By: Clive Horwood, Peter Lee, Louise Bowman, Mark Baker, Graham Bippart, Chris Wright, Dominic O’Neill, Helen Avery, Eric Ellis, Elliot Wilson and Jon Macaskill
For the world, 2017 was a year of Trump, of North Korean missiles, of surprise election results, and of globalization under pressure.
For the banking industry, it was time of desperately trying to improve returns in the new capital-heavy era, while trying finally to resolve issues of the past and avoid new mistakes.
But dig beneath the surface and it was also 12 months of intrigue and sometimes farce: banks that could not stay out of the news for all the wrong reasons, tenuous marketing gimmicks, digital hyperbole and deals gone wrong. Here are Euromoney’s alternative awards for 2017.
In a year of hope that the banking industry had finally turned a corner, Deutsche Bank provided a grim but much needed reality check.
To outsiders and observers, it was the bank that just kept on giving – barely a month went by without some statement, announcement or report to remind the industry how far it had fallen.
Chief executive John Cryan – a man who makes Eeyore seem an incurable optimist – set the tone with his relentlessly downbeat reminders that the industry remains over-staffed, with antiquated IT systems and no guarantee that revenues will miraculously rebound and take returns on equity firmly above the cost of capital.
This was a welcome antidote to the marketing hype around ill-defined digit
al opportunities offered by Goldman Sachs, which is the banking equivalent of adding ‘blockchain’ to the name of a penny stock in an attempt to boost its price.
Cryan and his seemingly immovable chairman Paul Achleitner have the numbers to back their gloomy stance.
By cutting costs, Cryan was able to deliver a boost in profit for Deutsche in 2017. Pre-tax profit for the first nine months of the year rose 64% to €2.6 billion and net income after tax more than tripled to €1.7 billion.
But revenue fell 10% compared with the same period in 2016, and the rise in return on tangible equity from 1.2% to 4.1% still only took DB’s ROTE to less than half its assumed cost of capital.
Deutsche also showed during 2017 that reputational stains rarely fade entirely for banks, regardless of how much effort goes into promoting socially responsible lending or fintech initiatives.
As Cryan continued his heroic attempt to clean up the mess left by his predecessors (one former colleague memorably told Euromoney, referring to the movie ‘Pulp Fiction’ and how long Cryan was likely to stay in post: “He’s like Winston Wolf. He’s only there for the clean-up”), Deutsche started the year by paying $630 million to US and UK regulators for failing to monitor over $10 billion of illicit Russian mirror trades.
But when the Robert Mueller special counsel investigation into Russian interference in the US election subpoenaed Deutsche in late 2017 for records of deals with associates of president Donald Trump, it was a reminder of both the bank’s curious relationship with Trump and its history of dubious dealing in Russia.
Deutsche continued to lend money to Trump after most US banks decided that his credit was poor in the wake of a series of bankruptcies. It also serves as his private banker.
It may not be clear until later this year whether or not Mueller will drag Deutsche Bank into a titanic political struggle in the US – or disclosure of Trump’s real net worth – but the risks of attempts to expand on unfamiliar turf were underscored.
Deutsche also highlighted the danger of letting shareholders with serious transparency issues build big stakes in systemically important banks.
Qatar’s shareholding in Deutsche has been a source of debate for years, not least because former employees of the bank have advisory relationships with Qatari decision-makers. In 2017, activity on Deutsche’s share register became still more curious with the growing involvement of HNA, a Chinese conglomerate with questions over its ownership structure and with which some international banks have rather publicly stated they do not want to do business.
HNA became Deutsche’s largest shareholder during 2017, helped by derivatives trades structured by UBS, Cryan’s old firm (which employs a number of former equity derivatives dealers from Deutsche).
Cryan – who deserves a personal award for Sisyphean effort – did not seem happy about the HNA stake, which overshadowed Deutsche’s successful €8 billion capital increase.
A late-year move by private equity firm Cerberus to buy shares could offer Cryan some hope of an end to his labours, however.
Cerberus also holds a big position in Commerzbank and may encourage a revival in merger discussions with Deutsche and the prospect of an exit for Cryan.
He will no doubt be (relatively) happy when he can finally call an end to his career in banking.
Shayne Elliott listens to his shareholders. The ANZ chief executive hears loud and clear that they want his bank to be dull and domestic, and he has set about giving them what they want.
