Family-controlled Hermes, the maker of the iconic Birkin bag, silk-print scarf and discreetly branded necktie, is a more valuable asset than the bank Societe Generale.
So it was pointed out in early September when the famous luxury brand, in terms of its market capitalisation on the French stock exchange, was worth more than country’s second-biggest bank.
An analyst quoted in a Bloomberg story about the two firms’ valuations summed up the differences well.
He said: "Hermes market cap is valuing each and every one of its very competent staff at a mere €3.3 million per head as it is indeed extremely demanding to turn 700-odd bits of leather into a useful bag. SocGen employees have a history of breaking the bank so they are worth only about €110,000."
That would appear to be a fair assessment, and it would be interesting to see what the pay differential is between a Hermes saddle-maker and a SocGen investment banker. Regardless of this apparent anomaly between these two companies, what businesses are worth has been seriously questioned in recent years.
At the height of the financial crisis when panicked governments were hastily putting together bail-out packages to stop another Lehman-like crash of a financial institution, valuing the assets of banks, particularly the more complicated ones like mortgage-backed securities, looked impossible.
Banks argued this was because of strict mark-to-market rules on the value of assets – in other words what anyone was willing to pay for them at the time of being sold – stood in their way. They should, the banks argued, be valued at some historical and future cash-flow basis when markets were more stable. But isn’t anything only worth what a buyer is willing to pay for it at the time of sale?
Maybe this is part of the reason why Hermes and other companies that make things are more popular than banks with investors. They understand what they do – and the products they produce have an intrinsic value.
There are exceptions of course. Facebook doesn’t make anything and it has recently been valued at around $100 billion. And many companies that make things – intrinsic things – are suffering, attracting little investment, direct or otherwise.
But maybe, just maybe, there is a rebalancing of the world economy going on – or at least in the heavily indebted developed economies in western Europe and America – where companies that make things are more valuable that financial institutions.
For family businesses – most of which make things – this could only be a positive development.