Examination of Witnesses (Questions 1149
- 1159)
TUESDAY 4 DECEMBER 2007
MR E GERALD
CORRIGAN, LORD
CHARLES ALDINGTON,
MR JEREMY
PALMER AND
MR WILLIAM
MILLS
Q1149 Chairman: Good morning and
welcome to the Treasury Committee's inquiry into financial stability
and transparency following the Northern Rock situation. For the
record, will you please introduce yourselves?
Mr Mills: Mr Chairman, my name
is William Mills, I am the Chairman and Chief Executive of City
Markets and Banking for Europe, the Middle East and Africa.
Lord Aldington: I am Charles Aldington,
Chairman of Deutsche Bank in this country. I should also say to
the Committee that I do not sit in the House of Lords.
Mr Corrigan: I am Gerald Corrigan,
Managing Director at Goldman Sachs in New York.
Mr Palmer: I am Jeremy Palmer
from UBS.
Q1150 Chairman: Do you agree with
the recent comments of Peer Steinbrück, the German Minister
of Finance, that the snooty attitude of bankers who believed they
were cleverer than everyone else is largely to blame for the credit
crisis?
Lord Aldington: Mr Steinbrück's
comments were made in the context of what has been happening recently
in Germany.
Q1151 Chairman: He spoke about the
global crisis.
Lord Aldington: Yes. I am sure
that it was intended largely for a domestic audience. The developments
which we have seen over the past few months are the result of
things that have happened in the economy over the past few years
and are not the fault of bankers.
Q1152 Chairman: You are as pure as
driven snow?
Mr Corrigan: I think that as a
general matter bankers should conduct themselves with a legitimate
element of humility. While I do not want to associate myself with
the particular remark to which you refer, I think humility should
be a central part of the way we approach our business.
Q1153 Chairman: The Governor of the
Bank of England said you had developed a range of increasingly
opaque and complex financial instruments. That means investors
while searching for ever higher yields lose sight of the risks
involved. Mr Palmer, do you agree with the governor?
Mr Palmer: Over the past few years,
as is now well known, we have lived through a period of stability
and low interest rates which has led investors to search for high
yield. That search is often quite legitimate. Institutions have
their own clients and liabilities in the form of pension fund-holders
or policy-holders and as intermediaries the banking sector has
sought to satisfy that demand, and the housing market in the US
provided opportunities to do so.
Q1154 Chairman: Is that your answer?
Mr Palmer: Yes.
Q1155 Chairman: If I may start again,
do you agree with the Governor that you have developed a range
of increasingly opaque and complex financial instruments that
mean investors while searching for every higher yields lose sight
of the risks involved?
Mr Palmer: I believe that in all
cases the investors were sophisticated and given all the information
they required.
Q1156 Chairman: Therefore, you do
not have opaque and complex financial instruments?
Mr Palmer: Complexity is a fact
of life and it has resulted from people searching to satisfy their
particular needs.
Q1157 Chairman: Therefore, you have
not lost sight of the risks involved?
Mr Palmer: The information that
was available was considered at the time to be normal.
Q1158 Chairman: Mr Mills, has Citigroup
lost sight of the risks involved?
Mr Mills: Mr Chairman, I would
just emphasise that the end-buyers of these complex instruments
were sophisticated institutions that were provided the opportunity
to review all of the structures and all the documents associated
with them. I think as it relates to losing sight of the risk,
with the benefit of hindsight there were some stress scenarios
that maybe should have been reviewed further.
Q1159 Chairman: Citigroup has lost
reportedly between $8 billion and $11 billion. The former chief
executive, Chuck Prince, said, "We have to keep on dancing."
Are you keeping dancing? In other words, you just keep going in
the market and when the music stops you will see where everything
falls out?
Mr Mills: Mr Chairman, I believe
that our former chairman's comments were in relation to leveraged
finance and in relation to the ...
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