On what’s to be done with a subsidiary of an international bank

Sir, Guillermo Ortiz, February 17 discusses the very delicate question of how to make sure that a subsidiary of an international bank that operates in a developing country can survive if and when their parent bank organization runs into trouble, and he makes a good case for the divestment and listing of some of the subsidiary’s capital on local stock-exchanges so as to enroll the forces of market discipline. My feeling is that Mr Ortiz is way too optimistic thinking he stands a real chance of stopping headquarters from milking their subsidiaries, in far away countries, for all they are worth, if it feels it needs it. That said one could also argue that the home authorities of the international bank should not go totally scot-free were a subsidiary run into trouble, for whatever reason, especially since the subsidiary while helping to diversify the risks for the holding company still concentrates much undiluted risk for its own local depositors.

It is sad indeed, to only be a risk diversification, in someone else’s portfolio.

Sent to FT, on February 19, 2006