March 12 2023

Another weekend and another UK Chancellor announces that the Treasury is working “at pace” (whatever happened to the word “quickly“?) to minimise the fallout from the closure on Friday by US banking regulators of California-based Silicon Valley Bank i.e. to help its UK customers with their cashflow needs.

This bank was the 60th largest US bank and its collapse is the second biggest banking failure in US history. The details will no doubt come out in time but the essence is not very different from the reasons Northern Rock collapsed some 16 years ago: a mismatch between the bank’s short-term liabilities, its long-dated illiquid assets and an inability to fund itself.

It offered loans to its clients at very advantageous interest rates provided the clients banked with them and required little by way of collateral because start-ups tend not to have much of this to offer. Of course, this was a bet that interest rates would stay low. Oh dear! The start-ups now worrying about what will happen to their deposits should perhaps ponder the wisdom of that saying: “If something looks too good to be true, it is.”

Until the markets open on Monday the rest of us can enjoy the following:-

• Venture capital firms – SVB’s client base – forgetting what the “venture” in “venture capital” means.
• Forbes’ 2023 List of America’s Best Banks which included – yes, you guessed it! – Silicon Valley Bank and also put it on its Financial All-Stars List. If you have time to waste, you can even read the methodology for their rankings – here. The data came from Standard & Poor’s Global Market Intelligence.
• Moody’s giving the bank an “A” credit rating, which it held right up to its collapse.

Forbes is not having much luck recently. Their edition titled the “40th Annual Forbes 400″ featured on its cover Sam Bankman-Fried of FTX, which collapsed in November 2022. His youth – 29 – was highlighted. As well as this delightfully revealing quote: “I got involved in crypto without any idea what crypto was.”

(I am, unashamedly, going to toot my own trumpet and remind you – if anyone needs reminding – that when these scandals and collapses happen, there is always a bloody great clue (often more than one) staring you in the face. Though they don’t always get the full colour treatment on the cover of prestigious magazines.)

Let’s hope the similarities to 2008 end there.

Photo by: michaela-fUYnzXrVmhE-unsplash.jpg

January 23 2020

One of the saddest aspects of the One Coin scam perpetrated by the now missing Dr Ruja Ignatova is how unsophisticated (and, indeed, poor) savers in African countries were specifically targeted using the claim that this wonderful new cryptocurrency technology would bring easy finance (and all its many advantages) to the unbanked. OneCoin was presented as practically a social service and a revolution in finance which would transform the prospects of those whom traditional finance providers had ignored.

All too good to be true?

Of course. And what this meant in practice for those believing these claims can be heard here in the BBC’s radio documentary – The Missing Cryptoqueen. What it also meant for those involved in handling the money she made was rather more traditional – convictions for fraud and money-laundering.

Investors believed what they hoped was true and failed to ask some basic and obvious questions. If there was no blockchain how could this new currency really be a cryptocurrency? And what was the track record of the person behind it? If they had, they might have learnt that there was no blockchain and that Dr Ignatova had form, having received in 2016 a suspended sentence and fine from a German court for her role in relation to a German metallurgical factory taken over by her, asset stripped and then left to go bankrupt in 2009.

Past performance can sometimes be a guide to the future, it seems.

So what might an investor make of an opportunity to invest in a new venture which will:-

• Package new and existing mortgages into securities to be sold to investors
• The mortgages to be sold to people who have a low uptake of these products, preferring to use their savings to buy land and build property
• In a country – Ghana – with high interest rates and a very recent banking crisis, which resulted in 7 Ghanaian banks collapsing
• On the basis of a study, whose authors have not been revealed, which apparently states that there are plenty of people able to afford a $50,000 mortgage among the 9 million Ghanaians earning more than $11 a day (a munificent annual income of $4,015)
• Promoted by a convicted fraudster (responsible for the UK’s biggest fraud). Yes, Kweku Adoboli is back (though this time it is the economy of Ghana he plans to grow and the balance sheets of (presumably) the remaining Ghanaian banks he wants to expand)
• Who declines to say who his business partners are
• But expects banks to be shareholders in the new venture (assuming actual and potential conflicts of interest can be properly managed)
• And who is still being economical with the actualité of the reasons why he was convicted and imprisoned.

But it is good to see that he has developed a sense of humour – if this quote is genuine: “The day when I deliver my first profit to someone, that will be a good day.”

The injunction “Let the buyer beware” is as sound as ever.