Good advice from America

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By Unto Hämäläinen
     
      In the middle of the summer of 1991 a small one-column item of news appeared in Helsingin Sanomat reporting on the visit to Helsinki by former US Secretary of Defence and CIA director James Schlesinger. The honoured guest had met with Finnish ministers, banking officials, and managers of large companies.
     “Behind the visit was the American investment bank Lehman Brothers, on whose Board of Directors Schlesinger now sits. The bank wanted to serve as an advisor for when Finnish state-owned companies start getting privatised in earnest”, the paper wrote, and noted that “Schlesinger has been in Finland before, and has become acquainted with small birds, which are a passionate hobby for him”.
     
In early November of the same year people found out what kind of a bird man had actually visited Helsinki. Then it was reported that Lehman Brothers had instructed its customers to invest in the Finnish markka, which had been under a serious threat of devaluation all autumn.
     The bank cynically believed that our currency would last at least a month, so that investments in it would yield “such high interest that it would be a shame not to make use of the opportunity.
     By giving this advice the bank made a serious mistake: the Finnish markka was devalued already in mid-November by as much as 14 per cent.
     
This week Finns have been reading front-page headlines of the collapse of Lehman Brothers , and the forced sell off of another investment bank, Merrill Lynch.
     During the recession we at Helsingin Sanomat called them, and certain other American investment banks, vultures. We dared not use the epithet in print, however. In the early 1990s, the future of the whole country depended on what the banks said about us. The Finnish state had to constantly take more credit from international investors by selling them bonds and debentures which were sold by American banks such as Merrill Lunch and Morgan Stanley and by the Japanese Yamacichi and Nomura.
     No wonder that red carpets were rolled out in front of the inspectors of these banks when they visited Finland. They were always given VIP tratment: the President, Prime Minister, Finance Minister, and executives of Finnish banks were eager to listen to their advice. The poor are always humble.
     In the summer of 1993 Merrill Lynch made a report at the request of the government on the state of Suomen Säästöpankki. The American consultants had a sense of humour, and gave their project the code name Phoenix. The name did not help the bank rise from the ashes. A couple of months later the government of Prime Minister Esko Aho decided on the dissolution of the bank.
     The power of investment banks was further enhanced by the fact that they were assessing the future prospects of our large companies, particularly Nokia. The assessments immediately affected prices on the small Helsinki Stock Exchange.
     
The greatest controversy was caused by Merrill Lynch in the late 1990s when it was arranging the privatisation of the telecommunications company Sonera and its first share issue. The organisers were paid 200 million markka, which was a large amount of money at that time.
     In spite of that, familiar American investment banks have been called, and are still called - as if from old recollection - advisors, if significant moves, such as mergers and sales, have been made in the Finnish business world. The statements that they made have been considered as solid as a mountain.
     Nobody could ever imagine that the Americans might give bad advice to the Finns.
     
Helsingin Sanomat / First published in print 21.9.2008


Previously in HS International Edition:
  Market upheaval wipes out billions in Finnish wealth (19.9.2008)
  Wall Street woes send Helsinki stocks tumbling in Wednesday afternoon trading (18.9.2008)
  Limited impact of Lehman Brothers bankruptcy on Finnish investors and bank customers (16.9.2008)

UNTO HÄMÄLÄINEN / Helsingin Sanomat
unto.hamalainen@hs.fi