Robinson Hambro
Robinson Hambro: Board Search and Chairman Advisory

Karina's Column

An insider’s view on the City of London and beyond

Hank Paulson’s take on the financial crisis

 

JP Morgan’s Dimon on trial; business opportunities in Libya

Reading former US Treasury Secretary Hank Paulson’s gripping account of the 2008 financial crisis while playing at cowboys in Colorado’s Rocky Mountains was perhaps not as much of an incongruity as it seemed.

As we rode by a vertiginous cliff, I ruminated about On the Brink, the former Goldman Sachs CEO’s aptly titled memoir of the race to stop the collapse of the financial system.

What emerges from the book is how close we came to a total breakdown, how well the team of Paulson, New York Federal Reserve President Tim Geithner and US Federal Reserve Chairman Ben Bernanke worked together, how irresponsible Congress was and what an outmoded mishmash of regulatory bodies governs the US financial system.

What is worrying is how little has changed, not least the fact that the largest financial institutions have become even larger, more interconnected and more complex, posing unimaginably big risks to the global system. JP Morgan Chase, which acquired Bear Stearns and Washington Mutual during the crisis, now has a market capitalisation of $206bn compared to $157bn in 2007, before the financial crisis. Its total assets are $2.3tr.

That makes it all the more disquieting for Jamie Dimon to have held on to his dual roles of CEO and Chairman in a shareholder vote in May via the implied blackmail of his departure from the bank.

We learned a lot about cowboys at glorious Vista Verde ranch. The lone Marlboro man from the old advertisements is a myth. Herding cattle is a group exercise, as is running a bank. Dimon may have been brought up on the East Coast but he would do well to head West for a lesson, accompanied by supine shareholders and, for that matter, some regulators.

A harsh judgement? If Fred Goodwin, the former boss of bailed-out Royal Bank of Scotland, had not been as powerful, his shareholders as greedy and his regulators as unwitting, he might still be Sir Fred.

Timely excerpts from the book include Paulson’s account of how in August 2008, while in Beijing for the Olympics and severely preoccupied about the health of government-sponsored mortgage finance duo Fannie Mae and Freddie Mac, he learned that Russian officials had made a top-level approach to the Chinese suggesting that together they might sell big chunks of their holdings to force the US to use its emergency authorities to prop up these entities.

The Chinese declined to cooperate with such reckless stupidity.

Last week President Barack Obama cancelled his planned summit with President Vladimir Putin as the Cold War continues, albeit in a rather more farcical way with the delicious irony of National Security Agency whistleblower Edward Snowden’s political asylum in Russia.

Still, the Chinese are not always the good guys. A large agricultural vehicles manufacturer from the West was launching a new model at a trade show. Two stands down, it found the Chinese had produced the same one at half the price. The company had hacked into their computer systems and stolen the blueprints, according to Mark Shepard, Head of EMEA for iSIGHT Partners , a cyberthreat intelligence agency.

When I put to him that boutiques like Robinson Hambro were surely not on anyone’s radar, he noted that we had a very juicy database of the great and the good.

“We’ve all got something that in the dark cyberworld market has value,” he said.

There is a lot of value in the Middle East and North Africa (MENA) even as the press focuses on Syrian carnage and the Egyptian upheavals. Arabia Monitor one of the most influential research companies on the region, has just published a report titled “Algeria, Libya, Iraq: the next big spenders.”

Highlights include the fact that with a combined population accounting for a third of MENA, and an average GDP growth of 9% this year, Algeria, Libya and Iraq together are set to emerge as the next big retail spenders. Founder Florence Eid notes that “as an expanding middle class becomes more sophisticated, opportunities emerge for international retailers to offer new shopping experiences, with sales growth expected to reach 14% per annum in 2012-2016.”

Although she does not dismiss the security risks, Eid believes the retail market in these countries will offer substantial rewards for early movers able to absorb operational risks.

New Bank of England Governor Mark Carney said last week that he found the dearth of females on the Bank of England’s influential Monetary Policy Committee “striking”. He aims to help change this to pave the way for a qualified female governor in years to come.

Things are different on the other side of the pond. The US, if the best candidate is chosen, will see Janet Yellen take over from retiring Federal Reserve Chairman Ben Bernanke in January. Although no-one can dispute rival Larry Summers’s brilliance, he is a controversial figure with a penchant for outspokenness and a reputation for freezing out those he does not agree with. These are not sought-after attributes in a central bank governor.

Federal Reserve Vice Chair Yellen, however, is an exceptional forecaster who is not afraid to disagree with the majority view and is steeped in central bank culture. As an added bonus, Yellen would be an outstanding female role model at a time when research has proven the benefits of having women in senior positions.

This is one of the reasons I sit on the judging panel of Women in the City an organisation that aims to promote talented women. We are currently seeking nominations for our annual Woman of Achievement Awards in sectors ranging from law to banking. We are looking for women with proven leadership abilities who have gone out of their way to help other women in their organisations prosper.

If you know of any, do please fill out the short form by clicking on this link .


Nominations close on September 20.