BY ANTONY CURRIE

August can arouse fear in the most seasoned Wall Street hands. If a crisis is going to hit, there’s a good chance it’ll come at the height of the northern hemisphere’s summer – usually after a couple of weeks of market torpor. That’s what happened with the Russia default and LTCM crash 20 years ago. And sudden crises in the past few years, like China’s 2015 devaluation, have forced financiers to scramble back from their holidays. But there’s one notable exception: August 2008.

Granted, it was a stressful time. Lehman Brothers executives were desperately trying to find new capital. The UK’s Northern Rock Building Society needed another taxpayer bailout. And plenty of investors and bank bosses were still trying to work out how much exposure they had to mortgage bonds and the cratering U.S. housing market. Yet those 31 days were surprisingly uneventful.

The respite gave the Federal Reserve space to work out whether its $900 billion balance sheet could handle more bailouts and how to reduce systemic risk. But the board of governors was almost as worried about rising inflation; one, Richard Fisher, even wanted to raise interest rates, as the European Central Bank had done the previous month.

Elsewhere, many lapsed into complacency. General Motors boss Rick Wagoner claimed the automaker was over the worst of its job cuts and pension and healthcare pressures.

Citigroup’s then-Chief Administrative Officer Don Callahan proclaimed that it was “among the best capitalized banks in the world,” in a letter responding to a Breakingviews article arguing it was too big to succeed, or fail. Barclays argued it needed a Tier 1 capital ratio of only 5.25 percent; it now sports more than double that.

Some boom-time spirit was still palpable, too. Buyout shops KKR and Apollo were ramping up plans to take their companies public. Merrill Lynch handed over a $40 million guaranteed five-month pay deal to lure ex-Goldmanite Tom Montag.

Such hubris was quashed the following month when Lehman went under and Merrill was rescued by Bank of America. By November Citi had been bailed out twice and the ECB had to cut rates; four months after that Wagoner was ditched with GM on the verge of bankruptcy. Bumper bonus guarantees are now all but extinct – though Montag remains at BofA, as chief operating officer. He’s the rare survivor of 2008’s far from august August.

First published Aug. 10, 2018

(Image: REUTERS/Nacho Doce)