Over dinner at Kronborg Castle, an hour’s drive from Copenhagen, members of the Institute of International Finance attending the spring meeting for the banking industry trade association last month bade farewell to Josef Ackermann, who was retiring after nine years as chairman.
Any bankers nursing a sore head the next morning might have been surprised to hear Charles Dallara, managing director of the IIF for the past 19 years, announce his intention to step down later this year after the IIF celebrates its 30th anniversary in Tokyo.
Dallara says he informed the IIF’s board of directors, the heads of some of the world’s largest banks, of his intention to step down 18 months ago when he last renewed his two-year contract.
Just to add to the sense of transition, Dallara let it be known that the group’s husband and wife press gurus Frank and Emily Vogl are also poised to retire.
Dallara is a former JPMorgan banker and former US Treasury assistant secretary for international affairs who has overseen the growth of the IIF since its early days as an informal group of a handful of large US commercial banks that negotiated Latin American debt restructurings.
It has developed into a trade association for international financial institutions of all types, including investment banks, asset managers and insurance companies from around the world. It now boasts a membership of 459 financial firms, many headquartered in emerging markets. It has also grown its research staff and country economists into a formidable team of forecasters.
The group has played a lead advocacy role in articulating the banking industry’s response to the welter of new regulations that have come its way since the crisis began in 2007. That has presented Dallara with challenges within and outside the organization.
As the senior staff member, it has fallen to Dallara to present an industry face when members of the IIF have had very different agendas. So, in the early days after the crisis, the IIF argued stridently against efforts to reform global financial institutions into holding companies for separately capitalized subsidiaries, even though this was the business model pursued by prominent members, such as Santander and HSBC.
Douglas Flint, chairman of HSBC Holdings, takes over from Ackermann. Flint has been on top of regulatory affairs since his time as chief financial officer of HSBC and should be an extremely capable replacement for Ackermann.
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| Charles Dallara, IIF |
In the past 12 months, Ackermann and Dallara achieved a new prominence when they took over formal negotiations on behalf of private-sector creditors with the EU, national governments, the IMF and the European Central Bank over the debt restructuring for Greece,Greece. Intriguingly, HSBC, which provides the new chair of the IIF, advised Greece in those negotiations. Representing an array of asset managers, hedge funds and banks in these negotiations was tough enough. Having to engage not only with the troika on the other side but also separate European governments was particularly arduous. Many times Dallara and Ackermann thought they had achieved a workable compromise only to be dragged back to the negotiating table.
At the meetings in Copenhagen, time and again senior IIF figures referred to the success of the Greek restructuring in achieving €100 billion of debt forgiveness for the country. Without that its present uncertain chances of proceeding with structural reform and regaining competitiveness would have been nonexistent. But the episode stretched the IIF’s credibility, partly because it placed the organization as advocate for a debt restructuring that did not solve Greece’s problems.
In his day, Citi’s Bill Rhodes learned two lessons from the Latin America crisis: that debt restructuring should at least attempt to provide a restoration of a country’s ability to service its reduced debts and a full solution; second, that the country itself should buy into any deal and, if possible, feel its leaders were the authors of it. Greek restructuring falls down on both counts, although the responsibility for that lies much more with the EU, ECB, European governments and the IMF than it does with the banks and the IIF.
"The debt restructuring was a success. The austerity and policy measures imposed on Greece have been a big failure," says one banker who worked on the deal. "A country’s debts cannot become sustainable if its economy shrinks 22% to 24% in four years." He adds: "The time will come when the official-sector debt must be restructured, albeit perhaps not on the same terms or in the same way as the private-sector debt."
It might be that Greek PSI will one day be remembered as a bridge to that official-sector debt restructuring that at least avoided a hard default and attendant contagion. Certainly, Dallara and Ackermann took great pride in enduring the arduous negotiations around it. Dallara recalls a hedge fund manager telling him that the odds against securing a deal for Greece were 99 to one. On the day after the restructuring was finalized earlier this year, the hedge fund manager sent him a four-word email of congratulation. It read: "You win. I lose."
It’s not clear what role the IIF might take in any future sovereign debt restructurings. It has taken on a wide range of technical work, with many committees of senior financiers devoting time and effort to various issues of industry best practice.
At the Copenhagen meetings, it issued a dense 60-page report on recommendations for cross-border banking resolution. It announced a new joint committee of private-sector bankers alongside senior officials from finance ministries, central banks and multilaterals to explore new approaches to sovereign-debt-crisis prevention and resolution.
Dallara says: "We need to learn the lessons of the Greek crisis and the broader euro area sovereign debt crisis to contribute to important improvements in crisis management. The goal of the committee is to develop concrete proposals to enhance crisis prevention and resolution practices."
It looks likely that his successor may soon have to put these into execution.
