EBAday, Stagflation and Survival of the Fittest

EBAday,
or is that days as it is now 2 days, is upon us next week. This is the
annual jamboree for the Euro Bankers Association to celebrate the
arrival of SEPA, after much anticipation since EBA days started three
years ago.

This year it is in Helsinki on Wednesday and Thursday of next week,
and I have the honour to chair the plenary session with Werner
Steinmüller, Head of Global Transaction Banking at Deutsche Bank, and
Mark Garvin, Chairman of JPMorgan Treasury & Securities Services
International. Coincidentally, these are the two sponsor firms of
EBAday this year.

In planning this plenary session, we have discussed a few ideas and
decided to get away from SEPA specifics, as that’s covered in all the
other sessions, and talk about the big picture. And the big picture
focuses upon how the markets have changed since the last EBAday in Rome
last year.

Just a year ago, all of us Europeans arrived, bright-eyed and
bushy-tailed, and calm in the knowledge that we had built the best
payments processing infrastructure plan in the world. We were
refreshing our systems and services, pricing and products to capitalise
on this new pan-European model of processing, and all felt the
investment in SEPA may have been painful but at least it was worthwhile.

How things change in a year.

Shortly after EBAday 2007, August 17th hit Wall Street and the
global collapse of liquidity and credit created the worst massacre of
the markets seen since 1987 and the Big Bang. This collapse was created
by poor lending practices and complex derivatives, rather than by some
conspiracy of markets.

In the year since, we have seen the collapse of Northern Rock and
Bear Stearns, the embarrassment of UBS, Citibank and Merrill Lynch with
deposed senior executives across the board, and the shock of Société
Générale’s rogue trader, who may have caused this old French bank to
end up merging with BNP Paribas.

Boy, how the markets have changed in a year.

We now see investment bankers facing hard times and selling second homes or pawning their Aston Martins and Rolex watches, as their wives divorce them before poverty strikes. We see hedge fund managers faking suicide leaps of terror in order to evade jail. And we see the word ‘stagflation’ rearing its ugly head everywhere in the papers.

Stagnating growth with inflationary prices is the fear of everyone
as that created the boom-bust cycles of the early 1980’s, and massive
economic uncertainty.

We are also seeing other scares including fuel rising to levels of
unprecedented pricing, partly spurred on by the credit crisis; gold
prices reaching levels never seen before; food riots in countries whose
people are dependent upon rice, grain and other basic crops; and worse.

In hindsight, we can all rationalise these events and say it was all
predictable but, a year ago, none of this was even in our radar and,
even if it were for some, it was never as bleak as it is now.

How times change.

The only good news is that London’s property prices are still
surging amongst the uber-riche, with the new residential development, One Hyde Park,
selling for an average £6,000 (€8,500, $12,000) per square foot!  The
estate agent, Knight Frank, says: “it’s the best selling, highest price
scheme anywhere in the world”, with average price for an apartment of
£20 million. I was going to buy one, but think I’ll have to leave it as
most of the buyers are apparently oil, gold and food commodities
billionaires.

In light of these changes, it will be interesting to see how the
manner, thinking, strategy and dialogue of the payments community has
changed when we meet next week in Helsinki.

Have any of these issues scuppered Europe’s plans for payments
processing? Have we put back the launch of SEPA Direct Debits (the Rule
Book is just about to land on my desk as we speak)? Is SEPA Credit
Transfers working? And is the reachability of the EBA operation proving
to deliver?

I don’t intend to second-guess these ideas here, but I do hope to
see you in Finland next week. Bearing in mind that this is taking place
on nearly the longest day of the year in the land of never-ending
sunshine, we can at least spread a little bit of sunshine on the
markets and cheer us all up.