Sat, Jan 03, 2009 - Page 9 News List

Fortunes and reputations shredded by 2008’s financial storm

By Richard Wray  /  THE GUARDIAN , LONDON

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.

Three of the worst

Bear Stearns: The speculator Joe Lewis began buying at about US$100 a share. The bank was later sold to JP Morgan at US$10 a share, leaving Lewis nursing a US$1.2 billion loss

Barclays: China Development Bank spent £1.5 billion on a stake in the British bank at £7.20 a share. The stock is now at £1.45.

Rio Tinto: Chinalco and Alcoa bought into the mining group at £60. It is now £13.75.

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.

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