Loomnie

Joris Luyendijk, Dutch anthropologist and journalist, is currently blogging an anthropological study of bankers he’s doing in the City of London for Guardian. From the introduction to the blog:

It is quite a change for me, exploring bankers. I used to do anthropological fieldwork among students in the slums of Cairo, then worked as a Middle East correspondent going back and forth between Hamas leaders and Jewish settlers. The latter were people who knew they might die at any moment for their convictions, and had made their peace with that. Meanwhile those students lived off less than a dollar a day.

Compare this to the bankers and I have moved from freestyle boxing to billiards. Then again, readers’ responses may not be that different.

When I wrote about Israel and the Palestinians some readers would judge an article exclusively by whether it was likely to make one camp look good or the other. In particular, pieces that humanised their objects of hate elicited very aggressive letters to the editor – or worse. I expect the same thing with bankers.

The Middle East is a pretty intense place but unless you have family living or serving there, for most readers it is also a pretty far away place. Finance is not. If somebody told you your savings aren’t safe, she’d have your full and immediate attention, wouldn’t she? But if she then said the words “bank reform” many would have to suppress a yawn.

This is paradoxical. Finance directly affects everyone’s interests, but many have a hard time maintaining their interest in it. But as the collapse of Lehman Brothers and the following three years have shown, the financial world is too important to leave to the bankers – in fact in some countries democracy is beginning to look like the system by which electorates decide which politician gets to implement what the markets dictate. The people in this very powerful sector are worth learning more about. And the good news is, when you listen to them in their own words, that can actually be pretty entertaining. And humanising.

The first batch of posts is a series of profiles of different actors who work in the City. You can read the whole thing here.

The closest thing to this on Wall Street is Karen Ho’s book Liquidated, which I wrote about here.

From Reuters:

Nigeria’s central bank plans to diversify its $33 billion in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan, underlining the momentum behind China’s drive to internationalise its currency.

“We are looking at anything to start with from 5 to 10 percent of our reserves,” central bank governor Lamido Sanusi said on Monday.

The central bank had already said that it was considering reducing its reliance on the dollar, which economists say accounts for the bulk of its $32.96 billion in reserves . The bank does not publish the currency composition of its assets.

But Sanusi, speaking to CNBC news by telephone from China, said Africa’s second-largest economy was not abandoning the dollar and euro. “They are going to remain an important part of our holdings,” he said.

Continue reading for more analysis of the decision. From what I’ve seen, CBN seems to be the first central bank to do this.

See also FT TIlt for more analysis.

If you have been following the news, you know about the shake-up, the rescue and the proposal to buy off bad loans. Reuter’s report on the current state of the industry:

Two of Nigeria’s nine rescued banks are in talks with foreign investors about recapitalisation but most of the others are more likely to be taken over by local rivals, banking sources said on Thursday.

Sub-Saharan Africa’s second-biggest economy rescued nine lenders deemed to be dangerously undercapitalised in a $4 billion bailout last year. The central bank has been trying to find new investors to help recapitalise them since then.

Nigeria has set up a state-run asset management company (AMCON) to help absorb up to 2.2 trillion naira of bad bank loans, but this will only bring the rescued lenders back to zero shareholder funds.

“AMCON will do the non-performing loan purchase but after that there will still be a hole, and that hole will have to be filled through mergers,” one senior banking source said.

Banking sources said two of the lenders — Bank PHB and Union Bank — were in talks with foreign investors.

Four more are talking to local banks, one has raised funds and will scale down to survive, while two others have yet to find potential suitors, the sources said.

Read in full here.

Reuters: The bank expects economic expansion of 4.6 percent in 2011 and estimates the region grew by between 1.0 and 1.1 percent in 2009, said Andrew Burns, the bank’s manager of global macro economic trends.

The crash of 2008 revealed the flaw in the euro’s construction, as each member country had to rescue its own banking system instead of doing it jointly. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart, with adverse consequences for the EU.

Check out the full article here.

And while you are at it, have a look at Krugman’s column, The Making of a Euromess.