Step one has been scaling down the previously ambitious presence in Asia. Minority stakes in banks across the region, although difficult to shift, are on the block; it’s out of Shanghai Rural Commercial Bank already and the rest will follow when the right bids come. A chunk of wealth-related businesses in Asia were sold to DBS this year. Others have simply been scaled back.
But why stop there? There are things to sell at home too! In October, the bank clinched the sale of its OnePath pension and investments business and its aligned dealer groups to IOOF for just under A$1 billion ($764 million). And, truth be told, it was disappointed with the outcome: it had hoped to sell more and still wants to jettison its remaining insurance and wealth operations.
Perish the thought, but is ANZ starting to go the way of another three-initialled bank that once had big overseas ambitions and is now a shrinking domestic institution that those in global finance never bother to mention? The irony of course is that ANZ’s biggest international push was buying RBS’s Asian business in 2009 under Elliot’s predecessor Mike Smith.
We understand the industrial logic of all of this: shareholders believe banks are better at core lending than anything else and that they deliver the best returns when they stick to their knitting.
But followed to its natural conclusion, Elliott is going to end up left with a single ATM in Melbourne. With a royal commission on banking on the cards, the big four all down on their luck and being attacked hard by new, online banking platforms and the ‘All bankers are bastards’ bandwagon rolling on in Australia, perhaps it is not such a bad strategy after all.
The town of Glen Innes, on the New England Tablelands in the rural north of Australia’s New South Wales, has a few claims to fame.
It is the home of the native Ngarabal people, whose name for the place means ‘plenty of big round stones’.
It hosts the annual Land of the Beardies festival and, in a not unrelated development, a fiercely contested beard-growing competition where the metrics for success are length, width and unruliness of beard.
To these fine accolades can be added another trophy: the most tenuous project to be linked to China’s Belt and Road Initiative.
There is fine sport to be had in watching international commercial banks try to swing a link between any piece of infrastructure development and the BRI.
There are commonly agreed to be 65 Belt and Road countries including China, so there is a fair degree of latitude here, but nonetheless it is not unusual to see banks touting deals well outside them, from South Africa to Spain.
Australia, though? Not a classic trading route back in days of the Silk Road, principally because nobody knew it was there (bar people like the Ngarabal, of course). China’s state literature puts places as diverse as Albania and Egypt on the map but not Oz.
What is interesting about the White Rock Wind Farm, 20 kilometres west of Glen Innes next to Furracabad Creek, is that it is one of the deals that China Development Bank put forward when asked by Euromoney to illustrate the strength of Belt and Road.
CDB is a policy lender: it doesn’t have to convince anyone of its Belt and Road credentials.
CDB highlights it because the bank funded it alongside Australia’s big four banks, a sign of cooperation between the public and private sectors. Fine. But now we fear it is open season and every Australian bank will be putting forward Tasmanian treasury bonds as Belt and Road deals.
When French bank Natixis held its investor day on November 20, chief executive Laurent Mignon declared his desire to differentiate the bank by developing “additional expertise to enhance client intimacy”. This is part of its plan to deepen, digitalize and differentiate between 2018 and 2020.
The plan involves growing revenues in carefully targeted activities.
Some 70% of expected growth in investment banking and M&A revenues by 2020 is to come from two strategies: an increased footprint among insurers and financial sponsors; and becoming a reference bank in four specific business sectors – energy and natural resources, aviation, infrastructure and real estate.
No surprise there, Natixis is one of several French banks that have a long history in these sectors. It was ranked the number-three mandated lead arranger (MLA) in EMEA oil and gas financing for the first nine months of 2017 and number one-ranked bookrunner and MLA in EMEA real estate financing.
The other way in which the bank aims to get more intimate with its clients is to focus on becoming a reference bank in green business, doubling its green revenues by 2020. It wants to do this through proprietary indices, green bonds, green equity capital markets and green loans.
Natixis is far from alone in this aim. But putting its green targets in the same strategy – and indeed on the very same page of its investor presentation – as its plans to increase funding to oil and gas, aviation, infrastructure and real estate seems a little well… contradictory.
Not as contradictory as Richard Branson – founder of an airline that operated 21,883 flights worldwide in 2016 and who wailed about man-made climate change after his holiday home was destroyed by a hurricane – but still contradictory.
The bank would doubtless argue that these aspirations are not always mutually exclusive: it is the number one underwriter of European renewable infrastructure finance. But its desire to get intimate with clients that care about green issues might be better served by putting the stuff about oil and gas and planes somewhere else in the presentation.
Denial, lies, redactions, omissions, retractions, collusion and more.
