I hope, I think, it's not unethical for me to put together a few thoughts about reporting on Fortis over the past year and a half.
But first, a few bits of comedy _ well, irony _ to lighten things up.
Actual Fortis slogan: "Here Today, Where Tomorrow?"
Next, an email exchange. Note the date. I think it's right that I remove a few identifiers here.
From: Xxxxx@fortis.com [mailto: Xxxxx@fortis.com]
Sent: Thursday, September 25, 2008 4:32 PM
To: Sterling, Toby
Subject: RE: 26 June press release
Thanks, but I shall not answer your question since this scenario is not on the table.
From: Sterling, Toby [mailto:tsterling@xxxx]
Sent: Thursday, September 25, 2008 4:14 PM
To: Xxxxxxxx Yyyyyyy
Subject: RE: 26 June press release
One other question: Fortis could always get a loan from the Dutch and/or Belgian central banks if it came to that, no?
Finally, I just wanted to note that S&P, Moody's and Fitch all downgraded Fortis' credit ratings on Monday _ AFTER the 12 billion euro cash injection by the Dutch government.
In Dutch they say "Als 't kalf verdronken is, dempt men den put."
In English we say "closing the barn door after the cow has gone."
Once upon a time, I used to respect the ratings agencies...
So, the central question I want to address in this post is: what, if anything, should I have done to make it clear I thought Fortis was heading for disaster?
The short answer is, in the moment I didn't think I could or should do anything. After all, it's not the media's job to speculate, and I certainly didn't KNOW there was anything wrong with Fortis. In fact, well-meaning analysts who understand far more about finance than I told me as recently as last week that they thought there was nothing wrong with Fortis' balance sheet.
And in fact, lots of people think there really, truly, was nothing wrong _ apart from a lack of confidence from investors and depositors. And confidence is everything for a bank.
I think, it's my opinion, that the company itself believed it was healthy and did not, could not comprehend that the wolf was at the door until it was too late.
So now I turn on the way-back machine:
From the time that Fortis entered the bidding to buy ABN Amro, it always seemed like a bad idea to me: I'm not a financial wizard, but I would say from what I've seen and read, large takeovers fail as often as not.
Both in minor ways and in major ways.
I remember at one point looking at Fortis' market capitalization _ market value _ and thinking 'they're paying EUR24 billion and they are only worth EUR36 billion themselves? It's like an Elephant eating a Hippopotamus.'
I put the figures prominently in a few stories and including skeptical analyst comment. That's what I did.
By the way I had vague nightmare fantasies that proved incorrect about what would go wrong:
I imagined an exodus of ABN Amro employees and customers walking out over petty national jealousies. Or in anger at the increasing lack of choice in the Dutch market. Or the way ABN and Fortis are always nickle-and-diming their customers. And that these things would lead Fortis to miss its integration targets. I had no idea at the time that it would be a credit crunch that would actually derail the buy.
In fact, as the U.S. economy was starting to run into trouble, I thought very much that it wasn't a bad time to be buying Dutch assets _ Europe was in better shape, and the Dutch market has been outperforming the rest of Europe for several years now.
So, I thought Fortis overpaid, but the most likely scenario was that the integation would be a bit clumsy, and the two would eventually settle in together.
When the shares were down around EUR22, I thought the worst of the selloff was over, the customers who were going to walk had walked, and now the question would be, how well does the integration go?
But as the year went on and markets went down, down, down, and Fortis always falling worse than the market, it did seem increasingly unlikely that it was going to be able to raise much money by selling assets.
Furthermore, I had a kind of uneasy concept, an idea in my mind, that probably only shows my lack of understanding: it seemed to me that if the company's debt remained the same while its assets were shrinking in value by the day, then the amount of $$ it needed to raise would be increasing as markets fell, fell, fell.
When Fortis issued shares and canceled dividends in July, it was treated by most investors as a betrayal and they screamed bloody murder. The CEO resigned (that particular event I missed while on vacation). But funny enough, in retrospect it was one of the most responsible things that the company did.
About 2 weeks ago it got so bad that I personally thought that one bit of really bad news could topple the company.
Whoever I talked to about things agreed that the situation was dire, but no one really thought they would go bankrupt. I agreed _ I guess it was always clear the government was going to bail them out if it came to that. But the details of how that would work...very unclear.
I didn't expect they would have to sell ABN, because I figured it would be too disruptive for them, such a large bank, crucial part of the Dutch economy, to change hands yet again.
Rumors were swirling around about Ping An not going through with its much-needed EUR2B buy of a Fortis asset management arm.
Fortis denied those rumors, but after the fall it appears they were true.
The price they got for selling assets to Deutsche bank _ I thought, if these are market prices right now, Fortis is going to be going BACKWARDS by selling things.
But by late last week, the most amazing thing was the incomprehension among Fortis managers. What's going on? Our numbers show no problem at all! Why are you barbarian shareholders behaving this way? This was clearly not something that business school (or wherever it is Belgian bankers go) prepared them for.
Probably from the moment Lehman failed, their destiny was written. Unless they had pulled out all the stops to find a merger partner on very unfavorable terms, or said 'damn the consequences' and issued more shares, they were going down.
But how does a reporter write those kind of things? With what evidence? Furthermore, by writing about a "crisis" at a bank, you are essentially yelling fire! in a crowded theater. The act of writing a story like that _ unprovable _ can cause a company huge, unfair harm.
What I did? Every time their shares fell, I wrote a brief story saying "shares fell on fears their plan to sell assets won't work."
Was there a better approach? In the financial world, you run into analyst opinion pro versus analyst opinion con pretty quick. And they know infinitely more about finance than reporters. (Reporters who know too much tend to become analysts themselves, or at least move into in-house PR).
And it goes without saying that all companies not only reflexively deny any trouble, but they also indisputably have better information about their own business. So it's easy for them to refute skeptics with "facts."
But sometimes, facts can obscure the forest with trees.
Well, I leave this line of thought in aporia. What's done is done.
Sometimes I criticize Dutchies on this blog, but I want to say that in this crisis they showed off one element of the national character that I love.
When the bailout was announced, I heard more than once "yeah, that's what you get when you let Belgians run things." But _ and this is essential _ the joke was told with no ill-will, just to relieve the tension.
It's a friendly rivalry, and if anything I think the Belgians have slightly more of the inferiority complex _ there was a little too much gloating when Fortis was buying ABN.
For weeks now I've been thinking: wouldn't the fallen ABN Amro CEO Rijkman Groenink be the ultimate interview right now?
Rijkman, where are you?
Thursday, October 2, 2008