ABN AMRO – Wis[s]e Words

Bos want smaller, safer Dutch banks

Published on May 25, 2009

Fucking rich coming from the man who allowed the takeover of ABN-Amro which laid bare the weaknesses of the overextended Dutch banking system. When he had the opportunity to do something to stop the rot, he declined to take action. What’s more, even now he may say he wants smaller banks, but the takeover of ABN-Amro by Fortis is still going ahead. Surely that would be the first thing to stop if he really meant what he said?

The problem with Wouter Bos is that he’s a product of the same system he supposedly wants to reform, a minister for a social democratic party who before he went into politics fulltime worked for decades at Shell in various management and consultant positions. Of course any social democratic principles his party adhered to had been long ago been abandonded under the previous party leaders, most notably Wim Kok, who had urged his members to “let go of the social democratic plumage” (prompting the Socialist Party to later remark that “it can get cold without feathers”). Other than some platitudes about “equal opportunities” and the like the PvdA has long since resigned itself to the status quo and in time has become just as much a supporter of it as the liberal or christian-democratic parties. It is therefore not suprising that despite their presence in the current Dutch government, it is ill-suited to handle the crisis. there has been some tough talka bout bankers taking their responsibilities and anger about their bonuses, but any real measures to radically change the system are not even considered. It’s subsidies for banks, some halfhearted measures to alleviate the pain in other sectors and budget cuts or tax hikes for everything else.

Blame Wouter Bos

Published on May 22, 2009

John Lanchester has written yet another brilliant article on the financial crisis for the London Review of Books. Much of the article deals with the RBS and how its takeover of ABN Amro led to disaster:

The consortium’s plan was to split ABN Amro up, with RBS getting the Anglo-American and wholesale parts of the business, Fortis the Belgo-Dutch, and Banco Santander the South American. It wasn’t in principle a ridiculous scheme, but the problem was the price. Most of what has been written about the financial crisis is pure hindsight, but not this: many observers thought that the winning consortium had overpaid. The consortium won their takeover on 10 October 2007; by April 2008, RBS was going to the markets to raise more capital, to cover losses from the deal; by July 2008, Fortis had lost two-thirds of its value and its CEO, Jean-Paul Votron, had resigned; on 28 September, Fortis was part-nationalised by the Dutch, Belgian and Luxembourgeois governments. We’ve already read what happened to RBS. So within months, the ABN Amro takeover destroyed RBS and Fortis and what was left of ABN Amro itself. Along with the AOL-Time Warner merger and the Daimler-Chrysler merger, the ABN Amro takeover is one of the biggest flops in corporate history.

There’s one person who could’ve avoided this mess, but didn’t, whose role in the whole debacle has never been fully acknowledged, not by the media and certainly not by him: the Dutch finance minister, Wouter Bos. Had he vetoed the takeover, or the earlier Barclays bid, ABN Amro, Fortis, Barclays and RBS would’ve been in much better shape now, perhaps not have needed the Dutch and British state to bail them out.

Hedge funds and the economic crisis

Published on November 30, 2008

You could walk around Mayfair all day and not notice them. Hedge funds don’t — can’t — advertise. The most you’ll see is a discreet nameplate or two. An address in Mayfair counts in the world of hedge funds. It shows you’re serious, and have the money and confidence to pay the world’s most expensive commercial rents. A nondescript office no larger than a small flat can cost £150,000 a year. Something bigger and in the style that hedge funds like (glass walls, contemporary furniture) can set you back a lot more. It’s fortunate therefore that hedge funds don’t need a lot of space. Two rooms may be enough: one for meetings, for example with potential investors; one for trading and doing the associated bookkeeping. Some funds consist of only four or five people. Even a fairly large fund can operate with twenty or fewer.

These small organisations control substantial amounts of capital. If a hedge fund manages less than $100 million it isn’t seen as a big player; $1 billion is quite commonplace. The capital managed by the world’s ten thousand or so funds amounts to around $2000 billion. (Hedge funds don’t have to divulge the details of their finances and operations, so no one knows the exact numbers.) About a fifth of this money is managed by funds based in London, and two fifths by those based in the US, mostly in New York and its upmarket suburbs, especially Greenwich, Connecticut.

The start of Donald MacKenzie’s excellent article on hedge funds in the London Review of books, which in general has done a good job of providing background articles on the credit crisis in the past few months. Though at the start of the current crisis in late september/early October hedge funds were portrayed as the villains of the story, they’ve now seem to have been largely forgotten. The crisis is now reported on as if it were a natural disaster, something beyond the control of humans, which governments and banks are manfully trying to containt. Any residual populist anger is limited to the bank managers and market specialists which earned such huge bonuses for what now seems very little work or result, with the poor old shareholder as their victim.

What’s conveniently lost in the story is the role shareholders in general and hedge funds in particular played in creating this crisis. It was after them after all who egged on those overpaid bank managers, CEOs and financial wizards to take ever increasing risks to make ever greater profits for them. Yes, it is risible that even managers of failing companies are paid millions of euros in bonuses, but that’s small peanuts compared to the limitless hunger of shareholders for a quick profit.

A local example is the story of ABN AMRO. This bank, one of the three biggest in the Netherlands (the others being ING and Fortis) had been under shareholder pressure to perform better for years, preferably by merging with another bank or selling off some of its subsidaries. Things came to a crisis last year, when a hedge fund called TCI (The Children’s Investment Fund Management) challenged the board of directors directly to split or sell the company to the highest bidder. The response of the
board was to seek a merger with Barclays, a bidding war with a rival group of companies (Royal Bank of Scotland, Fortis and Banco Santander) erupted which the latter won, but not before ABN had sold off some of the targets this group was particularly after. Billions of euros were wasted in this fight, only for several of the companies involved to end up in deep trouble this year. Both ABN AMRO and Fortis have been nationalised by the Dutch government, while the Royal Bank of Scotland had to be rescued by the British government, in what both insisted was not a nationalisation but just looked like one. Without the pressure from TCI this costly takeover fight could’ve been avoided and AB, Fortis and RBS would’ve been in a much better position now.

That’s the problem with hedge funds and shareholders in general. They’re parasites with no stake in the companies they control. The economy 101 idea of shareholders as investors in companies providing them with the capital to expand or set up their business has long been obsolete. The vast majority of shares is traded between third parties, with the company receiving no money at all from them. For the shareholder the only issue is whether or not their share will make a profit in the short run and to achieve that they’ve egged on companies to take greater and greater risks. HEdge funds in particular are dangerous because there’s so little public oversight of them. A handful of people in control of billions of euros, pounds or dollars can make decisions that will make or destroy companies, make thousands of people unemployed or destroy the economy of a small or not so small country. They’re fundamentally undemocratic and need to be abolished as a first step to take public control of our economies.