Yes, 2017 was a cornucopia of chaos in the worlds of international finance, international politics, political finance and even office politics. At times it seemed every week had its WTF days (besides Wednesday, Thursday and Friday).
And while politicos are dying to get their hands on such potential bombshells as an unredacted (or less redacted) version of David Davis’s secret study on the impact of Brexit on the UK economy or intelligence reports on Russian influence during the US election, we at Euromoney salivated over the prospect of such picayune things as that whistleblower email about Tim Main that got itself so deeply under Jes Staley’s skin.
Alas, interest in that juicy piece of text has waned and with it, the likelihood of ever seeing it. But another high up on the list for finance nerds has been the valuation report by Deloitte that precipitated the Single Resolution Board’s settlement of Banco Popular.
That event was hailed by some as a textbook resolution, as if such a thing existed. Apparently, being ‘textbook’ involves investors filing record numbers of lawsuits against the SRB to know more about why and how it acted.
The board’s chair, Elke König, has come under heat from groups of investors, peeved that the bank was sold for €1, and accuse her of releasing potentially market sensitive information that they say caused a run on deposits.
Word to Euromoney is that other banks are miffed too. Rumours are that at least one bank had prepared a bid, but before it could be sent it was it was notified Santander had already won the auction – the news came before the SRB’s deadline.
The SRB’s own appeal panel ruled in November that the SRB must release more, but not all, information, on the basis that some of the report would pose a threat to financial stability (a strange claim since Popular was “successfully” resolved) and to the commercial interests of Popular and its buyer, Santander, meaning the SRB still has scope to protect those and, of course, its own interests.
Which means we won’t be finding anything out about the competitive process that led to the sale. The appeal panel said refusal to release those details was justified.
That isn’t to say the SRB did anything wrong. But we’re not likely to know if they did.
Jamie Dimon, the last King of Wall Street, wins the Canute commemorative award for his oh-so-valiant efforts to order back the rising tide of bitcoin.
When Dimon first called the cryptocurrency a fraud in mid September, its dollar price stood at $4,110, up from $968 at the start of 2017.
For all this, he decided: “It’s just not a real thing.”
All that was holding the price up, the chief executive of JPMorgan suggested, was a speculative bubble. “That isn’t a reason to say something has value, because other people are going to speculate,” Dimon argued. “That’s tulips.”
At least Dimon had the good sense not to offer investment advice on cryptocurrency. “Bitcoin can go to $100,000 before it goes down,” he admitted.
By the end of 2017, some crypto enthusiasts were suggesting maybe $40,000.
But back in the autumn, Dimon left no doubt that this was a market in which his bank would never play. Rather talking down to his class at the CNBC/Institutional Investor conference he reminded them about governments: “Governments, the first thing they do is form a currency. They like to control the currency. They control it through a central bank. They also like to know who has it, where it is, where it’s going.”
As he spoke, news was breaking of the government of China closing down cryptocurrency exchanges.
“Governments right now look at it as a novelty,” Dimon suggested. “In Washington, it’s all: ‘Oh, look at the technology, we love new technology’. Wait for someone to get hurt. Wait for it to be used for illicit purposes, which it already is somewhat. They’ll close it down.”
Bitcoin fell 25% and other financial establishment figures began to line up behind Canute and weigh in against this new financial market, over which they enjoyed no insight or control.
The chief investment office of UBS called this fall: “Worse than the collapse in the value of the German mark at the start of the Weimar hyperinflation.” Talk about kicking a cryptocurrency when it’s down.
In mid October, Dimon was back on stage in Washington: “A lot of buyers are jazzing it up every day, so that maybe you’ll buy it… and take them out.”
It would be crazy for any sensible investor to participate in such a snake pit, surely that much was obvious. They would be much better off in government bonds or corporate bonds, or equity or commodities or fiat currency or commercial real estate or leveraged loans: any number of markets where a nice person from JPMorgan could help identify the best opportunities. They’re not like this crypto stuff.
“The only value of bitcoin is what the other guy will pay for it,” says Dimon. Crazy when you think about it. “If you’re stupid enough to buy it [bitcoin], you’ll pay the price in the end,” he warned.
By early December, bitcoin was worth more than $12,500. Family offices of ultra-high net-worth investors are in; hedge funds are in; conventional investors are at the point of taking the plunge. There are now exchange traded notes on bitcoin and Ethereum.
In December, the leading US derivatives exchanges were launching futures, which might give institutional investors a chance to go short as well as long cryptocurrency and to manage its volatility.
