Morning:
8°c
A week ago, the auction of Damien Hirst's assorted works at Sotheby's could well have left the hyped £60 million price tag for dust. So last night's performance was pretty impressive, given that Lehman collapsed at the weekend and the global financial system has since shown passable signs of having a heart attack.
Generally speaking these are not the times to splash out, even for those with serious money. This may well turn out to be the point where the credit crunch starts to hit other assets. In previous recessions, what starts with a fall in the value of stocks, shares and property moves through to the things rich people spend their money on. The price of old masters begins to fall, fine wines likewise.
I will leave it to people closer to the art market to argue whether the Hirst sale delivered all that could be expected of it. Suffice it to say that we can expect a lot more art, antiques, fine wines, classic cars, stamps, jewellery and all those other things classed as collectibles to find their discreet way into the salerooms because the weekend's events have sucked a huge amount of money out of the economy.
A year or so ago, Lehman globally had several billion dollars' worth of shares tied up in employee remuneration schemes. That has all turned to dust and destroyed the finances of many who worked there. This is because most of the senior people at Lehman were ordered to take their bonuses in shares, and they were in essence not allowed to sell more than a trickle for as long as they were employees. Many got their high spending money to maintain their lifestyles by borrowing against the value of those shares. So not only has all their accumulated wealth disappeared but they also have a mountain of debt secured on worthless collateral. An uncomfortable number will need to sell assets quickly. The market for top-of-the-range houses in London looks likely to lose momentum, as does that for country estates.
On that note, according to the Sunday Times, Charlie McVeigh, the former head of Salomon in London, was reported to have put his South Coast estate on the market — though it is certainly not the case that he is a victim of the credit crunch, as he long ago hung up his banking boots.
But given that he paid about £15 million for the property in 2002, and has spent an absolute fortune improving the shooting and the vast pile of a house since, he has chosen a brave time to sell. Whether it goes quickly or sticks will say a lot about the state of the market.
Stumbling block for Barclays?
One of the more alluring stories going round yesterday was that the Bank of England was the reason Barclays did not press ahead with its bid for Lehman.
This version of events holds that the Bank was worried about contagion. It feared that the association of Barclays' name with a virtually bust bank like Lehman created a possibility which, however remote, could not be tolerated — that it could spark a Northern Rock-style run with depositors no longer thinking their money was safe.
People in the Barclays camp say this could not be true because Barclays would never have gone as far as it did in pursuit of Lehman without first clearing its intended course of action with the Financial Services Authority.
That rings true, but of course one does not preclude the other. As we saw with Northern Rock, the Bank of England and the Financial Services Authority have responsibility for different bits of the banking system and a different order of priorities.
However, the more credible reason the rescue failed was in essence the same reason why Lloyds TSB did not rescue Northern Rock. The stumbling block was the speed with which the deal had to be done if confidence were to be maintained because it meant neither buyer had sufficient time properly to go through the failing bank's books. Therefore, they could not be certain what scale of risk they were taking on.
They were prepared to take a chance up to a certain amount but beyond that they wanted an indemnity from the authorities against the possibility of a calamity they had not had time to uncover. The US authorities would not give this comfort, and certainly not for a British bank. But rather than have to admit this, it suited the US Treasury to let rumours gain ground that the Bank of England was against the deal.
Downgrading the Bank's role is a bit of a pity. I was rather comforted in these troubled times by the suggestion that the Governor's eyebrows were back as an indicator of approval or disapproval.
Comeback of the hedge fund king
There can be few people with more experience of hedge funds than Stanley Fink. Architect of the rise and rise of Man Group until he retired last year, he has announced his return as chief executive of International Standard Asset Management, a much smaller organisation than the one that he left.
Some might think this a strange time for a comeback, but Fink is clear that global macro funds which invest in futures and currencies should avoid the worst of the credit crunch. The real sufferers, he says, are the long/short managers and those who have found their leverage taken away.
I wonder if he was thinking of all those funds that were short of Merrill Lynch last week, only to see it bought at the weekend?
