uncovered in a company, Bumi Resources, that his family controls. I am intrigued that even the richest men – and apparently the Bakries are very rich indeed – turn out to be heavily leveraged when you delve deeper. One lesson of the Bumi saga is that corporate governance is everything. I urge readers to follow developments at the company closely because this is one opera where the fat lady hasn’t yet sung.

And while we’re on the topic of singing, a wonderful titbit was recently relayed to me by a well-known financier. The financier was invited to the concert to celebrate the Queen’s Diamond Jubilee in June and was delighted to find himself in the Royal Box. In fact, he was in the back row of the Royal Box, but at least it was the Royal Box. After the concert had started, Prince Charles went off to meet the Queen and escort her to her seat.

Her Majesty entered as Sir Tom Jones struck up the initial chords of his well-known song Delilah. The Queen’s manners are impeccable. Not wanting to disturb all her guests, she hovered at the back of the box waiting for the crooner to finish his ditty. The financier couldn’t resist turning his head to see royalty in the flesh. And what did he notice? The 86-year-old sovereign was singing along with Welshman. Who says royalty aren’t just the same as you and me?