Great leaders must be able to read the trends and gauge the future. Kristin H. Holth, head of ship financing leader DNB Americas, made a bold pronouncement to a large gathering of the world’s shipowners, warning that banks had lost trust in each other. Holth’s statement, made months before Lehman Brothers collapsed, before AIG, before the burst of the U.S. housing bubble, resonated in the room. Her honest assessment of a banking crisis in the making revealed what others had only dared to think – that a serious financial crisis loomed. It would ultimately rumble its way through the still-booming shipping and international trade industries, foreshadowing the long painful collapse of the greatest shipping market in a generation.
The following is an excerpt from “Dynasties of the Sea” any reproduction needs the approval of Marine Money.
Blaming of the “Big Banks”
The drumbeat of demonizing the “big banks” has gotten stronger since the post-TARP days of the financial crisis. The comments about banking made by Jacob Stolt-Nielsen and Jim Tisch are just two examples. When asked about these negative comments, and whether or not the banking industry’s role of dispensing easy credit was the cause of the shipping industry’s overcapacity, Holth was quick to offer a more balanced response. “It’s never just one participant in the creation of a crisis. Remember, the supply side starts with the part that ordered the ships. Their money is locked-in before ours. So there has to be some other taking a risk in the market,” she said. “Having said that, yes, there have been banks which too easily follow and do that type of financing.”
Lack of Trust
When Holth issued her pronouncement to the shipping industry about a potential financial crisis, she could not have had a more dramatic backdrop. In June 2008, at the Mandarin Oriental Hotel in New York City, in the midst of what conference participants would characterize as a “God-fearing thunderstorm” that shook Central Park, Holth told the group that banks’ worries over rank and position had killed the interbank market and were having an impact on a very slow syndication market. While her assessment was considered “alarming” by many in the room, she acknowledges that she had a very pessimistic view of the market at that time. “In 2008, there weren’t many good signs at all and banks had an extremely rough time. And we also knew that the U.S. economy was really being hammered.”
Still, seeing a crisis and anticipating the fallout are totally different things. Holth was convinced it would take time for things to shake out, but admits it has taken a lot longer than she expected. “This crisis has exceeded my and anybody’s expectations. I mean, we are now in 2012 and the U.S. is still struggling, and in the meantime, we now have the European sovereign debt crisis. Both the European and U.S. economies have been hammered so hard for such a long time,” she said. “Now we are seeing a slowdown in China and Brazil. It all links together, creating an extremely challenging environment. It was anticipated that we would be out of it, like, in a couple of years.”
Holth said the reason behind the European crisis is complex, but it is much more of a sovereign crisis than a bank crisis, due to overspending in Europe. “Countries like Greece, Spain and Italy have social systems and a structure in place that they actually cannot afford. This is an important reason for this crisis, when combined with overleveraged countries,” she said with disdain in her voice. “So, for me, and that’s what I struggle with, as this is such a long-term issue to solve, the politicians really need to make changes and we have seen how challenging that has been for Spain and for Greece. The people don’t accept the required changes.”
As a result of the trickle-down effect of this lack of fiscal control, Holth said the banks are challenged. “This will take a long time to resolve and I expect and hope we see bank consolidation to make the banking system stronger.”
When asked to describe the health of the banking industry, she said with concern, “We have influenza. We will get through it, but it will take time. More importantly, the financial industry will be different when we get out of it. This will shake the industry and we don’t yet know how, but we have seen part of the changes and I expect more will come. Consolidation is part of the future.”
Holt is frustrated that, although DNB is healthy, they cannot exclude themselves from being a part of Europe. “Even though 80 percent of our bank is related to the Norwegian economy, 20 percent is outside of Norway. We are very lucky, coming from Norway, having such a strong economy and so much energy that we have a very strong position, but still we are obviously part of the global economy.” She also explained that “all banks are affected by new and higher requirements for capital and liquidity. This is a huge challenge for the industry.”
Holth is up to the challenge of keeping her eye on the macro picture in order to survive and thrive in these challenging times. “I think that’s part of why I find it so interesting, because every day I have to learn something new and every day I have to be on top of what’s going on out there, in order to be a good advisor for my client.
She says banks must “adapt and be more careful how we use our funds, because we don’t know what’s around the next corner,” and what is lurking around the corner, she warned, is the U.S. sovereign debt problem. “We are following the activity in the U.S. very closely. The U.S. is a crucial part of the world economy and a core capital market, so whatever happens in the U.S. is important for all of us. I am very disappointed with what I see in the U.S. and with the United States politicians. Because of this political polarization, they lack not only the ability but actually the willingness to make decisions and to move this country forward and that is something that has disappointed me,” she continued. “They have the opportunity to take charge, but they’re not taking charge in the world economy as they once had, and I’m afraid they’re losing it a bit to other countries. So, I question why the U.S. is letting their position in the global economy slip away.”