Bear Raids: The Grizzly Reason Why You Should Hate The City

The Independent  –  22 June 2012

If you ask most people why they take an instant dislike to cityboys they are likely to reply “because it saves time”. However, question them further about what it is Cityboys do that is so unacceptable and you’ll undoubtedly hear a lot of nebulous guff about “earning too much cash” or “creating the credit crunch”.

This former assertion may be true but it also applies to footballers and is hardly an intellectually rigorous cause for opprobrium. The latter assertion may also be valid but there were probably fewer than 40 bankers in every major firm who actually designed the complex mortgage-backed securities that got us into trouble. So, if you’re keen to give your intuitive abhorrence of cityboys some vague justification I’m here to provide you with one … it’s called “the bear raid”.

Of all the malevolent things my colleagues got up to during my 12-year City career, I don’t think any are as selfish, greedy and destructive as a well-orchestrated bear raid. Like lions circling a sickly gazelle, a bear raid usually involves a cabal of hedge-fund managers, proprietary desk traders and other ne’er-do-wells ganging up on a vulnerable firm. These assassins will sell short the shares in the targeted company, which means they will benefit from any share price decline, and then do everything in their power to ensure the stock plummets.

This usually involves persuading fund manager pals to dump their shares in said company and spreading malicious rumours about near-term bankruptcy. If things go well the share price begins a precipitous decline that seems to confirm the distressing rumours are true which, in turn, leads to further share price decimation. Of course, banks are the most vulnerable to this type of attack because if they lose the confidence of the market then other banks won’t be willing to lend them money or trade with them and so the victim may actually go bust, the “holy grail” for any committed bear raider!

These bear raids were occurring regularly in 2008 (until a temporary ban on shorting financial stocks was imposed). For example, there was an obvious bear raid on HBOS in April that led to an instant 17% share price decline. Lehmans was almost certainly the subject of a huge coordinated bear raid prompting its charming CEO Dick Fuld to tell a startled audience of his staff that “when I find a short seller, I want to tear his heart out and eat it before his eyes … while he’s still alive!” Mr Fuld was obviously looking for scapegoats but, make no mistake, bear raiders helped bring his company down.

Of course, these “bank robbers and asset strippers”, as the Archbishop of York Dr John Sentamu later called them, only succeeded because the banks had got themselves into trouble in the first place, but there is no doubt that they helped undermine confidence in the financial system. As every cityboy knows when uncertainty abounds, small decisive trades can tip the balance favourably and vicious circles become virtuous for those on the right side of the trade.

The irony about this particular “investment strategy” is that it clearly played a significant role in exacerbating the credit crunch and bringing about the global financial crisis. This meant that millions of people lost their jobs (which no self-respecting bear raider could have cared less about) but the hedge funds and bank traders were also shooting themselves in the foot. Unfortunately, this seemingly insane act of corporate cannibalism makes perfect sense when you consider the short-term “shoot first, ask questions later” strategy and “win at any cost” attitude prevalent when I was a broker and still alive and well in EC2.

Indeed, I hear that these same shysters are now setting their sights on whole countries. While Greece, Portugal, Spain get themselves into trouble there are many speculators praying for the euro to fail and doing everything in their power to spread an atmosphere of despair.I’m afraid that these scoundrels are doing their damnedest to make sure a crisis occurs that will cause massive suffering across the eurozone because they will make a quick buck.

So, if you’re looking for a more intellectually robust foundation for your anti-City prejudice I hope I’ve provided one … and, as a man who played for the wrong team for 12 years, it seems the least I can do.

Thoughts ?

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