'The worst is behind us' has been a rallying call during the credit crisis, but Proinsias O'Mahonyis not quite so sure.
MARK TWAIN might have been describing the attitude of modern day financial executives when he said: "Never tell the truth to people who are not worthy of it."
Days after telling analysts he would not do anything "dumb" such as selling assets at "any price we can get", Merrill Lynch chief executive John Thain last week announced the fire-sale of more than $30 billion (€19.2 billion) of collateralised debt obligations (CDOs) for just $6.7 billion, or 22 US cents on the dollar.
Furthermore, Thain's admission that Merrill needed to raise $8.5 billion in capital flew in the face of countless denials this year.
Merrill has now raised about $18 billion since January, even though the chief executive was then saying that its problems were in the past.
"We have more capital than we need," he reiterated in March. As recently as July 17th, Merrill was supposedly "in a very comfortable spot in terms of our capital".
Outright lies or a chief executive in la-la land? Either way, he's got company.
Last December, AIG chief executive Martin Sullivan told investors that the probability of losses on the firm's portfolio of credit swaps was "close to zero".
Any write-downs would be "manageable". They soon exceeded $19 billion, forcing a "surprised" Sullivan to announce a $12.5 billion rights issue. Shareholders were even more surprised and showed him the door in June.
Lehman Brothers chief executive Richard Fuld was in bullish mood last year. "Do we have some stuff on the books that would be tough to get rid of? Yes. Am I worried about it? No. If you have some repricing of these things, will we lose some money? Yes. Is it going to kill us? Of course not."
The market wasn't so sure and the share price lost about two-thirds of its value between then and March.
By April, though, Fuld was in fighting spirit once more, telling shareholders he would "hurt the shorts . . . that is my goal".
The shorts are winning that battle. Lehman announced in June that it needed to raise $6 billion from investors - $6 billion "that they said they didn't need, to replace losses that they said they didn't have", as hedge fund manager David Einhorn scoffed.
Shares have lost almost 70 per cent of their value since Fuld's macho talk in April.
In March, Bear Stearns chief executive Alan Schwartz said that "there is absolutely no truth to the rumours of liquidity problems", a point backed up by former Bear chief executive Alan Greenberg ("totally ridiculous"). Schwartz went on to tell CNBC that Bear's balance sheet "has not changed at all". Days later the firm agreed to a $2 "take-under" as JP Morgan and the Federal Reserve ran to the rescue.
Before Bear Stearns, of course, was Northern Rock. Not only was the bank not "bleeding to death" - it was "well-run, solvent and has a viable future", chief executive Adam Applegarth informed us last September. That fiction died with the Rock's nationalisation in February.
Another British financial farce was soon to follow. In April, the Daily Telegraphreported that Bradford & Bingley was preparing a rights issue.
Nonsense, said the Yorkshire bank, dismissing it as "press speculation". It was "not intending to issue equity capital by way of a rights issue or otherwise". Two weeks later saw a reiteration of its "strong capital base".
A deeply-discounted rights issue was announced weeks later.
An about-turn? Not at all. "I'm sorry if that statement was too firm, if that's the way you look at it," chief executive Steven Crawshaw told reporters, going on to retract that faint apology by adding that the rights issue "wasn't a door that was bolted shut" - after all, the denial statement did contain a reference to how B&B would "monitor" its balance sheet.
He went on to add that "demand for buy-to-let mortgages remains high with continuing tenant demand" and scolded pesky analysts for looking for "communists under every bed".
Weeks later came a profits warning, an admission that the buy-to-let market was falling off a cliff, a collapse of the original rights issue and a share price in freefall. Seems like the communists were there after all.
Another banking chief in ebullient mood last summer was Citigroup boss Chuck Prince. "When the music stops in terms of liquidity, things will get complicated," he said, "but as long as the music is playing, you've got to get up and dance. We're still dancing."
Not for much longer. Citigroup reported write-downs of $5.9 billion in October - an "aberration", Prince said, predicting a "return to a normal earnings environment in the fourth quarter".
Not quite. A month later the firm announced another $8 to $11 billion in write-downs. Prince said farewell and was replaced by Vikram Pandit, who immediately emphasised that Citi was "well-capitalised".
Three months later, a $12.1 billion write-down. More write-downs in June brought the total under Pandit to almost $20 billion, or over $50 billion if one includes Prince's reign. "Well-capitalised" indeed.
"The worst is behind us" has been a rallying call throughout the credit crisis. Bear Stearns's Samuel Molinaro said last September that "the worst is definitely behind us". By January, John Thain was saying that "the problem . . . is for the most part behind us".
April saw a burst of positivity. "The worst is behind us", Lehman's Fuld said. "Seventy-five per cent to 80 per cent over," said JP Morgan's Jamie Dimon. Goldman's Lloyd Blankfein thought the game was at the "beginning of the fourth quarter" and Morgan Stanley's John Mack believed it was the eighth inning or maybe even "the top of the ninth".
Come May, Deutsche Bank's Josef Ackermann was saying that the crisis was "at the beginning of the end".
That hasn't panned out and global write-downs now exceed $470 billion, with many estimating the end figure will top $1 trillion. Ackermann, who this week announced another $3.6 billion in write-downs, admitted that he "clearly underestimated" the crisis.
Not to worry though; this will all pass in just "a few months" and "we are seeing the beginning of the end".
Thank heavens for that.