“If you think banks will remain loyal to fiat currency when they see a chance to make markets in, trade and profit from the crypto space, then I think you are misguided,” Ryan Radloff, co-principal at CoinShares, told Euromoney in December. “I would suggest that within the next 12 months we will see large banks adding crypto trading desks and investing in a major way in the associated infrastructure.”
It’s almost as if people couldn't care less what King Jamie says.
As distressed investors tuck into the next ample portion of bad debt in Europe, a handful of US private equity firms are playing an increasingly important role in the continent’s banking sector. State-aid rules and a lack of alternative buyers add to the funds’ bargaining power when banks are under the regulatory cosh and desperate for capital.
Lone Star’s agreement to purchase 75% of Novo Banco in Portugal in October marked another milestone: a buyout of a systemically important lender in a medium-sized European economy.
Meanwhile, Blackstone played a key part in Santander’s purchase of Banco Popular, agreeing in August to buy a 51% stake in a portfolio of Popular’s real estate loans and properties, valued at €10 billion. Similarly, the cornerstone of UniCredit’s €13 billion rights issue in March is an agreement with Fortress and Pimco to securitize a book of €17.7 billion of bad debt, Project Fino.
None of these, however, can surpass the efforts of Steve Feinberg’s Cerberus Capital Management. Cerberus already topped a Deloitte ranking of the funds’ purchases between 2015 and mid-2017, beating off runners-up Blackstone, Fortress and Lone Star.
Cerberus seems to be sniffing around every putrid corner of Europe, looking at not just debt but also the equity of distressed institutions like Schleswig Holstein’s HSH Nordbank and the UK’s Cooperative Bank. It has even approached Alitalia, one of the biggest corporate drags on banks in Italy, regarding a takeover, according to a recent report in the Financial Times.
Now, after the €1.9 billion IPO in October of Austrian lender Bawag (a bank it turned around after buying it 10 years earlier), Cerberus seems to have gone into overdrive. In November, it agreed to purchase 80% of a real estate portfolio from BBVA valued at €5 billion, only three months after buying a €600 million loan portfolio from it.
Also in November, it bought a €265 million secured small and medium-sized enterprise portfolio from UniCredit.
Then in the same month came perhaps its most impressive swipe – a 3% stake in Deutsche Bank. This purchase was all the more intriguing as it came only a few months after it bought a 5% stake in Commerzbank.
Is the firm simply overwhelmed with enthusiasm for Germany’s banking sector, despite the two biggest private-sector lenders being among the least profitable of Europe’s big banks? Or was this merely the precursor to an even bigger scheme?
And the biggest question of all: why are Feinberg and his team finding value and making big bets where others can’t see any upside at all?
Barely a day goes by without someone from the Euromoney editorial team being invited to see the great work that some very clever, usually tech-savvy, people are doing in financial markets. This surely is the era of the innovation lab.
Want to come to Bangalore to see how we are reinventing payments into a seamless, one-touch, straight-through and risk-free application? And while you’re there, visit some of our very clever clients who are disrupting everything from how you get to work to how you can pay for your meal with a simple flick of the wrist? Or, if you don’t fancy India, then come to Tel Aviv, or New Jersey, or Singapore or even the Midlands in the UK. Please.
In this era of innovation, it is increasingly hard to stand out from the crowd in a truly innovative way. Perhaps the answer is to go back to the future – it’s all the rage, apparently, to ditch your iPhone X and swap it for a retro Nokia phone.
Perhaps that is why a story about Goldman Sachs published by Reuters in October so quickly grabbed our attention.
The newswire reported that: “The Wall Street bank is forming a group, known internally as the Innovation Lab, focused on generating deal ideas for companies”, and was aimed at “supercharging investment banking revenue”. The group was “expected to come up with out-of-the-box ideas and focus on clients who want to make big investments in businesses across industries”.
The group is apparently the brainchild of new-ish co-heads of investment banking, Gregg Lemkau and Marc Nachmann, who joined a triumvirate of co-chiefs alongside John Waldron when David Solomon, also known as DJ D-Sol in the music world, became co-president of the firm.
Hang on a minute. Isn’t this what Goldman’s rather successful investment banking division has always done? But then again, doesn’t this show how clever Goldman really is? Those Goldman investment bankers have probably become fed up with hearing how it’s a firm of engineers these days. They are the really innovative ones, and what’s more they are innovative on behalf of their clients. Who, of course, always come first.
A month later, we happened across an interview with also new-ish Goldman CFO Marty Chavez in the New York Times.
