Financial crisis: The Z to A of the year the world turned upside down
Have this year's horror stories left you lost for words? Alistair Osborne and Jonathan Sibun reveal their lexicon of a turbulent 12 months.
A is for Angina. Well, it was that kind of year. One look at the stock exchange screens and who didn't feel "a sudden intense pain in the chest caused by a momentary lack of adequate blood supply to the heart muscle''? (Collins dictionary).
For Stephen Crawshaw, his dicky ticker was the real McCoy. Bradford & Bingley's former chief executive quit with chest pains just as the mortgage lender's £400m rescue rights issue went disastrously wrong. Eventually launched at the third attempt, all the cash-call brought was a stay of execution. On September 29, B&B joined Northern Rock as a nationalised bank.
B&B's ex-chairman Rod Kent had his own liquidity problems. He told analysts Crawshaw was "seriously not well", then interrupted the conference call for a pee.
B is for Balti, as in balti bail-out. Treasury mandarins finalised Britain's £500bn bank rescue job in the early hours of October 8 over a takeaway curry from Gandhi's restaurant in Kennington.
That other B, Flash Gordon (Brown), produced £250bn of government guarantees to chivvy the banks into lending to each other; £200bn of "liquidity" from the Bank of England gushers; and most controversially, £50bn from the taxpayer to take stakes in Britain's banks. Royal Bank of Scotland and the new Lloyds/TSB combo shared £37bn, becoming partially nationalised in the process, but Barclays didn't think much of the UK chequebook or the strings attached. Barclays boss John Varley tapped up some Middle Eastern cash instead, which took 30pc of the bank. The shareholders' reaction? They rocked the casbah.
The British balti proved the recipe elsewhere, with Europe, America and the Far East chucking some £5,000bn at their own failing financials. Hank Paulson, the US Treasury Secretary, tried to hide the nation's problems under a $700bn (£475bn) scrap of tarpaulin but his Tarp (Troubled Assets Relief Program) just wasn't big enough.
C is for Chelsea, as in the now-flattened Barracks. Back in August 2007, the interior design world's favourite pair of Cs the Candy Brothers masterminded the eye-popping £950m purchase of the former army parade ground, which lurks just a stone's throw from Buck House. Nobody could quite believe how much they had paid.
A year on, as the commercial property market turned to rubble, Nick and Christian Candy quietly sold on their stake in the Chelsea joint venture, claiming their strategy had "evolved considerably over the past two years".
Other property companies whose strategy "evolved considerably" included Spain's Metrovacesa. It was forced to hand back the HSBC tower it had bought for £1.1bn just a year earlier at a £250m loss.
D is for Drill, as in Drill, Baby, Drill the Republican energy slogan chanted by Sarah Palin supporters at the vice presidential debate.
While Palin and co were not going to let a few polar bears get in the way, over at BP/TNK, Bob Dudley was having a few problems with a different kind of bear the Russian variety. He was struggling to do any drilling at all kinda tricky when you're run out of town and forced into hiding.
Dudley, BP/TNK's former boss, found himself at the centre of an extraordinary power struggle between the UK oil explorer and a group of Russian oligarchs that jointly owned the venture. Police raids, back-tax demands, legal action by a minority shareholder, and refusals to renew visas were just a few of the highlights before Dudley quit.
The dispute started when oil prices were soaring towards a record $147 a barrel, since when it has fallen by more than $100. So much for the "commodity supercycle", which now looks more like a trike. Rapid commodity price deflation did for one mega-deal. Rio Tinto boldy rebuffed an offer from BHP in February, claiming it undervalued its prospects. Rio's shares have plunged by three quarters since not least because BHP walked away.
E is for Easy, as in easy, tiger. Stelios Haji-Ioannou, a self-styled Serial E (entrepreneur), got in a right flap about the 109 "aluminium tubes with wings and engines" easyJet has on order. Stelios picked a fight with the board of the airline he founded, where he is still a non-exec.
With his family owning 38pc, Stelios muscled in with calls for two extra board seats, a slowdown in growth and a dividend by 2011. His call for a payout boomeranged, forcing him into angry denials that he was running out of cash. "It is very unfortunate I put the word 'dividend' in my letter, because it's a non-issue,'' he later said.
F is for Ford Ka. Or a Bond girl in a Ford Ka to be precise. If ever there was a vision to shake the US car makers from their ill-conceived fascination with gas guzzlers, the sight of Olga Kurylenko driving a fuel-efficient Ka should have done it.
The Quantum of Solace wake-up-call came too late. By the end of the year Chrysler, General Motors and Ford were dangerously close to running out of gas.
