As the party games turn nasty, Sharap ova shows bankers the elegant way to lose
MARTIN VANDER WEYER Iv hen I bumped into Barclays chief executive John Varley at Wimbledon one mid-week afternoon in July, I thought he looked remarkably relaxed for a man locked in a potentially career-breaking takeover battle with his deadliest rival. We had just watched Venus Williams make mincemeat of Maria Sharapova, and perhaps Varley was cheered by the thought that it was possible to lose elegantly and still be loved by the crowd. Certainly I think he must have decided early in the ABN Amro game that he could do no more than play his best shots and pray for his formidable opponent, Sir Fred Goodwin of Royal Bank of Scotland, to be stricken by the market equivalent of agonising groin strain.
That didn't happen, and Goodwin should clinch the deciding set this week. In late July Varley raised his bid, though not to a level that trumped the cash-rich alternative offered by RBS in partnership with Fortis of Belgium and Santander of Spain. Barclays might have upped its bid a second time, but only by borrowing heavily and breaching its own returnon-capital rules. Given the skeletons in cupboards that inevitably come with bank acquisitions, it's highly unlikely institutional shareholders would have supported that proposition, even if it had been feasible to raise the debt in the present credit crunch. But in any case I suspect Varley would not have wanted to do it. If, as expected, ABN shareholders accept RBS's offer this week, Goodwin and partners may well discover a worldwide wardrobe of ABN skeletons, expensively bought, at a time when most bankers are at home watching their portfolios for a surge in bad debts. I doubt this defeat will break Varley's career or be judged in the long run to have done his shareholders a disservice. It's not clear whether the same can be said of Barclays' exposure to US sub-prime debt and related horrors — rumours abound — but at least Varley will be free of his painful promise to move his office to Amsterdam and available to accept invitations to next year's Wimbledon.
The spinning knife Survival is by no means a certainty for any big chief of the financial world as this autumn's party games start to turn nasty. Pass the SubPrime Parcel has already claimed the head of the chairman and chief executive of UBS Investment Bank, Huw Jenkins — who I like to claim I talent-spotted 20 years ago when he came to work for me in Hong Kong, but who has just confessed to $3.7 billion of losses on a $23 billion sub-prime portfolio. Chuck Prince of Citigroup in New York also looks vulnerable after a profits warning — while similar warnings from numerous other banks are expected imminently. Meanwhile in London, the Northern Rock blame game is still the rage. The Bank of England is by no means off the hook despite the Governor's robust self-defence, and nor is Northern Rock's management, but this week the spinning knife has come to rest pointing at the hedge-fund community. The halving of Northern Rock's share price between February and August was driven not by selling by small investors but by short-selling by hedge funds such as Lansdowne Partners — borrowing stock in order to sell at a higher price and buy back later at a lower price. In the final collapse of the shares, short-selling has again been the driver — and hedge funds are thought to have made a £1 billion profit. Lansdowne, based in Mayfair, is well known to have taken a dim view of Northern Rock for many months and can claim simply to have acted on its judgment. But the question to be asked is whether Northern Rock's funding problems might have remained within manageable proportions if inter-bank lenders and depositors had not been so spooked by the falling share price — which was in reality driven more by a tide of opportunist, copy-cat short-selling than by serious fundamental analysis of risk. We're still a long way from a definitive understanding of this crash, but it might just turn out to have been one of the stock market's most irresponsible self-fulfilling prophesies.
Famous Belgians Call me sentimental, but I'm sorry to see Belgium on the brink of divorce. My Flemish ancestors came to England before Belgium broke away from the Netherlands in 1830 — they were silk weavers who took advantage of an early local-government enterprise scheme, offering migrant craftsmen freedom from taxes in the city of Norwich. But still I feel a certain affection for the stolid, damp, unlovely country where I lived in the early 1980s, and which is now enmired in mutual antipathy and political stalemate between its Flemishand French-speaking communities.
Perhaps there's still time for the two sides to reunite in irritation at the fact that the British media uses any story about Belgium as an excuse to revive another party game, Name a Famous Belgian: the BBC's Politics Show has a version on its website. Rene Magritte, Eddy Merckx and Jacques Brel are popular answers, but let me throw in a couple more. The first was suggested by an affronted Belgian to whom I undiplomatically outlined the game: he nominated Georges Nagelmackers, a banker from Liege who made a giant contribution to civilised travel by introducing the railway sleeping-car, or wagon-lit, and founding the Orient Express from Paris to Constantinople. The second was a lawyer who made his name defending outspoken journalists and went on to be a founder member of Belgium's revolutionary government, its representative in London and its prime minister, for nine months, in 1845: his name was Baron Sylvain Van de Weyer, and I'd love to claim him as a cousin if I could trace even a remote connection.
Blimey, Governor 'King eyes nation's maidens to find a 14th wife,' said a headline on the month-old page of the Daily Telegraph that happened to be underneath my golden retriever puppy. Closer examination and some forensic reconstruction revealed this to be a story about King Mswati III of Swaziland picking a new bride from among the 100,000 nubile participants in the annual Umhlanga, or reed dance ceremony. Obsessed as I have been with blame games, however, my first reaction was: blimey, no wonder old Mervyn can't shake off the accusation that he failed to focus properly on Northern Rock.
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