The Soap Box Investor

Another day, another financial crisis and another load of financial debt for the British banks. This time it’s the billionaire’s playground of Dubai.

You’ve got to hand it to our boys, wherever there’s trouble, we’ll be there, cheque books waving in the wind.

No doubt it will stimulate another round of bonuses, so that the bankers can get buying some more flash cars and quaffing yet more champagne in the City bars. In any other industry, the ones whose signatures were on the loan agreements would now be signing on the dole – not bankers, who appear to have a Start Trek type protective shield around their hides.

It would appear from some reports that of the £50 billion owed by Dubai World, some £30 billion has been lent by British banks.

It must make you wonder if they see our boys coming so to speak. You can imagine people around the globe clapping their hands in joy as British bankers descend off the plane.

“I say Old Boy, now that’s worth investing in…” must be a well worn phrase as jet-lagged City types swop their pin-stripes for Safari suits and deck shoes, and proceed to invest in the first old banger they see.

Okay, okay, that’s a pretty low shot. No-one really knows how much the world’s banking system is in hock to Dubai World and indeed, it’s still not a default, but a mere ‘re-scheduling.’ Although try that out at the Barclays call centre as an excuse for not paying your credit card, and see how far it gets you.

And, lets face it, banking is not really a UK industry any more; it’s a truly international business. To say that Barclays, or HSBC is technically a British bank is right, but in reality they are no more British than the Chelsea first eleven. Banks operate across all borders and its likely the banks nominally headquartered here have a finger in most financial pies throughout the world, and some very successful ones at that.

But, despite all the excuses, you do have to wonder sometimes at the mentality of the banks who preach to their customers the utmost propriety, but seem to chuck their own money (actually yours) around with gay abandon. Look at the only too recent US mortgage toxins as an example of not so shrewd investments.

Surely it comes back to a point that this blog has argued before – that merchant banks should be separate from private banks. In other words, let a bank risk it’s own investor’s money, and not their customers.

Wouldn’t that be a fairer system and lessen the risk of a catastrophic banking failure? Although, when it comes down to it, if that were to happen, the banks might struggle to raise the capital needed to invest the billions they appear to have squandered so recklessly.

If the system was tidied up, maybe the wheels will grind that much slower.

But is that a bad thing?

Hats off to RBS CEO Stephen Hester who, with an admirably straight face, claimed last week on television that it was not the fact that his bank wasn’t lending money to business, but that no-one wanted it.

The florid-face of Mr Hester didn’t break into guffaws as he delivered the line no doubt thought up by his well-paid PR advisors; that his bank had some 27 billion to hand out, but that businesses didn’t want it. They were far too busy driving debt down and sorting out their balance sheets he said.

The BBC weren’t falling for that one of course. They were too polite to laugh in his face, but cut straight away to an interview with a business woman who was repeatedly asking her bank for it’s support. Not that she was in serious trouble, but that she wanted her bank to help her iron out cashflow problems in the current harsh environment. And they were refusing.

Which goes to enforce what many businesspeople know: when times are good, your bank manager is your best mate. When times are bad, your bank manager will cross the road rather than look at you. Bankers are great good time friends, just don’t count on their support if you really need them.

All Mr Heston’s boys had done was offer to give loans to companies that didn’t really need them, which then gave them the excuse to say no-one wanted their money, so what was the fuss?

And this slight of hand from a bank that is now 84% owned by the British Government, and therefore effectively a nationalised bank. All Captain Darling should have to do is pick-up the phone and get Heston around to Number 11 and prostrate on the carpet, promising to help all those struggling companies and individuals.

So why doesn’t he? Captain Darling and the Treasury bureaucrats surely can’t have the collective brain power of an amoeba? The only conclusion can be is that the banks aren’t the only ones who are using the old smokes and mirrors trick. Maybe the Governments knows that pushing the banks to lend to companies and people, on a large scale, that might well go under, is counter-productive. Far better to pillory the bank’s management in public for being Mr Scrooge, then quietly pat them on the back for not risking the Government’s money.

The trouble is that the business world is going to have to wake up to needing a complete overhaul of its foundations. What business needs are merchant banks staffed by men and women who know how a company operates, understand its needs and are prepared to do a bit of hand-holding in the bad times.

The trouble with capitalism, is when the brown stuff hits the fan, its every man for himself. And if that’s the only way it can be, then both Governments and bankers should be honest, rather than going on TV and pretending to be a modern-day saviour.

In the end, every businessperson knows that when push comes to shove, you’re on your own mate.

I have argued a few times in this blog that what the Government should have done with all that Quantitative Easing money is to give it directly to businesses and consumers, thereby bypassing the ‘greedy’ and frankly unrepentant banks.

Our European colleagues have gone down this route, being more generous to its peoples via welfare support and more generous to its workers, paying factories to keep them employed. Now, its too soon to say their approach has worked, as their release from recession might prove to be illusionary.

But I’ve often wondered why the Government chose to lubricate the banks’ coffers, and then plaintively ask them to please be kind when it comes to loaning people and businesses money. I’m perplexed by a Government that has a majority stake in a bank (and has effectively nationalised it) and then has to seemingly plead with its management to release the money.

