thesundaytimes.ie/money 03.10.

10 13

FAME & FORTUNE

MIKE SODEN TALKS TO GABRIELLE MONAGHAN

I lost more
than ¤3m
on shares
The outspoken banker resents the
risks taken by his former colleagues

M
ike Soden’s resignation as
chief executive of Bank of
Ireland after breaching its
internet policy by accessing
adult-rated websites was the
biggest banking scandal of 2004.
Six years on, the shoe is on the other
foot. He was appointed last week to the
new Central Bank Commission as part the
government’s overhaul of Ireland’s
discredited regulatory system.
This week sees the launch of Soden’s
book, Open Dissent: An Uncompromising
View of the Financial Crisis, in which he
shares his insights on the industry.
Soden has never been reluctant to speak
his mind. Two months after the
government controversially guaranteed
banks’ debts in 2008, he urged banking
chiefs to “do the honourable thing” and
quit, saying they had presided over the
demise of the country’s leading financial
institutions.
He recommended Australian Mike
Aynsley, a former colleague at National
Australia Bank in Sydney, for the top job at
Anglo Irish Bank,the nationalised lender.
Soden was considered to be a banker
with a completely different mindset when
he was headhunted by Bank of Ireland in
2001. Though his tenure there ended
abruptly after only three years, it came
with a payoff of ¤2.7m.
Soden, 63, lives with his wife, Lou, in
Dublin.
How much money do you normally carry
in your wallet?
Truthfully? About ¤500, because I prefer to
conduct all my transactions with cash, for
two reasons. First, I don’t like to spend
money on something only to forget I have
spent it and then get a bill at the end of the
month. Second, I like to control my
expenditure by “pay as you go”.
My wife and I are quite disciplined. We
went to Canada in 1968 and, of all the
money we have earned since, I don’t think
in any one year we spent 100% of what we
earned. We learnt the art of trying to
create wealth. My mother was good at this
kind of discipline. If you have ¤100, you
try to spend ¤90 or ¤80.
How many credit/debit cards do you
have and do you pay them off each
month?
I have one card from Bank of Ireland and
one from Allied Irish Banks — one Visa
and one Mastercard. There is usually not
a large amount of money on them at
the end of the month. I have never paid
or owed any interest on a credit card in
my life.
What was your first job and how much
were you paid?
My first job was at a pea canning factory
in England and I earned 6 shillings an
hour. I worked during the summer
holidays from college, about 10 or 12 hours
a day, canning peas and fruit.
You hoped at the end of it that you
would have sufficient money saved so as
not to be a burden on your parents during Soden says he learnt the value of money from his mother. ‘Her industriousness rubbed off on me. I do suffer from an insecurity about the future sometimes’
the college year.
I was lucky because I was later selected
among a group of 80 students to sit in the look at your expenditure, you have to look know. The biggest thing for me would be value of my principal investments — Bank those thousands of people who saved
office afterwards and do the accounts. I at the revenue side and ask: “What do I the huge amount of money people have of Ireland, AIB and Bank of Scotland — cautiously throughout their lives: people
would do overtime by working on the have to do to earn that money before I can spent on weddings over the past few years. had tumbled. I eventually sold my shares who never dreamt of getting help from
documentation. We were all living in spend it?”. I’ve seen anything from ¤25,000 to ¤1m at a much lower price. When they went anyone, the government or friends. Their
barracks-type accommodation. Wearing Even now, I have four savings banks in spent on weddings. down further, I bought a multiple of investments are gone. I resent that the
a shirt and being freshly shaved in that the bedroom — two pigs, one rabbit and a I grew up when we didn’t have those shares back, and I recovered about 60% of people who have overseen all this are still
environment didn’t make you popular. map of Australia. I put all my loose change excesses. I always believed people were my losses. in charge.
in there, and Australia gets the foreign better off having a very small wedding and
Have you ever been really hard up or coins. When they are full, I can buy putting their money aside for buying a How have you been affected by the If you were minister for finance, what
broke? recession? changes would you make in the budget?
something trivial, even though there’s house. I don’t begrudge anyone, but
No, because from the time I was about 18 nothing I couldn’t afford. unless you have millions in the bank, I I was affected by the downturn in the We must not borrow our way out of this
or 19, I was able to generate some money. Most people will not bend down to pick don’t see why you should leave yourself in financial markets enormously. I lost more and place that burden on the next
I learnt the value of money from my up 10c off the street, but I will because it debt for a single event in your life, unless than ¤3m, but I don’t want to say exactly generation. We can earn our way out of it.
parents, especially my mother. She was will feed my pig at home. that event is celebrating winning the how much. I worked actively in the last Everyone in the country should be putting
very industrious and took in students. Lotto. It’s just foolish. two years in the markets, trying to their backs into it, working longer hours.
When we had two houses side by side, she What is the most extravagant thing you readjust, and I got 60%-70% back. Foreign It’s an incredibly difficult job for Brian
began running a guesthouse. Her have ever bought? What would you never spend money on? exchange markets have been far kinder Lenihan [the finance minister], but I
industriousness rubbed off on me. I do I always had good cars, but the most Excessive amounts of clothes, I suppose. than shares, so I invest in foreign think spending cuts of ¤3 billion in the
suffer from an insecurity about the future extravagant thing I’ve bought in recent And I’ve only had two or three briefcases currencies and bonds and I’ve been next budget won’t be enough if we want to
sometimes and that drives me to go out times is a CL63 AMG Mercedes-Benz — 63 in my life. Also, I wouldn’t buy a really fortunate enough in that they have gone get back to a deficit of 3% in the next three
and make money. after my age. It’s a beautiful car, but I expensive bottle of wine, although I’d the right way. or so years. It may take ¤5 billion in cuts
Are you a saver or a spender?
bought it second-hand and it’s 18 months drink someone else’s if they bought it. in the next budget. I’m in favour of more
old, so I got it for a good price. We also buy Do you own property and would you welfare cuts because we can’t afford to
There are two types of people — those who art from time to time. But if I see What is the worst thing that has consider buying some now? borrow for it.
know how to make money and those who something I like, it has to pass the happened to you financially? I have a home, but I own no other But at the same time, you have to leave
enjoy spending. There is only a small censorship of my wife. After I left the bank, everything seemed property. I did have one in London and I money in people’s pockets so they can
minority of people who can do both. perfect. I had my nest egg and income; I was fortunate to have sold it in 2007. We spend. I take my hat off to the majority of
Some people with a certain mindset Have you ever seen somebody else had dividends and capital growth. I have an investment strategy that will people who are struggling but trying to
wake up and ask themselves: “How much really splash out? thought we were set for the remainder of hopefully provide us with comfort to the make ends meet — but not to those who
have I got to spend today?” But before you I have, but I don’t want to offend people I our days. One morning I woke up and the end of our days. The greatest tragedy is think the world owes them a living.

