No end in sight to anti-banker hysteria
A well connected source mused: “Bank bosses are in denial. They won’t accept that the model is broken and lots of parts of the business may not make any money for the next few years. In a way, they are as much in denial as the European politicians. The European politicians won’t face up to the fact that the euro model is broken.”
Investment banking is a roller-coaster ride. We all know that. There are periods of frenzied activity when the cash registers ring over-time and pallid patches when everyone runs very hard to stand still.
I expect 2012 to be tough but there have been other tough periods for the industry. We all remember that 2008 was no picnic and the boat seemed to be shipwrecked in 2002 as the TMT balloon deflated and accounting scandals engulfed major American corporates. Somehow the top financial services firms always bounce back. Goldman was founded in 1869 and JP Morgan in 1871 and they’re still with us.
Is anything different this time? Perhaps. In the West, a lot of our current problems are assumed to be the fault of the banks: bankers are hated by the general public. I have tried repeatedly to work out why this is. The public don’t universally hate footballers and footballers also earn a lot of money. I think it is a combination of factors.
Firstly, most senior bankers “don’t get it” – they insist that the current mess has nothing to do with them, that they deserve huge pay-outs and continue to lead the pampered lives they have always led.
Secondly, most normal people can’t understand why senior bankers deserve so much money for performing the mundane function of oiling the wheels of capitalism. Bankers think they are enormously clever and talented. Normal people think bankers are over-paid filing clerks.
Nevertheless, there is more than a whiff of scapegoat about this anti-banker hysteria. For example, in early January, Paul Ruddock, the founder of the London-based hedge fund, Lansdowne Partners was knighted.
The popular press snarled that this was the man who had shorted the British bank, Northern Rock as it lurched towards bankruptcy. Thus Ruddock had made money out of other people’s misery and at the taxpayer’s expense when Northern Rock had to accept government money.
The articles missed the point that although Ruddock has been a major donor to the Conservative party, he is also a very generous patron of the arts. More importantly, they missed the point that it was Northern Rock’s management that cost the taxpayers billions, not Mr Ruddock.
I am not optimistic that bankers will become more popular in 2012. I think the golden fountain has been poisoned and in the next decade our children will no more aspire to be financiers than we aspired to be civil servants.
What to do when you have nothing to do
So if, as 2012 unfolds, you are a banker and if this year turns out to be as bad as some commentators are predicting, what should you do?
I cast my mind back to my own career in the City during which there were a few fallow patches. In 1987, there was the famous equity market crash. In 1994, the Federal Reserve embarked on a policy of raising interest rates. I was in debt capital markets originating bond issues and no institutional investor wanted to purchase a fixed rate obligation that would be under water in two month’s time. In 1998, my firm lost much more than it could afford to lose when Russia defaulted and the hedge fund, LTCM, spiralled out of control.
What I remember from all those periods is the silence. Normally, trading rooms are noisy: it’s hard to concentrate. The room reverberates with energy: everyone is eager to do deals and make money. But during periods of market dislocation, everything goes eerily quiet. Quite simply: there’s nothing to do. And you don’t want to be overheard chatting too loudly to your Mother so you whisper in to the phone.
The most important lesson I learnt during the bad times was to keep your head down and appear pliable. If you could ride it out, you could then ride the wave back up when the tide turned.
We were all paid much less in those days as salaries were low so if management thought you had potential, they would carry you for a few months even if deal-flow was scarce. But it still felt scary to walk in to the office knowing you had nothing to do but call clients and tell them markets were closed.
Today I’m sure the atmosphere is worse. Compensation is so hefty that bosses may be tempted to resort quickly to the nuclear option –sacking good people. If I were a mid-level banker today, I would be spending a lot of time contemplating Plan B.
Why did Peretié sail off from SG just before Christmas?
As we were winding down for Christmas, the phones started ringing off the hook. Moles were calling to discuss the surprise departure of Michel Peretié, head of Société Générale’s corporate and investment bank.
Peretié, who joined the French bank in 2008 from Bear Stearns, is said to be leaving “to pursue other opportunities.” He will be replaced by SocGen’s chief financial officer, Didier Valet, whilst Christophe Mianné becomes deputy chief executive of the division. Bertrand Badre, a former Credit Agricole CFO, takes over Valet’s role.
My sources murmur about Peretié not engaging fully with the SG culture and being cold-shouldered by key, long-standing SG investment bankers. There was even a mention of an internal revolution, which sounds deliciously Gallic.
I was never convinced that Peretié’s decision to build out the corporate finance platform and expand the US fixed income business would work. Nevertheless, his departure smacks of infighting and intrigue, which SocGen can ill-afford during this difficult period for European financial institutions.
I hear that Valet is very intelligent. However his background is an equity research one. Writing about banks is very different from running them and given Valet’s recent role as CFO, one might expect some sort of restructuring at the investment bank. I look forward to meeting Monsieur Valet as he gets to grips with his new responsibilities.
How was your week? Please send news and views to Abigail@euromoney.com