Friday 3 April 2020
Tabligi Jamat & Law on the Spread of Coronavirus : Faizan Mustafa
Religion is, indeed the self consciousness and self esteem of man who has either not yet won through to himself or has already lost himself again.
'Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world and the soul of soulless conditions. It is the opium of the masses.' ---Karl Marx
Thursday 2 April 2020
Was Greg Chappell really a terrible coach of India?
Chappell and India. You can't ask for a more compelling plot or cast of characters writes Karthik Krishnaswamy in Cricinfo
The leaked email, the crowd that cheered the opposition, the punch at an airport: Greg Chappell's tumultuous, two-year tenure as India's head coach contains every ingredient you could wish for if you're writing cricket's version of The Damned Utd, the David Peace novel - later adapted into a movie - that tried to get inside Brian Clough's head during his ill-fated, 44-day spell as manager of Leeds United in 1974.
Chappell and India. You can't ask for a more compelling plot or cast of characters. The coach was one of the game's great batsmen and enigmas, upright and elegant but also cold and sneering, a man who once made his brother bowl underarm to kill a one-day game. This man takes over a team of superstars and attempts, perhaps hastily and certainly without a great deal of diplomacy, to remake them in his own image. He precipitates the removal of a long-serving captain who commands a great deal of adoration within the dressing room, and challenges other senior players to break out of their comfort zones without preparing, perhaps, for the inevitable resistance. There are successes, but there's one massive, glaring failure, and with that the entire project comes crashing down.
If you wrote it well, there wouldn't be heroes or villains, just the universal story of proud and insecure men trying and failing to connect with each other. But it hasn't usually been told that way, certainly not in India, where Chappell remains a hugely polarising figure.
Of those who played under him, most of the prominent voices who have written or spoken about Chappell have had almost nothing good to say of him - Sourav Ganguly, needless to say, but others too. Sachin Tendulkar, VVS Laxman, Zaheer Khan, Harbhajan Singh and Virender Sehwag have all stuck the knife in at various points, and all of them have laid one major charge at Chappell's feet, that he was a poor man-manager.
"Greg," Tendulkar wrote in his book Playing It My Way, "was like a ringmaster who imposed his ideas on the players without showing any signs of being concerned about whether they felt comfortable or not."
Perhaps there's some truth to the idea that Chappell didn't know how to get the best out of a diverse group of players, and that he lacked the instinct to be able to tell whom to cajole and whom to kick up the backside. But while one group of players has been unsparingly critical of Chappell's methods, other prominent voices - Anil Kumble, Yuvraj Singh, MS Dhoni, and above all Rahul Dravid - have largely stayed silent on the matter. Irfan Pathan has rejected, on multiple occasions, the widely held notion that Chappell was responsible for his decline as a swing bowler after a promising start to his career. Pathan was one of a group of younger players heavily backed by Chappell, alongside Yuvraj, Dhoni (whose leadership potential Chappell was one of the first to spot) and Suresh Raina.
Of course, players are the last people you would go to for a dispassionate appraisal of their coach's ideas and methods. If Chappell wanted Zaheer Khan dropped, you wouldn't ask Zaheer Khan if he thought it was a good idea. You wouldn't ask Harbhajan or Sehwag, two players whose early careers Ganguly had a major influence on, whether it was right to strip him of the captaincy.
Let's look, therefore, at some numbers.
The Ganguly question is the easiest to answer. Chappell put forward the idea that he step down from the captaincy during India's tour of Zimbabwe in September 2005. From the start of 2001 to that point, Ganguly had averaged 34.01 in 61 Test innings against all teams other than Bangladesh and Zimbabwe.
Excluding matches against Bangladesh, Zimbabwe and the Associates, his ODI numbers in the same period were just as poor: an average of 30.71, a strike rate of 72.32. Since the start of 2003, he had fared even worse against the top eight ODI teams: 1077 runs in 45 matches at an average of 25.04 and a strike rate of 67.39.
There were performance-related issues behind other players' disagreements with Chappell too. Take Khan, for instance. From the end of the Brisbane Test of December 2003, where he bagged a first-innings five-for, to the Karachi Test of January-February 2006, he took 39 wickets in 15 Tests at 42.41. In that Karachi Test and right through that tour of Pakistan, he was visibly pudgy, bowled off a short run-up, and struggled to move the speedometer needle past the 130kph mark.
Khan's fitness - and Sehwag's - had always been a sticking point with Chappell. Left out of India's next two Test series - against England at home and in the West Indies - Khan signed for Worcestershire and enjoyed a tremendous county season, during which he grew fitter and rediscovered his bowling form. He was a rejuvenated force when he returned to Test cricket on the 2006-07 tour of South Africa, and Chappell, writing in his book Fierce Focus, noted that Khan and Ganguly - who was also making a comeback - were two of India's best players on that tour. "Whether they had improved in order to spite me or prove me right, I didn't care. It cheered me greatly to see them in much better shape than they had been when I started in the job."
In ODIs, India were a poor chasing team when Chappell arrived - their last 20 completed chases before he took over had brought them just five wins, four of those against Zimbabwe or Bangladesh - and they realised the best way to become better at it was to keep doing it. They kept choosing to bowl when they won the toss, and eventually became so good at chasing that they won 17 successive matches batting second.