And try as I might, the only conclusion I can draw is that the Labour Government hasn’t a b****dy clue what its doing. It patently hasn’t got one iota of business brain about it. And the crying shame is that Messrs Brown, Darling and Mandelson are running around pretending to fight the good fight, when they are fast becoming the laughing stock of the world. The banks, and the City, are raising the middle finger to the Labour Administration and showing what they really think of the guys from the left. If it wasn’t so serious, it would be amusing.

Over the summer Brown effectively disappeared for a few weeks and although one can’t blame the bloke for wanting a holiday, we got Mandelson running HQ from some rich bloke’s villa in Corfu; then Darling got a week to play with the big toy and seemingly spent his time on the campaign trail, claiming how good the car scrappage scheme is working. And although the country is still in crisis, our MPs - sulking after their hands were caught in the till - won’t be back until October, when we will have scraped through the mire, or it’s all too late.

Come on Brown. Lets be honest, you’ve lost the plot. About time you threw in the towel and let someone else have a go.

What this country needs is an autumn general election and a new team in Westminster. A new crowd that might have the balls to face the problem and make a few decisions.

As it is, pathetic old Brown is going to hold fast on the bridge of the sinking ship. He’s going down while the band plays stubbornly plays the Labour Anthem of ‘It Can Only Get Better.’ The tragedy is of course, its got one hell of a lot worse.

We Brits tend to be a little suspicious of our European neighbours. We’re not sure about their little ways, or why their elder men folk wear those very brief shorts on the beach.

But maybe they are capable of things that would defy the Brits ingenuity. The BBC have just run a story which shows a great sense of creativity from Italian bankers. They are accepting parmesan cheeses as collateral for loans. The cheese-makers, like most businesses at the moment, have a thirst for credit and have little to put down as collateral, apart from their product, the cheese.

But we’re not talking about a lump of cheese here from the ASDA chiller cabinet. We’re talking huge rounds of hard parmesan which are worth hundreds of pounds each. And when you add up the amount of stock put up as security, you’re talking millions.

Now could we Brits do the same? We could try ringing up our friendly neighbourhood bank. Wait 15 minutes, get routed via Mumbai and Bangladesh (whilst being told your business is important to them, so please hold the line and clock up valuable 0870 income for your cash-strapped bank) finally getting hold of someone in an ex-Soviet republic call-centre. This is how it might go:

Call-centre: (friendly) “Hello my friend. You like Bobby Charlton? He good player, no.”
You: “Can I have a loan please?”
Call-centre: (snigger) “Loan my friend, what is loan?”
You: “I have some cheese. It make’s good security.”
Cell-centre: (sinister) “What you say? We don’t sell cheese my friend! Perhaps you like someone come round explain that to you….”

And the line goes dead.

Yes, I somehow doubt that offering cheese in return for a loan would work in the UK.

Mind you, could we get away with offering some roast beef in return for some dosh? Not sure though!

There is always a danger when listening to the radio in the morning, before you decide to drag your weary body out of bed, that you can get confused with who’s saying what, and maybe there’s an element of your dreams in there as well.

But this morning, and I’m hoping this isn’t a creation of my sleep-induced brain, there was a chappie on who in the old days used to go by the term ‘chartist.’

Chartists are akin to train spotters and take great delight in plotting the stock market’s previous endeavours and predicting what will happen next. It’s a bit like the old boy down the town centre with the sandwich board, predicting the end of the world is nigh. One day he’s going to be right; you just hope not too soon.

So chartists get their say when one of their hundreds of graphs and diagrams, actually predict something correctly. It’s a simple case of one day they will get it right.

And the guy this morning said – and please, I’m para-phrasing here, as it was early in the morning – that each recession, in this time of the cycle, has seen a false recovery in the equity markets. I think he called it a V bottom, or something like that (or was that my dream)?. In other words, it’s only thin trading volumes that have delivered the 30% growth in the markets since March of this year. And, that it’s a false recovery. Indeed, he predicted that once the City boys return from their poolside exertions in Umbria and Provence, then a huge recalculation will take place and the market will plunge to its true, more dismal value. And, get this, he says that this will take place on Friday.

So, if you want to believe a chartist, get your portfolio sorted out by then. The programme presentation then turned to a more possibly level headed view from a deep-voiced chap at one of the venerated City institutions. And although he couldn’t predict a day, City Boy was basically in agreement, although he charmingly called it a ‘pullback.’ He reckoned – and I don’t think he had a crystal ball with him – that the ‘pullback’ would see a 5% correction, but that by the end of 2009, equities would be higher than now.

So there you have it. Chartist and City Boy agree on the bigger picture: that the market will suffer a correction. They differ on the scale and timing of the readjustment though. Chartist believes we are teetering on the brink of the abyss and will fall in on Friday; City Boy thinks down by 5%, sometime in the future, but back up by Michealmas.

All I can think is thank goodness it’s not Friday the 13th this week, as heaven knows what the Chartist might have said then.