Investors weigh up options as idea of Grexit becomes serious

19
05月

For almost the first time, the risk of a Greek default and exit from the euro. Past Greek crises always seemed likely to end in a deal, and did. This time, even at the 11th hour, red lines are turning scarlet.

Given that backdrop, the reaction of financial markets was remarkably sanguine. Greek stocks, especially banks, were clobbered, obviously. But the wider reaction was mild. Yields on the debt of eurozone stragglers rose but are well below levels seen in 2011-12. Stock markets outside were down but not heavily.

It suggests one of two things. Either investors still believe a deal will come, or they think Greece is too small to matter. The former should be known by the end of the week. But the idea that the Greek crisis is not terribly important for markets looks wildly wrong.

The up-front financial damage from a Greek default would be real to the lenders, causing a who-knows-what response in elections everywhere from Spain to Finland to Germany. A go-it-alone Greece could descend into economic collapse, forcing Berlin and Brussels to act to avoid interference from Moscow. Equally, if Greece were to abandon the euro and prosper in time, the single currency’s unity would be in doubt.

The view from US politicians and financial figures tends to be astonishment that Greece has not been cut more slack. They’re right to worry: it’s impossible to know precisely which problems default would bring, but all look serious.

Good governance, bad way of telling us

Wouldn’t it be useful to be able to invest only in companies that are governed well? It’s a nice idea, and the Institute of Directors has had a first stab at creating such an index. Or, at least, it has published a study suggesting ways in which the task might be approached. Unfortunately, this worthy document runs into a real-world obstacle: it’s not easy to understand.

The IoD hasn’t helped itself by publishing two sets of rankings of major listed companies. The first is a “perception study” in which the views belong to the members of the IoD members and two relevant trade bodies. The other is a ranking based on criteria that are supposedly more objective – companies are scored on 53 factors.

barclays bank
Barclays bank is seen as poorly governed yet is near the top of the IoD rankings. Photograph: Rex Features

If the purpose of running two rankings was to illustrate that perceptions and reality can be miles apart, it succeeds. Barclays, for example, is perceived as being poorly governed but the bank is near the top of the pile on the analytical basis. So ignore the subjective views and stick to the more rigorous stuff? You’d think that would be the conclusion, but it’s not what the IoD suggests. It proposes blending the two methods. It’s not clear why.

Ken Olisa, an IoD director who had an unhappy spell at governance-challenged miner ENRC, calls the approach “novel” but it can also be seen as arbitrary. Or, perhaps, it may be an implicit admission that judging good governance involves more art than science.

Some wrong ’uns can be easy to spot. ENRC was obviously so, even before Olisa branded the company on his resignation. But companies in the middle will always be trickier. Would the IoD’s index have weeded out the rotten banks, circa 2007, or Tesco, before its accounting scandal? If the IoD could answer yes, and provide the statistical evidence, we’d be all ears.

The IoD seems to have started from the correct observation that the current box-ticking approach to boardroom governance is flawed. A better definition of good practice would indeed be welcome, but it’s not obvious that this is it. More work needed.

HSBC’s search for a home goes on

Is the great HSBC domicile contest just a UK-versus-Hong Kong affair, or can anyone enter? Jamaica is game, of what HSBC chief executive Stuart Gulliver told staff at an internal meeting; apparently, there’s been an approach from the Caribbean island, as well from the Netherlands.

The latter is not such a silly idea, since the Dutch would score well on many of the 11 selection criteria the bank published last week. So perhaps could turn this into a regular competition. Every decade or so, the Wandering Bank could offer to move to the country that cut it the best deal on tax, regulation and so on.

Comparisons with how Fifa awards the World Cup would be discouraged. Instead, the bank would declare that it is living Gulliver’s new dream of “capturing value from our global presence”.