Marty, you will recall, was for many years the firm’s innovator-in-chief, the chief technology officer who was behind Goldman’s in-house software platform, SecDB or Securities Database, which even rivals admitted gave the firm a head-start in the race to trading profitably – albeit one that, in recent quarters, has started to underperform.
Engineers make up about a third of Goldman’s global workforce. As the Times writes: “We’ve come to the end of our 90-minute discussion and Mr Chavez has made no mention of the firm’s longstanding investment banking prowess.”
Come on Marty, get with the times! Innovation is not just about technology, it’s about people too – even those that don’t have a specially designed desk at which they stand all day and that can go up and down at the push of a button (a bit like Goldman’s share price these days).
Just ask Gregg and Mark.
There may be no more crowded field in all of finance than corporate doublespeak. Particularly at awards time, Euromoney is festooned with examples of the art: portmanteaus in the creatinnovation style, verbs turned into nouns then back again and endless references to redefining new paradigms.
This is the year, after all, when you were absolutely no one unless you considered yourself an ideator. What you were ideating didn’t really matter – it was the ideating that counted.
If you were an ideator, then you almost certainly had a sandbox. But the point about the sandbox was of course that while you might have it, you were never in it – or at least your thoughts were not. Perish the thought.
It also came as a bit of a surprise to the Euromoney team that in this era of action against climate change, not least from a financial community that has embraced green finance (and the fees, volumes and kudos that go with it), the concept of warming seas could actually be seen as a positive one.
The first time we heard the phrase ‘boiling the ocean’ was during a lunch engagement with a French banker, who had a wonderful turn of phrase, such as “we were not swarming the clients” and “a bunch of my clients are hairier than the bank might necessarily want”.
Apparently it means taking on an impossible task.
It was a pretty hard task to single out one bank for its contribution to corporate-speak this year. But even in the face of vibrant competition, State Bank of India must be acknowledged for its sterling work.
In the presentation of then chairman Arundhati Bhattacharya, which accompanied the bank’s second-quarter results for 2017, alongside now-standard references to hackathons and the like, it includes the heading ‘Platformization’, another heading, ‘Tech-Upgradation’, the (sort of) word ‘virtualization’ and the boldly innovative ‘Intra-preneurship’.
What’s really impressive is that they are all on a single slide.
We are prepared to forgive it, however, for also including the word ‘Meghdoot’. This is an open source cloud offering in India and we think the name derives from the lyric poem ‘Meghaduta’ by the great Sanskrit poet Kalidasa.
Whatever the etymology, Meghdoot is a fine word and we use any opportunity to repeat it.
As for the rest of it…
He is bald and not the tallest man you’ll ever meet. He is in charge of an entity that carries enormous influence globally; he has been at the helm for some time. The motivations of the organization he runs have often been questioned, its practices sometimes opaque. He grew wealthy on the back of a commodities markets boom.
In more recent times, his use of social media has been the subject of much attention and speculation. Indeed, he has even used social media to get involved in – and, dare we say, try to influence – some of the biggest democratic decisions in western countries.
No, silly… we’re not talking about Vladimir Putin but Lloyd C Blankfein, chairman and chief executive of Goldman Sachs. Back in the ‘Goldman as blood-sucking vampire’ era, and chastened by the financial crisis and an unfortunate article claiming his firm was “doing God’s work”, Blankfein kept a relatively low profile for the head of such a public institution.
But emboldened by a beard, a new open-necked shirt era and an enlightened approach that leads admirers to speculate the ‘C’ stands for ‘cuddly’ rather than something more derogatory, these days Blankfein is everywhere, not least on social media.
He may have started slowly, but in the last six months or so Blankfein has been as active on social media as any self-respecting millennial – and when Lloyd tweets, the financial world listens.
Blankfein likes you to (mostly) know what he is up to and where he has been. He might not be ‘Insta-ing’ photos of his latest meals, but when he’s visiting somewhere, he shares. By the middle of November, he had tweeted a whopping 28 times!
We do hope he travels in comfort, because he is all over the place. September 28: “Just back from Saudi Arabia”. October 13: “At IMF in DC”. October 19: “Just left Frankfurt”. October 30: “In London”. November 6: “On my way to China”. November 14: “Struck by the positive energy in Paris”. November 16: “Here in UK”.
And it is those UK/Paris/Frankfurt trips that caused eyebrows to be raised. Blankfein, on Twitter, has questioned whether or not Goldman’s new UK/European headquarters will be filled, because of Brexit. Suitably encouraged by the reaction to that tweet, he has even enquired whether the UK might even hold a second vote on Brexit.