Before Chappell and Dravid joined forces, India had been hugely reluctant to play five bowlers even when conditions demanded it. Under them, it became a routine occurrence. India were lucky, perhaps, to have an allrounder who made it possible, but it's a telling statistic that the highest Pathan batted in 32 ODIs under Ganguly was No. 7, and that was just once, though he scored two half-centuries from those positions and regularly showed promise with the bat. Dravid regularly used Pathan at No. 3, suggesting either that this was his idea in the first place, or that he was far more willing than Ganguly to take on board one of Chappell's. (Pathan himself has suggested it was Tendulkar's idea.)![]()
While one group of players has been critical of Chappell's methods, the likes of Dravid largely stayed silent Getty Images
Under Chappell and Dravid, India often played five bowlers in Test cricket too, showing a willingness to risk losing in order to take 20 wickets and win games. It meant leaving out the sixth batsman, and while Ganguly was the first casualty, the rise of Yuvraj and Mohammad Kaif as ODI regulars knocking hard on the Test door put a bit of pressure on Laxman as well. He was left out of two home Tests against England in 2006, and also had to move up and down the order a fair bit, especially if the batsman left out was one of the regular openers.
This led to the insecurities that Laxman has since expressed in his book, 281 and Beyond, and Chappell, perhaps, didn't do enough to allay them. Chappell admits this failing himself in Fierce Focus, calling his mistakes the "same kinds […] I'd made as captain in my playing days. I didn't communicate my plans well enough to the senior players. I should have let guys like Tendulkar, Laxman and Sehwag know that although I was an agent of change, they were still part of our Test cricket future."
That old man-management thing again. But there was nothing fundamentally wrong with asking a senior player to occasionally sit out games or bat in unfamiliar positions, in order to execute a larger plan for the team's good.
Playing five bowlers, being willing to leave out established players, making fitness a non-negotiable, encouraging players to come out of their comfort zones: if the broad ideas of the Chappell-Dravid era, and the tensions that came out of implementing them, seem eerily familiar, it's because you've seen it all happen - though probably allied with better communication - under Ravi Shastri and Virat Kohli. And that, perhaps, is Chappell's biggest legacy.
Great coaches can get entire teams to buy in to their ideas, and even they - as Clough showed, either side of his Leeds misadventure, at Derby County and Nottingham Forest - need to be at the right place at the right time. Chappell and the India of 2005-07 weren't necessarily made for each other, and the early exit from the 2007 World Cup made that relationship untenable. It may not have lasted too much longer than that in any case, given the breakdown of trust within the dressing room that Chappell contributed to with his tendency to air his criticisms of players to the media.
There isn't a huge deal of evidence from the rest of his coaching career to suggest Chappell had the makings of a great coach anyway. But good ideas are good ideas, no matter how well they're communicated, and Indian cricket continues to benefit from the ones he left behind.
The leaked email, the crowd that cheered the opposition, the punch at an airport: Greg Chappell's tumultuous, two-year tenure as India's head coach contains every ingredient you could wish for if you're writing cricket's version of The Damned Utd, the David Peace novel - later adapted into a movie - that tried to get inside Brian Clough's head during his ill-fated, 44-day spell as manager of Leeds United in 1974.
Chappell and India. You can't ask for a more compelling plot or cast of characters. The coach was one of the game's great batsmen and enigmas, upright and elegant but also cold and sneering, a man who once made his brother bowl underarm to kill a one-day game. This man takes over a team of superstars and attempts, perhaps hastily and certainly without a great deal of diplomacy, to remake them in his own image. He precipitates the removal of a long-serving captain who commands a great deal of adoration within the dressing room, and challenges other senior players to break out of their comfort zones without preparing, perhaps, for the inevitable resistance. There are successes, but there's one massive, glaring failure, and with that the entire project comes crashing down.
If you wrote it well, there wouldn't be heroes or villains, just the universal story of proud and insecure men trying and failing to connect with each other. But it hasn't usually been told that way, certainly not in India, where Chappell remains a hugely polarising figure.
Of those who played under him, most of the prominent voices who have written or spoken about Chappell have had almost nothing good to say of him - Sourav Ganguly, needless to say, but others too. Sachin Tendulkar, VVS Laxman, Zaheer Khan, Harbhajan Singh and Virender Sehwag have all stuck the knife in at various points, and all of them have laid one major charge at Chappell's feet, that he was a poor man-manager.
"Greg," Tendulkar wrote in his book Playing It My Way, "was like a ringmaster who imposed his ideas on the players without showing any signs of being concerned about whether they felt comfortable or not."
Perhaps there's some truth to the idea that Chappell didn't know how to get the best out of a diverse group of players, and that he lacked the instinct to be able to tell whom to cajole and whom to kick up the backside. But while one group of players has been unsparingly critical of Chappell's methods, other prominent voices - Anil Kumble, Yuvraj Singh, MS Dhoni, and above all Rahul Dravid - have largely stayed silent on the matter. Irfan Pathan has rejected, on multiple occasions, the widely held notion that Chappell was responsible for his decline as a swing bowler after a promising start to his career. Pathan was one of a group of younger players heavily backed by Chappell, alongside Yuvraj, Dhoni (whose leadership potential Chappell was one of the first to spot) and Suresh Raina.
Of course, players are the last people you would go to for a dispassionate appraisal of their coach's ideas and methods. If Chappell wanted Zaheer Khan dropped, you wouldn't ask Zaheer Khan if he thought it was a good idea. You wouldn't ask Harbhajan or Sehwag, two players whose early careers Ganguly had a major influence on, whether it was right to strip him of the captaincy.
