City & Business: Two Bills and the story of a sweet young thing
Sunday 25 January 1998
If the latest storm over President Bill Clinton's sexual behaviour reveals anything, it reveals how little weight financial markets now attach to the US government.
On Thursday the news broke that secret tape recordings might show Clinton had an affair with a 21-year-old White House intern then asked her to lie under oath about it. The markets did not react. A day later the FT- SE 100 Index was off 1.36 per cent and the dollar fell against the yen and European currencies. But this had little to do with speculation about the odds on Clinton's impeachment. Instead, a rumour went round the markets that embarrassment about Monica Lewinsky might prompt US treasury secretary Robert Rubin to resign, undermining international efforts to contain the Asian financial crisis.
"Ridiculous," Rubin said when confronted with the rumour. Ridiculous is what the whole sorry saga is shaping up to be.
It's only benefit will be to tone down American triumphalism in the wake of Asia's financial problems. Washington has seized upon plummeting stock markets and currencies in the region to press Seoul, Jakarta, Kuala Lumpur, and even Tokyo to move closer toward a Wall Street model for their financial markets.
Washington's argument is that full disclosure ensures good information. Good information ensures that investors allocate capital efficiently.
This is Washington doctrine. But it is flawed. Take the announcements last week that three top American banks - Citicorp, Chase Manhattan, and JP Morgan - suffered severe drops in their fourth quarter earnings as a result of the Asian financial crisis.
No doubt the banks were hit. No doubt they are to be applauded for the transparency of their fourth quarter results.
Nevertheless, in businesses as complex as international banking, even the strictest accounting conventions afford a certain leeway. The idle thought occurs that maybe US banks reporting Asian hits were happy to be seen suffering from the Asian financial crisis. Such suffering makes for public relations in Asia. This PR is timely given that the big US banks are now engaged in refinancing as much as $25bn in short-term Asian debt at a profit.
Indeed, the longer the Asian financial crisis drags on the better London looks in contrast to other national capitals. There is the simple fact that UK banks are less exposed to Asia than their competitors. Bank rating agency IBCA notes that at the end of June 1997 banks from the world's biggest economies held $389bn in Asian claims (excluding Hongkong and Singapore). Of this sum Japanese banks had $123bn in claims; German banks $47bn; French banks $40bn; US banks $32.3bn; and British banks $29.7bn.
There is the more subtle fact that instead of making noisy calls for transparency, London has quietly waited to see what the Asian crisis reveals. By being diplomatic the British government does what it can to protect inward investment from the region. Meanwhile, the City waits quietly to see what low-profile business there is to be done in Asia now. Salesmen selling Asian stocks and bonds are quietly made redundant. Specialists in repackaging Asian debt are hired. Asia goes up. Asia goes down. President Clinton goes up. His drawers come down. The headlines focus on Washington and New York. The City quietly gets on with the task at hand.
THIS IS not to say the City is not fully capable of its own brand of foolishness. The Square Mile is an echo chamber. Rumours ricochet around the 500-plus banks and trading houses hunkered down there. On Thursday, as the news about Bill and Monica broke, shares in British Telecom took off, gaining 26 to 583 p. Volume of 30 million shares made them the most heavily traded in the FT-SE 100.
A rumour was making its way round the City that Bill Gates' Microsoft was preparing a bid for BT. The price, according to back-of-the-envelope calculations by City analysts, would come in somewhere between pounds 50bn and pounds 75bn. "But why would Microsoft want to buy BT?" wondered one brave analyst. "If it wanted to buy anything, the technology of the cable industry would make cable companies a lot more suitable. Microsoft could buy Britain's entire cable industry for one-seventh the price of BT."
On Friday BT shares fell back 14 to 569p. By this time a new, if more prosaic, theory explaining the flutter in the telecoms company was making the rounds. With the return on bonds falling across Europe, BT looked relatively attractive as investment. It offered almost as much safety and stability as bonds. But its yield was higher. "Probably," said the analyst, "there was a big buyer for BT shares on Thursday. The buyer went through several brokers. People got the idea that someone was making a bid."
IT ALREADY has Scary, Ginger, Sporty, Baby and Posh on its books. What record company EMI needs now is a Sushi Spice. Asian trading troubles is set to wipe pounds 25 million off EMI's profits this year. The company has put most of the blame on the double digit fall in its share price last week on the Asian financial crisis. Japan accounts for around 15 per cent of EMI's business.
So what's going on with EMI in Asia? Is consumer demand falling off because nobody has spare cash to buy music in Bangkok anymore? Well, up to a point. But City analysts say EMI has also got into trouble in the Far East because it hasn't been able to sign any popular local acts.
Then there's another problem. School girls in Japan are important customers for consumer goods, especially music, with pocket money averaging around pounds 100 pounds a month. Lately though, they have been spending that money on mobile phones - an absolute must for any self-respecting Japanese female adolescent - to the detriment of the latest CD.
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