British Banking Giant
Wed 10 Dec 08 | 04:22 PM ET
Sir Evelyn de Rothschild shares his thoughts on the international financial system and the world economy.
Maria Bartiromo (CNBC): And welcome back. Joining us now in another CNBC exclusive to share his thoughts on the international financial system – what's right, what needs to change – Sir Evelyn de Rothschild. Evelyn, nice to have you on the program; thanks so much for joining us.
Evelyn de Rothschild: Well, thank you for having me.
Maria Bartiromo: You know, I read your op-ed and I thought it was so apropos in this period, and you went through all of the people who are to blame for what has gone on, and this is a broad group. Can you take us through your observations, given the fact that we've seen this global situation – of course, Gordon Brown in Britain was very quick to take a stand and try and offer solutions.
Evelyn de Rothschild: Well, I think hindsight, as some people say, is an exact science; I don't believe that there's time talking to you to go through the past. I think what I'm interested in, how we deal with the present and go for the future. And I think that, if I may say so, I think the Group of 20 meeting was very important, because it brought out the realization that we're all in this together. And I think Gordon Brown did a remarkable job in pointing out that you have to have action, and the action needed to be taken very quickly. But, you know, um, politicians will debate, and they will debate, but I think that we have some very important principles if capitalism is going to continue for the benefit of all.
Maria Bartiromo: A lot of people are worried that, in fact, capitalism right now is being threatened. You've got the government in the United States owning 80% of AIG, owning Freddie and Fannie, nationalizing those companies, and of course, investing, taking stakes in the major banks. Is this something that you're concerned with?
Evelyn de Rothschild: Well, I think that you have to face up to the fact that you couldn't let these people collapse, and you've now got to realize that you've got to get the better system going, and here's one of my main thrusts. And I think regulation is important; what has happened in the past is that you haven't had the regulation supervised. You know, it's really easy to have regulation, but you've got to have the supervisors. Two things: one, they have to know what they're supervising, and understand what they're supervising; and they have to have the chance to have action when they decide that so-and-so, or an institution, isn't behaving correctly.
Maria Bartiromo: So, in that vein, do you think then that it's a positive that they're looking for an auto czar, a car czar, to sort of police things once the autos get the money?
Evelyn de Rothschild: Well, I think that's a form of supervision. And I'm amazed that in your country, or here in the great US of A, you haven't put more supervision into the institutions where you've put your money. We in England, the banks, have been very much taken over by the government in some measure or another. Uh, the chairmen have been removed, the chief executive has been removed, and they are watching very closely how they behave.
Maria Bartiromo: Isn't it interesting that you saw the government come in and rescue Citigroup, and yet the management and board of directors remains in place?
Evelyn de Rothschild: Well, maybe that's a reason for that which I wouldn't know. But I think what is important is that we've got to go ahead to the future. And to the next generation, and the generation after it. Capitalism is going to become a very important factor in our lives. You've got to make sure that people understand, first of all, that directors are well-versed in what they are dealing with. I'm ashamed to say that I think a lot of people in the banking community, which I was sometime ago involved, and I gave up banking four years ago, but I think that the important thing was for directors to understand, and the people working in the banks, what they were doing. I mean, this gearing that went on in the banks, this extraordinary measure of financial acumen which was used without people understanding.
Maria Bartiromo: So let me ask you this: As an investor, you know, I mean clearly, your family business over the years, as you say, generation to generation to generation, has proven successful throughout all of those generations. As an investor today, faced with all of this upheaval that we're seeing globally, how are you investing? How do you see the marketplace today, with the fundamentals clearly deteriorating around the world and the global markets in disarray?
Evelyn de Rothschild: Well, in 2007 I took the view that this is going to get very bad; and I personally, I don't mind telling you, I'm invested in government bonds. And I'm very pessimistic for the moment until we see what's going to happen next year. But I think that it's very easy to point out, um, how you're placed, in investment, at the moment, uh, when you have lost a great deal of money, where do you go from here? And I feel sorry for, which we don't talk about a lot, is what's going to happen with the pensioners, firstly in my country they're in trouble – I believe they're in trouble here, you have a name for the pensions – um, and we have to face up to the fact that there are a lot of people who have lost all their savings, um, and who are going to be faced with a terrible problem of feeding their family, dealing with the problems of day-to-day living. And I think that is where the problem is going to be the greatest.
Maria Bartiromo: You're talking about pensions as well as 401(k) plans –
Evelyn de Rothschild: Yeah, yeah, that's right.
Maria Bartiromo: – I think that's what you were referring to. And some companies now are deciding they don't want to match the 401(k) money anymore for individuals, making it, making that tougher. So what signs – as an investor who actually saw something negative happening a year ago and really did, you know, save your own personal money and certainly the family. Uh, what are you going to look at, red flags, that give you a sense that perhaps we've gotten through the worst?
Evelyn de Rothschild: Well, we happen to know whether we've gotten through the worst, as you've put it. I think what one's got to look at is you've got to look at very sound investments, and you've got to look at companies and organizations that have really not done some of the stupidities that have been done in the past, and you've got to really understand the management. I think you go back to basics. Uh, you know, one was brought up to believe that one didn't have huge overdrafts, that banks were not geared at 70, 80, 90 times – which some of them were – and that in the case of investment, you look at things that are worth investing in. Obviously the market will depend on whether it goes up and down with the attitude of the people concerned; but I mean, if you take raw materials at the moment, I mean how much further down will oil go, for example? On the other hand, if you're very safety-conscious, you hang onto your gold bars.