I was just thinking of writing a column on the new term limit imposed by the Central Bank of Nigeria on bank CEOs when I saw this thoughtful Next editorial:

Is the CBN too powerful?

In the national confusion over our president who has vanished into thin air, a significant but little remarked event occurred earlier this week. The Central Bank announced that it was retroactively imposing a 10-year limit over the tenure of bank CEOs, effective July 31.

It was not lost on most discerning observers that the primary targets of this new policy appeared to be two of our most prominent bank chiefs, Tony Elumelu, who engineered a takeover of UBA by the much smaller Standard Trust Bank that he used to run six years ago; and Jim Ovia, who built Zenith Bank from scratch and made it a ubiquitous presence.

The legality of the CBN decision is hardly in question: we have a central banker so powerful that it can dissolve the boards of banks, dismiss their executives, dictate their operations and pretty much act in almost any way it pleases.

The necessity for such level of authority is not hard to see. The banking system of any country plays an outsize role in the national economy. Poorly regulated or supervised, banks are quite capable of destroying the economy and impoverishing the rest of us. The United States barely dodged the bullet in the last quarter of 2008, when its banks tottered and nearly collapsed, bringing the world’s financial system down along with it. And the level of sheer criminality in our banking system, exposed in the past seven months only because a complicit Central Bank governor was replaced with a more alert one, was an object lesson in the need to guide the banking system with a firm hand.

No one can deny that the wretched excesses of banking chiefs with supersized egos, exemplified by Cecilia Ibru at Oceanic Bank and Erastus Akingbola at Intercontinental, made an aggressive posture by the Central Bank an urgent imperative.

But the question needs to be asked: should the Central Bank be assuming the roles of board directors to dictate how long a chief executive may serve? Heavily regulated though they are, unlike, say, a cement company or a flour mill, banks nonetheless remain the property of private investors, and in the absence of a specific regulatory breach by identifiable bankers, should the Central Bank be in the business of stipulating how long they may serve? Setting term limits, as a general principle, of course works well in politics and government. The basic assumption, which is well founded in our experience of the frailties of leaders, is that power corrupts, and the earlier we can kick the bums out, generally the better for the state.

This may, of course, not necessarily work in private enterprise. Bill Gates built Microsoft from the scratch and ran it for 25 years. The mercurial Jack Welch, during a two-decade tenure, rebuilt General Electric into at one time the world’s largest company by market capitalisation. And in our own country, Atedo Peterside founded and ran IBTC for nearly 20 years, making it one of the country’s most respected banks.

Central Bank officials justify their latest action thus: A banking license is a rare privilege, granted on the implicit assumption that the holder will act in the highest traditions of prudence and restraint, and essentially run a bank in the best interests not only of depositors and shareholders but of the public at large. Needless to say, many of our most powerful bankers failed that test in recent years, culminating in last year’s crisis that has forced the treasury to pony up about N1 trillion to rescue the banks lest the economy collapse. That’s a number with a lot of zeroes to clean up after Mrs. Ibru’s mess.

Officials also argue that banks are unique because they hold custody of other people’s money to trade with, with the clear understanding in the public mind that the government, by giving them such a right, is putting the full faith and credit of the public treasury behind them. And this is not simply a shareholder matter. In general, for every one naira shareholders place in a bank, the public deposits six, seven, eight, maybe even N20. This distinguishes a bank from Guinness or Chicken Licken.

Crucially, officials argue that our recent experience makes it a matter of prudence and commonsense to impose limits on the tenure of banking chiefs. “The certainty that they can stay as long as they wish and maybe even transmute to bank chairman makes some CEOs act with impunity,” one senior regulator told us last week. “Knowledge that there will be change conditions behavior.”

There lies the rub. Those leery of a Central Bank with untrammeled powers say that the CBN, by making such a sweeping rule regarding tenure, is inadvertently admitting its own failure to regulate and supervise the banking system. Were the CBN competent in the discharge of its duties, it would have had a bit more confidence to prevent widespread abuse by bank CEOs and to punish rogue bank chiefs where the situation demands. As one senior banker tells us, “a one size fits all rule does not often work well.”