MARKET MOVER SUKUMAR RAJAH

Indian investor History teaches us there’s
takes pride in no avoiding bubble trouble
smart choices JOHN
economic earthquake may now be
providing the raw material for
future dramatic asset-price
behaviour.
Stocks in emerging market are In particular, the possibilities

LOOBY
that such cheap and abundantly
worth high price, says fund boss available “paper” may be
dangerously channelled by the
financial and banking system into
“the next big thing”, or that the
SUKUMAR RAJAH is the chief
investment officer for Asian
equities at Franklin Templeton
the market trading on a mul-
tiple of 18-19 times earnings.
This has led some fund man-
COMMENT withdrawal of such liquidity may
prompt a fresh and disorderly
general flight from “risk” (stocks,

A
Investments based in Chennai, agers to bypass local equities commodities and property) must
India. It is one of the world’s and seek exposure to emerging s debate about the state of arrival at, an excessively exuberant be highlighted.
largest fund companies with markets instead by investing Ireland’s economy and or depressed state. There is Where will this excessively
more than $600 billion (¤440 bil- in European and American the public finances nothing about the current exuberant or depressed asset-price
lion) under management. businesses with a strong pres- becomes more rancorous, predicament in Ireland and how we movement take place next?
Rajah’s responsibilities ence in the country. it seems useful to place got here that cannot be understood Nobody can know for sure. The
include the Franklin India fund, Rajah says appearances can our problems in a different context. against this broad backdrop. evidence suggests equities are not
which invests in companies be deceptive, though, claiming History shows that the When addressing the drama of in bubble territory, based on their
based in India or whose busi- that the high price/earnings extraordinary economic progress the last three years in generally valuations relative to other asset
nesses are mainly located there. ratios reflect the strong growth India is expected to experience a surge in smart-phone sales since the late 18th century has well intentioned and probably classes. Sovereign bonds look like
The fund is available in Ireland prospects of Indian companies. been occasionally reversed and socially necessary investigations, a more likely candidate, judging by
through RaboDirect.ie, an “Indian equities are not temporarily silenced by the politicians, regulators and the the recent accelerated fall in yields
online bank, to those with ¤100 expensive when you look at his- volatile than the benchmark or high-margin businesses such as bursting of asset-price bubbles. media are as unlikely to produce on American, British and German
or more to invest. torical averages,” he said. our peer group,” said Rajah. “We wealth management, stockbro- Within the past 15 years alone, lasting, relevant change as their bonds. Unfortunately, though, the
“Indian companies’ return on offer better returns for less risk.” king and investment banking. the global economy has been many predecessors. past experience of asset-price
equity is also better than in “I’ve known the management rocked by three such episodes: the Certainly better regulation, less bubbles offers little insight into
Investment philosophy other emerging markets.” for a long time,” he said. Asian crisis, dotcom collapse and reckless lending and more sober where or when such bubbles will
The fund aims to capitalise on Buying and selling “They’ve got good risk controls the credit crunch. They have borrowing behaviour are all to be next occur.
the potential of one of the Bharti Airtel, one of the fund’s and cost consciousness.” resulted in widespread economic commended, but this genie can’t be In the face of this uncertainty,
world’s largest emerging mar- Performance largest holdings, has faced Cummins India is a 51% sub- dislocation amid turmoil in the returned to the bottle. investors can do little better than
kets. India’s economy is The Franklin India fund has stiffer competition in the past 18 sidiary of the American com- financial markets. Coming hard on Just look at the gyrations of the buckle their seat belts, diversify
growing by 8%-9% a year, with grown 30% in the year to the end months as new entrants have pany of the same name, the the heels of the collapse of the Chinese stock market, oil prices or sufficiently and value assets
