Anthony Peters, SwissInvest Strategist
I gave no answers – I don’t have the means to review such weighty matters – but I did get the sense that there are plenty of people out there who suddenly wondered why that particular question never seems to have been asked before.
After another night of deadlock in the negotiations over how Greece is to receive the next tranche of its bail-out money, all the muppet-in-chief, Jean-Claude Juncker, had to say was “I don’t know when [an agreement] will happen… Greece has delivered, now it is up to us”.
Let’s have a party! The alcoholic is drinking less and has cut his intake from four bottles of vodka to three – in exchange we’ll get together and pay for two of the three bottles.
Simply put, there is not enough free cash floating around to cover Greece’s needs and the Germans flatly refuse to continue throwing good money after bad. The list of ministerial quotes would be, if it wasn’t so tragic, highly entertaining. Wolfgang Schaeuble, the German finance minister put it most succinctly in stating: “We have a series of options on the table on how to close the financing gap” and, carrying on, “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.” That certainly beats his French counterparty’s assertion that “I had good will, I had good will.”
I understand the position which Christine Lagarde is taking on behalf of the IMF as far as the sustainability of debt and debt servicing are concerned – rules is rules. But I also see where the Eurozone is coming from to where “rules is rules” now only seems to apply until the rules don’t suit a predicted but unwelcome outcome, at which point they are disregarded until they can be changed. This is called “raison d’etat” or “Realpolitik” against which I have, per se, no objections if it is clearly flagged as thus.
What I do object to is the way in which the tax-paying and voting public is being chivvied along in the mistaken belief that the hands have remained firmly above the blanket when quite plainly they haven’t. The impending necessity for public sector entities such as the ECB and other sovereign central banks to take a fierce hair-cut on their own Greek debt holdings is there for all to see and yet it is not being offered up for public debate. Are they really going to try to keep it under wraps until September 22nd next year when the Bundestag elections are due to be held?
I received an instant message from a chum in Zurich this morning which read “You seem quite obsessed with Greece. It’s bust. Time to move on.” I do take his point but Greece has become the canary in the coal mine, a role which it would not have assumed had the eurozone, in the Spring of 2010, abided by the old market maxim that the first cut is the cheapest. Too late now and the horse has bolted.
A solution to the immediate problems will be found, of that I have no doubt. That it will be of a sustainable nature is unlikely but if agreement can be achieved on Monday or Tuesday, the can will should be kicked into the next decade when all those present at the meeting will be tending their roses on inflation-proofed government pensions. Job done.
Meanwhile, on planet M&A
Corporate land is also an interesting place. The Glencore/Xstrata merger was finally voted through but without all the juicy retention bonuses for top management. On the same day, Hewlett-Packard wrote down $8.8bn from the value of its acquisition of Autonomy. Although the former – a company with an unparalleled recored of botched acquisitions and integrations – blames accounting irregularities, there is a sense that its inability to retain Autonomy’s senior management may have played a serious part in the destruction of the target’s value. Damned if you pay to keep top people, damned if you don’t.
Of course Xstrata’s assets are in the ground and don’t degrade at quite the break-neck rate at which software expertise does but it all goes to prove that bankers and management still continue to persistently do better out of M&A than do shareholders.
At the time when the Glencore bid for Xstrata first appeared on the tapes, I wondered what would happen when the short-term thinking of a commodity trading culture swamped the culture of ultra long-term strategic thinking which is required in a mining group. However, at the time, I felt assured that the miners would stay on board and although there would be fights between them and the traders, there would be hope. Nevertheless, I was never a fan of the merger, especially not with Glencore in the driving seat. It looked to me like the resources equivalent of “bankassurance” – that catastrophically failed attempt at linking upstream and downstream businesses.
Sure, it works in oil but does it work in nickel, iron and coal? Now there is the risk that the senior miners will pack their bags and walk. If I didn’t like the merger before, I like it even less now.