Abigail Hofman: Pithy pearls of wisdom from IMF and World Bank meetings

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Published on:

A few incidents from that weekend remain in my mind.

Abigail Hofman: The loser list

So how was it for you then? The weather in Washington for the 2008 annual meetings of the IMF and the World Bank was steadfastly sunny, but sentiment was universally despondent. As bankers, politicians and regulators gathered during the weekend of October 10, global stock-markets lurched vertiginously down, money market rates reached a horrible high and western capitalism looked poised to fail. A few incidents from that weekend remain in my mind.


Saturday morning
– breakfast with a Wall Street chief executive at the centre of the storm. Chief was remarkably cheerful, although he admits to not sleeping well for the last four weeks. Various indiscretions are shared and at one point Chief got up to close the door of his suite for optimum privacy.

“I made the call,” said John Thain modestly, “and then Greg Fleming did all the work”

"I made the call," said John Thain modestly, "and then Greg Fleming did all the work"

Saturday lunch – I hang out in the Merrill Lynch reception area at the Park Hyatt hotel and talk to some of my favourite Merrill bankers, including Jimmy Quigley, Amir Hoveyda and Mike Turnbull. The mood is good regarding the sale of the firm to Bank of America: "We’ve found our safe harbour," a mole murmurs. Someone else comments that chief executive John Thain, addressing a town hall gathering, gave credit for the BofA deal to President Greg Fleming: "I made the call," said Thain modestly, "and then Greg did all the work."

Saturday evening – I attend the World Bank Financial Partners reception at the Corcoran Gallery of Art. It is lovely to see my former World Bank clients Doris Herrera-Pol (director of capital markets) and treasurer Ken Lay, who are as serene and sensible as ever. I glimpse former World Bank managing director Jessica Einhorn. As a banker, I worshipped Einhorn not only for her intelligence but also for the way she could reduce smug senior bankers to quivering wrecks. "I always felt a strong urge to curtsey when in her presence," a former (male) chief executive confides. A delightful billionaire recounts how everyone he knows is cutting back on everything (including holidays, art and property renovation). "What must it be like for ordinary people?" Billionaire shudders. News seeps out that many senior bankers had been summoned back to Europe to meet with politicians. "They have to do something, anything, as long as it’s announced before the markets open on Monday," a senior Middle Eastern specialist wails.

Sunday morning – breakfast with a senior investment banker who’s been in the markets for over 25 years. We discuss the potential domino effect of global bank failures. "Look, Abigail," wealthy senior banker says, "a government guarantee for £50,000 just doesn’t do it for me. In the end, I took my passport and a utility bill into the local Abbey National (owned by Santander) and handed over a cheque for half a million pounds." It’s noteworthy how the financially aware have gone from worrying about declining stock markets to panicking that substantial cash deposits may be safer under a mattress than in a bank. We agree that it was an enormous mistake to let Lehman fail and moral hazard may be a small price to pay for global financial stability. Senior banker offers a few pithy pearls of wisdom: "During the boom years, nobody asked the question: ‘Why are we so lucky to be making all this money? Where’s the catch?’ And nobody had the courage to say: ‘If I can’t understand it, it has to be toxic.’"

Sunday lunch Euromoney Central Banker of the Year reception. Monsieur Trichet is honoured but is not present as he has unexpectedly flown back to Paris to host an emergency summit. Lots of glum faces, shrugging of shoulders and wailing about how much worse things are bound to get. A Turkish banker however tells me everything is fine at his institution and he had seen the whole credit crumpling coming.

Sunday afternoon – waiting outside the Willard Hotel for a taxi. A black humdinger slithers to a halt outside the hotel. Various men in suits leap out and stride purposefully towards the entrance. I assume they are part of a government delegation. Suddenly, another bystander cries: "Hi Vikram. How are you doing?" A head swivels, sunglasses are removed and Citi’s chief executive Vikram Pandit (for it is he and his posse) recognises the interrogator and responds: "I’m doing fine. Thank you." I wonder if Pandit is an extremely optimistic person or in a cocoon of senior management denial.

Sunday evening – a drinks reception at the Air and Space Museum hosted by a European bank. The event is an obvious highlight of the IMF meetings despite the mounting hysteria. I spot lots of clients anaesthetizing themselves with stiff cocktails and scrumptious canapés. Guests, in locust-like fashion, storm several circulating sushi trolleys. It’s hard to believe that such munificence still exists. I converse with a highly respected FIG specialist. I ask him why he is still in Washington and not back home advising the British government. "I had to be here," says FIG expert, "I’m advising the G7." I smile wanly and, feeling totally irrelevant, leave.


Things are so bad that bankers are dispensing with their normal pursed-lipped discretion. Several amusing nuggets have crossed my desk. A mole reports meeting with the head of an Asian stock exchange. "I can’t believe it," said Asian head. "Six months ago, members of the SEC were in my office and berated me for not allowing short-selling. ‘You will never be taken seriously as a stock exchange,’ I was told, ‘unless you allow market participants to express their view by shorting stocks.’"

And can it be true that at last year’s IMF meeting, former Citi chief executive Chuck Prince requested a meeting with Michel Pébéreau, the chairman of BNP? Normally these one-on-ones are just that, but Prince turned up with about eight bankers in tow. After a bit of chit chat, Prince slammed his fist on the table and barked: "So, Michel, when are you going to let me buy your little bank?" Pébéreau was unfazed. He simply replied: "Mr Prince, I believe some banks become so big that they are impossible to manage. This meeting is over." Then he got up and left.

An impeccable source swears that many years ago, the former head of UBS’s investment bank, John Costas, tried to hire him. At the end of the negotiations, Costas called source and purred: "We really want to hire you. And you can rely on me to come through for you." Devoted readers might recall that Costas left his role as head of UBS’ investment bank to set-up UBS’ in-house hedge fundDillon Read Capital Management (DRCM) in mid-2005. DRCM waded into the sub-prime mortgage mire and was closed down, after heavy losses, in 2007.

Finally, have you noticed how in these days of vicious wealth destruction, most conversations with financiers start with the enquiry: "Are you bearing up?" and end with the phrase: "Hang in there!" How was your month? Please send news and views to abigail@euromoney.com.


Abigail Hofman: The loser list
The list of badly flawed financial institutions is long: Barclays (crumbling shareholder value), Société Générale (poor controls), UBS (total mismanagement), Lehman Brothers (vainglorious leadership), Bear Stearns (dereliction of management).

Sign up now to receive an alert when the next Abigail with attitude column is published.


 See more from Abigail Hofman