He also opined glowingly in a tweet about Frankfurt – he “really enjoyed it”, although subsequent reports that Goldman had scooped a mandate to sell Commerzbank may have contributed to his positive vibes as much as the “great” Frankfurt weather. And in Paris, he didn’t just like the food, he liked the government too – although he might want to try the French capital when the unions are on strike over Macron’s reforms; the energy might not be quite so positive.
But then came the news: after Brexit, Goldman will have two new European hubs – Frankfurt and Paris. Who would have thought a US leader would use Twitter to trail his big decisions? Is Lloyd both Trump and Putin? Just how powerful and influential is he?
If there is one thing giving comfort to bank chief executives that aren’t Tim Sloan, it is that they aren’t Tim Sloan.
Sloan, who holds the reins of the stagecoach-turned-pumpkin Wells Fargo, is certainly not having a good time. When the 30-year veteran at the bank moved from chief operating officer and president to the role of chief executive, he probably didn’t know how bad things were going to get (well, that’s his story and he’s sticking to it).
When he replaced ousted predecessor John Stumpf in October 2016, Sloan was supposed to mend Wells Fargo’s broken reputation over revelations that its bank employees opened two million unauthorized deposit and credit card accounts for customers because of a demanding internal sales culture.
Sloan was always an odd choice. Surely as COO and after three decades with the firm, he was part of the culture that encouraged fraudulent behaviour? But he seemed to get away unscathed with excuses that the goings-on at the consumer bank never made it up to his ivory tower and that his background had been largely wholesale banking.
With more and more fraudulent activity at the bank now being revealed across businesses, the idea of Sloan as the saviour of Wells seems increasingly absurd.
Since taking over as chief executive, investigations have increased the number of unauthorized accounts to 3.5 million.
In addition, Wells Fargo has admitted that since 2012 as many as 570,000 customers may have been charged for car insurance they did not need – about 20,000 of whom may have had their cars repossessed as a result of their inability to pay for the aforementioned insurance.
And just for good measure, Wells Fargo bankers have recently been found to have been inflating foreign transaction fees for business clients in order to bump up their own bonuses.
Sloan is between a rock and a hard place. If he didn’t know any of this was going on during his tenure at Wells Fargo, then one would question his ability to run a company. But if he did know, then he is part of the problem that Wells needs to fix.
Sloan’s solution to finding himself in a lose/lose situation is a simple one: do not talk about the past.
Speaking to CNBC after appearing before the Senate banking committee in October 2017 (12 months into his new position), he said: “The focus on the hearing was Wells Fargo one year later, and I don’t really understand why we spent as much time as we did talking about history.”
It was the IPO that never roared.
When Singapore-based biotech firm Aslan Pharmaceuticals mulled its listing options in early 2017, its gaze settled on Taipei. To a casual observer, the Taiwan Stock Exchange (TSE), one of Asia’s more enervating trading venues, wasn’t the obvious choice. Asia is filled with many far buzzier bourses, from Shanghai to Singapore.
But Aslan founder and chief executive Carl Firth was convinced. What the chosen market lacked in terms of liquidity and trading volumes, he reckoned, it more than made up for in terms of innovation, with the TSE one of the few exchanges to embrace young and thrusting biotech firms with open arms.
And the island was a pharmacological paradise, boasting one of the world’s best-funded public healthcare systems. So it was Taipei that won the day.
At first, the sale was a hit – and for good reason. Aslan, with its backlog of promising cancer drugs and a blue-chip cast of investors that included Accuron Technologies, part of Singapore’s Temasek Holdings, had solid credentials. It sold 10.41 million shares in May at NT$68.92 ($2.30) apiece, raising NT$1 billion. The retail tranche of 2.6 million shares was 29 times oversubscribed.
But that was as good as it got. As soon as Aslan’s shares hit the market, they were in trouble, shedding 24.3% of their value on day one – exacerbated by retail investors dumping stock at the first sign of weakness – and 36% in the first month. The decline continued, before finding a plateau in August around the NT$35 mark. And there they remain, the stock closing at NT$34.85 on November 29, down 50% from the offer price.
Firth pinned some of the blame on investors, suggesting the market did not understand biotech, with too many firms scrapping sales due to a lack of interest. There was, he admitted, plenty of blame to go around, pointing to the “disappointing pipelines” of leading players.
Yet those mitigating claims conveniently overlook that fact that 2017 was, for most stock investors, a bumper year.
