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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 any storm.''

Safra's ultra-conservatism 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.





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