Safra was a byword in conservative banking
WHEN it comes to
conservatism in banking, few bankers in this world can match Edmond Safra, the
Syrian-born international financier, who was killed last week in a fire at his
luxurious Monaco apartment.
Over a career spanning more
than half a century, Safra built up three banks and in the process won
admiration for his banking prowess. Before his untimely death, he was in the
final stage of selling his 28 per cent stake in the Republic Bank of New York to
HSBC in a deal that valued his bank at US$9.85 billion.
On Monday, the US Federal
Reserve approved the deal after deciding that the takeover would not create a
dominating position for the bank in its New York market. Republic New York has
$51.2 billion in assets and is the 19th largest US bank. Last week its
shareholders approved HSBC's purchase offer of $9.85 billion.
Safra's Shephardic Jewish
ancestors began their banking business during the Ottoman Empire and his family
was reported to have been involved in financing the caravan trade between
Aleppo, Constantinople and Alexandria. His father, from whom Safra inherited the
banking business, advised him to always look customers in the eye, ''for the
eyes tell more than balance sheets''.
The late Chin Sophonpanich,
patriarch of the Bangkok Bank empire, also judged his customers by their facial
appearances -- using Chinese methodology. In the banking world in Chin's days,
personal trust prevailed over balance sheets.
Safra's father also gave
him some other words of wisdom: ''If you want to sail upon the seas of banking,
build your bank as you would your boat, with the strength to sail safely through
was reflected in his legendary strategy to build banks on a steady, inexpensive
deposit base. He lured loyal customers to his banks by giving out TVs. Loans
made up less than 30 per cent of the total assets of the banks, while the rest
prudent investments in safe securities. With a big reserve of liquid assets,
Safra's banks could indeed weather any storm.
Some Thai banks during the
bubble era, on the other hand, flaunted loan-to-deposit ratios hitting 110-120
per cent. In other words, for every Bt100 in deposits that they took in, they
lent out Bt110-Bt120. The deficiency was covered by short-term borrowings, some
denominated in US dollars. Thai banks not only lent more than their deposits on
hand, they also went so far as to overleverage themselves by relying on
short-term borrowings to fund long term loans, and got caught by the mismatch of
assets and liabilities when the economy crashed.
Safra would have laughed
out loud at the follies of Thai bankers, who always lived on the edge with their
funding practices. The absence of a developed local capital market also deprived
Thai banks from a channel to purchase or unload safe securities or liquid
assets. Now they are sitting on land banks and half-built or vacant buildings
that are worth less than a third of boom-time values. Much worse, these assets
cannot be readily disposed of.
If the Thai bankers had
followed the conservative path that Safra always took, they would have avoided
taking Thailand down the tube.
BY THANONG KHANTHONG