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Richard Thomson's Financial Apocalypse

If you thought it was finally safe to travel to bookstores without being bombarded by advertising for yet another hyperbolic tell-all book on the derivatives industry, think again. Another derivatives doomsayer has landed a fat publishing deal, and his dark predictions are coming soon to a bookstore near you.

Richard Thomson, a financial journalist and former employee of a London merchant bank, has tried to shoot out the lights of the derivatives industry with Apocalypse Roulette: The Lethal World of Derivatives.

The book starts off painting a series of hypothetical market shocks—the forceful repatriation of Hong Kong by communist China, a rogue trader who loads up on risk to avoid being fired and a relatively small $500 million default of Brazilian government debt to foreign banks, among others—that combine to bring about financial apocalypse.

After blowing up the financial world, Thomson goes on to describe the history of the major players and institutions in the derivatives business, which he thinks is "just a few trades away” from causing a global depression.

Thomson got the idea for the book after the Barings disaster in 1995. "Barings was a great scare story,” he says, "but there was more to it than just one small British bank. An awful lot of people in the banking industry and in general clearly had no idea what the context of all of this was. So I thought it would be interesting to put the whole thing in its historical context, and to come to some conclusions about just how dangerous derivatives are.”

While Thomson didn't do much with derivatives when he was a banker—eurobonds and bullion deals were the closest he came—he says he learned a great deal from numerous conversations with bankers and traders when he became a financial writer and eventually deputy city editor of London's The Independent on Sunday. Those conversations shaped his pessimistic view of the derivatives world. He says derivatives dealers are conflicted souls, trying to reconcile their tremendous salaries and bonuses on the one hand with guilt over the effects of their activities on the financial system in general on the other hand.

"When I started doing research for the book,” he says, "I was really surprised how frequently I came across people telling me about things that clearly worried them, stuff they mull over when they get home after a day's work. Many people in the business seem to be a little uncertain as to whether what they're really doing is in the world's best interest.”

Apocalypse Roulette conveys what Thomson views as the inherent dichotomy of derivatives in no uncertain terms. "Think of a derivative as a loaded gun,” he writes. "You can use it in self defense or for murder. Unfortunately, the temptations to use it for the latter purpose are immense.”

Liebel: Mid-Size Is Beautiful

Helmut Liebel is not your average treasury officer. As assistant treasurer at W.R. Grace & Co. from 1992 to 1997, he was responsible for a broad range of treasury functions, and earned a reputation as one of the more sophisticated risk managers in the corporate world. Some of that experience came from his roots in the sell side: before joining Grace, Liebel worked in Bank of America's capital markets group, and with Merrill Lynch's foreign currency adviser group.

Now, Liebel has become treasurer of Computer Products, a $600 million manufacturer of power conversion equipment and communications industry systems based in Boca Raton, Fla. Liebel says one aspect of his new job involves applying the enterprise-wide risk management concept to a mid-size company. "It's a formidable challenge to identify the price risks on a forward-looking basis because some of the exposures are not as readily observable as they are in a financial institution,” he explains. For example, the company manufactures much of its product in Asia and sells a considerable portion of it in Europe and North America. As a result, price risk can reside in sales contracts and purchasing contracts based in various jurisdictions around the globe.

He also notes that end-users have begun cutting the lists of dealer relationships they want to maintain on an ongoing basis. "There's a clear consolidation among first-tier and second-tier providers,” he notes. "There are the top four to six investment banks and truly global commercial banks and the gap has widened. Many so-called second-tier banks, however, provide valuable services through unique product or geographical positioning.”

Liebel is also eager to dispel the notion that he took the job in Boca to improve his handicap or catch some more rays. "Most of my waking hours are spent in the office,” he explains. "While you look at the snow out of your office I look at the palm trees out of my office.”

Gifford Fong's Million-dollar Pair of Chairs

Lots of derivatives people make charitable donations to the field that helped build their careers, but Gifford Fong has set a new level of generosity.

Last month, he and his wife announced they were donating $1 million to fund two chairs in financial engineering and risk management at the Stanford Graduate School of Business and the University of California at Berkeley's Haas School of Business.

"It's giving something back to the industry and promoting and recognizing the importance of academic research to our profession,” says Fong, whose consulting firm specializes in independent valuation of derivatives as well as litigation support in cases involving complex financial strategies. "We have every intention of growing and staying on the cutting edge, so having strong relationships is important both the near term and the long term.”

At Stanford, the funds will be used to support, among other areas in risk management, the work of professors Darrell Duffie and Ken Singleton, who have done pioneering work in credit analysis and credit derivatives. At Berkeley, it will fund a financial engineering trading center that will allow students to get hands-on trading experience along with their course work.

Fong has hinted that he's close to establishing another chair at a major East Coast university sometime later this year.

  • Alfred Payton has been named manager of client services, Americas, at C*ATS Software. He previously served as a managing consultant at SunGard Capital Markets.
  • Hal Hansen, president of Cargill Investor Services, and Carlton Anderson, head of the firm's Managed Money Group, will retire effective June 1.
  • Jim Hackley, executive vice president at Charles Schwab & Co., has been named to the board of directors at the Chicago Board Options Exchange.
  • Sanwa Financial Products promoted Hajime Ooi to president, Kazumasa Iida to executive vice president, and Oliver Bergmann and Eddy Van de Wetering to senior vice president.
  • FIMAT named Alain Bozzi manging director, Vincent Taupin general manager of FIMAT London, Amaury de Villemandy general manager of FIMAT Paris and Patrice Blanc general manager of the FIMAT USA World Trade Center office.
  • Deutsche Morgan Grenfell purchased NatWest Markets' equity derivatives business and took on 199 of the 208 NatWest staffers.
  • Merger talks between Chase and Chemical reportedly resulted in the departure of Jeffrey Larsen, former head of Chase Global Markets' international capital markets division, and Jonathan Fox, former head of ICM in Asia.
  • NationsBank has created a new fixed-income and interest rate derivatives group, called the Rate Group, and has appointed Jonathan Moulds global head and James Hamilton managing director.
  • Diego Wauters has been named global head of insurance derivatives at Societe Generale.
  • Ira Kawaller, former vice president and director of the Wall Street office of the Chicago Mercantile Exchange, has formed his own consulting firm, Kawaller & Co.
  • IRIS Investment Support Systems named Mike O'Hara head of its newly incorporated subsidiary, IRIS Investment Support Systems (UK) Limited. He had served as managing director of European operations at SunGard Futures Systems in London.

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