Trading figures from Volvo told the story. The Ford subsidiary said orders for its trucks fell from 42,000 in the third quarter of 2007 to just 115 in the same period a year later. The US Treasury's decision to loan two of the "Big 3" $17.4bn (£11.8bn) gave GM and Chrysler a bit more road. But not enough.
G is for Gorilla, as Lehman Brothers' combative chief executive Dick Fuld was known. The bank's collapse on September 15 pushed the financial crisis over the edge. In a madcap two weeks, Merrill Lynch rushed into the rescuing arms of Bank of America, insurer AIG was bailed out by the US state, JP Morgan bought assets of Washington Mutual, and Goldman Sachs and Morgan Stanley converted to wholesale banks, drawing the era of investment banking to a close.
All this craziness followed JP Morgan's purchase of Bear Stearns whose boss Jimmy Cayne found time for a bridge tournament while the bank was collapsing and the state bail-outs of mortgage lenders Fannie Mae and Freddie Mac.
H is for Haslemere. When the £4m Haslemere home of BT's then-chief executive appeared for sale in Country Life, the company denied it meant that Ben Verwaayen was on his way. Just 13 days later, he was out. "Seriously,'' the Dutchman protested afterwards, "this had nothing to do with the situation." Verwaayen, who was replaced by Ian Livingston, was not the only FTSE 100 boss on the move this year. At Royal Bank of Scotland, Fred the Shred made way for British Land's Stephen Hester, which in turn named banker Chris Grigg as chief executive; Vittorio Colao took charge from Arun Sarin at Vodafone; and Andrew Witty took the reins at GlaxoSmithKline.
I is for Islands, as in Islas Malvinas. The Falkland Islands former governor Richard Ralph was fined a precise £117,691.41 by the Financial Services Authority for being no great diplomat when it came to a bit of inside info.
Ralph, a former Falklands' Governor, asked a friend to buy shares in Monterrico Metals, the Aim-listed miner he chaired from August 2006 just before its £93m sale to China's Zijin Consortium.
Ralph was only a Conference League scandal compared to the big daddy accused of making off with $50bn.
He was Bernard Madoff, the former Nasdaq chairman, frequently dubbed a legend of Wall Street. He's a legend now all right after his record-breaking alleged fraud. Nobody apart from himself, he admitted, knew about his Ponzi scheme.
J is for Judo, the martial art practised by rogue trader Jérôme Kerviel who left Société Générale nursing losses of €4.9bn (£4.67bn) after allegedly perpetrating the largest fraud in banking history.
Kerviel became an unlikely hero for many, starring in a comic book and prompting thousands of women to proclaim "Jerome, je t'aime" in internet posts.
Bank of France Governor Christian Noyer described Kerviel, 31, as a "genius of fraud" but the rogue trader's actions sparked claims SG's management had turned a blind eye to his trades.
In a CV circulated in the City, the rogue trader highlighted his judo teaching skills. They could come in useful.
K is for Ken, as in Livingstone, the man grounded by upmarket airline Silverjet and then by the London electorate. Lawrence Hunt, the former Silverjet chief, tried to ban the former Mayor after Livingstone declared his journey to New York the "worst flight of my life". Then Hunt was grounded himself when Silverjet followed rivals MAXjet and Eos into bankruptcy, in a year in which the one-time soaring oil price contributed to more than 30 airline failures. They included XL Airways and Zoom, in what British Airways boss Willie Walsh declared "the worst trading environment the industry has ever seen".
Walsh brought the world the Terminal 5 opening day fiasco, in a joint production with BAA, and then spent much of the year trying to pull off a foursome with Iberia, Qantas and American Airlines. None of his affairs are yet consummated and Qantas has fallen out of bed.
Rivals were less ambitious, with Lufthansa adding Bmi to its hangar.
L is for Lord, as in the return of the Lord of Darkness, aka Peter Mandelson. The yacht-loving prince of spin swapped Brussels for the trickier role of pretending to be Gordon Brown's new best friend.
Newly enobled, the slippery Business Secretary made his third return to the cabinet in October. Within two days, he stole the headlines when he was rushed to hospital to have a kidney stone operation. He recovered just in time to embarrass shadow chancellor George Osborne.
Mandelson disclosed the foolish Tory had failed to solicit a party donation from Russian billionaire Oleg Deripaska, whose luxury yacht-based hospitality both had recently enjoyed (Osborne for two hours and Mandelson for two days).
His Lordship can empathise with people now defaulting on their mortgages. Unluckily for the hoi polloi, friends like ex-Paymaster General Geoffrey Robinson - who gave Mandy his undisclosed, £373,000, interest-free loan - are now thinner on the ground.
Robbo made his fortune working for state-owned British Leyland and Jaguar Cars. Jaguar now wants the favour returned and is tapping up Mandy for a loan.
M is for Mallorca. As in Real. The Spanish football club was the latest to be left in limbo by the credit crisis after its planned takeover by British entrepreneur Paul Davidson alias "The Plumber" stalled.
Mallorca wasn't the only club to have the plug pulled on its financial plans. West Ham lost up to £6.5m after Icelandic airline and shirt sponsor XL Leisure collapsed, while Manchester United may be on the lookout for a new partner after AIG was put on US state support.
The only group to benefit from the financial crisis was football statisticians as the West Brom versus West Ham fixture became the first played by two Premiership teams without a shirt sponsor.
N is for the 90pc Club. This was the exclusive members club that no one wanted to join FTSE 100 companies that lost 90pc-plus from their three-year highs.
While the blue-chip index fell a third, bankers, builders and beer servers found the going tougher as the cheap debt binge dried up. Royal Bank of Scotland, Taylor Wimpey and Enterprise Inns took membership, with miner Ferrexpo and Yellow Pages publisher Yell Group getting in on the act.
Some of Britain's leading entrepreneurs suffered similar hardship. Joe Lewis lost £500m following the collapse of US bank Bear Stearns, while property tycoon Robbie Tchenguiz saw investments in Mitchells & Butlers and Sainsbury's turn sour. Dawnay Day founders Guy Nagger and Peter Klimt were others to feel the pinch.
O is for Orgy, as in the admission from Formula 1 governing body chief Max Mosley that he bought jackets for his prison orgy from Marks & Spencer. That triggered widespread guffawing that: "This wasn't just an orgy but an M&S orgy."
It was another unwelcome distraction for S&M - woops, M&S - in a year full of them. It started with a badly received trading update and never really perked up. Sir Stuart Rose, M&S's executive chairman, caused a furore among shareholders in the summer when he stepped up from the CEO's role without proper consultation, and then the chain was forced to dismiss a whistleblower after leaks about a change to its redundancy terms hit the press. The exit of George Davies, controversy over Rose's Lucky Voice karaoke stake and the departure of M&S's head of food made it a year to forget - even without the poor sales.
P is for Patsy, something former Royal Bank of Scotland chairman Sir Tom McKillop most certainly ain't. When the non-execs were criticised for not standing up to RBS's domineering former-chief executive Sir Fred Goodwin over the bank's £12bn April rights issue, Sir Tom declared: "We're not patsies." Six months later, RBS was rescued by the taxpayer, which now owns 58pc of the bank.
Sir Tom had changed his tune by then. "Both personally and in the office I hold, I am profoundly sorry about the position that we have reached," Sir Tom told long-suffering shareholders in November. Even Goodwin got into the spirit of things, saying he was "extremely, extremely sorry".
Q is for the Quid, which has been anything but quids-in this year. Sterling has had the worst 12 months since Britain abandoned the Gold Standard in 1931, as the currency devalued by an alarming 23pc. The main reason was the Bank of England taking the chainsaw to interest rates, hacking three percentage points off in as many months as Britain faced up to recession. Bank rate is now just 2pc.
In the US the Federal Reserve cut its borrowing costs to zero for the first time in history.
Bank Governor Mervyn King sees sterling devaluation boosting the economy. The shadow chancellor George Osborne fears a run on the pound. Whatever, it's downhill for European skiing hols. The pound is close to parity with the euro.
R is for Ross. Not Jonathan, you fool, but the City's own Wossygate. David Ross, the co-founder of Carphone Warehouse, forgot it was good to talk, neglecting to tell the boards of four public companies where he was a director that he had pledged his shares in those firms against personal loans.
Forgetfulness or not, Ross stepped down from the mobile phone retailer, National Express and Big Yellow, while relinquishing the chairman's role at Cosalt.
Non-disclosure was also behind the resignation of chairman Sean FitzPatrick of Anglo Irish Bank.
FitzPatrick resigned, having concealed €87m (£83m) of personal loans from the bank he led for 21 years – even though Anglo insisted the loans did not breach banking or legal regulations.
S is for Sex reassignment surgery. It was the latest perk for the banking community before the credit crisis put paid to anything from colour photocopies to first-class travel.
Goldman Sachs' decision to offer sex changes to retain top talent raised a few eyebrows but surprise quickly turned to shock as the credit crisis unfolded.
Thousands of jobs were scythed as banks jettisoned staff while the lucky ones were handed doughnuts - City slang for zero bonuses.
Bankers who survived 2008 with their jobs intact were left fearing that regulators and politicians could put an end to the bonus culture for good.
T is for Terrorist legislation, invoked by Gordon Brown at the height of the Iceland meltdown, when three of the island's banks collapsed, trapping £6bn belonging to UK savers.
