Any other business

Watch out: Standard Chartered is even trickier to manage than credit default swaps

Plus: Why the other bank chiefs should be more careful about claiming their bonuses, and the fate of Peter Hambro’s gold mines

7 March 2015

9:00 AM

7 March 2015

9:00 AM

One day you’re an elder statesman, chairing top committees and pontificating on Question Time, and the next you’re out in the cold, reading terrible headlines about yourself in the newspapers you’re trying to sleep under on a park bench. Well, perhaps not as bad as that — but as it is for former foreign secretaries, so it is for overseas bankers.

Standard Chartered chief executive Peter Sands, I wrote in 2012, was ‘one of the few British bankers whose reputation has actually risen in recent years’; his bank was a ‘dull old dog’, but it was also steadily profitable and sensibly managed. Then came sanctions-busting scandal, unwise expansion, slipping profits and disgruntled shareholders. Now Sands is leaving in a boardroom cull that chairman Sir John Peace attempted to pass off as a routine ‘refresh’ — before revealing that he would also refresh himself by retiring next year.

Then there’s Stuart Gulliver, the safe pair of hands who led HSBC’s global banking arm through the financial crisis before being named chief executive in 2011. Now he’s had to explain why he was the beneficial owner of a Panamanian company that had a well-filled account with HSBC’s notorious Geneva branch — and investors are asking whether he and chairman Douglas Flint, with 55 years at HSBC between them, are the right men to run the bank. It’s a safe bet that, for the first time in HSBC history, their successors will be hired from outside.

Meanwhile, Sands’s successor, ex-JP -Morgan banker Bill Winters, is the regulators’ blue-eyed boy, following his role in the Independent Commission on Banking. The worst that can be said about Winters (of whom there is a vivid sketch as a young swaps trader in Fool’s Gold, Gillian Tett’s account of the origins of the 2008 meltdown) is that he was a pioneer of credit derivatives, the instruments Warren Buffett called ‘financial weapons of mass destruction’. It must also be acknowledged that JP Morgan was one of the few banks that knew how to handle them safely — but Winters will learn, in his new role, that personal reputation is harder to manage than any portfolio of paper risk.

Tempting fate

Lloyds Banking Group, now well on the road to recovery, has restored its once fat and famous dividend after an interval of seven years — but at a token 0.75 pence per share for a total payout of £535 million, of which £130 million goes to the Treasury on its residual 24 per cent holding. And chief executive António Horta-Osório turns out to be due £7.5 million under a three-year bonus scheme plus £3.6 million of shares from a long-term incentive plan. If my calculator is correct, he would need to own Lloyds shares worth £1.2 billion to earn the same package from a one-off three-farthing dividend. That’s quite a bonus, and I wonder how long real shareholders (many of whom, large and small, bought into Lloyds solely for its pre-crisis dividend stream) will go on accepting such a startling imbalance of rewards.

At Barclays too, chief executive Antony Jenkins has decided it’s safe to accept a £1.1 million bonus, his first since coming into post in 2012, despite a 21 per cent fall in pre-tax profits after provisions for foreign-exchange rigging and other faults. ‘We’ve come a long way,’ Jenkins declares — but City gossip says he hasn’t moved Barclays far or fast enough, and may feel a chill when tough new chairman John McFarlane arrives shortly. One way or another, ‘tempting fate’ is a constant theme of 21st-century banking.

Hambro’s tangled tale

‘Still enjoying it after all these years,’ Peter Hambro told me briskly when I asked this multimillionaire scion of the banking dynasty whether, at 70, he might be tiring of the rigours of running the Russian gold venture he founded in 1994. His company, Petropavlovsk, mines in the remote Amur region of the Russian Far East, with ‘proven or probable’ reserves of more than nine million ounces — but inaccessibility is the least of his problems in a tangled tale of angry shareholders, cynical short-sellers, prowling oligarchs, a massive valuation discount for being in Russia in the first place, and banks that want their money back.

Petropavlovsk took on a billion dollars of debt when money was easy and the gold price was soaring; since 2011 gold has fallen by a third, slashing the mines’ operating margins and playing havoc with the share price, which sank from £12.50 to just five pence — driven by short-selling, some of it by the company’s own convertible bondholders. In response, Hambro offered a choice between a last-ditch deep-discounted rights issue — part-underwritten personally by himself and his Russian business partner Pavel Maslovskiy — or imminent bankruptcy.

Opposition to the deal was led by Sapinda, a German-based fund that had built a 10 per cent shareholding. Conspiracy theorists noted that the head of Sapinda’s Russian interests, Artem Volynets, used to work for Oleg Deripaska — the sort of oligarch who might have his beady eye on those gold reserves, though Sapinda denied ulterior motives behind an alternative ‘rescue’ plan that would have given it a much larger stake. Meanwhile, Hambro himself feared Petropavlovsk’s army of 12,000 small investors, some of whom had been flinging insults at him in internet chatrooms, would soon be ‘calling for my head’. But at last week’s shareholders’ meeting it was the small fry — having been forced to choose between Hambro’s dice-roll and losing everything — who marched to his rescue.

They delivered a decisive 89 per cent vote in favour of the rights issue, though the volume of rights now being traded suggests that a smaller portion will actually follow their original money. So it’s unclear who will end up controlling the mines as Peter Hambro fights on into his eighth decade, while no doubt recalling for the umpteenth time the wise words of another City gold guru with a famous surname, the late Julian Baring: a gold mine is like a lobster pot — easy to put money in, but hard to get it out.

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