Claude Bébéar, France’s ultimate financial power broker, is stepping down as chairman of the supervisory board of AXA Group on April 22, but he hasn’t lost his penchant for strongly held views.
The 72-year-old executive, who over three decades built AXA into one of the world’s biggest insurance companies, contends that the subprime crisis mainly concerns banks and that investors are penalizing insurance companies unjustly. An outspoken critic of short-term thinking in the financial markets, he’s lobbying for changes to accounting rules that would eliminate the requirement to value assets at the latest market prices when the assets do not need to be sold immediately. He’s also pushing for more intervention from the government and regulators to end the turmoil in financial markets.
“We need something that will restore confidence and stop this downward spiral,” he says.
Bébéar, who plans to keep close links to AXA as honorary chairman, spoke last month to Institutional Investor Senior Editor Jo Wrighton.
1 Institutional Investor: Why are you stepping down now?
Bébéar: I set a rule a long time ago that the chairman’s mandate should not be renewed after 70 years old. I think it’s very important to do what you say. I don’t agree with people who keep extending their mandate. These are people who don’t want to grow old, who can’t turn the page on a chapter in their life.
2 What is your opinion of the current financial crisis?
What’s happening now is the result of the financial folly of the past three years. To sustain growth, especially in the U.S., Alan Greenspan and his successor embarked on a policy of easy money. That led to the creation of structured and derivative products that created even more money. There was too much liquidity in the markets, and people forgot prudence, especially regarding leverage. The banks took on high levels of leverage under pressure to have returns of 15 percent or more, which is completely unreasonable when interest rates are at 3 or 4 percent. Offering people with no real income or jobs badly built rabbit hutches, and saying “Come and take a loan, these houses will go up in value,” practically amounts to swindling. The regulator should have intervened to stop this kind of madness.
Now, with the mark-to-market system of accounting rules, companies are being forced to state a loss on certain assets because nobody is prepared to buy at that moment. But in reality, that asset could regain some of its value over time, when people are prepared to buy again.
3 What needs to be done?
The accounting rules could be changed so that assets that do not need to be sold immediately are not marked to market, or that impairments are not taken into consideration when computing solvency ratios. If the rules were changed, many banks would not need to look for more capital as they are having to do now. New rules would break this cycle of companies losing value because they are forced to make write-downs.
4 Is this crisis a threat to capitalism?
What is happening now is potentially very serious if we let things continue to slide. The crisis in 1929 was largely due to the fact that the regulators and governments reacted far too late. Today regulators and governments are well aware of the problems and so are better armed. I hope they will react — even if it’s late in the day — and do so intelligently.
5 What challenges does the insurance industry face?
Insurance companies are not forced to sell assets, but they have still taken some write-downs. The average holding by an insurance company in the stock market is less than 10 percent, and so they are not threatened in the short term. If all markets collapsed, that would have an effect. For the moment, this is mainly a banking crisis. But because financial analysts put banks and insurance companies together, and I don’t know why that is, insurance companies are unfairly hit.