corporate revenues and earn- of August compared with 22% tried to weaken its grip on world’s largest maker of diesel Nikkei and the Latin-American debt American corporate bonds over the sensibly. The avoidance of any
ings increasing by up to 18% a for the benchmark index. Over India’s telecommunications engines. “Cummins is growing crisis, which erupted in the previous past two years. It is clear that the investment based on a “this time it
year, according to Rajah. three years, the fund is up by market. Rajah has doubts about by more than 20% a year,” Rajah two decades, this trinity of outlook for the Chinese economy, is different” rationale should be a
“We have a wide range of 18% compared with 5% for the the newcomers’ chances of suc- said. “It’s a low-cost manufac- asset-price devastation underlines supply and demand for oil or the golden rule of thumb — bubbles
Indian companies to choose index. “Our performance has cess, noting that Bharti has held turer with good margins and a how rapid gains and chaotic chances of default by corporate may be inevitable, but losing money
from — about 500 good busi- been more consistent and less its market share despite the com- strong competitive advantage.” collapses are by no means unusual. America, cannot explain fully such when they burst doesn’t have to be.
nesses fit into the filters we use petition’s heavy investment in The painful bursting of our own dramatic price movements. Policymakers, meanwhile, will
to select investments. Between licences and infrastructure. property bubble, while clearly The inconvenient truth is that need to ensure the state minimises
40 and 50 companies make it “Bharti has underperformed Outlook containing many important lessons asset markets have an ongoing long-term fixed commitments
into the fund at any one time,” because of fears that competi- India’s strong growth is sus- for domestic players, needs to be tendency toward the inflating or that may suddenly become
he said. “We have a good track tion would erode its long-term taining foreign interest in the seen and understood in this deflating of price bubbles. unaffordable. The failure to
record in India, being the first performance, but this has not country’s stock market, which broader perspective. In attempting to identify future understand this has left Ireland
private sector asset manager in happened,” he said. has more growth stocks than As long as banks are allowed to bubbles, it is worthwhile to with an excessive dependence on
the country in 1993. An invest- Smart phones will be big other emerging markets. Rajah borrow on a short-term basis from consider the following: the goodwill of potentially fickle
ment of $10 in our blue chip drivers of growth. “It is esti- forecasts that domestic interest depositors, who are effectively n Global interest rates are at lenders. Only by grasping this soon
fund back then would be worth mated that 10%-15% of the popu- will grow too. “India has a huge taxpayer-guaranteed, and lend a multi-decade lows. can we hope to remain authors of
$400 today, compared with $45 lation will have 3G devices in savings pool but only 3%-4% multiple of this on a long-term n The global monetary base our own economic future.
if the money was invested in the the next three to five years,” finds its way in the stock market basis for investments with (effectively the cash available to
benchmark investment, the said Rajah. “That’s a lot of currently,” he said. “With more uncertain outcomes, cycles of circulate) is at a multi-decade high. John Looby is an investment
MSCI India index. This shows people when you consider India investor education, that could excessive exuberance and n Developed world government manager at Setanta Asset
our ability to add value through has a population of 1.2 billion.” grow to 10%-15%, boosting depression are inevitable. borrowing is at a peace-time high. Management with more than
stock picking.” Kotak Mahindra Bank is demand for equities .” Asset markets are in a constant The policy responses to the 20 years’ experience in
Indian stocks look expensive another big holding for the process of movement towards, or post-Lehman financial market and financial markets
to European investors, with Rajah claims better returns fund. It has a strong presence in Niall Brady