Any other business

As the party games turn nasty, Sharapova shows bankers the elegant way to lose

6 October 2007

That didn’t happen, and Goodwin should clinch the deciding set this week. In late July Varley raised his bid, though not to a level that trumped the cash-rich alternative offered by RBS in partnership with Fortis of Belgium and Santander of Spain. Barclays might have upped its bid a second time, but only by borrowing heavily and breaching its own return-on-capital rules. Given the skeletons in cupboards that inevitably come with bank acquisitions, it’s highly unlikely institutional shareholders would have supported that proposition, even if it had been feasible to raise the debt in the present credit crunch. But in any case I suspect Varley would not have wanted to do it. If, as expected, ABN shareholders accept RBS’s offer this week, Goodwin and partners may well discover a worldwide wardrobe of ABN skeletons, expensively bought, at a time when most bankers are at home watching their portfolios for a surge in bad debts. I doubt this defeat will break Varley’s career or be judged in the long run to have done his shareholders a disservice. It’s not clear whether the same can be said of Barclays’ exposure to US sub-prime debt and related horrors — rumours abound — but at least Varley will be free of his painful promise to move his office to Amsterdam and available to accept invitations to next year’s Wimbledon.

The spinning knife

Survival is by no means a certainty for any big chief of the financial world as this autumn’s party games start to turn nasty. Pass the Sub-Prime Parcel has already claimed the head of the chairman and chief executive of UBS Investment Bank, Huw Jenkins — who I like to claim I talent-spotted 20 years ago when he came to work for me in Hong Kong, but who has just confessed to $3.7 billion of losses on a $23 billion sub-prime portfolio. Chuck Prince of Citigroup in New York also looks vulnerable after a profits warning — while similar warnings from numerous other banks are expected imminently. Meanwhile in London, the Northern Rock blame game is still the rage. The Bank of England is by no means off the hook despite the Governor’s robust self-defence, and nor is Northern Rock’s management, but this week the spinning knife has come to rest pointing at the hedge-fund community. The halving of Northern Rock’s share price between February and August was driven not by selling by small investors but by short-selling by hedge funds such as Lansdowne Partners — borrowing stock in order to sell at a higher price and buy back later at a lower price. In the final collapse of the shares, short-selling has again been the driver — and hedge funds are thought to have made a £1 billion profit. Lansdowne, based in Mayfair, is well known to have taken a dim view of Northern Rock for many months and can claim simply to have acted on its judgment. But the question to be asked is whether Northern Rock’s funding problems might have remained within manageable proportions if inter-bank lenders and depositors had not been so spooked by the falling share price — which was in reality driven more by a tide of opportunist, copy-cat short-selling than by serious fundamental analysis of risk. We’re still a long way from a definitive understanding of this crash, but it might just turn out to have been one of the stock market’s most irresponsible self-fulfilling prophesies.

Famous Belgians