Let's look, therefore, at some numbers.
The Ganguly question is the easiest to answer. Chappell put forward the idea that he step down from the captaincy during India's tour of Zimbabwe in September 2005. From the start of 2001 to that point, Ganguly had averaged 34.01 in 61 Test innings against all teams other than Bangladesh and Zimbabwe.
Excluding matches against Bangladesh, Zimbabwe and the Associates, his ODI numbers in the same period were just as poor: an average of 30.71, a strike rate of 72.32. Since the start of 2003, he had fared even worse against the top eight ODI teams: 1077 runs in 45 matches at an average of 25.04 and a strike rate of 67.39.
There were performance-related issues behind other players' disagreements with Chappell too. Take Khan, for instance. From the end of the Brisbane Test of December 2003, where he bagged a first-innings five-for, to the Karachi Test of January-February 2006, he took 39 wickets in 15 Tests at 42.41. In that Karachi Test and right through that tour of Pakistan, he was visibly pudgy, bowled off a short run-up, and struggled to move the speedometer needle past the 130kph mark.
Khan's fitness - and Sehwag's - had always been a sticking point with Chappell. Left out of India's next two Test series - against England at home and in the West Indies - Khan signed for Worcestershire and enjoyed a tremendous county season, during which he grew fitter and rediscovered his bowling form. He was a rejuvenated force when he returned to Test cricket on the 2006-07 tour of South Africa, and Chappell, writing in his book Fierce Focus, noted that Khan and Ganguly - who was also making a comeback - were two of India's best players on that tour. "Whether they had improved in order to spite me or prove me right, I didn't care. It cheered me greatly to see them in much better shape than they had been when I started in the job."
In ODIs, India were a poor chasing team when Chappell arrived - their last 20 completed chases before he took over had brought them just five wins, four of those against Zimbabwe or Bangladesh - and they realised the best way to become better at it was to keep doing it. They kept choosing to bowl when they won the toss, and eventually became so good at chasing that they won 17 successive matches batting second.
Before Chappell and Dravid joined forces, India had been hugely reluctant to play five bowlers even when conditions demanded it. Under them, it became a routine occurrence. India were lucky, perhaps, to have an allrounder who made it possible, but it's a telling statistic that the highest Pathan batted in 32 ODIs under Ganguly was No. 7, and that was just once, though he scored two half-centuries from those positions and regularly showed promise with the bat. Dravid regularly used Pathan at No. 3, suggesting either that this was his idea in the first place, or that he was far more willing than Ganguly to take on board one of Chappell's. (Pathan himself has suggested it was Tendulkar's idea.)
Under Chappell and Dravid, India often played five bowlers in Test cricket too, showing a willingness to risk losing in order to take 20 wickets and win games. It meant leaving out the sixth batsman, and while Ganguly was the first casualty, the rise of Yuvraj and Mohammad Kaif as ODI regulars knocking hard on the Test door put a bit of pressure on Laxman as well. He was left out of two home Tests against England in 2006, and also had to move up and down the order a fair bit, especially if the batsman left out was one of the regular openers.
This led to the insecurities that Laxman has since expressed in his book, 281 and Beyond, and Chappell, perhaps, didn't do enough to allay them. Chappell admits this failing himself in Fierce Focus, calling his mistakes the "same kinds […] I'd made as captain in my playing days. I didn't communicate my plans well enough to the senior players. I should have let guys like Tendulkar, Laxman and Sehwag know that although I was an agent of change, they were still part of our Test cricket future."
That old man-management thing again. But there was nothing fundamentally wrong with asking a senior player to occasionally sit out games or bat in unfamiliar positions, in order to execute a larger plan for the team's good.
Playing five bowlers, being willing to leave out established players, making fitness a non-negotiable, encouraging players to come out of their comfort zones: if the broad ideas of the Chappell-Dravid era, and the tensions that came out of implementing them, seem eerily familiar, it's because you've seen it all happen - though probably allied with better communication - under Ravi Shastri and Virat Kohli. And that, perhaps, is Chappell's biggest legacy.
Great coaches can get entire teams to buy in to their ideas, and even they - as Clough showed, either side of his Leeds misadventure, at Derby County and Nottingham Forest - need to be at the right place at the right time. Chappell and the India of 2005-07 weren't necessarily made for each other, and the early exit from the 2007 World Cup made that relationship untenable. It may not have lasted too much longer than that in any case, given the breakdown of trust within the dressing room that Chappell contributed to with his tendency to air his criticisms of players to the media.
There isn't a huge deal of evidence from the rest of his coaching career to suggest Chappell had the makings of a great coach anyway. But good ideas are good ideas, no matter how well they're communicated, and Indian cricket continues to benefit from the ones he left behind.
Wednesday 1 April 2020
Will the coronavirus crisis rehabilitate the banks?
Lenders who triggered financial crash are now being asked to funnel stimulus money to companies and individuals write David Crow, Stephen Morris and Laura Noonan in The FT
On the day that Lehman Brothers filed for bankruptcy in September 2008, the front page of the Financial Times carried a photograph of John Thain, the then chief executive of Merrill Lynch. He was getting into his car after hours of talks at the Federal Reserve Bank of New York, and looked like a man who had stared into the abyss. In the following days more pictures would emerge of bankers leaving crisis meetings with policymakers, their ashen faces a portent of the horror to come.
