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the World reacts
L STREET WALL STREET
RISIS IN CRISIS
bloodIed
but unboWed
By Jack ewing Many feel shocked and betrayed by
Illustration by Andy Martin
wall street’s crisis. But there’s also
admiration for the speedy response
The boulevards of Paris are a pretty reliable place to troll for anti-American sen-
timent. And sure enough, self-described anarchist Bernard Barbry is happy to
weigh in with his opinion of the U.S. financial system. “The banks have brought
this on themselves, and they deserve what they get,” says Barbry, out for a stroll on a busy
street in southwestern Paris. Surprisingly, though, the retired journalist isn’t predicting
America’s downfall. The U.S., he believes, will remain powerful, and the crisis on Wall Street
won’t affect Washington’s influence on world affairs. “I like Americans,” he says.
Tokyo’s financial district, in contrast, isn’t the kind of place that typically overflows with vitriol
aimed at the U.S. But some there are plenty miffed after seeing how the hubris of Wall Street wizards
has wiped out billions of dollars of wealth in stock markets from Toronto to Tokyo. “We feel betrayed
by Lehman,” says Tetsuo Ishihara, a credit analyst at Mizuho Securities in the Japanese capital. “We
feel betrayed by Bear Stearns. We feel betrayed by Fannie Mae and Freddie Mac. We feel betrayed by
the U.S. government.... Losing trust can happen in a second, but regaining it takes years.”
As the world grapples with the fallout from Wall Street’s shenanigans, there’s no shortage of con-
sternation, and even anger. But so far the international image of the U.S. economic model has shown
amazing resilience. Lehman Brothers may be in the morgue and AIG on government-funded life sup-
creDit here
port, but most businesspeople think the U.S. is more about Silicon Valley and Hollywood than the
erstwhile dynamos of Wall Street. Even in China—where broadcaster CCTV-2 has been running two
hours of special programming every night about the financial crisis—the U.S. is still a land to be emu-
BUsInessweeK I OCTOB E R 6, 2008
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023
lated. “I see two Americas: One is wealth-creating,
innovative, with people like Bill Gates, and the other
is made up of speculators,” says Wang Jianmao, an
economics professor at China Europe International
Business School in Shanghai. “China should learn
more from wealth-creating America.”
The prospect of a diminished U.S., though,
is sobering. What will take its place as a beacon of
free enterprise? Not Europe, which still speaks with too
many voices to play a leadership role. Not China or Russia.
Their economies are still developing, the motives of their
leaders suspect. So as businesspeople survey the rubble
on Wall Street and look for an alternative, they don’t see
any nation that’s as accommodating to innovators and
entrepreneurs—or as rich in expertise. For instance, Ulf
Mark Schneider, CEO of German health-care provider
Fresenius, remains a fan of the likes of Morgan Stanley,
which handled a recent acquisition in India. “When it comes
to democracy and free market economics, the U.S. is still the
original article,” says Schneider. “Nobody wants to see it fail.”
Of course, it hasn’t taken long for critics to descend on the
carcass of U.S. finance. Fredmund Malik, an influential Swiss
management consultant who has long criticized U.S. business
practices, dispatched an e-mail to clients on Sept. 19 remind-
ing them that he predicted the collapse of U.S. investment
banking back in 2004. Others are using the crisis to flog an
agenda. German Chancellor Angela Merkel took the oc-
casion to renew her calls—in the past largely ignored by
other Group of Seven members—for more regulation of
international banking. “The current financial crisis will
nudge the whole liberalization process backwards,” says
Liu Jing, a finance professor at Cheung Kong Graduate
School of Business in Beijing.
WHERE WILL THE BEST AND BRIGHTEST GO?
Most often, the reaction abroad has been jaw-drop-
ping disbelief. Hope Chen, a partner at venture capi-
tal firm Draper Fisher Jurvetson China in Shanghai,
spent the weekend of Sept. 13-14 glued to coverage
of the crisis. “I was shocked and very concerned to
be sure,” says Chen. Still, she has no plans to sell
the home she owns near San Francisco nor stop
sending her two kids to the U.S. every summer.
A long-term issue for the U.S. may be the atti-
tudes of future masters of the universe. America’s
extraordinary ability to attract the smartest people
in the world could be eroded if the globe’s overachiev-
ers decide that the center of the universe is no lon-
ger Manhattan. Sally Gong, a 25-year-old working in
the Beijing office of a small American investment bank,
has postponed plans to attend graduate school in the U.S.
“There are more opportunities in China,” she says.