Maria Bartiromo: And of course, with oil having dropped the way it has, you're seeing those oil-rich nations – who were, frankly, the money players, around the world, whether it's the Russians or the Middle Easterners, buying everything from real estate to yachts and cars – they have been quieted quite a bit. What can you tell us about the environment in the UK, the environment around the world, really, you're travelling all over the world, in terms of the economic fundamentals today, relative to the United States?
Evelyn de Rothschild: Well, I think it's very difficult to say around the world; I mean, each country has its own problems. Um, those countries were very hit by inflation, uh, and have had to control it. Those countries which, uh, have problems with the work force, uh, and so you've got to look at each one. In the UK, where, unfortunately at the moment, we're getting more people going out of work, unemployment is increasing, um, we're going to have to find ways of helping those that are less well off. We have the housing problem like yourself, which, obviously we're a smaller economy, and it's going to have to be very difficult to convince people to reinvest. Because money is going to be short, so, small businesses, which is the key! Let's face it, the world is made up of small to medium-sized businesses. I believe in this country, it's a huge number of small and medium-sized businesses that make up a backbone of the United States. I mean, you're talking about the auto industry – it's the suppliers to the auto industry that are in some ways are more important than the big manufacturers.
Maria Bartiromo: All right. Which is part of the reason, I think, that, you know, the government felt that it couldn't go down. Final question here: Do you have optimism that once we get through this, that perhaps the global financial system will be stronger, uh, given the change in focus, more regulation, as you put it, more supervision? And what about the unions? You look at, throughout Europe, you've got unionization; we may see more of that in the United States. Has that hurt business or helped it?
Evelyn de Rothschild: Well, I couldn't judge on United States. Uh, we had a wonderful prime minister called Mrs. Thatcher, who put the unions in the correct measure of what they're doing; and on the whole, the relationship in the United Kingdom with the unions is very good. But that's a challenge for each country with its own problems. But I think what [we've] got to face up to is, it's not just regulation; we've got to go back to basics, and teach bankers and investments people, whether it's at hedge funds or whatever exists, that they've got to work within a prescribed limit. They can't just do what they want. What we've had for the last 10 to 15 years is unlimited attitude: we can make money, we can do anything we like, we just have tons of time to do what we want, without regarding the regulation or regarding the basics of how you run your business.
Maria Bartiromo: Evelyn, good to have you on the program: thanks so much.
Evelyn de Rothschild: Thank you.
Maria Bartiromo: We so appreciate it. Sir Evelyn Rothschild – Sir Evelyn de Rothschild – joining us here at the NYC while you're travelling throughout the US: thank you.
Source: BBC News
Monday, 1 December 2008
Sir Evelyn de Rothschild calls for action
Sir Evelyn de Rothschild
All of us - countries, corporations and consumers - have neglected basic principles.
Sir Evelyn: "action has to be taken and action must be taken very soon".
Ethics - we have lost sight of an honest day's work for an honest day's pay.
Careful management - we have indulged our wants without the taxes or the prices or the cash to pay for them.
Oversight - public relations and spin have replaced disclosure and transparency; casual yet complex accounting and accommodating rating agencies left us blissfully unaware of the problems, and we revelled in our ignorance.
Hubris has replaced community responsibility as a requirement for executive positions.
American automobile executives and British bankers have been unable to form their lips into an apology.
"Management prefers to hold onto private corporate jets rather than push for fuel efficiency standards" - Sir Evelyn de Rothschild
Yet their institutions lie in ruins and the rest of us are left feeling embarrassed for them.
Their customers worry that their savings or their working capital will just vanish, their mortgage will be transferred to a new institution they have never heard of.
Their employees wonder which of their colleagues - or they themselves - will be unemployed in the coming week, with bleak prospects for working again anytime soon.
Where is the shame of those who only months earlier boasted of ever increasing profits, of ever more clever products, of ever easier loans?
The US automakers may be the worst of the lot, so far.
New York ran into trouble during the 1970s
Years of incompetence and now manoeuvring in the halls of Congress for a massive bailout.
Management prefers to hold onto private corporate jets rather than push for fuel efficiency standards to make their products more competitive.
Union members would rather hold onto their gold-plated pensions for life than to save their companies.
Why should taxpayers help those who have so frequently refused to accept responsibility themselves?
If the US government uses up its remaining credit to help the auto industry carry on as usual, who will lend the country the money to repair its bridges, build its power stations, clean its water, fuel its navy?
Thirty years ago, New York City found itself in a position similar to GM, Ford and Chrysler today.
They asked Washington for help. The government refused.
The Daily News summed it up in its front page headline - Ford to City: Drop Dead
Instead New York balanced its budget, taxed itself, reduced hiring, negotiated better labour contracts and gradually worked itself back to fiscal health.
It took more than 10 years.
This era of struggle may last as long.
Until we can be generous in accepting fault for our predicament, we will have difficulty dropping our suspicions about others so that we can get on with repairing the damage.
Unless action is taken soon, we can only see a long time of difficult and very onerous problems continuing.
Could be one or two years.
It is therefore essential that management must take a firm look at it's problems and accept its faults and redeem them.
A lot of talk and a lot of words have been written.
But in the end action has to be taken and action must be taken very soon if we are not going to see this stretched out over many years.