As coronavirus rages and brings the global economy to a near standstill, bankers are once again roaming the corridors of power. In early March, Donald Trump summoned the chief executives of Bank of America, Citigroup and other large lenders to the White House, while Rishi Sunak, the UK chancellor, has held meetings and calls with their counterparts in Britain.
But this time is different, bankers say. Rather than being admonished for their role in causing the 2008 crisis, they are being called on to help distribute unprecedented stimulus programmes worth trillions of dollars designed to save the global economy from collapse. Although governments and central banks are providing much of the cash, lenders are being asked to serve as the “transmission mechanism” to ensure support finds its way to the companies and consumers who need it most.
Mike Corbat, chief executive of Citigroup, says the US lender is in “daily contact” with the White House and regulators, “relaying information . . . [on] what we’re seeing in the marketplace . . . what’s under stress”. In France, the finance minister and bank governor now speak daily to Frédéric Oudéa, chief executive of Société Générale, a bank that became a pariah in 2008 following a rogue trader scandal.
“The difference with 2008 is that we were seen as the problem then, everybody today knows the problem is the virus,” Mr Oudéa says. “We are one of the activities that has to function . . . we are the doctors of the economy.” (A dangerous thought - Editor)
While that description will jar with some, the difference in the tone of the discussions between governments, policymakers and banks has surprised some veterans of the financial crisis. “I don’t want to quote [former Goldman chief executive Lloyd] Blankfein and say we’re doing ‘God’s work’, but at least it feels like we’re on the side of the good this time round,” says one banker who advised the UK government in 2008.
Whether banks can maintain this new-found trust depends in large part on their ability to withstand coronavirus and its aftershocks. That in turn rests on whether post-financial crisis reforms — some of which the banks are lobbying furiously to relax — have left the system strong enough to survive. Banks appear to have passed the first test: a short but pronounced period of market mayhem and a co-ordinated drawdown of hundreds of billions of dollars of credit by corporations feeling the strain. One policymaker says that, faced with the coronavirus fallout, the global banking system of 2007 would have already imploded by now.
Jes Staley, chief executive of Barclays, says that “by any measure, the financial markets have traded and demonstrated volatility never seen before,” noting the “significant value destruction happening in pools of assets”. But, so far at least, the system is operating as it should. “It’s pretty extraordinary that with this amount of distress you haven’t seen more failures in asset management companies.”
He adds that the potential harbingers of a full-blown financial meltdown have not yet happened, such as a mutual fund preventing investors from making withdrawals. “There are just a lot of things you’d expect to happen before you start to see a real crisis,” says Mr Staley.
The real test of the resilience of banks and the wider financial system is yet to come. Huge swaths of the global economy, from airlines to retailers, have seen their revenues all but evaporate. Many companies and consumers will default on their loans, leading to a string of excruciating credit losses for banks that will hit profitability and blast a hole in their balance sheets. Meanwhile, ultra-low interest rates introduced by central banks to support the economy during the pandemic will put extra pressure on profits generated from lending.
“Everything in the world is on hold, and this cannot not be reflected in the financial world,” says Romain Boscher, chief investment officer for equities at Fidelity International. “Banks are still too big to fail, but also too crucial to disappear.”
Standard & Poor’s, the rating agency, last week warned that the US banking industry — which generated $195bn of profits last year — could swing to a $15bn loss in the next 12 months. Analysts at Berenberg say US and European lenders are facing an average 30 per cent plunge in profits this year and next. “Confronted with reduced activity, lower-for-longer interest rates, inflexible costs and higher loan losses, the outlook for bank earnings is one-way traffic,” they wrote in a recent note to clients.
Despite these headwinds, some bank executives have projected confidence. Ana Botín, executive chairman of Santander, the eurozone’s largest lender, told a financial services conference in March that the bank was forecasting only a 5 per cent drop in earnings this year, and that it expected no impact on its capital levels or midterm financial targets. Appearing via video link from a locked down Madrid, Ms Botin said those estimates were based on a “V-shaped” recession — a sharp shock followed by a rapid recovery, but stressed this was only one possible scenario.
However, some bankers say that such talk is premature, bordering on wishful thinking.
“If someone can tell me when they think [the virus] is going to be contained globally, and we will get back to a normalised global economy, then I can tell you what the credit cycle will look like,” says an executive at a rival global bank. “But given that no one can predict that, I find it hard to see people going out and being so confident.”
The depth of credit losses hinges on the amount of risk that countries are willing to share with the banking sector. Governments and central banks have rolled out fiscal and monetary stimulus programmes on a scale not seen since the second world war, ranging from central bank-backed credit facilities to loan guarantees and bailouts for industries including the US aviation sector. One Swiss bank executive says that absent such extraordinary support, banks’ loss-absorbing capital buffers “would have been like a brolly in a hurricane”.
One banker advising the UK government — which has earmarked £330bn for corporate loan guarantees and a commercial paper financing facility — says the schemes are untested. In particular, he warns that the guarantees will only apply to future lending. “It’s for new money, not for all the loans we’ve already made that are going to go bad.”
Bank executives have also warned that new accounting rules in Europe — which force lenders to set aside provisions for bad loans at an earlier date — will aggravate the problem by quickly impairing capital buffers and crimping their ability to lend at the very moment companies and consumers need cash. Policymakers are sympathetic, and have taken steps to reduce the shock of the new regulations. On Friday, regulators agreed to soften the impact of similar rules in the US.