In some areas, Wall Street’s comeuppance is a plus: It vin-
dicates Europe’s less profitable—but less risky—banking
practices. Either because they were more prudent or because
creDit here
regulators tied their hands, the likes of Germany’s Deutsche
Bank and Spain’s Banco Santander look strong. But Deutsche
CEO Josef Ackermann isn’t writing off his American rivals. “I
OCTOB E R 6, 2008 I BUsInessweeK
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024
europe’s deep pockets Prudence—or stricter regulations—have left European players in enviable shape
hsbc banco santander barclays deutsche bank
Chairman: Stephen Green Chairman: Emilio Botín President: Robert Diamond Jr. Chairman: Josef Ackermann
Market Value: $192 billion Market Value: $96 billion Market Value: $53 billion Market Value: $43 billion
It’s not usu- With no Over Since
ally a mark exposure the past 2002, when
of distinc- to U.S. decade, Ackermann
tion when a subprime London’s became
company’s assets and Barclays Deutsche
stock falls $71 billion has grown Bank’s first
3.5% in a in spare faster non-German
year. But in capital, than most CEO, the
these nasty Spain’s European Swiss native
times, that performance has Banco Santander is able to rivals thanks to its investment has helped revive Germany’s
propelled HSBC to the top of sift through the wreckage banking wing, Barclays Capital. largest bank. Deutsche has
the banking industry. HSBC’s in global finance. The firm, San Francisco-based Barclays made acquisitions in emerg-
girth has helped it endure the which focuses largely on retail Global Investors, an asset ing markets and has become
credit crunch. Equally important banking, gobbled up Britain’s manager with a quantitative the global leader in currency
is its huge presence in Asia, Alliance & Leicester for approach, has also been a big trading. With new dealmaking
which accounted for two-thirds $2.3 billion on Sept. 22 and hit. Now, Barclays is buying the expertise, it has gotten stronger
of the bank’s $10.2 billion in may be looking at troubled U.S. core of Lehman Brothers’ U.S. in investment banking, and as
profit in the first half. Although lender Washington Mutual. business—including the failed its rivals suffer, Deutsche is
U.S. operations could be a drag Since 1986, when Emilio bank’s 32-story Manhattan profiting from a reputation for
on earnings, HSBC has moved Botín took over as president headquarters—for $1.75 billion. prudent management.
swiftly to fix the subprime prob- from his father, Santander has Overseeing the Lehman deal Deutsche hasn’t dodged the
lems in its mortgage portfolio. been on a global push. Last and the key investment banking financial crisis. It has written off
Despite the bank’s sprawl, year, Botín bought Brazil’s Ban- and asset management units $10 billion since mid-2007, but
Chairman Green is sharpening co Real for $17.2 billion, making is Bob Diamond, a Massachu- that’s a relatively modest 20%
his strategy. This year he sold Santander Latin America’s No. 1 setts native and diehard Red of shareholder equity. Now,
off retail banks in France, which financial player. But Santander Sox fan. While Diamond has with investment banking under
didn’t fit in the HSBC global hasn’t entirely escaped the been instrumental to Barclays’ attack worldwide, Ackermann
network. And in a bet that housing mess. Defaults have success, he has stumbled has renewed Deutsche’s focus
emerging markets will outpace almost doubled in the past year lately. His businesses are on Germany. On Sept. 12
developed ones, Green is because of slumping Spanish responsible for most of the it agreed to pay $4 billion for
building on HSBC’s Hong and British real estate markets, $6.7 billion in writedowns 30% of Postbank, which offers
Kong roots with further invest- which account for some 75% of Barclays has taken in the past retail banking from German
ments in Asia. its loan portfolio. two years. post offices.
wouldn’t bet against U.S. banks,” he says in an e-mail. “It’s Washington. The U.S. decision to halt short-selling of stocks,
still unclear who the winners of this crisis will be.” for instance, was followed by France, Britain, Taiwan, Austra-
(left to right) Graham Barclay/Bloomberg News; FERNANDO BANOS/AFP PHOTO;
It’s important to remember that in much of the world, cri- lia, and others. “When the Asian central banks and securities
ses are met with parliamentary dithering at best, or at worst regulators heard that the U.S. had banned short-selling, they
opaque decision-making by an unaccountable elite. So among couldn’t believe their luck,” says Thomas Naughton, chief in-
foreign bankers and citizens alike there is admiration for the vestment officer for equities at PMA Investment Advisors in
Bryan Smith/Bloomberg News; Paul ODriscoll/Bloomberg News
way Treasury Secretary Henry Paulson tossed out decades of Hong Kong. “They’ve always hated short-selling, and having
Republican free-market dogma and pledged hundreds of bil- the SEC ban it gave a big boost to the forces of regulation.”
lions of dollars to rescue the banking system. “The speed with That could be a problem: A less competitive U.S., many fear,
which America has moved over the past 8 to 10 days is truly will cut pressure on foreign governments to fix their own sys-
phenomenal,” says Uday Kotak, vice-chairman at Mumbai’s tems. Recent European reforms have been driven largely by envy
Kotak Mahindra Bank. “I don’t think any other country could of U.S. growth. And in India, opponents of reform may be hop-
have done that.” ing America’s troubles will put the brakes on change. Raghuram
To foreign eyes, the crisis has brought a humbler, more coop- Rajan, ex-chief economist at the International Monetary Fund
erative U.S. After nearly eight years of a George W. Bush White and a University of Chicago professor, led a commission study-
House not known for multilateral decision-making, foreign ing financial reforms. When Rajan presented the group’s find-
leaders are pleasantly surprised by the degree to which U.S. of- ings in Mumbai just a day or two after the Fannie Mae-Freddie
ficials have kept everyone in the loop. “I’ve had several confer- Mac bailouts, he recalls, “people were saying to me: ‘Is the U.S.
ence calls with Hank Paulson over the last few days, and there the kind of model we want to go with?’” ^
have been daily—and nightly—calls between our respective –With Frederik Balfour in Hong Kong, Chi-Chu Tschang in
deputies,” says French Finance Minister Christine Lagarde. Beijing, Matthew Mabe in Paris, Nandini Lakshman in Mum-
Not everyone welcomes the new leadership coming out of bai, and bureau reports
BUSINESSWEEK I OCTOB E R 6, 2008
