Martin Vander Weyer’s Any Other Business
Will I join the ticker-tape parade to welcome back Senator Carter Glass of Virginia and Congressman Henry B. Steagall of Alabama? Well, I might lurk in the crowd, but I certainly won’t be cheering. These venerable legislators sponsored the US Banking Act of 1933 which built a wall between securities trading and deposit-taking that remained in place until 1999. To use the labels invented by the economist John Kay, it separated the ‘casino’ of Wall Street from the ‘utility’ of retail banking on Main Street. And there’s a clamour to rebuild it brick by brick, beginning with the so-called Volcker Rule (devised for Barack Obama by former Fed chairman Paul Volcker) which would limit the size of banks and stop them engaging in ‘proprietary trading’, which means staking depositors’ cash on huge bets in securities markets. Britain never had a Glass-Steagall Act — instead, until ‘Big Bang’ in 1986, we had closed-shop stock exchange rules that achieved a similar division — and now Nigel Lawson and Vince Cable are among the voices arguing that it’s high time we had one. A bandwagon is rolling, but a Glass-Steagall model would not have averted the crises at Lehman Brothers and AIG which nearly caused global systemic collapse; nor, at the far end of the spectrum, would it have stopped Northern Rock and Bradford & Bingley ruining themselves on irresponsible mortgage lending. Constraints on sheer size and over-rapid growth might have tempered the ambitions of Sir Fred Goodwin at Royal Bank of Scotland, but in practice it will prove impossible to abolish the category of ‘too big to fail’. I have argued before that a multiplicity of smaller, cleverer financial firms with niche specialisms would be a good thing, but there is also still a case to be made for the well managed, multinational and more or less universal bank along the lines of HSBC and JPMorgan Chase. The key, in every case, large or small, single-product or financial supermarket, is laser-sharp analytical management of risk — for which legislative firewalls and barbed-wire fences can never be a substitute.
Russian roulette
When I revisited Hong Kong last autumn after a long absence, one of the changes I noticed was the number of young executive types speaking Russian. Perhaps they were all in town to work on the phonebook-thick prospectus for last week’s $2.2 billion flotation of ‘United Company Rusal’, the world’s largest aluminium producer and the first Russian company to list on an Asian exchange. Hong Kong’s authorities have always tended towards the laissez-faire — in my day, a high-class Kowloon knocking-shop called Club Volvo was a listing candidate (despite its flagrant misuse of the Swedish carmaker’s name) until the Black Monday crash scotched the idea. But Rusal sets a new benchmark for just how risk-laden a stock can be and still gain access to a public market.
The company — which abandoned plans to list in London in 2007 — made huge losses during the global downturn, and has just completed a debt restructuring that leaves it owing almost $15 billion. It admits that if key repayments are not made this year, it could (this bit is printed in red) ‘cease to continue as a going concern’. Meanwhile its major shareholder, Oleg Deripaska, acknowledges that, between 1998 and 2000, he was denied entry visas to the United States — parts of the media having speculated that ‘the rejection was due to alleged connections to organised crime’, which Deripaska denies. Here also is an account of his dispute with Michael Cherney, who claims to be the true owner of a large chunk of Deripaska’s Rusal holding, plus ten years’ worth of dividends, together worth around $4 billion; the case will come to court in London shortly.
Not surprising, perhaps, that the shares lost more than 10 per cent of their value in the first day’s trading — but professional investors who think they can win on this Russian roulette wheel include the Libyan state investment authority, which is in for $300 million. The Hong Kong Securities and Futures Commission evidently saw the opportunity a different way: a chance to take business away from London by opening its capital market to what might turn into a lucrative tide of Russian deals. But the prospectus required so many health warnings and ‘waivers from compliance’ that the Commission also decided to cover its backside by barring small punters from applying for the shares, prompting shareholder-rights activist David Webb to protest: ‘This is ridiculous… They cannot have it both ways, approving a listing which does not meet listing standards and then trying to prevent the public from buying it.’ He’s right, and the only risk-analysis tool with which to address a proposition as impenetrable as Rusal must surely be a very long bargepole.
Work experience
‘Life is a game, boy,’ old Mr Spencer the history teacher told Holden Caulfield in The Catcher in the Rye. ‘Life is a game that one plays according to the rules.’ If Holden was with us here and now, he’d probably be waiting for his AS-level re-sit results and resisting pressure from his parents to write polite letters to acquaintances they think might be willing to offer him ‘work experience’ at Easter. And if the late J.D. Salinger’s teenage anti-hero did spend a week in a typical British office, he’d find himself queuing for the photocopier behind the kids who are clinging to the next rickety rung of today’s broken career ladder: all those recent graduates on unpaid ‘internships’ with the vague promise of a real job ‘when business picks up’, a device which I suspect is now being shamelessly exploited by many companies to keep staff costs down. After so many lectures at home and at school about the importance of responsibility and commitment, today’s Holden would be confused to find employers so unwilling to make real commitments or offer fair rewards to the young. And if life is really a rules-based game, he would be thinking, how come the winnings are so unevenly distributed, especially to bankers — which is of course what Holden’s smart, Jaguar-driving older brother D.B. would be, instead of screenwriting in Hollywood. There’s a danger that our brightest youngsters, cast adrift by an older generation whose irresponsibility left such a mess behind, will grow up feeling exactly like Holden: ‘Game, my ass. Some game. If you get on the side where all the hot-shots are, then it’s a game, all right — I’ll admit that. But if you get on the other side… Nothing. No game.’
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