But relaxing the rules will only buy time. “If the world blows up and all this government intervention doesn’t work, then this will eventually get to banks,” says the banker advising the UK government. “It will be an old-fashioned credit loss crisis, but on a scale not seen before.”
Even if banks can absorb the losses, some of the actions taken by policymakers will hurt the sector in the long run. Although recent interest rate cuts by the US Federal Reserve and the Bank of England are intended as a temporary measure, the 2008 crisis showed that central banks can struggle to increase rates once an immediate economic shock has passed. Meanwhile, a boom in first-quarter trading revenues for investment banks will probably only provide a short-term fillip.
Standard Chartered’s head of finance Andy Halford warns that “incredibly low interest rates” could cause corporate and retail depositors to move their cash out of accounts that have tended to pay a higher rate of interest in exchange for having the deposit locked up for a specific period of time. “Banks like to have deposit stickiness that can be used to underpin lending,” he says. “[If] there is less inclination to put money into sticky pots, there is less confidently there for circulation into the system.”6
The coronavirus crisis might have given banks an opportunity to repair their public image, but it also brings new reputational risks. As the transmission mechanism for doling out state aid, they will be required to perform a thorny task: deciding which companies should receive financial assistance and which would have struggled to survive regardless of the virus, and should therefore be cut loose. One policymaker says “picking winners and losers” could provoke a long-term public and political backlash against the banks.
“We want to avoid any moral hazard . . . governments should not just shell out money,” says Lars Machenil, chief financial officer of BNP Paribas, the French bank. “If a company, an airline for example, was in good shape in February then the government guarantees are [there] just to get it through the Covid-19 period.”
Mr Corbat says banks must walk a “fine line” between “being as supportive as we can be” without “in any way calling into question the soundness” of the bank or the financial system. “The last thing that we all want to see is . . . our consumers, our small businesses and our big businesses coming out of this . . . [with a] precariously bigger or larger position of indebtedness.”
Although many retail and consumer borrowers have been given payment holidays, some will never be able to repay their loans, which could lead to a wave of bankruptcies and repossessions that will test the public’s patience.
“This crisis did not originate in banking, but they can be part of the solution, and it might engulf them if, instead, they turn away,” says Paul Tucker, chair of the Systemic Risk Council, a group of former regulators, and previously deputy governor of the Bank of England. “They must not gouge customers, and need to suspend dividends and high-end bonuses. It is not a moment to put themselves first.”
Peter Orszag, an executive at Lazard who was White House budget director in 2009-10 in the first Obama administration, warns that the new-found trust between banks and policymakers could come under strain.
“I don’t want to call this the honeymoon period, because what’s going on is so awful, but there is a bit of coming together and recognising goodwill,” he says. However as banks are forced to decide which consumers and companies receive support, political and public opinion could change. “What happens is that six months in the dynamic can start to shift — the backlash doesn’t start immediately.”6
Like other businesses, banks are also facing huge logistical obstacles, with their scattered staff either working from home or off sick. A lockdown in India, where many lenders have chosen to locate call centres, is making it harder to deal with a deluge of incoming customer inquiries. Some banks have had to put restructuring efforts on hold, like HSBC, which last week said it would pause the vast majority of redundancies barely two months after it announced plans to slash 35,000 jobs. The cost of running a bank, already stubbornly high, is only going to rise.
Above all else, the survival of banks and the global financial system depends on whether governments can contain the public health crisis.
Brian Moynihan, chief executive of Bank of America, says the $2tn stimulus agreed last week by US lawmakers was of “a substantial size and dimension that most of us think is big enough to help do the trick”.
But he acknowledges the wider challenge: “What they’re doing on fiscal and monetary [policy] . . . is terrific, but the real thing that they have got to solve is the healthcare crisis.”
As coronavirus rages and brings the global economy to a near standstill, bankers are once again roaming the corridors of power. In early March, Donald Trump summoned the chief executives of Bank of America, Citigroup and other large lenders to the White House, while Rishi Sunak, the UK chancellor, has held meetings and calls with their counterparts in Britain.
But this time is different, bankers say. Rather than being admonished for their role in causing the 2008 crisis, they are being called on to help distribute unprecedented stimulus programmes worth trillions of dollars designed to save the global economy from collapse. Although governments and central banks are providing much of the cash, lenders are being asked to serve as the “transmission mechanism” to ensure support finds its way to the companies and consumers who need it most.
Mike Corbat, chief executive of Citigroup, says the US lender is in “daily contact” with the White House and regulators, “relaying information . . . [on] what we’re seeing in the marketplace . . . what’s under stress”. In France, the finance minister and bank governor now speak daily to Frédéric Oudéa, chief executive of Société Générale, a bank that became a pariah in 2008 following a rogue trader scandal.
“The difference with 2008 is that we were seen as the problem then, everybody today knows the problem is the virus,” Mr Oudéa says. “We are one of the activities that has to function . . . we are the doctors of the economy.” (A dangerous thought - Editor)
While that description will jar with some, the difference in the tone of the discussions between governments, policymakers and banks has surprised some veterans of the financial crisis. “I don’t want to quote [former Goldman chief executive Lloyd] Blankfein and say we’re doing ‘God’s work’, but at least it feels like we’re on the side of the good this time round,” says one banker who advised the UK government in 2008.
