Jeremy Warner: Ronson won't call the turn quite yet
Wednesday 01 April 2009
Outlook To London's Dorchester Hotel, where Gerald Ronson was yesterday hosting his annual City lunch. The Heron International boss is as seasoned a participant of the European property market as they come, having successfully managed his way through at least three cycles. This must be his fourth.
At the same event two years ago, he successfully called the top of the market, though even he couldn't have imagined quite how devastatingly accurate his warnings of the bust to come would prove. In any case, this sage of the property market is always well worth listening to – in his no-nonsense style, he tells it as it is – so I make no excuse for repeating his words at length.
The crisis is not the sole responsibility of the bankers, he says. Investors were to blame, too. Everyone was happy to ride the gravy train, and as the demand for double-digit returns grew, nobody questioned too much how they were made. Money became too easy and people forgot that you have to work for it. Greed and inexperience were combined into a lethal cocktail.
Mr Ronson says he couldn't understand how anyone would buy a property without even seeing it, and yet that's what became the order of the day. Businesses need to be run and understood by people who understand and know their industry. Chronic lack of experience and expertise has resulted in an epidemic of insolvencies.
So much for the past. Mr Ronson's foresight, hard work and experience means that, unlike many others, he's well-financed and positioned to ride the storm. But what does he think about the future? Not much, I regret to say. Despite an already catastrophic commercial property crash, which has been twice as fast and a good sight deeper than the one in the early 1990s, he doesn't expect any short-term recovery. Even when it comes, he sees no repeat of the rapid bounce back in the market we've seen in past cycles.
Those predictions wouldn't have been welcome news to Mr Ronson's guest speaker at yesterday's lunch, Sir Victor Blank. The Lloyds Banking Group chairman is still busy trawling through the commercial property books of Halifax Bank of Scotland, and not a pretty sight they look too.
As Mr Ronson points out, during the boom when everyone was buying the market, the gap between fringe, secondary and prime locations became squeezed down to ridiculously thin levels. The best buildings in prime locations will eventually once again command premium values and yields. Regrettably, much of the HBOS portfolio seems to fall into the former categories.
Sir Victor still reckons his HBOS takeover will eventually prove a winner. You cannot judge the success or otherwise of a deal eight weeks after completion, he reasonably points out. Even so, he's got an awful lot of dilution from the Government's recapitalisation programme to work off before the merger becomes value-creative for pre-existing Lloyds TSB shareholders. The game is going to be a long one, and you cannot believe that Sir Victor would have done the deed had he known what he does now.
When Sir Victor was offered the job as chairman of Lloyds TSB three years ago, a friend apparently told him it was an opportunity, a privilege and an obligation for him to take the job. I'm not sure about either of the first two. Who would want to be a banker in today's banker-hating world? But an obligation? Well, it is certainly that.
Few events draw such a crowd of the grand mufti of the City and business as Mr Ronson's annual lunch. Other attendees included Sir Stuart Rose and the City minister, Lord Myners, both in the news yesterday for their different reasons. How does it feel to have an unholy alliance of The Sunday Times and Sir Tom McKillop after your hide, I ask Lord Myners. "I guess it comes with the territory," he grins.
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