London - From London to New York to Hong Kong, the frantic question kept coming: could this be another Lehman?
But nowhere did it cause more alarm than inside Glencore [JSE:GLN] - the Swiss commodities giant that had suddenly found itself at the epicentre of a global panic on Monday.
What began that morning in London, with a sudden plunge in Glencore’s share price, cascaded across oceans and time zones and left the company’s billionaire chief executive, Ivan Glasenberg, scrambling to calm anxious shareholders, creditors and trading partners.
READ: Glencore crashes 27.5%
Days later, even as Glencore regained most of the $6bn of shareholder wealth erased in a few hours, many investors wondered if Glasenberg can hold the markets at bay.
Few market players, including people close to Glencore, are able to pinpoint why a blue-chip member of the FTSE-100 Index - even one that had been under pressure from sliding commodities prices - lost almost a third of its value in a blink. And that, investors worry, suggests this could all happen again.
"There’s more pain to be had," said Serge Berger, a Zurich- based trader at Blue Oak Advisors LLC. “I don’t think the story is over.”
This report of how the fear spread and was eventually pacified is the product of interviews with 13 bankers, investors, and others involved in this week’s events, all of whom asked not to be identified discussing a private matter. A spokesperson for Glencore declined to comment.
READ: Glencore makes comeback
Monday started out as just another workday in Baar, the tiny town where Glencore is based. The village could easily pass for a Swiss backwater, except for the billions of dollars worth of commodities that quietly course through Glencore’s headquarters on Baarermattstrasse, between the lake and the Alpine hills.
Glasenberg, a former coal trader, has honed his skills over more than 30 years in the commodity-trading business since he joined a predecessor firm, Marc Rich & Co, in 1984. He was part of a $1.2bn management buyout from Rich in 1994, when the company was renamed Glencore.
A 2011 initial public offering - at the peak of a 10-year commodity boom - made him a billionaire on paper, with a stake worth about $9bn.
At the worst of Monday’s panic, that holding was worth $1.2bn.
What unfolded when the London markets opened at 8:00 stunned mining-industry veterans.
“Monday was certainly very scary,” said Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, Switzerland. “It had a similar feeling to that before Lehman collapsed.”
There’d been no news of consequence over the weekend; the last major headline - a Bloomberg story about Glencore’s hiring of banks to sell a stake in its agriculture unit - had sent its shares up.
In China, whose coal plants and steel mills are the largest consumers of Glencore’s products, there’d been some discouraging economic data. But this year’s drumbeat of negative news about the world’s second-largest economy was hardly a new phenomenon.
Meanwhile, Investec had published a provocative note in which analyst Marc Elliott suggested the company could see its equity all but vanish if commodity prices stayed weak.
While that was an alarming prediction, Elliott, ranked by Bloomberg as the eighth most accurate analyst covering Glencore, could hardly have expected his views to have much of an effect on an operation with almost $200bn in annual turnover.
And yet, by 8:08 the shares hit a record low; they’d plunged 17.4%.
Hedge fund view
A company admired for its savvy traders and eagle-eyed ability to spot trends looked suddenly vulnerable.
Some hedge funds, which direct an ever-greater share of activity in the equity markets, have been falling out of love with Glencore for some time.
In addition to their concern over its debt and the ongoing weakness in prices for key commodities, some were further annoyed when they were largely boxed out of the company’s $2.5bn share sale two weeks earlier - a chance to buy in at a fraction of the IPO price.
A trader at a US-based hedge fund described becoming increasingly alarmed by Glencore’s debt levels since it reported a 56% decline in first-half earnings in August. Concluding the company might have trouble maintaining access to the cheap financing that drives its trading operations, the fund took a short position, betting Glencore shares would fall.
Two hedge funds - Lansdowne Partners UK LLP and Passport Capital LLC - currently have disclosed short positions in Glencore, according to data compiled by Bloomberg. Others have taken such positions in ways or amounts that don’t require disclosure.
Another trader at a major US firm said he and colleagues had discussed shorting Glencore over the summer but decided not to - a call he came to rue as the stock cratered.
All along, Glasenberg seemed unperturbed, even defiant, in the face of mounting investor worries and a declining share price, people who met with him in recent weeks said.
But as Monday’s drama deepened, Glencore began to respond. Key financiers in London were roped in to counter the plunging share price and rebut what the company believed was misinformation in the Investec report.
Unusual for a company that values discretion, Glencore instructed bankers at some of its large lenders to speak with journalists to allay any concerns about solvency, instead of declining to comment.
An information session hosted by Barclays with debt investors was hurriedly pushed forward to Wednesday from mid- October.
In at least two banks with significant exposure to Glencore, senior investment-banking executives met to evaluate its liquidity and whether it was at risk of falling short of commitments. They concluded there was little danger - as did executives at many other lending banks - a message they passed on to superiors.
What Glencore didn’t do was say anything publicly. People close to the company disagreed over whether it should issue a statement. Some argued that doing so would only fuel the panic; others insisted that Glencore needed to do something to reassure shareholders that it was stable.
Sellers of insurance on Glencore’s debt began demanding payment up front in exchange for the cushion for the first time.
Glasenberg, who was in London anyway to meet with investors, pulled out of a scheduled dinner with bankers, replaced by CFO Steve Kalmin.
When markets opened in Hong Kong, where Glencore has a secondary listing - past midnight in the UK - the bleeding continued.
On Tuesday morning in London, investors like Nigel Wilson, the CEO of UK asset manager Legal & General, urged it to speak out to stop a "quasi-Lehman moment."
Executives finally came around to that view. A statement was prepared, in which the company said it was "operationally and financially robust" and at no risk of solvency problems.
Sent out around lunchtime in London, it triggered a rally. Glencore’s bankers, including Morgan Stanley, then got down to the work of soothing investors, holding conference calls to lay out all the reasons there was nothing to worry about.
The shares, which plunged as much as 31% on Monday to 67 pence, rebounded to as high as 99 pence on Thursday, higher than their open at the beginning of the week.
Much damage was done, however. Sellers of default insurance on Glencore bonds are still demanding much more compensation for the risk than a month ago.
The company is now trying to get back to business as usual, proceeding with asset sales to cut debt and moving the ships, trains and trucks it uses to ship commodities from one corner of the Earth to another.
In a memo to staff on Tuesday, Glasenberg said Glencore, with about $13.5bn of available liquidity, “will emerge even stronger”.
If debt-reduction efforts bear fruit and prices of commodities like copper and iron ore pick up, this week’s trauma could become merely a bad memory, an unusual blip in an otherwise successful riding-out of the global resources slump. If they continue to slide, Monday may start to look like it was a warning sign.