Will we never, ever learn?
I had a disturbing conversation this week with an acquaintance. We were discussing the inevitability of new regulations for the financial services industry - and whether they would be "knee jerk", or rational. While the former seemed more likely given past history, obviously we preferred the second "option", but hoped they would be "appropriate regulation" rather than just papering over the cracks. After all, it has been clearly demonstrated that any old regulations do not always work; as the troubles at Fannie Mae and Freddie Mac have amply demonstrated.
But it was a follow-on conversation relating to Independent Non-Executive Directors (INED) that made me wonder just where we were headed - new regulations or not. Have we learnt anything at all from the recent past? It seems, not a lot. Here is the (true) story.
Company "A" was the subject of an offer from Company "B". Discussions had been taking place for some time, and non-disclosuree agreements obtained from all the appropriate people. On reaching a critical point in the discussions, documentation was prepared and released to interested parties one Friday evening. The following week, unusual activity was noticed in Company "A"s shares, leading the INEDs of that company to consider issuing a formal, standard statement re the price movement and transaction volumes. Unusual activity even by current volatile market standards, and particularly in comparison to a peer group of companies.
The Investment Bankers who were advisers of Company "B", when advised that this course of action (over which they admitted they had no control) was being considered, were visibly put out. Totally ignoring the reputational implications to the INEDs in Company "A" they firstly "humbly requested" a delay (until the end of that month!) of any announcements and then - when that plea appeared to fall on deaf ears - said rather petulantly that if the announcement went ahead, then perhaps the deal would have to be called off!!
Now, why would Investment Bankers want to "threaten" independently minded people unless, of course, they saw possible fat fees and rich bonuses going out of the window? Greed perhaps, or am I being unfair?
Here we are in the middle of a financial crisis. Many responsible people are doing what they can to try and recover from the situation in which they find themselves - but beware, because the "cowboys" are back already. Vultures, it is said, never move far from their prey until they have picked it clean. To Independent Non-Executive Directors be on your guard, and keep your eyes open - those are the first things the vultures go for!
Under the circumstances I can think of some new regulations!!
Thank you for your comments. Sadly I really cannot make this an individual advisory blog. What I will say is that I think there are enough clues to my feelings on HSBC in what I have written in my blog and said publicly.
Posted by: David Eldon | 15 March 2009 at 23:06
i am a normal hsbc stockholder in hong kong.
If you don't mind,i can be one of your fd.Recently, i am so sad because of HSBC.She is my first stock in my life even i am very young(23).i have held it more than 4 years and i am pround of being HSBC holder. i think you have known what was happening now.As a invester, i cannot make up my mind what i am wrong for my investment. Actually, CEO of Hsbc lacks of confidence.In my mind, it is not possible that HSBC is bankrupy.i am sure that. i know you cannot possible to tell me more about HSBC even l love HSBC.
Now, i only want to know that.
(1.) if you were i would you give up to invest HSBC?
(2.) if you were i would you invest more in HSBC?
Posted by: Oscar hui | 15 March 2009 at 22:16