Tuesday 21 August 2012

Shakedown Shakedown!

I've been pretty quiet over the summer as temperature in Europe dance in the high 30s but the current topic "Shakedown Shakedown" has got me thinking during some of the hot nights. My friend over in Virgina USA has reminded me that in US of A the government (the Fed et al) are pretty well acting like Al Capone in more ways than one. He calls it a classic 'Shakedown'. I've met many good brokers,fund managers, hedge fund managers over the years but there are only a few that I would classify (re-classify) as 'guru' material but my friend in Virginia is one of them. He had worked till relatively recently on Wall Street both in NY and London and his knowledge, experience and valuable insights are something I take very seriously. We don't always agree on everything but one thing that we do agree on is that there are 'Shakedowns' occurring and not just in USA.

Several years ago a UK listed company 'H' that I invested in on behalf of clients saw the writing on the wall in Sub-Saharan Africa and did a clever deal with a FTSE100 constituent 'T' allowing for a special dividend to get paid. After completing the deal the African nation retrospectively charged the PLC with tax evasion (some $400m +) which clearly the company wasn't prepared to pay (& rightly so). Having taken legal advice the London based int'l courts covered the case and after a while the UK PLC 'H' put the sum into an escrow. The money is still there as far as I know and now the African nation is making life more difficult for 'T' too. SHAKEDOWN 1.

The BP oil spill in Gulf of Mexico has been well documented but hardly any journalists have questioned as to why the int'l board of BP allotted billions of shareholders funds to a US lawyer representing the US government. To date most of the allotted funds have yet to be distributed as perceived environmental and business losses were overcooked by a severe margin. It'll be interesting to see if the US lawyer returns the funds to BP shareholders but I'm not holding my breath. SHAKEDOWN 2. (Ed's note. Normal procedure would entail insurance claims taking the slack for any accident followed by an investigation and perhaps a fine. The interference by Obama provoked BP into paying out for questionable failures despite adequate US insurance cover)

In the last month my former employer, Standard Chartered PLC, paid a $345m fine to a NY Federal regulator because the bank allegedly dealt with and for Iranians in the US despite strict embargoes. What is strange about Sands predicament is that Chartered Bank have operated in Iran for nigh on  a century, created the Irano-British Bank in 1959 (49%) and have been the primary western banking link between Iran and the region, Iran and the rest of the world and Iran and the US during, before and since the Shah was deposed. Thousands of Iranians live in the US today as opponents to the Ayotullahs and yet no-one seems a bit curious to reflect on how these Iranians can a. obtain investment finance from their relatives and b. simultaneously return income and investment returns to their families in Iran presumably abling and assisting pro-US iranian interests. Granted, there may have been a few rotten deals but surely this was factored in when the banking licence was obtained and renewed in NY. SHAKEDOWN 3. (What happens to the fine $? I doubt US tax-payers will see a dime).

The strange curiosity surrounding the last SHAKEDOWN mentioned is that the chief UK regulator, Lord Turner of FSA, was a Non-Exec Director of Standard Chartered (£180,000 salary) till c. 2008. Ironically he was responsible for remunerationa and ethics. Have you taken your Integrity Matters online test (£20) yet Lord Turner? Anyway his fee for a few hours work a month appears to be an Appendix to SHAKEDOWN 3. Lastly, has anyone worked out the obvious conflict of interest here?

It seems that indebted governments everywhere, failed regulators everywhere, are conducting undemocratic and uncapitalistic SHAKEDOWNS on cash rich businesses so expect more of the same.

Let's not forget that 'Shakedowns' are not confined to big business. Has anyone noticed how the same is happening to customers of utilities businesses? More on that later.

"The 21st Century Shakedown is here to stay!!



No comments: