Global Investing

If there’s one thing you don’t want to be, it’s the next Iceland.

Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.

Within weeks, banking problems and currency falls meant Hungary was being hyped as a “second Iceland”, at least until a joint International Monetary Fund and European Union rescue package restored some stability.

Next to win the unwanted comparison was Ukraine.  Having lost at one stage half its value, the currency has somewhat stabilised — although most foreign investors are very hesitant to hold Ukrainian assets again.  And like Iceland itself, Ukraine is now dependent on an IMF lifeline.

Now, it is Britain in the limelight.  The New York Times as well as Britain’s Observer and Daily Telegraph newspapers have all made the comparison in recent days.

    Are you an out-of-work banker looking for a new job with
some stability? Considered the drugs industry?

    Daniel Vasella, chief executive of Swiss pharmaceuticals
company Novartis, reckons his sector is a pretty good place
to work when compared to "mercenary" banking.

    "We are not in a banking industry, where they fire a
thousand investment bankers and then a year after they hire
a thousand investment bankers," Vasella told Reuters.

The storm raging through financial markets has already cost bankers much of their business, bonuses and public esteem. But now they won’t even be able to drown their sorrows in their usual glass of bubbly at one of the most cherished events in Frankfurt’s social calendar.

The glitzy, champagne-laden black-tie gala that usually closes Frankfurt’s annual Euro Finance Week and hosts the VIPs of Europe’s banking and insurance industry, has been cancelled.

Top German banks, Deutsche Bank and Commerzbank and Dresdner Bank concluded that such a show of opulence was not “suitable for the times”, writes Spiegel magazine.

It’s nickel and dime time for banks as they come under pressure to cut costs in order to survive the worst financial crisis in 80 years.

According to banking sources, a U.S. bank in Canary Wharf has banned colour printing and has asked employees in the back office to chip in 25 pounds each for the office Christmas party.

A bank in Mayfair has told its employees to only hail cabs on the street instead of booking on the phone. Another bank in the City has pushed back the time employees can take taxis home to 9.30pm from 8.30pm previously.

You know things are bad on financial markets when an investment research note starts talking about Dante‘s visit to the nine circles of Hell with tormented lustful souls and gluttons living in filthy slush.

In the case of State Street Global Markets’ latest report, however, there is a more direct link than simple hyperbole about the way investors are feeling. The firm recently had a chat with former U.S. Treasury Secretary Larry Summers who defined what he saw as the five vicious circles of the current financial crisis.

It goes like this:

Circle One: House prices fall in value, putting some people into negative equity and leading some to default on mortgages. Foreclosures further erode asset values.

Iceland is for sale — on ebay.

It has great scenery and wildlife but the financial situation is in need of repair and a buyer must collect in person.

Bidding started at 99 pence but had reached 10 million pounds ($17.28 million) by mid-morning on Friday.

Globally renowned singer Bjork was “not included” in the sale, according to the notice, but there were nonetheless 26 anonymous bidders and 84 bids.

The global financial crisis is no laughing matter for many people, but it has nonetheless resurrected some dreadful puns that were popular back during the Japanese banking fiasco in the 1990s. Doing the rounds by e-mail are the following:

Sumo Bank has gone belly up; Bonsai Bank is cutting its branches; Karaoke Bank is for sale and will go for a song; Samurai Bank is soldiering on; Ninja Bank is in the black; staff at Karate Bank have got the chop; and there is something fishy up at Sushi Bank.

The recent crisis has been less fruitful. Some people started cruelly referring to Northern Rock as Northern Wreck when the British lender was nationalised and analysts have lately been toying with TARP, the Troubled Asset Relief Plan. Credit Suisse and Merrill Lynch both suggested that TARP could be a TRAP while Goldman Sachs suggested it had been TARPedoed by Congress.

In these troubled times, go back to basics.

Theo Zemek, AXA Investment Managers‘ global head of fixed income, says investors should adopt “Quaker investment policies” – sober and safe investment strategies that can be explained to their grandmothers.

“Anyone who utters the word ‘hedge’, after all these CDS (failures), ought to be taken out and be shot,” the 25-year markets veteran told a media briefing.

“This is the scariest market I’ve ever seen in 25 years. The world of complex instruments, credit guarantees… That world is very much an ancient history… It’s a darn tough market. Who is left standing among our counterparties?”

During a briefing in the London office of Societe Generale this week, Alain Bokobza, head of European Equity and Cross Asset strategy, handed out a booklet containing series of charts and graphs to explain the bank’s latest multi asset portfolio for the fourth quarter.

As he explained the outlook for the UK economy, a chart on UK growth was discreetly missing from the booklet.

“There’s no chart. It’s too gloomy to print it,” Bokobza told the participants.

Societe Generale sees inflation shooting below the Bank of England’s target of 2 percent over the next two years and has a bullish call on UK stocks as it predicts benchmark interest rates to fall to 3.5 percent in a year’s time from the current 5.0 percent.

“Dear readers, let us begin this week’s missive by acknowledging its partial incompleteness. For understandable considerations, there are some capital market situations that we cannot discuss. We thank all our readers for their support and look forward to continuing to provide you with timely analysis.”

This is how Lehman Brothers’ strategists began their last ever weekly research note, published on Saturday – only two days before the U.S. investment bank collapsed.

In the 146-page research, Lehman strategists argued that bonds are performing well in September thanks to rising risk aversion and financial institution uncertainties.