If I hear one more clunking metaphor about how we’re trapped in the debt mine but there’s light at the end of the tunnel, I think I’ll bury myself in the garden.
If I hear one more clunking metaphor about how we’re trapped in the debt mine but there’s light at the end of the tunnel, I think I’ll bury myself in the garden. But the grit, faith and, most of all, mutual support of the Chilean 33 have given us a new role model and it would be churlish to deny their political leaders — who just happened to be there at the time — a global curtain call. President Pinera looked so pleased with himself in London this week that I half expected to see him shimmy across the Strictly dancefloor waving a winning lottery ticket. And I was drawn, in a way that I might not normally have been, to an article in the FT by his finance minister Felipe Larrain.
His subject was the ‘currency war’ which last week’s IMF meeting in Washington failed to avert and which will dominate the coming G20 meetings in Seoul. In essence, the world’s developed economies are all trying to devalue their currencies to boost recovery by making exports more competitive. But the Chinese, whose advance has been based on keeping the yuan artificially cheap against the US dollar — thus, according to Obama supporters with an eye to the mid-term elections, continuing to destroy American jobs — have allowed only a narrow yuan revaluation so far. This stand-off, combined with the hot money that would be injected by Fed chairman Ben Bernanke’s proposed new round of quantitative easing, threatens unwelcome currency appreciation in many emerging economies elsewhere. Measures to restrict flows of goods and capital on several fronts may follow, and that can only be bad for global recovery — while the impact on commodity prices will add to the inflation risk Jonathan Ruffer warned us against last week in these pages.
Felipe Larrain urges the US and China to ‘contribute to eliminating global imbalances’. The rest of us don’t have to be so diplomatic. President Hu Jintao and his heir Xi Jinping should realise that in the long game undemocratic China is free to play, eastern and western prosperity are crucially inter-dependent. President Obama should realise that poll-driven short-termism is no way to drive the locomotive of the developed world. They’re both trapped in the trade mine, we might say: only mutual support will lead them to the end of the tunnel.
Hands off
If you’d asked me a decade ago to name the businessman most likely to be the éminence grise of anything to do with enterprise in a future Conservative government (if you’d said ‘future Lib-Con coalition’, I’d have thought you were mad) I would almost certainly have named Guy Hands. An Oxford chum of the then Tory leader William Hague, Hands was the Midas of the late-1990s City as head of the ‘principal finance’ arm of the Japanese bank Nomura. There he pioneered the use of leveraged buy-outs to reap huge profits by releasing hidden value from obscure businesses such as Angel Trains, a rolling-stock leasing company he plucked out of the fiasco of rail privatisation. He went on to become the owner of Britain’s biggest pub chain and 57,000 Ministry of Defence houses and, in 2002, having outgrown Nomura, he took his team to create a new private equity powerhouse, Terra Firma.
But eventually, as happens to star financiers, he did a deal too far. In the summer of 2007, as credit-crunch storm clouds gathered, he bought the music group EMI for £4.2 billion — much of it lent by Citigroup, the US bank which brokered the takeover. The mood swiftly soured as Hands set out to squeeze hidden value from EMI’s bloated catalogue of recording artists, even abolishing an alleged sex-and-drugs slush fund for them that was labelled ‘fruit and flowers’ in the company accounts. It turned more sour still as CD sales evaporated in favour of MP3 downloads, and EMI clocked up losses of £1.75 billion last year.
Then Hands fell out with Citigroup, brought low by credit-crunch troubles of its own, over a refinancing that might have allowed EMI to shed a tranche of its crippling debts. Now he’s in court in New York accusing a Citi investment banker, David Wormsley, of legging him over from the start by extracting a higher bid from Terra Firma for EMI on the pretence that another potential buyer was still in play. Whether or not it happened in this case, the ‘bid off the wall’ is as familiar in the takeover arena as it is in the auction room — and the investment banking fraternity is furious at the prospect of all the lookalike claims that might be provoked by a courtroom victory for Hands.
So win or lose, Guy Hands’s hero status in the financial world has fallen almost as low as his popularity among coke-deprived rock guitarists. Down 372 places in the Sunday Times ‘rich list’ since 2005, he’s a diminished figure — and no one can invite him to Downing Street even if they’re inclined to do so, because his Guernsey-based tax status prevents him setting foot on the UK mainland. That’s a pity: if ever there was a government that needs expert advice on extracting value, shedding debt and challenging bankers, it’s this one.
Search results
Last week I announced a ‘search party’ to find practitioners of the lost art of relationship banking, either as lenders or investment advisers. I forgot to say that anecdotes from 30 years ago were not quite what I was looking for — I’ve got plenty of those in stock — but I enjoyed them anyway. Among nominees still at their desks (none, so far as I can tell, nominated by their own mothers), mentions in despatches go to Graham Wells, investment director at the Winchester branch of Rathbone Investment Management; Jonathan Bickerdike, senior private banker at Coutts & Co in Guildford ‘and his extremely attractive assistant manager Anna Richardson’; Robert Easter of Arbuthnot Latham in the City of London; and Oliver Barnett of C. Hoare & Co in Fleet Street — where, my correspondent says, ‘I have found the same level of helpfulness, courtesy and frankness from everyone I deal with’. Keep them coming to martin@spectator.co.uk.
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