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13 January 2024

The clue that a banking crisis is coming

Redundancies in the City could prefigure a bigger problem with financial markets.

By Natasha Voase

“For sale: Rolex date – just oysterquartz **Reduced**” reads the 21st century’s seven-word version of the famous six-word story usually attributed to Hemingway: “For sale: baby shoes. Never worn.” As headlines around the world grow gloomier, it’s party time as usual at the Bloomberg terminal, where traders are selling unwanted Christmas gifts and, perhaps, regrettable auction purchases.

The Bloomberg terminal is a computer software system that is widely used in the banking industry. It’s generally marketed as providing users with financial data and rapid news services. However, Bloomberg also features an array of curious additional functions, such as POSH, which is essentially Gumtree for Rolexes and other luxury items. Users put items, often watches, fancy shoes, phones and fast cars, up for sale and then other users get in contact to buy them.

The sale of luxury goods itself is often used to analyse financial markets. Despite how the luxury market is stalling, listings on Bloomberg POSH still seem to be strong. A hundred items were listed between 1-19 December, with over 50 of these still up for sale by 9 January. On 19 December, there were more than 90 items with November listing dates; while on 9 January, 28 of these remained. Meanwhile, a flurry of post-Christmas selling means that 50 new adverts were placed between 1 January and 9 January, with many more posted between Christmas and New Year. All of this might suggest that, while the economic picture remains subdued, the consumption of second-hand luxuries is going strong – and suggesting that thriftier times are potentially on the horizon.

While some in finance have described their 2023 Christmas parties to me as “debauched” and “like normal”, spinning yarns of Bacchanalian excess in restaurants followed by long nights of clubbing to sober up, others were more subdued. For a few, the first sign of a downturn came in December 2022 when, following a Covid-induced hiatus, some firms declined to reinstate the company-wide party, to general dismay. Others, in a bid to cut costs, held their parties on Tuesdays and Wednesdays, leaving their poor staff to trudge through the week on a champagne comedown. Terrible.

The bad news continued when staff at several financial firms received redundancy packages last year. Goldman Sachs, Barclays, Morgan Stanley, Citi – the list went on. While redundancies at the larger banks were well-publicised, intentionally or not smaller banks cut more discreetly, with few on the outside aware of what was happening. By the end of 2023, the Financial Times estimated that some 60,000 people were out of a job at the world’s largest banks. More are expected to come.

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All of this contrasts with the luxury on display at Bloomberg POSH. Before Christmas, a Birkin bag was being flogged for £22,000 while a Rolex came in at a relatively affordable £7,000. For car-lovers, a Porsche 911 with 45,000 miles on the clock commanded an asking price of £50,000, while the post-Christmas sale of a Mercedes W213 Estate was on offer for a mere £21,000. A pair of Rolex oyster quartz were priced at around £14,000. However, it is unclear how realistic these prices are. One trader, when asked what they made of this, commented, “Fourteen grand for a pair of oyster quartz? I’d rather eat my own spleen.”

Scrolling back through the terminal’s archives to the neon world of the Noughties, the picture is similar. While POSH does not show archived posts, DINE, Bloomberg’s restaurant recommendation service, does. Invented in a pre-smartphone era, DINE is where financiers come to recommend the finest restaurants in town – though there are also many kebab shop recommendations. Who said rich people can’t have fun?

At the end of 2007, one visitor to Scott’s in Mayfair correctly predicted what was to come: “With an average dover sole and vedge [sic] £46 and a table limit of two hours one [is left] hoping for a serious recession.” Given that £46 in 2007 now comes in at almost £80 today, it does seem that the recession couldn’t come soon enough. Shortly before Lehman Brothers collapsed in September 2008, one visitor to Nam Long, a London bar renowned for being the site of excess in the 1990s, commented, “Nam Long has a brilliant cocktails [sic]… Although pricey the Flaming Ferraris [are incredible]. Still feeling the [effects] 24 hours later!” Meanwhile, reviews for Coq d’Argent in Bank, central London, which later became a symbol of the crisis after financiers started jumping from the roof, bemoan the poor service. One user said: “This has to be the worst service ever… and that’s coming from a French bloke.” So, shortly before Lehman employees began leaving the office with cardboard boxes, it was as festive as usual in the Square Mile.

This time it’s different. Few are predicting another subprime mortgage crisis, which sparked the 2008 crash. Even Michael Burry, the man who predicted that crisis, has closed out many of his short positions. People have also been quick to point out that trading behaviour is more restrained this time around. Take commercial property, which is currently suffering a downturn. Before the last crisis, banks would underwrite loan-to-values of 80 per cent or even more – now they rarely go above 60 per cent.

Nonetheless, the collapse of Silicon Valley Bank (SVB) and Credit Suisse last year caused concern that history was repeating itself. Larry Fink, chief executive of BlackRock, which has the largest asset portfolio in the world, said that the collapse of SVB could be the start of a “slow rolling crisis” with “more seizures and shutdowns coming”. Meanwhile, the veteran economist David Rosenberg recently said that the complacency of investors reminds him of the run-up to the housing crisis and crash of 2008.

If deal volumes are anything to go by, a lot of people are sitting on their hands. Many say this is due to a lack of confidence, since finance requires confidence to say that the price you have paid today is lower than the price you will get in the future. Others have been quick to point out that the stock market has rallied as people anticipate interest rates cooling off.

As the wise owl behind the finance-focused Alex cartoons in the Telegraph pointed out recently, much of this is bravado. “Markets are a reflection of sentiment,” one character explained, “so any displays of overt negativity can risk crashing them.” In the struggling commercial property market, deal volumes have collapsed as investors work out whether valuations have finally reached the bottom. Many would-be investors say they are trying to avoid catching a falling knife. In the wider market, private equity funds are sitting on around $2.6trn of undeployed funds as people avoid being the first to make a move.

Some say that 2008 came out of nowhere; financial stability was present one day and gone the next. Economists like Nouriel Roubini disagree, however, pointing out that the potential for trouble had long been visible. While there have been signs of recovery in the wider economy, much of the financial world is still adjusting to higher interest rates. Many seem to think that if deal volumes don’t pick up, the worst is yet to come. Speaking about a recent Christmas party, one source commented, “If they served crémant this year, it’s safe to say that next year, it’ll be cava.” With the cava era now a real possibility, the consumption on Bloomberg POSH is beginning to look even more “top of the market”. Selling a watch for nearly £15,000 could soon become a distant memory.

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