The past year’s dramatic events made fools of some of the financial world’s biggest names. Fortunes have been lost and firms laid low as a series of deals — some of which now look like little more than bets — have gone bitterly sour.
Top of the list of deals that went spectacularly wrong was the UK’s Royal Bank of Scotland’s (RBS) takeover of the dutch bank ABN Amro. The £47 billion (US$68.5 billion) that saw RBS and its partners Santander and Fortis gatecrash a rival takeover by Barclays bank was completed late in 2007, but its effects have been felt this year. Europe’s largest-ever cross-border deal was secured at the very top of the investment boom and is the financial world’s equivalent of the merger of AOL and Time Warner, which marked the height of dotcom stupidity. Despite management’s assertions that it would strengthen RBS’ position, the deal weakened the bank’s balance sheet just as the market began to panic about the strength of the sector. It has since forced the 281-year-old RBS to call on the UK taxpayer for a bailout. Its partner Fortis, which picked up ABN Amro’s Dutch retail banking, had to be bailed out by the governments of the Netherlands, Belgium and Luxembourg.
Santander, meanwhile, has seen its shares halve since June but has been a net beneficiary of the UK’s bank crisis as it has also picked up Bradford & Bingley and Alliance & Leicester. Shareholders in the latter are ruing the fact that A&L’s board never gave them a chance to sell out early in the year at about £6 a share, instead of taking the all-share deal at the equivalent of £2.99 in the summer. The hubristic architect of the disaster, RBS boss Fred “The Shred” Goodwin, was pushed out as part of the government’s rescue.
And the pain has not ended. The City of London widely expects RBS to start the new year with a huge profit warning, not least because it seems to have lost £400 million on investments made with Bernard Madoff, the US investment adviser whose money-management firm collapsed just before Christmas and who is under investigation for fraud.
The banking crisis has made fools of several high-profile financiers. Joe Lewis, the London-born currency speculator now based in the Caribbean, lost a packet betting that Bear Stearns would recover after falling foul of the collapsing subprime mortgage market. He started picking up shares in the bank in summer 2007 at about US$100 a share, thinking the institution was seriously undervalued by Wall Street. The bank was sold to its rival JP Morgan this year for US$10 a share, leaving Lewis nursing losses of US$1.2 billion.
Lewis, however, was back a few months later, taking advantage of the cash squeeze being felt by another well known City of London figure, the property tycoon Robert Tchenguiz, from the Icelandic banking crisis. In the fall, the recall of loans from crisis-hit Icelandic bank Kaupthing forced Tchenguiz to sell big stakes in UK supermarket chain J Sainsbury and Mitchells & Butlers (M&B), Britain’s largest pub operator. His losses have been estimated at more than £800 million. Lewis is believed to have talked to Ernst & Young, the administrator of Kaupthing, about buying the Sainsbury’s stake, but it was dribbled into the market. Lewis did, however, snap up a chunk of M&B.
Another vote of confidence in a once great financial institution has left the Saudi prince al-Waleed Bin Talal with big losses. Al-Waleed, the first private buyer of an A380 superjumbo, pumped US$350 million into Citigroup last month amid fears that what was once the world’s biggest bank did not have the firepower to survive to this year. It was his stake in the bank’s predecessor — Citicorp — in the early 1990s that helped him consolidate his fortune and led Time magazine to brand him the Warren Buffett of the Gulf. But Citigroup’s stock is still sliding. He is also a big investor in Songbird, the property company that owns Canary Wharf office complex in east London, and has seen that share price also plunge as the credit crunch hit tenants such as Lehman Brothers.
Citigroup’s slide has left Singapore’s state investment company Temasek also nursing large losses. Singaporean Prime Minister Lee Hsien Loong (李顯龍) was forced to publicly defend the performance of Temasek and the Government of Singapore Investment Corp — the other state-owned investment firm. The two have pumped more than US$23 billion into banks including Citigroup, UBS, Merrill Lynch and Barclays.
The decline in Barclays’ share price has also troubled China Development Bank, which spent £1.5 billion buying a small stake at £7.20 a share — they are now at £1.45. Other terrible investments include the acquisition of a 12 percent stake in Rio Tinto by Alcoa and the Chinese aluminium firm Chinalco at £60 a share back in February. The global recession has seen commodity prices crash and the stock is now at £13.75.
Woolworths’ collapse in the UK has delivered a very unwelcome Christmas gift for Ardeshir Naghshineh. The Iranian-born property tycoon owned 10 percent of the company. Naghshineh, best known as the owner of the Centre Point tower in central London, may now wish he had not been so firmly against a £50 million bid in August from a consortium led by Malcolm Walker, chief executive of the frozen food retailer Iceland.
Finally, last month produced a bumper crop of red faces as one of Wall Street’s most respected dealers — and a former chairman of NASDAQ — was charged with running what financial regulators called a “stunning fraud” of “epic proportions.” If the estimate of US$50 billion losses is correct, Bernard Madoff’s alleged fraud would be four times larger than the fraud that brought down WorldCom and one of the most incredible instances of a pyramid investment scheme ever seen. It has already hit major institutions including HSBC, RBS and Santander, as well as Nicola Horlick, one of the City of London’s best known figures. As well as thousands of individual investors — including Arpad Busson, who is engaged to the actor Uma Thurman -—and charities such as Steven Spielberg’s Wunderkinder Foundation.
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