Whether banks can maintain this new-found trust depends in large part on their ability to withstand coronavirus and its aftershocks. That in turn rests on whether post-financial crisis reforms — some of which the banks are lobbying furiously to relax — have left the system strong enough to survive. Banks appear to have passed the first test: a short but pronounced period of market mayhem and a co-ordinated drawdown of hundreds of billions of dollars of credit by corporations feeling the strain. One policymaker says that, faced with the coronavirus fallout, the global banking system of 2007 would have already imploded by now.
Jes Staley, chief executive of Barclays, says that “by any measure, the financial markets have traded and demonstrated volatility never seen before,” noting the “significant value destruction happening in pools of assets”. But, so far at least, the system is operating as it should. “It’s pretty extraordinary that with this amount of distress you haven’t seen more failures in asset management companies.”
He adds that the potential harbingers of a full-blown financial meltdown have not yet happened, such as a mutual fund preventing investors from making withdrawals. “There are just a lot of things you’d expect to happen before you start to see a real crisis,” says Mr Staley.
The real test of the resilience of banks and the wider financial system is yet to come. Huge swaths of the global economy, from airlines to retailers, have seen their revenues all but evaporate. Many companies and consumers will default on their loans, leading to a string of excruciating credit losses for banks that will hit profitability and blast a hole in their balance sheets. Meanwhile, ultra-low interest rates introduced by central banks to support the economy during the pandemic will put extra pressure on profits generated from lending.
“Everything in the world is on hold, and this cannot not be reflected in the financial world,” says Romain Boscher, chief investment officer for equities at Fidelity International. “Banks are still too big to fail, but also too crucial to disappear.”
Standard & Poor’s, the rating agency, last week warned that the US banking industry — which generated $195bn of profits last year — could swing to a $15bn loss in the next 12 months. Analysts at Berenberg say US and European lenders are facing an average 30 per cent plunge in profits this year and next. “Confronted with reduced activity, lower-for-longer interest rates, inflexible costs and higher loan losses, the outlook for bank earnings is one-way traffic,” they wrote in a recent note to clients.
Despite these headwinds, some bank executives have projected confidence. Ana Botín, executive chairman of Santander, the eurozone’s largest lender, told a financial services conference in March that the bank was forecasting only a 5 per cent drop in earnings this year, and that it expected no impact on its capital levels or midterm financial targets. Appearing via video link from a locked down Madrid, Ms Botin said those estimates were based on a “V-shaped” recession — a sharp shock followed by a rapid recovery, but stressed this was only one possible scenario.
However, some bankers say that such talk is premature, bordering on wishful thinking.
“If someone can tell me when they think [the virus] is going to be contained globally, and we will get back to a normalised global economy, then I can tell you what the credit cycle will look like,” says an executive at a rival global bank. “But given that no one can predict that, I find it hard to see people going out and being so confident.”
The depth of credit losses hinges on the amount of risk that countries are willing to share with the banking sector. Governments and central banks have rolled out fiscal and monetary stimulus programmes on a scale not seen since the second world war, ranging from central bank-backed credit facilities to loan guarantees and bailouts for industries including the US aviation sector. One Swiss bank executive says that absent such extraordinary support, banks’ loss-absorbing capital buffers “would have been like a brolly in a hurricane”.
One banker advising the UK government — which has earmarked £330bn for corporate loan guarantees and a commercial paper financing facility — says the schemes are untested. In particular, he warns that the guarantees will only apply to future lending. “It’s for new money, not for all the loans we’ve already made that are going to go bad.”
Bank executives have also warned that new accounting rules in Europe — which force lenders to set aside provisions for bad loans at an earlier date — will aggravate the problem by quickly impairing capital buffers and crimping their ability to lend at the very moment companies and consumers need cash. Policymakers are sympathetic, and have taken steps to reduce the shock of the new regulations. On Friday, regulators agreed to soften the impact of similar rules in the US.
But relaxing the rules will only buy time. “If the world blows up and all this government intervention doesn’t work, then this will eventually get to banks,” says the banker advising the UK government. “It will be an old-fashioned credit loss crisis, but on a scale not seen before.”
Even if banks can absorb the losses, some of the actions taken by policymakers will hurt the sector in the long run. Although recent interest rate cuts by the US Federal Reserve and the Bank of England are intended as a temporary measure, the 2008 crisis showed that central banks can struggle to increase rates once an immediate economic shock has passed. Meanwhile, a boom in first-quarter trading revenues for investment banks will probably only provide a short-term fillip.
Standard Chartered’s head of finance Andy Halford warns that “incredibly low interest rates” could cause corporate and retail depositors to move their cash out of accounts that have tended to pay a higher rate of interest in exchange for having the deposit locked up for a specific period of time. “Banks like to have deposit stickiness that can be used to underpin lending,” he says. “[If] there is less inclination to put money into sticky pots, there is less confidently there for circulation into the system.”6
The coronavirus crisis might have given banks an opportunity to repair their public image, but it also brings new reputational risks. As the transmission mechanism for doling out state aid, they will be required to perform a thorny task: deciding which companies should receive financial assistance and which would have struggled to survive regardless of the virus, and should therefore be cut loose. One policymaker says “picking winners and losers” could provoke a long-term public and political backlash against the banks.
“We want to avoid any moral hazard . . . governments should not just shell out money,” says Lars Machenil, chief financial officer of BNP Paribas, the French bank. “If a company, an airline for example, was in good shape in February then the government guarantees are [there] just to get it through the Covid-19 period.”
