Will bankers ever learn from their misadventures?

City & Business
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The Independent Online
THE STOCK market is so busy future-gazing that it rarely stands back to assess past decisions and learn something from them. NatWest's decision to pull out of retail banking in America by selling its Bancorp division has triggered massive speculation about what it will do with the proceeds.

But barely a thought - either within the bank or outside it - has been devoted to what the American episode has cost and how similar errors might be avoided in future. Yet in a sense Bancorp was every bit as much a financial disaster as the Barings crash. It just took 16 years to unfold. And, of course, no one from NatWest is facing a long spell in a Singapore jail.

It began in 1979, when Robin Leigh Pemberton, then NatWest chairman, decided the bank needed more American exposure. He splashed out $456m (pounds 286m) on the National Bank of North America. Like an oil tanker set on a particular course, NatWest spent the next decade and a half building on that decision. It splurged $1.6bn on four more US banks and, when things got tough, beefed up the balance sheet with a $1bn capital injection. In total, it put $3bn into Bancorp. Inflation alone should have lifted that to $4bn or $5bn. The most pedestrian real growth would have pushed it to $6bn or $7bn. Yet NatWest will be lucky to get $4bn.

The only thing we learn from history is that we do not learn from history. NatWest's current executives weren't responsible for much if any of the Bancorp adventure and they are not apportioning blame now. Much more fun to debate how to spend the proceeds.

But retail bankers - who seem ever doomed to repeat their mistakes - should examine the affair. It should certainly be required reading at Bank of Scotland, whose latest foray into Australia (see page 6) is not entirely dissimilar.

Demerger mania

THE SIREN voices of the financial engineers are getting louder every day. Demerge this. Break up that. Spin off the other. Demerger is gaining a reputation as the cure-all for any company not already slimmed down to the narrowest of businesses. Wall Street went into raptures last week because the phone company AT&T announced it was splitting itself into three bits. This side of the Atlantic, speculators are piling into anything they reckon can be given similar treatment - from Lonrho to Ladbroke.

But while the pyrotechnics of merchant bankers can deliver short-term spurts in a share price, they only make sense in the long run to the extent that they help produce a better or cheaper product or service. Tiresome (if you're a merchant banker), but true.

Last week, the financial engineers were in full cry after Sears, that most diversified of retail groups, unveiled lousy interim figures. Here, they insisted, was a business ripe for break-up. It retails everything from furniture to shoes, and in a variety of formats from mail-order to department stores. Where's the synergy in all that, they asked? The answer is there is none. There's virtually no logic to the lumping together of Sears' myriad parts. But then there's no evidence that if it were broken up, the sum of the parts would be any greater than the whole. There is no easy solution.

Rummaging in the library, I came across a quote from Liam Strong, the chief executive, shortly after he arrived at Sears three years ago. Explaining how he planned to turn around the group, he said: "We are not talking rocket science here. The difference between most retailers is not strategy or insight. It's execution."

True then and true now. Retail, to rehearse Lord Sainsbury's favourite aphorism, is detail. Sadly, good execution is horribly difficult. And it requires more patience, dedication and doggedness than mere rocket science.

Strong has already tackled some of the worst excesses of this ramshackle organisation. The next essential is to put strong, motivated management into each of operating business. Good management at the centre is not enough.

Cook's wall of silence

WHEN the group managing director of a publicly quoted company and two of his colleagues face 141 criminal charges, you might expect the company to tell its shareholders. Not, it seems, when the company is DC Cook. As Patrick Tooher describes below, the company and its MD are in the dock for selling "clocked" cars. Yet they have not seen fit to inform shareholders through a Stock Exchange announcement. And with all the insouciant gall you might expect from second-hand car salesmen, they managed to conduct the entire annual meeting last Wednesday without a single mention.

Shareholders deserve to be let in on this little omission - first because any resulting fines or compensation payments could have a big impact on profits, and second, because they need to know whether the directors are fit and proper to look after their investment.

Perhaps one can't look for any more from a company still dominated by the founding family. When the daughter of the chairman is appointed to the board aged 22, you know better than to expect the company to be run purely in the interests of all shareholders. Family firms that go to the public to bolster their share register have to recognise they can no longer run their businesses as private fiefdoms.

New kid on the screen

TRADEPOINT, the screen-based stock market that was launched last week in competition with the Stock Exchange, has got off to a slow start. In its first two days, it handled precisely 40 trades, worth pounds 4.3m. By my calculation, therefore, it earned pounds 2,150 in commission - barely enough to keep the computers switched on. There is a long way to go to reach the 2 per cent market share target necessary for break-even.

But the Stock Exchange would be mad to be complacent. The system clearly works, and so far without a hitch. The advantages over the exchange's own Seaq system are compelling: anonymity and commissions one-quarter the size. Moreover, the institutional investors it is designed for have every reason to give it a whirl - they own it.

Tradepoint has two other aces up its sleeve. It is planning to extend its opening hours to cater for US-based dealers, who will be able to trade into the evening. And it is considering expanding the service to include international equities and Eurobonds. We haven't heard the last of this fledgling service.

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