Cynics might feel free also to point out that Tunde Lemo, a powerful deputy governor of the CBN, was directly in charge of banking supervision over the past few years that the most reckless behaviour on the part of bank CEOs occurred. It would not be unfair, and might even be somewhat generous, to accuse Mr. Lemo of negligence. But a term limit apparently does not apply to him.

It is instructive that the bank chiefs immediately affected have refrained from raising any hackles regarding their sudden forced exit. In one fine example, Mr. Elumelu immediately got his board to announce that a succession plan was in place and appears to want a tidy exit that does credit to the UBA, as he makes clear elsewhere in this newspaper.

Our view is that, while the CBN governor had got most of the big things right so far in his turbulent nine-month tenure, one must always be wary of a government official with power to do almost anything.

We will remain vigilant.

From FT reporter Tom Burgis:

Two of Nigeria’s most prominent bank chief executives are to be forced to stand down under new rules introduced by the central bank as part of the governor’s ongoing tussle with some of the country’s most powerful tycoons.

Lamido Sanusi, who took over as governor in June, has already rocked the financial sector in Africa’s second largest economy, dismissing the executivesof eight banks during a debt crisis brought on by reckless lending. The central bank bailed out stricken banks to the tune of $4bn.

In the latest move, the country’s 24 banks have been instructed to place a 10-year limit on the tenures of chief executives. “All CEOs who would have served for 10 years by July 31 2010 shall cease to function in that capacity and shall hand over to their successors,” the central bank said.

The purpose of the new rules was to address “corporate governance issues”, the bank said.

Full story.

Check here for reactions from Nigerians.

The Nigerian government has decided to implement a common year-end for Nigerian banks. The point is that, because banks have had different fiscal cycles they could move money around amongst each other to inflate the value of their total assets. Which was part of what contributed to the banking crisis of ’09. The immediate reaction:

Already reports from the banks reveal that the inflated figures usually declared as value of total assets would shrink noticeably. A source at the First Bank who pleaded anonymity told NEXT, “You should expect shrinking in the total asset positions of the banks. That has already started to manifest in the industry.” The source added, ‘‘Whether or not the banks declare losses, the books would shrink. The same money people kept circulating and adding to their books would no longer be available. We were more than double counting the same money, and this was possible because the banks had different accounting year end. ‘‘

As I wrote in my column of today, Nigerian banking sector is corporate Nigeria. From the same Next report:

Another banker observed that, “The stock market would run into more trouble. About 60% of the market’s All Share Index (ASI) is controlled by banks. Listed securities are mostly banks. With this they would sell down. It means they would release more into the market and then prices would further go down. One thing is certain; the ASI would be further depressed.”

60%!? We have not started building a financial sector at all!

I am just about to finish reading anthropologist Karen Ho‘s Liquidated: An Ethnography of Wall Street. She carried out seventeen months of fieldwork on Wall Street, interviewing and observing investment bankers. Actually, she started out as a rookie analyst working in management consulting in a hybrid investment and commercial bank. She had the intention of doing some pre-fieldwork study before going back to graduate school to write a dissertation on Wall Street culture. She got laid off after six months into her job. The experience of being laid off became one of the central things she studied during her fieldwork.

The book is not so much an indictment of Wall Street as it is a presentation of the way the Street understands its place in the scheme of things. She highlights the self-understanding of investment bankers as ‘being’ the market, an understanding that goes as far as to justify, on the one hand, receiving insanely huge bonuses, and on the other, being very liquid individuals themselves. The rate of staff turnover on Wall Street is extremely high.

Perhaps the point that I found most instructive is the way Wall Street has changed corporate American culture in the past 25 years. Corporations, which were seen as part of the welfare capitalism of the post 2nd World War era gradually lost their status as social institutions. Shareholder value has become naturalised as the sole reason for the existence of corporations, and anything that can improve shareholder value, no matter how short that increase in value lasts, is encouraged. This sometimes includes hostile takeover, and almost always demands massive job cuts and downsizing. Once corporations are no longer seen as social institutions that provide jobs and care for customers, those are rather easy things to do. Perhaps inconvenient, but easy.

