dateline 03 November 2008

Earlier this month I read the forecasted third-quarter profit forecast for Deutsche Bank with great interest. I was surprised when the headline on their website read “Deutsche Bank expects third-quarter 2007 net profit to exceed EUR 1.4 billion” I was less surprised to read that the posted profit in the third-quarter was €435 million, and this after certain ‘adjustments’ now allowable, but hey, what’s a billion between pals. Amused, I had a good chortle reading Josef Ackermann’s comments in the lead up to the posting. He said, “the outlook for the banking sector remains challenging". I do enjoy rhetorical understatement don’t you?

Keeping with the European theme, the derivatives losses still keep coming. Caisse d’Epargne the French savings Bank must be going through the meat grinder at the moment. I couldn’t decide which comment had me laughing more. Their own, with yet more masterly understatement, said “Due to the extreme volatility of the markets and stock market crash in the week of October 6, Caisse d'Epargne experienced an important market incident in its equities derivatives activities”. This was an ‘incident’ of around €600 million you understand, or the comment in a note coming out of Citigroup recently which said, “Caisse d’Epargne's business model looks increasingly challenged". Well challenged would be one way of putting it I suppose. Unmitigated disaster may be another. Added to this Natixis must be feeling the pressure. Not that you would know it by the Ostrich impression Caisse d’Epargne is managing right now. This recent piece of information dropped into my inbox and I was amazed. It transpires Caisse d’Epargne and its merger partner, Groupe Banque Populaire together own 70 per cent in Natixis, France's fourth largest bank. A sharp fall in the Natixis' share price is currently being investigated by French authorities to see if investors had contributed to the decline (surely not). Natixis' shares were recently trading at €2.03 but Caisse d’Epargne holds the bank's stock on its books at €19.55 - the price at which its shares listed when it floated in 2006. I shake my head in bewilderment dear reader, as I’m sure you do to.

Moving swiftly on, we even had Christine Lagarde, France's Finance Minister, denying funding difficulties after the French satirical magazine Le Canard Enchaine, a great name don’t you think, said Societe Generale was facing a €6.5 billion gap in its capital base. You must all recall the name of Jérôme Kerviel, yes, that trader who managed to pop around 4.9 billion Euros in a series of trades. What I want to know is where did that 4.9 billion go, and is there any chance poor old me can get a cut? One lives in hope.

In the UK there was outcry amongst the political chattering classes when Barclays went solo on raising finance. Many august institutions were full of envious shame at their own positions. You know the feeling, you see the expensive opulent car go by, you lust after it, and yet you almost hate the person inside. Well all I can say to Barclays, on behalf of all these people you understand, is ‘How very dare you.’ However, Gordon Brown still does his globetrotting bit, telling anyone who will listen that they should join him in his financial idea of a ‘New World Order’. God help us all.

Hang on tight if you are involved in Hedge Funds. Investors heading for the exit has turned into such a rush some are getting trampled underfoot. Managers are trying to herd them safely back into the pens with increasing desperation. I only mention keeping the investors penned up because the industry itself talks about gate provisions. Only a few months ago, joining a hedge fund was akin to getting a Coutts & Co bank account, not for mere mortals. Now managers are making it hard for investors to get out.

Timothy Mungovan, a partner who advises hedge funds at the monolithic US law firm Nixon Peabody LLP is quoted as saying, "Everyone is looking at their gate provisions and what rights they have to close their gates, it is a phenomenon that has been occurring for some time and is picking up pace now."

So there, I wasn’t the one who started talking about those investors like they are cattle, they were.