Editor’s Letter: Safety Catch


APRIL 2009 | VOL. 23 NO.4


The two most powerful forces in modern capitalism are, arguably, greed and fear. At present, fear is undeniably more prevalent, a fact that has sharply increased investors concern for the safety of their assets. In their ceaseless search for safety, those investors have thrown up some curious anomalies over the past few months. Not least among those is the dollars astounding ability to cling to its safe-haven status even as the countrys central bank rolls the printing presses.

But safety is not what it used to be. Aided by technology, financial markets have become so liquid that enormous amounts of money can slosh, literally in the blink of an eye, from one side of the world to the other. The Swiss franc, for example, long considered among the safest of safe havens, plunged in value against the euro after Switzerlands central banker Jean-Pierre Roth announced that the bank would be selling francs (see Newsmakers, page 6). Admittedly, Roth was hoping to massage down the value of the currency, but the abruptness of the francs fall might have caught even him by surprise.

With the franc losing its luster and the dollar looking decidedly toppy, investors have cast their net wider in search of the perfect safe haven. As Global Finance was going to press, it appeared that many of them had concluded that the Norwegian krone was the answer. Not only, the argument goes, is the krone undervalued as a result of the beating it took while oil prices tumbled from record highs last year, it is also backed by one of the worlds most stable economies. On that basis, the case for pouring money into Norways krone as an investment seems fairly strong, but its appropriateness as a safe haven is not so clear. The thundering herd of investors whose sudden enthusiasm was driving up the currencys value in March could just as quickly turn tail and flee, leaving their haven looking anything but safe.

The sheer mobility of capital is bringing into question the very meaning of the word safety in the context of the global financial world. Can anything that can be traded electronically, instantaneously and in vast quantities ever really be considered safe? For those involved in corporate finance, financial stability is an especially vexed issue, particularly during periods of such heightened volatility. With that in mind, Global Finance has, for the first time, compiled a mid-year listing of the worlds safest banksthose banks that have the highest aggregate ratings from the worlds top credit-rating agencies. Not surprisingly, there have been many changes since we last published the list in October 2008, but most of the banks in the current top 50 are there year in, year out. So while it may seem strange in the current climate to use the words safest and banks in the same phrase, it seems that some institutions really do deserve that labelproviding a welcome comfort in an insecure world.

Until next month,

Dan Keeler