Cash money tq

Sibley's Law shows where the money goes, but this time the banks choose a hedge

I know I should keep a straight face, but the spectacle of banks finding new ways to lose money never fails to tickle me. Their ingenuity is breathtaking. Sometimes they lend to countries they could not find on a map, or emerging markets, as they were called before they submerged again. Sometimes they stay at home and collect unfinished office blocks or country houses where the eye of faith had conjured up hotels and golf courses. Look at them now as they come over with their hands up and admit their exposure to Long Term Capital Management, the hedge fund. This swashbuckling performer, playing the markets with its bankers' money, swashed for a year or two but has now buckled. The Untied Bank of Switzerland thinks it prudent to provide against losses of 400 million. Dresdner Bank thought that 80 million will do. As for Barclays, still smarting from having lost 250 million in Russia, it is putting an extra $300 million into the pot but hopes to get it back. The banks have turned on what used to be a sixpence. In July Sir Brian Pitman was complaining that Lloyds, his bank, would soon have 6 billion of excess capital and must find a use for it. Banks left and right have been searching for something to keep their capital busy, looking further afield for high returns or just spending their money on buying each other. They will now find out whether their cherished systems of risk appraisal are any better than a working memory and a good sense of smell. They will be reminded of the law laid down by that worldly banker, Nicholas Sibley, and quoted here from time to time. Giving capital to a bank, so he said, is like giving a gallon of beer to a drunk: you know what will come of it, but you can't know which wall he will choose. I never thought that, this time, the banks would choose a hedge.

Jubilation

GOOD NEWS for all those (or both those) who want to go by Tube from Canada Water to Canning Town: there is light at the end of the tunnel. London Underground has called in Bechtel, the contractors, in a last attempt to make the Jubilee Line extension open in time for the millennium: well, this millennium, anyhow. Billed as the biggest civil engineering project in Europe, it could certainly claim tQ be the worst. Years behind schedule and miles over budget, it has pre-empted the investment that the failing system needed, for the sake of building a longer way round from Stratford-atte-Bow to Bond Street. Sensible traffic links go where the traffic goes or wants to go, and their economics work by concentration, not dispersal. This line will take in the Dome, if that is ready and if there is anything to put inside it. There, too, I get the impression that another millennium would be handy.

Booted out

I WONDER how many votes Helmut Kohl got in the Bundesbank's stony corridors. His country's central bank is or was its most respected institution and he has twice walked all over it in cleated boots. When Germany was reuniting, he laid down, in the face of the facts, that a mark from the east was worth just as much as a mark from the west. When the Bundesbank's president, Karl Otto Poehl, protested, Mr Kohl brushed him aside and forced his resignation, and the problems of monetary union in one country duly followed. (The voters in what was East Germany seem to have taken them out on him.) Undeterred, he pushed ahead towards monetary union in a dozen countries. This will deal with the mark by abolishing it, and as for the Bundesbank, it will be reduced to the status of a minority shareholder in the upstart European central bank across the road in Frankfurt. Wim Duisenberg, the new bank's president, has been telling his shareholders to hurry up and bring their interest rates into line with one another's and, of course, with his own. This, too, flies in the face of the facts. It would be hard to persuade the Bundesbankers that what is right for Germany's economy is right for Ireland's, when Ireland's is now growing three times as fast. Mr Kohl walked all over these objections in his usual way, but they survive him. A shame that the mark and the Bundesbank didn't.

A sellers' market

I TAKE my hat off to the boys and girl (Carol Galley, no less) at Mercury Asset Management. They have outsmarted the great Goldman Sachs at the difficult art at selling out at the top. It is true that, unlike Goldman, they never set their sights on $30 billion - a modest 4 billion would do but the cheque from Merrill Lynch, which bought their business, went through safely and their own money need never worry them again. Managing other people's money is a great business when markets are rising, for the managers tend to be paid on commission, but when prices fall by onefifth in two months, some of the gloss must come off it. It was midsummer when Goldman's partners voted to bring their firm to market. I said at the time that they were taking a once-for-all price, or trying to: `They do not want to be left hanging around in the market when it gets hit on the head with a plank.' Now the plank has descended and the sale is off. All those putative multimillionaires are left to tell each other that their firm works better as a partnership and that if they had raised new capital they would only have put it into hedge funds. So I dare say that Goldman has done the right thing, if only by accident. As for the clever boys and girl at MAM, I am told that they took cash, rather than taking shares in Merrill Lynch - which have since then lost half their value - and I imagine that they put the money in a nice strong bank.

No problems

SOMEONE in Goldman Sachs's back office is whistling to keep his partners' spirits up. He is running a corporate ad which shows a stern and rockbound coast such as the Pilgrim Fathers landed on. The spiel that goes with it tells us that stormy markets are good for investors: `Turn to Goldman Sachs and turn your challenges into opportunities.' I remember a chairman of Imperial Chemical Industries who used this line to rouse the troops. 'I don't want to hear any more about problems,' he would cry. `We don't have problems. We have opportunities, opportunities. Is that clear?' `Well, yes, chairman,' he was at last told, `we do seem to face a large number of insurmountable opportunities.'