Of Cartoon Characters and Ship-Lending: 2007 Shipping Banker Survey

Morten Heiner Pedersen is not alone in his sentiment. The comments that follow were all taken from actual responses we received when we sent out our banker survey this year, and while none are attributable we will tell you that at least one of the bankers was with a firm that achieved an ROE target of over 17% last year, so these are not just sour grapes. These, rather, are the voices of individuals when removed from the pressure and targets of the firm, individuals who in the midst of it all take a little time to contemplate what the longterm implications might be for the system in which they act daily. As it is seldom that we have the opportunity to watch competing bankers sit down together and discuss the business, we thought a Virtual Round Table might be a way to get a glimpse into what actually might happen were such a situation to occur…

Virtual Round Table Participant #1: We’re in Disneyland from a risk/reward perspective, but nobody likes to admit to themselves that they are really cartoon characters. Participant #2: I don’t think you know or have ever been to Disneyland…I recently have. Disneyland is a controlled environment where risk/reward is tightly controlled by those who have intelligently designed sophisticated rides, enlightened amusements and a fantasy world that is better than reality. The shipping markets are chaotic, based more on the probability that dinosaurs will roam the earth in our lifetime… and given the willingness of bankers to fund shipowners’ newbuilding commitments; steel dinosaurs will probably roam the earth in our lifetime!

Participant #3: At some point, institutions and borrowers are going to have to realize that the credit risk versus pricing return is completely out of balance. I’ve heard time and time again lenders complaining about the margins they get for the amount of risk they are taking.When will some one stop and remember that this business is not about how much top line volume you generate, but rather how much bottom line profit you keep. Who will be the first to firm up and stand up and say: “this Emperor has no clothes on”?????? Our favorite part about the whole thing is the cartoon metaphor. A cartoon character can be run over by a truck or blown up by dynamite only to return in moments, slightly worse for the wear but soon healed. In the same way a banker, fund manager or ship owner for that matter may engage in a disastrous and expensive endeavor then disappear, only to resurface later in a successful position. Not to say that most don’t take all the pains in the world to avoid a disastrous outcome, but just to give color to the metaphor.

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