A cursory glance at the stellar performance of many of Aslan’s peers, trading far from the ennui of Taiwan, would have been enough to leave its disenchanted investors scratching their heads. Take Amgen, up 18% in the year to November 29, or Ligand Pharmaceuticals, up 28%. Vertex Pharmaceuticals’ shares advanced 95% over the same period, with Juno Therapeutics up a scorching 180%.
It is hard to dispel the feeling that Aslan simply chose the wrong listing venue and that the quartet of Nasdaq-listed bioscience specialists named above all got it right.
Too small, too illiquid and lacking a deep well of institutional investors, Taipei was a strange choice from the start.
Europe’s banking woes have, thankfully, removed other candidates who might otherwise have been worthy recipients of this award, not least in Italy.
But it would be remiss to ignore Europe’s restive banking regulators, and Italy is home to an unparalleled public-sector survivor.
Bank of Italy governor Ignazio Visco cannot, it must be said, claim all the credit for making the country the epicentre of the continent’s banking crisis over the last two years. Nevertheless, his position looked extremely shaky when his six-year term came up for renewal in the autumn, particularly given popular anger over retail subordinated debt losses at regional banks, which the Bank of Italy supervised and which the Italian state was forced to rescue during his tenure.
Politicians showed rare unity in their calls for him to go, from centre-left leader Matteo Renzi, to centre-right stalwart and former prime minister Silvio Berlusconi, to the anti-establishment Five-Star Movement. Support from president Sergio Mattarella was therefore anomalous – but the decision to renew Visco’s term was ultimately his, on the advice of the Renzi-backed prime minister Paulo Geniloni.
One argument in Visco’s favour is that ceding to political calls for his replacement might have undermined the central bank’s independence. However, a common criticism is that he was not sufficiently assertive on banks’ non-performing loan classification and coverage: something political leaders might have appreciated, given the government’s lack of cash for large and immediate bailouts.
Less political animals in the private sector also argue that Visco did what was expedient, but a new governor would signal the end to an era when banks could get away with looser NPL policies.
Visco is uncomfortable with the media. He began to look even more defensive after 2014, when much of his supervisory powers passed to the ECB, which then dramatically ramped up demands on asset quality.
Visco was an unexpected choice to succeed Mario Draghi after the former governor left to head the ECB in 2011. Many assumed Berlusconi would instead recommend Draghi’s then-deputy, Fabrizio Saccomanni.
This time, ahead of this year’s general elections, perhaps the president and prime minister favoured Visco because, like them, he represents continuity, relative stability – and survival.
It has been a difficult year for the foreign exchange markets.
The fallout from fixing scandals continues to hurt the reputation of the industry, while the conviction of former HSBC trader Mark Johnson in the US for front-running left many FX traders looking over their shoulders, wondering what might still come out and convinced that there is no chance of a fair trial by jury.
It has not been an easy 12 months for central bank governors either, as the quantative easing unwind discussion left markets jittery.
So fair play to the Bank of Papua New Guinea’s governor Loi Martin Bakani, who not only demonstrated himself to be a talkative and open governor when Euromoney met him in November but also a kind and generous one.
After a long tour of the South Pacific, our correspondent had the pleasure of meeting Bakani as his last interview, with a torturous, multi-stop journey home to look forward to. But our man in PNG found himself temporarily financially embarrassed. He had run out of the local kina to pay for the cab fare to the airport for the last flight of the day out of the capital, Port Moresby.
“No problem,” said the amiable governor, “my driver can take you.”
Crisis averted, it seemed. But not for long – Bakani couldn’t raise the driver on his mobile nor in the car park. And Euromoney’s flight was minutes from being called. A cab was hastily summoned from the mean streets of Moresby.
But with time ticking down and no ATM in sight, let alone Apple Pay or Uber options, another crisis; the driver would not take Australian dollars, the only currency our correspondent had left. And Bakani had just spent much of the previous hour describing how he jealously protects the kina against the scourge of non-PNG currencies.
Clearly accustomed to solving fiscal emergencies in the challenging PNG economy, Bakani thrust K20 from his own wallet into our hands.
“Thanks, but we can’t take that, guv,” our man pleaded, ethically. “You’re the central bank governor!”
But a soon-departing flight can be an insistent temptress.
Reluctantly but necessarily, our correspondent took the cash, but only after thrusting a bunch of Aussie dollar notes back at Bakani as our man jumped into the cab.
“Don’t worry about it,” the governor said. But our correspondent was insistent: “Governor, take it. We can’t be accepting cash from a central bank governor!”