Mr Corbat says banks must walk a “fine line” between “being as supportive as we can be” without “in any way calling into question the soundness” of the bank or the financial system. “The last thing that we all want to see is . . . our consumers, our small businesses and our big businesses coming out of this . . . [with a] precariously bigger or larger position of indebtedness.”
Although many retail and consumer borrowers have been given payment holidays, some will never be able to repay their loans, which could lead to a wave of bankruptcies and repossessions that will test the public’s patience.
“This crisis did not originate in banking, but they can be part of the solution, and it might engulf them if, instead, they turn away,” says Paul Tucker, chair of the Systemic Risk Council, a group of former regulators, and previously deputy governor of the Bank of England. “They must not gouge customers, and need to suspend dividends and high-end bonuses. It is not a moment to put themselves first.”
Peter Orszag, an executive at Lazard who was White House budget director in 2009-10 in the first Obama administration, warns that the new-found trust between banks and policymakers could come under strain.
“I don’t want to call this the honeymoon period, because what’s going on is so awful, but there is a bit of coming together and recognising goodwill,” he says. However as banks are forced to decide which consumers and companies receive support, political and public opinion could change. “What happens is that six months in the dynamic can start to shift — the backlash doesn’t start immediately.”6
Like other businesses, banks are also facing huge logistical obstacles, with their scattered staff either working from home or off sick. A lockdown in India, where many lenders have chosen to locate call centres, is making it harder to deal with a deluge of incoming customer inquiries. Some banks have had to put restructuring efforts on hold, like HSBC, which last week said it would pause the vast majority of redundancies barely two months after it announced plans to slash 35,000 jobs. The cost of running a bank, already stubbornly high, is only going to rise.
Above all else, the survival of banks and the global financial system depends on whether governments can contain the public health crisis.
Brian Moynihan, chief executive of Bank of America, says the $2tn stimulus agreed last week by US lawmakers was of “a substantial size and dimension that most of us think is big enough to help do the trick”.
But he acknowledges the wider challenge: “What they’re doing on fiscal and monetary [policy] . . . is terrific, but the real thing that they have got to solve is the healthcare crisis.”
Now the world faces two pandemics – one medical, one financial
Coronavirus fears are feeding financial and economic anxiety and vice versa. Breaking the cycle will not be easy, but it is possible writes Robert Shiller in The Guardian
The normally busy Schiphol airport in the Netherlands. Photograph: Patrick van Katwijk/Getty Images
We are feeling the anxiety effects of not one pandemic but two. First, there is the Covid-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, could soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first.
These two pandemics are interrelated but are not the same phenomenon. In the second pandemic, stories of fear have gone viral and we often think of them constantly. The stock market has been dropping like a rock, apparently in response to stories of Covid-19 depleting our lifetime savings unless we take some action. But, unlike Covid-19, the source of our anxiety is that we are unsure what action to take.
It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.
Moreover, it is not good news when two contagions are, indeed, global pandemics. When a drop in demand is confined to one country, the loss is partially spread abroad, while demand for the country’s exports is not diminished much. But this time, that natural safety valve will not work, because the recession threatens nearly all countries.
Many people seem to assume that the financial anxiety is nothing more than a direct byproduct of the Covid-19 crisis – a perfectly logical reaction to the disease pandemic. But anxiety is not perfectly logical. The pandemic of financial anxiety, spreading through panicked reaction to price drops and changing narratives, has a life of its own.
The effects financial anxiety has on the stock market may be mediated by a phenomenon that the psychologist Paul Slovic of the University of Oregon and his colleagues call the “affect heuristic.” When people are emotionally upset because of a tragic event, they react with fear even in circumstances where there is no reason to fear.
In a joint paper with William Goetzmann and Dasol Kim, we found that nearby earthquakes affect people’s judgment of the probability of a 1929- or 1987-size stock market crash. If there was a substantial quake within 30 miles (48km) during the previous 30 days, respondents’ assessment of the probability of a crash was significantly higher. That is the affect heuristic at work.
It might make more sense to expect a stock market drop from a disease pandemic than from a recent earthquake, but maybe not a crash of the magnitude seen recently. If it were widely believed that a treatment could limit the intensity of the Covid-19 pandemic to a matter of months, or even that it would last a year or two, that would suggest the stock market risk is not so great for a long-term investor. One could buy, hold, and wait it out.
But a contagion of financial anxiety works differently than a contagion of disease. It is fuelled in part by people noticing others’ lack of confidence, reflected in price declines, and others’ emotional reaction to the declines. A negative bubble in the stock market occurs when people see prices falling, and, trying to discover why, start amplifying stories that explain the decline. Then, prices fall on subsequent days, and again and again.
Observing successive decreases in stock prices creates a powerful feeling of regret for those who have not sold, together with a fear that one might sell at the bottom. This regret and fear prime people’s interest in both pandemic narratives. Where the market goes from there depends on their nature and evolution.
To see this, consider that the stock market in the US did not crater when, in September-October 1918, the news media first started covering the Spanish flu pandemic that eventually claimed 675,000 US lives (and over 50 million worldwide). Instead, monthly prices in the US market were on an uptrend from September 1918 to July 1919.
Why didn’t the market crash? One likely explanation is that world war one, which was approaching its end after the last major battle, the second battle of the Marne, in July-August 1918, crowded out the influenza story, especially after the armistice in November of that year. The war story was likely more contagious than the flu story.
