CITY AND SUBURBAN
Sibley's Law shows where the money goes, but this time the banks choose a hedge
CHRISTOPHER FILDES
Iknow 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. Some- times they stay at home and collect unfin- ished 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 Man- agement, the hedge fund. This swashbuck- ling 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 capi- tal to a bank, so he said, is like giving a gal- lon 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.
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