Use of such laws - intended to stop terrorists laundering money - was the start of a diplomatic war with Iceland over who was liable to compensate the savers.
Those who had long suspected that the land of Björk and the Blue Lagoon may be an illusory economic miracle had their suspicions realised when the volcano finally erupted.
Iceland's government seized Glitnir, the nation's third largest bank, swiftly followed by the requisition of number two, Landsbanki, and the biggest, Kaupthing.
Brown's hardline approach drew accusations of being bullying and – would you believe it – "not pleasant" from his opposite number in Iceland, Geir Haarde. It was finally agreed that Iceland would pay the first €18,000, with the Brits making up the rest.
As Iceland's banks and currency collapsed, UK companies were caught in the cross-fire. Icelandic investor Baugur had stakes in a string of retailers, including Hamleys and House of Fraser, while West Ham United FC was owned by a man formerly known as an Icelandic billionaire.
Iceland accepted an IMF bail-out, as did Pakistan, Hungary, Ukraine and Latvia.
U is for U-turn, Labour's modus operandi when it comes to tax issues. Chancellor Alistair Darling started the year with a swift reversal of his disastrous changes to capital gains tax that would have seen entrepreneurs stung for 18pc when they sold their businesses. Then he softened some of the proposed tax changes for those delightful non-doms.
By the time of the pre-Budget report, "not tonight" Darling was watering down rules on the taxation of foreign dividends that had triggered an exodus of companies, including WPP, Shire and UBM.
Then came the final about-turn. Darling cut VAT from 17.5pc to 15pc in an attempt to kickstart our spending. But then what? Up popped some Treasury document, showing Labour secretly planned a rise in VAT to 18.5pc in 2011, only to change tack at the last minute.
V is for Volkswagen, which for a few bizarre moments in October became the biggest company in the world. The reason? Porsche revealed it had secretly built a 75pc stake in the company.
Hedge funds, which had shorted nearly 13pc of VW, scrambled to get out of the biggest short-squeeze ever, causing the shares to go from 0 to 60 in about three seconds. Porsche netted a 50pc boost in profits just when its rivals were burning out.
The episode was just one cause of the bloodletting in the hedge fund sector. Not only hit hard by market volatility, the collapse of Lehman Brothers and vanishing risk appetite among investors, hedge funds were also blamed for compounding the financial crisis. In September short-selling financial stocks was banned in America and Britain, wrecking whole strategies. The once-proud $1,700bn hedge funds sector ended the year with its worst performance ever, 1,000 liquidations and its reputation severely pruned.
W is for Wire Act, the US legislation passed in 1961 that America claims online gamblers contravene. Having outlawed internet gambling in 2006, the US authorities landed their biggest scalp only a fortnight ago when Anurag Dikshit, one of PartyGaming's four founders, agreed to a $300m fine - and a possible two-year prison sentence.
"I understand that what I did was wrong," said Dikshit - who has taken £524m out of the internet poker and casino group - to the consternation of the other founders.
X is for Xtinct. Dozens of household name retail chains have disappeared from the high street over the course of the year and 2009 does not look like it will be any easier. Woolworths, MFI, Fads, The Pier, Hardy Amies and Rosebys have all gone into administration, leading to thousands of job losses and gaping holes on the high street. Whittard, The Officers' Mess – woops, Club – and Adams became the latest victims.
Y is for Yang, Yahoo and Yell, the latter being the default position of the meejah world. Google's dominance in search advertising prompted wannabee rival Yahoo! to enter talks with Microsoft.
As corporations and consumers come under increasing pressure as the economic downturn strikes, advertising has been hit dramatically. Everyone, from ITV to Yell, is fighting the mighty Google.
Z is for Zhao Danyang. The Chinese fund manager paid $2.1m for lunch with billionaire investor Warren Buffett in the most expensive charity auction ever held on eBay.
With the global financial markets in meltdown, Mr Buffett took stakes in Goldman Sachs and General Electric on terms many investors could previously only have dreamed of. "The party is over," the Sage of Omaha pronounced. "Be greedy when others are fearful."
Additional reporting by Philip Aldrick, Graham Ruddick, Garry White, Helia Ebrahimi, Richard Tyler, James Hall, Edmund Conway, Rowena Mason, Louise Armitstead, Jo Moulds and Amanda Andrews.
1 comment:
what a great post!!!!!!!!!!!!!in researching more about hedge funds I came across a few books that were fascinating ..honest, and informative…..Hedge Fund Trading Secrets Revealed by Robert Dorfman... and Confessions of a Street Addict by Jim Cramer....both these books take you on a great ride about hedge funds and how they make money. I learned about this secret society than I ever would have imagined.
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