Another reason is that epidemiology was only in its infancy then. Outbreaks were not as forecastable, and the public did not fully believe experts’ advice, with people’s adherence to social-distancing measures “sloppy”. Moreover, it was generally believed that economic crises were banking crises, and there was no banking crisis in the US, where the Federal Reserve System, established just a few years earlier, in 1913, was widely heralded as eliminating that risk.
But perhaps the most important reason the financial narrative was muted during the 1918 influenza epidemic is that far fewer people owned stocks a century ago, and saving for retirement was not the concern it is today, in part because people didn’t live as long and more routinely depended on family if they did.
This time, of course, is different. We see buyers’ panics at local grocery stores, in contrast to 1918, when wartime shortages were regular occurrences. With the Great Recession just behind us, we certainly are well aware of the possibility of major drops in asset prices. Instead of a tragic world war, this time the US is preoccupied with its own political polarisation, and there are many angry narratives about the federal government’s mishandling of the crisis.
Predicting the stock market at a time like this is hard. To do so well, we would have to predict the direct effects on the economy of the Covid-19 pandemic, as well as all the real and psychological effects of the pandemic of financial anxiety. The two are different but inseparable.
We are feeling the anxiety effects of not one pandemic but two. First, there is the Covid-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, could soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first.
These two pandemics are interrelated but are not the same phenomenon. In the second pandemic, stories of fear have gone viral and we often think of them constantly. The stock market has been dropping like a rock, apparently in response to stories of Covid-19 depleting our lifetime savings unless we take some action. But, unlike Covid-19, the source of our anxiety is that we are unsure what action to take.
It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.
Moreover, it is not good news when two contagions are, indeed, global pandemics. When a drop in demand is confined to one country, the loss is partially spread abroad, while demand for the country’s exports is not diminished much. But this time, that natural safety valve will not work, because the recession threatens nearly all countries.
Many people seem to assume that the financial anxiety is nothing more than a direct byproduct of the Covid-19 crisis – a perfectly logical reaction to the disease pandemic. But anxiety is not perfectly logical. The pandemic of financial anxiety, spreading through panicked reaction to price drops and changing narratives, has a life of its own.
The effects financial anxiety has on the stock market may be mediated by a phenomenon that the psychologist Paul Slovic of the University of Oregon and his colleagues call the “affect heuristic.” When people are emotionally upset because of a tragic event, they react with fear even in circumstances where there is no reason to fear.
In a joint paper with William Goetzmann and Dasol Kim, we found that nearby earthquakes affect people’s judgment of the probability of a 1929- or 1987-size stock market crash. If there was a substantial quake within 30 miles (48km) during the previous 30 days, respondents’ assessment of the probability of a crash was significantly higher. That is the affect heuristic at work.
It might make more sense to expect a stock market drop from a disease pandemic than from a recent earthquake, but maybe not a crash of the magnitude seen recently. If it were widely believed that a treatment could limit the intensity of the Covid-19 pandemic to a matter of months, or even that it would last a year or two, that would suggest the stock market risk is not so great for a long-term investor. One could buy, hold, and wait it out.
But a contagion of financial anxiety works differently than a contagion of disease. It is fuelled in part by people noticing others’ lack of confidence, reflected in price declines, and others’ emotional reaction to the declines. A negative bubble in the stock market occurs when people see prices falling, and, trying to discover why, start amplifying stories that explain the decline. Then, prices fall on subsequent days, and again and again.
Observing successive decreases in stock prices creates a powerful feeling of regret for those who have not sold, together with a fear that one might sell at the bottom. This regret and fear prime people’s interest in both pandemic narratives. Where the market goes from there depends on their nature and evolution.
To see this, consider that the stock market in the US did not crater when, in September-October 1918, the news media first started covering the Spanish flu pandemic that eventually claimed 675,000 US lives (and over 50 million worldwide). Instead, monthly prices in the US market were on an uptrend from September 1918 to July 1919.
Why didn’t the market crash? One likely explanation is that world war one, which was approaching its end after the last major battle, the second battle of the Marne, in July-August 1918, crowded out the influenza story, especially after the armistice in November of that year. The war story was likely more contagious than the flu story.
Another reason is that epidemiology was only in its infancy then. Outbreaks were not as forecastable, and the public did not fully believe experts’ advice, with people’s adherence to social-distancing measures “sloppy”. Moreover, it was generally believed that economic crises were banking crises, and there was no banking crisis in the US, where the Federal Reserve System, established just a few years earlier, in 1913, was widely heralded as eliminating that risk.
But perhaps the most important reason the financial narrative was muted during the 1918 influenza epidemic is that far fewer people owned stocks a century ago, and saving for retirement was not the concern it is today, in part because people didn’t live as long and more routinely depended on family if they did.
This time, of course, is different. We see buyers’ panics at local grocery stores, in contrast to 1918, when wartime shortages were regular occurrences. With the Great Recession just behind us, we certainly are well aware of the possibility of major drops in asset prices. Instead of a tragic world war, this time the US is preoccupied with its own political polarisation, and there are many angry narratives about the federal government’s mishandling of the crisis.
Predicting the stock market at a time like this is hard. To do so well, we would have to predict the direct effects on the economy of the Covid-19 pandemic, as well as all the real and psychological effects of the pandemic of financial anxiety. The two are different but inseparable.
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