And take he did, to his credit, morally and financially. Our man had his K20 and was A$20 the lighter for it in exchange.
That’s about K47, a 135% gain over the original K20, and as good a forex spot trade as any central bank will have made this difficult year.
Playing great powers against each other is tough and slippery work, beyond the means of most mortals. But they know how to do it in Sri Lanka, a teardrop-shaped island in the Indian Ocean that is revealing a long-hidden ability to play not just two sides against each other but three or four, and sometimes more.
Sri Lanka’s political leaders are casting around for ways to inject momentum into its moribund economy. Fortunately, they have friends – lots of them. Capital is flowing in from companies and export credit agencies in Japan, the US and Europe, as well as its giant neighbour across the Palk Strait, India.
And of course China, which views the Indian Ocean as vital to its economic security. Its Party officials love a good historical power-message; and few come more laden with meaning than Alfred Thayer Mahan’s mantra that whoever controls the ocean controls Asia.
Beijing, which is building ports in Pakistan and Myanmar, wants Sri Lanka on its side too. It showers the island with goodwill and cash, which is used by Colombo to build new airports and highways.
But Sri Lanka is cagey. Unlike Pakistan, which has taken China’s shilling and spent it, Sri Lanka doesn’t fall down the rabbit hole. Mainland firms arrive in force, buying and building infrastructure: some vital and valuable, and some that seems to lack much forethought.
China Merchants Group spent $1.1 billion to buy the port of Hambantota, with the aim of turning it into a transhipment hub.
But China is not the only big hitter at work. Japanese and Indian construction firms are busy in Trincomalee on the eastern coast, expanding its deep-water port.
During an interview at the IMF meetings in Washington in October, it was put to the country’s central bank chief Indrajit Coomaraswamy that Sri Lanka had become very good, very quickly, at playing a highly artful game.
The white-haired Coomaraswamy played a straight bat at first.
The island was conveniently parked in the Indian Ocean, he admitted, equidistant between east Asia and Europe, and with easy access to the Middle East, Africa and southeast Asia. It was also central to China’s attempts to redraw the global trade map in its own image.
When pressed on how the country was juggling the competing and often conflicting needs of the US, China and India, Coomaraswamy smiled.
“An important ambassador told me over lunch that our aim as a nation is strategic promiscuity,” he said.
It pays to have a lot of friends, especially when they are rich.
They were always strange bedfellows.
On the one hand, you had the European Bank for Reconstruction and Development (EBRD), a multilateral sprung from the ashes of communism. On the other, there was Russia.
Since its inception the EBRD in 1991 has invested €24.4 billion in 789 local projects, most privately owned, far more than any other country. At its peak, Russia accounted for 30% of all lending and 50% of income.
But when Russian banks and firms were sanctioned out of Western funding markets in 2014, the EBRD halted all lending to new Russian projects and put existing ones on hold. Putin seethed.
So Moscow dipped into its Soviet-era playbook in search of inspiration.
It harangued member states and the EBRD itself, using a mixture of aspirational blather and self pity. At the development bank’s 2017 conference in Cyprus, Russian economy minister Maksim Oreshkin took another tack. He accused the bank of breaching its own founding principles.
His pleas to the bank’s 65 country shareholders fell on deaf ears: the bank’s legal team found, unsurprisingly, that it had not broken its own laws.
Oreshkin then held an ill-advised press conference. Shaking with anger, he accused the EBRD of being a “tool of foreign policy” and adopting an “Uber-style approach to lending”, adding: “It is not Russia that needs the EBRD, but the EBRD that needs Russia.”
That should have been that. But at the IMF meetings in October, Putin’s minions again descended, this time on Washington, filled with rage.
The cause of their pique this time: the EBRD’s decision to close five of its provincial offices. A logical step one would think, given that the last onshore facility the EBRD signed was in January 2014.
Denis Morozov railed against the multilateral, beseeching them to support private-sector development by reversing their “crazy decision”.
For its part, the EBRD has moved on. In the wake of the Arab Spring, the bank’s gaze shifted south in search of new challenges and lending opportunities.
The bank invested €1 billion in Egypt in 2017, for example, and is busy in Jordan, Lebanon, the West Bank and the Gaza Strip.
In the EBRD’s marble halls, a stone’s throw from Liverpool Street Station in London, the country that led to the bank’s creation is rarely mentioned. And perhaps that explains this double hissy fit, for there is nothing that Russia and its prickly president hate more than being ignored.