IMF meetings: Fear and loathing in DC
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IMF meetings: Fear and loathing in DC

The mood at the IMF meetings was doom and gloom. News of UBS’s rogue trader loss didn’t help.

"Be careful what you wish for."

These were the cautionary words of a senior banker, who is intimately involved in negotiations to solve the European sovereign debt crisis, over a glass of fine wine in one of Washington’s top hotels.

Said banker had just returned from a meeting with leading figures from the IMF, the Institute of International Finance and various European bigwigs.

The assembled group was desperate for news that would lighten the mood of an annual meeting that, for many, recalled the dark days of 2008 after the collapse of Lehman Brothers.

His report, when it came, at first seemed positive. The powers-that-be were indeed working on a proposal, and concrete plans would come out in due course. These might involve an orderly restructuring of Greek debt (a default, if not by name) and an enforced recapitalization, Tarp-style, of the European banking sector. 

Then, the crushing facts: nothing would be announced imminently; the EU still had its processes to go through; and French banks, whose share prices were falling at an alarming rate, were dead-set against any state capital injections.

At this point, Euromoney felt compelled to interject with the views of one of the world’s most powerful central bankers. His remarks on the EU situation earlier in the day were forthright, and scathing.

"Europe’s leaders simply do not get it," he spat. "They really believe they are telling the market what it wants to hear. But the market could not give a damn about the process. It wants to know right now: what is Europe going to do, how much money is on the table, and they need to show that they have the balls to see it through."

His views that delaying Greece’s inevitable default, and a wider restructuring of the eurozone, only made the final day of reckoning worse for the markets were met with the cautionary words of the senior banker.

The overwhelming sense from a host of meetings is that most bankers cannot contemplate the possibility that there is not a solution that gets the market out of the current crisis. It’s hard not to believe this is a case of wishful thinking.

Something concrete has to happen now. Either it has to be a solution that the markets buy into; or it has to be a case of collapse and rebuild, however painful that might be.

Volatility was once the bankers’ friend. Now it is their greatest enemy. They simply can’t get any business done: certainly not for clients, and worse still for themselves. The unsecured bank-funding market was shut for almost three months over the summer. The sovereign crisis is spreading to the heart of the banking industry. Something has to give.

As if this wasn’t bad enough, bankers arrived in Washington on the back of the news of the $2.3 billion rogue trader loss at UBS. Normally, when a rival suffers such a fate it provokes great hilarity among other senior financiers.

Not this time. With ring-fencing on the agenda, with banks struggling to make decent returns or find investors to buy the securities or their capital, the news from UBS was the last thing the markets wanted to hear.

Or could it have been that many bankers are worried about the reaction to unexpected losses, not from rogue traders but from terrible market conditions. We’ll find out soon enough.

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