The emphasis on shareholder value has led to short-term thinking and has often robbed corporations of the ability to make long-term plans. If a group of investors buy up a company by leveraging that same company on the junk bonds market, with the plan to cut spendings on R&D and cut jobs in order to ‘improve’ the shareholder value of the company before selling it off, how would they make long-term plans for such company? This could happen to corporations that are healthy, all things – including stock price – considered.

This leads me to thinking about what is currently happening in the Nigerian banking industry. I blogged about it when five banks were taken over by the Nigerian Central Bank. Shortly after, that the Central Bank published a list debtors of the banks. In all that, what was not mentioned was the corporate practices of those banks during the Nigerian stock market bubble. Actually, the practices of the banks was what created the bubble. Increasing their own shareholder value became the main job of the banks. Of course, in a weird way, this is understandable. Wall Street could claim to work on increasing shareholder value of corporate America; in Nigeria, the banking industry is corporate Nigeria.

It is not by chance that it was after the bubble burst that the Central Bank took over the banks. Before then, the profits banks were declaring were highly manipulated figures that bore no relationship to the actual condition of the banks. Now, they have to find a way of reconciling their balance sheet, somehow. I was in Nigeria a couple of weeks ago, and the cry was, and still is, that banks are laying off staff in droves and closing up branches.

It is perhaps obvious from this post that a lot of things are still not clear, at least to me. Newspaper commentaries I have been reading since the banking crisis started have not helped me much. This is probably due to the fact that we are always too quick to resort to simplistic explanations – one of which was the publication of the list of debtors – that we (the public, and even journalists) stop asking questions that might lead to a better understanding of what happened. As if the only reason the banks are in trouble is because they gave out too much in loans.

I am now thinking that it might be a nice idea to do an ethnographic study of the Nigerian financial sector when I am done with my second-hand clothing dissertation.One of the biggest strengths of anthropology is the fact that anthropologists ask basic and simple questions, questions whose answers are sometimes assumed, until they are asked. Wouldn’t it be interesting to turn that kind of attitude towards the Nigerian banking industry?

You can listen to Karen Ho on Laurie Taylor’s Thinking Allowed programme on the BBC.

Financial Times’ Gillian Tett reviews Karen Ho’s Liquidated: An Ethnography of Wall Street:

Liquidated: An Ethnography of Wall Street
By Karen Ho
Duke Press £16.99, 392 pages

When I first started covering finance for the FT, I used to get embarrassed when asked about my academic past. Before I became a journalist, I did a PhD in social anthropology, a branch of social science that endeavours to understand the cultural dynamics of societies based on grass-roots analysis.

Back in the pre-credit crisis days, bankers tended to consider degrees in anthropology to be rather “hippy”. As one banker told me; the only qualifications that really commanded status were those linked to economics, maths, physics and other “hard” sciences – or, at a pinch, an MBA.

Not anymore. As the financial disasters of the past two years have unfolded, it has become painfully clear that bankers placed far too much faith on their quasi-scientific models. It has also been evident that a grasp of cultural dynamics is critical in understanding how modern finance works – or doesn’t. Consequently, the idea of using the social sciences to understand money is becoming fashionable in some quarters.

Given all that, Karen Ho has picked an excellent time to publish her fascinating new study – or “ethnography” – of Wall Street banks. Ho is currently a professor of social anthropology at the University of Minnesota. A decade ago, however, she was an employee of Bankers Trust, formerly a powerful Wall Street banking giant, and carried out research among a number of banks.

As field-sites go, Wall Street is not classic anthropological territory: ethnographers typically work in remote, third-world societies. Ho admits that studying banking tribes was hard: “The very notion of pitching a tent at the Rockefellers’ yard, in the lobby of JP Morgan or on the floor of the New York Stock Exchange is not only implausible but also might be limiting and ill-suited to a study of the ‘power elite’,” she writes. Continue reading…