Howard Davies's diary: "Synchronised slowdowns are about as exciting as synchronised swimming"

RBS's chairman tries to explain Brexit to Americans.

by Howard Davies
Last Updated: 12 Dec 2019

My carbon footprint was very light in September, but rather heavy in October, leaving me with a lot of offsetting to do. The main reason was the IMF meeting in Washington which, so far at least, is a three-line whip for bankers. The conference itself this year was a downbeat affair, as the Fund’s economists set out to make our flesh creep with dark warnings of a "synchronised slowdown" ahead. 

Synchronised slowdowns are about as exciting as synchronised swimming. The smell of bad debts ahead hung over the room. We put metaphorical clothes pegs on our noses. 

But the real business takes place around the formal sessions, in corridors and airless hotel rooms. It is a form of speed-dating. I had 33 scheduled meetings with clients, would-be clients and counterparties. At 32 of them I was asked what was happening on Brexit (the 33rd didn’t happen as my oppo got stuck in traffic near the White House). It is a challenge to find 32 different ways of saying "search me", so eventually I gave up. 

It is fair to say that the foreigner has also given up trying to understand what is going on [and that was before the General Election was called]. The Benn Act was just about understandable, but the Letwin amendment had them stumped.

It is a well-established custom that on the Friday night, delegates retreat to their country’s embassy for an evening of R and R with their compatriots. The French ambassador hosts a seated dinner. In our case, the embassy gives a party sponsored by the Institute of International Finance. The routine is that His Excellency welcomes the guests, the IIF boss contributes his two penn’orth then the chancellor addresses the throng.

But now, of course, we have no ambassador. The last one felt he had to resign when some mild telegrams (suggesting that Trump might not always be right on top of his brief ) were leaked. And for reasons not entirely clear, no replacement has been found. 

We had no chancellor either as Sajid Javid had to rush back to London for a vote. So Mark Carney stood in, wittily describing himself as the Speaker of Last Resort. Someone said that is the first entry in the central bankers’ joke book (and also the last). The rest of the speech was pretty funny too, and suggested a degree of demob happiness, but my nib is sealed.

Back in Europe, I popped over to Milan for a regular meeting of European financiers. Though civil serpents no longer go to euromeetings, we bankers have not yet given up on them. I arrived on a just-in-time plane and took a taxi in from Malpensa airport, for a ‘controlled fare’ of €95 (the meter showed about €125). It was an odd contrast with the cost of getting to Heathrow, which for me with my Freedom Pass, is approximately £0. It is perhaps a little strange for a bank chairman to be subsidised to go on business trips, but that’s the way it is. If Corbyn promised more of that sort of socialism he might get more votes in the City.

In the eurozone, and indeed in Switzerland, all the talk is of negative interest rates. You get charged to hold your surplus funds in the central bank. While it is pretty well impossible to pass a negative rate on to depositors, who of course have the alternative of holding banknotes instead. And those nice yellow €200 notes will still be worth €200 next year, not €199. 

One colleague summed it up neatly. Banking is now the only industry where at the margin the cost of the raw materials (a deposit) is above the price of the finished output (a loan to the central bank). It is one reason why investors do not love European bank stocks.

After Milan, the next port of call was Lisbon. There is a direct ‘Take Another Plane’ flight. (It used to be known as TAP when airline acronyms were all the rage.) Lisbon is a very accessible city. An Uber from the airport will set you back a mere €7.50, and if you know your Bernardo Silva from your Cristiano Ronaldo, you will never be short of a conversation partner.

The Portuguese have been through the financial mill in the last few years, but a socialist-led coalition including communists and assorted other leftists has tightened belts all round and straightened out the public finances. Now things are looking up. When it was set up, the coalition was dubbed the geringonc¸a, roughly translatable as the ‘contraption’ – a Heath Robinson arrangement that could not possibly work for long. We might just find ourselves looking for a British version before the end of the year. Is Heath Robinson still around I wonder?

The president of Portugal is a very trim elderly gent (well, he is at least two years older than me) who sleeps two hours a night and goes body surfing every day. How unlike the home life of our own dear Queen, or my home life for that matter. His English is impeccable, if slightly old-fashioned.

We met him in Sintra castle, which was originally modelled by Philippa of Lancaster, the daughter of John of Gaunt, who married the king of Portugal. (One of her children was Henry the Navigator.) So the English Alliance was in the walls, and a global trading empire was born in one of the beds. Yet soon we may need a visa to visit. O tempora!

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