Armageddon

We all know that the volcano is bubbling but no one is prepared to call time on the boom. The proprietary trader pointed to the rule of four – global crises erupt every four years. In 1990 there was an oil crisis, 1994 a Mexican crisis, 1998 a Russian crisis and 2002 a dotcom crisis. So in 2007 we’re overdue a crisis. And nobody is foolhardy enough to argue that it will be different this time. Will 2007 be the year of the private equity crisis? Maybe. Debenhams, the English fashion chain, shows how quickly handbags can turn to heartache. In late 2003, a trio of private equity firms (CVC, Merrill Lynch Global Private Equity and Texas Pacific Group) purchased Debenhams for £1.9 billion (including debt). The three musketeers who invested £600 million of equity have apparently trebled their investment. Debenhams went public again last May.

The joint global coordinators of the Debenhams’ new issue were Citigroup and Merrill Lynch. Investors who bought shares at the 195p flotation price are now nursing losses of 25 per cent after three profit warnings. And last week, Guido Padovano, head of Merrill’s European buyout effort stepped down as a Debenhams non-executive director. He will not be replaced on the Debenhams’ board by another Merrill banker. Isn’t that odd? Perhaps Merrill does not care about safeguarding its own interests – it still has a stake in the company. But might this disappearance disappoint investors that took comfort from the fact that Merrill had a seat at the table? A banker, who was not involved in the deal, told me: “Investors must do their own due diligence. The prospectus would have made full disclosure. If the shares fell after launch, well that’s life isn’t it?”

Richard Ratner, retail analyst at Seymour Pierce, claims that some might view Debenhams’ return to the market “as one of the greatest stuffings since the Christmas turkey”. This is probably unfair. However, I have never understood why investors buy private equity IPOs. The private equity boys are financial experts, skilled at their trade. When they have skinned the cat, they are happy to sell the carcass. So where’s the upside? What do you think?

I recently had lunch with a chief executive. Over the quail eggs and raspberry coulis (the food is fancy in Canary Wharf), Chief asked me an interesting question: “Do you know anyone outstanding whom we could hire as a senior adviser? A sort of Hans-Joerg Rudloff clone?” I pondered as I masticated but failed to find a convincing answer. Later, I took advice from a source, who knows Rudloff, chairman of Barclays Capital, well. “Rudloff is special for three reasons,” Source confirmed. “He has excellent client relationships, he knows the business inside out and he is a warrior.” According to Source, the key is to remain a warrior as you age. You need to have the energy to fight for your client against your colleagues and to fight for your firm against your client. If you lack this warrior spirit, you risk being classified as an “old goat”. Old goats are mature specimens but their muscle has wasted and they are not regarded as “players”.  An OG does a lot of client entertaining but rarely produces any business. OGs say things like: “Oh, we know XYZ company terribly well.” A warrior says: “We advised XYZ company on the ABC merger.” Old goats often have grandiose but meaningless titles such as vice-chairman or senior adviser. Warriors have meaningful titles – chairman, chief executive – or no title at all because everyone knows how important they are. Source explained that when young, an old goat is known not as a kid but as a diplomat (think: conciliatory, discreet, team player). Whereas once a warrior, always a warrior. Source ended this lecture by gazing at me, anxiously: “You of course, Abigail, are a warrior. But does your column have to be so ferocious? Sometimes, I worry that you will end up murdered in your bed.”

And talking of covert behaviour, I was smuggled in, under cover of darkness, by dashing Amir Hoveyda, to the Royal Courts of Justice. Amir, head of EMEA debt capital markets at Merrill Lynch, had kindly invited me to celebrate the 20th anniversary of Euroweek magazine. As Euroweek has its own gossip columnist, the redoubtable Ian Kerr, I felt a slight impostor but the party was too good to miss. It was an evening full of familiar faces, alcohol-fuelled reminiscences and table-hopping. Over £250,000 was raised for the charity War Child and various awards were distributed to borrowers, banks and bankers. Barbara Bargagli-Petrucci of the EIB, Frank Czichowski of KfW,  Vincenzo La Via, formerly of the Republic of Italy, Ken Lay of the World Bank, Martin Egan of BNP Paribas and Charlie Berman of  Citigroup were all feted.

Hans–Joerg Rudloff was named as the individual who had made the greatest contribution to banking over the past 20 years. But as befits a warrior, he was too busy advising clients to turn up to collect the award. Warriors know they’re good, they don’t need pieces of paper to prove it.  I finally met the renowned Michel de Carvalho, vice-chairman of Citigroup, a man whom I have been longing to meet for the past 20 years. “Abigail,” he purred, “you are a legend. When you were at Deutsche, I used to say to myself. The future is Abigail.” Although I was immensely flattered, I had a sneaking suspicion he might have been confusing me with someone else. “Michel,” I replied firmly. “It is you who are the legend.” And so the evening ended. Which of us will be there when Euroweek celebrates its fortieth anniversary, I wonder?

Next week: A movie in slow motion. Please send news and views to abigail@euromoney.com.

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