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2008 turned financial heroes to zeroes

December 17, 2008 10:48:00
Adam Plowright
Agence France-Presse

PARIS, France -- The financial crisis of 2008 was uncompromising in its destruction of reputations and unsparing in its treatment of investors, many of whom were blown on the rocks by the forces that ripped through markets.

Across the world, people felt the pain of plunging stock markets through stock market portfolios or pension funds, but several incidents of bad luck, poor timing or financial stupidity stand out among the wreckage.

The scandal surrounding Bernard Madoff, a former scion of Wall Street, is a fitting end to a catastrophic year for the financial sector with an alleged pyramid investment scheme apparently duping billionaires out of millions.

The world's leading banks, richest investors and even a Steven Spielberg charitable foundation are among the victims of what could end up as a $50-billion fraud.

Among other notable losers of the year, British billionaire investor and football club owner Joe Lewis was caught conspicuously taking a punt on Bear Stearns shortly before the now-defunct US bank collapsed.

Having made millions betting successfully on the collapse of the British pound and the Mexican peso, Lewis reportedly spent more than $800 million building a stake in Bear Stearns at more than $100 a share.

Bear Stearns was eventually rescued by JPMorgan Chase which paid $10 a share -- less than the estimated value of the group's Manhattan office building.

In Germany, Adolf Merckle, formerly owner of the world's 94th biggest fortune according to Forbes magazine, lost a reported one billion euros through speculation on shares in car maker Volkswagen.

In Asia and the Middle East, the managers of state investment funds spent the year watching the value of their ill-timed investments in Western banks in late 2007 and early 2008 -- estimated at $50-$60 billion -- turn from bad to worse.

They stepped forward to help recapitalize European and US banks that had been hit by early subprime loan and securities losses, but following further problems many have since been part-nationalized.

A review of the banks that received cash injections from wealthy Asia and Middle Eastern investment funds reads like a roll call of the hardest-hit lenders.

China Investment Corp., China's sovereign wealth fund, bought a 9.9-percent stake in Morgan Stanley last December.

The Government of Singapore Investment Corp. invested in Swiss bank UBS and US bank Citigroup. The city-state's Temasek Holdings pumped billions into the former US investment bank Merrill Lynch.

Abu Dhabi Investment Authority made an investment of $7.5 billion in Citigroup -- to name but a few.

Acknowledging the huge falls in the value of Singapore's investments, Prime Minister Lee Hsien Loong told journalists in early December that the returns would come in the end.

"The situation looks a lot gloomier now than when they went in but these are long-term investments so we will see. It looks under water now but the situation can change," he said.

The famous US investment banking sector disintegrated, with the bulls on Wall Street humbled and the party of the last few years coming to an abrupt stop.

Goldman Sachs and Morgan Stanley scraped through by turning themselves into deposit-taking banks, Bear Stearns and Merrill Lynch were rescued by takeovers, while Lehman Brothers -- the ultimate failure of 2008 -- went to the wall.

Former Lehman Brothers chief Richard Fuld suffered the indignity of having his pay packet ($300 million since 2000) revealed at a US congressional hearing and suffered a mauling from angry lawmakers.

"While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice," said the committee chairman, Henry Waxman.

There were other examples of bad banking.

French bank Societe Generale revealed staggering losses on derivatives trading of 4.9 billion euros ($7.1 billion) in January which were blamed on a rogue trader -- the now infamous Jerome Kerviel who has been charged.

In Germany, executives dubbed "Germany's stupidest bankers" by the press were fired from state bank KfW after authorizing transfers of more than 300 million euros to Lehman Brothers shortly before it went bankrupt.

In China, Citic Pacific, the mainland's biggest state-owned investment company, reported realized and potential losses from unauthorized foreign exchange contracts of HK$18.6 billion ($2.38 billion) at the end of November.

The real estate market, which has been rising steeply for years in economies such as Britain, Ireland, Spain or the United States, also gave investors a hard lesson in economic realities: what goes up, comes down.

In May last year, Spanish property group Metrovacesa reached a deal with HSBC to buy its London headquarters for 1.09 billion pounds only to sell it back to the banking group in December for 250 million pounds less.

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