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Saturday, July 12, 2014

Brasil's World Cup Collapse Eludes Banks' Best Minds



uly 11, 2014 5:10 pm

Brazil’s World Cup collapse eludes banks’ best minds

A Brazilian soccer fan cries as he watches the 2014 World Cup semi- final soccer match between Brazil and Germany in Sao Paulo July 8, 2014. REUTERS/Nacho Doce (BRAZIL - Tags: SPORT SOCCER WORLD CUP)©Reuters
A young Brazilian soccer fan in Sao Paulo cries as he watches his team lose to Germany
Brazil’s shocking 7-1 defeat in this week’s World Cup semi-final left behind 200m miserable Brazilians – and a host of frustrated investment bankers.
In their pre-tournament research, banks including Goldman Sachs, UniCredit and UBS had predicted Brazil would emerge comfortable winners of football’s biggest prize.

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Goldman Sachs was the most bullish, suggesting there was a 48.5 per cent chance of Brazil lifting the World Cup trophy – a far more confident appraisal than British bookmakers, which gave the home team a one-in-four chance.
The investment bankers were not the only ones wrongfooted by Brazil. Nate Silver, the US statistician who predicted the outcome of all 50 states in the 2012 US presidential election, was even more optimistic about Brazil. Mr Silver was contrite after the squad’s heavy defeat against Germany. “Time to eat some crow,” he wrote on his blog. “That prediction stank.”
For banks, football predictions are a bit of fun, as well as a way to demonstrate the statistical savvy and forecasting prowess of research departments typically focused on interest rates and equities.
They broadly succeeded in predicting the semi-finalists. UniCredit predicted three out of four teams, selecting Argentina, Brazil and Germany. Only Uruguay’s absence – after their star striker Luis Suárez was suspended for biting an Italian defender – hurt the Italian bank.
“The model did a good job when it comes to forecasting the major ‘fundamental’ trends,” said Andreas Rees, UniCredit’s chief German economist, who co-authored the bank’s predictions.

UniCredit’s failure to predict Germany’s triumph over Brazil was not a cause for universal dismay at the Italian bank. “The 7-1 was a classic Six Sigma event which cannot be taken into account by any model,” said the German-born Dr Rees, adding: “And I enjoyed this so much.”
Goldman Sachs also predicted three of the four semi-finalists using its “stochastic model”. Its second and third-favourite teams were Argentina and Germany, who will play the final on Sunday. The bank’s fourth choice, however, was Spain – which was the first team to be eliminated from the tournament.
Still, the US bank fared better than ING. The Dutch bank predicted its winner by totalling up the value of the transfer fees for each squad – a metric that pointed to Spain, the tournament’s standout flop.

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In depth World Cup: Brazil 2014
The world’s biggest football tournament is taking place in Brazil – soccer’s spiritual home. Can the World Cup win over a sceptical Brazilian public?
The group stages proved trickier to predict. Goldman guessed the correct outcome of slightly more than a third of such matches – about the same outcome as randomly guessing whether a team would win, lose or draw.
Others banks made some bold, correct predictions. Danske Bank, for example, successfully predicted that the US would emerge from the group stage at the expense of Cristiano Ronaldo’s Portugal.
This was based on the US’s much larger per-capita gross domestic product, which Danske said was a key factor in who wins international football matches, rather than the suspension of Portugal’s best centre back, Pepe, for the US match after headbutting an opponent.
While investment bankers did not foresee Germany’s success against Brazil, many gamblers did. “Germany have been incredibly well-backed since their quarter final,” said Joe Crilly, a spokesman for William Hill. One of the betting chain’s customers placed a six-figure bet on Germany to win the tournament at 5/2 before the Brazil match. The Germans are now odds on favourites at 4/6, ahead of their clash with Argentina on Sunday. 
One point on which most banks agreed in their forecasts was that England would fare poorly – and they did. 
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COMMENTS (3)

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Adrian Tan
Hey Breakingviews got the finalists right and predicts Germany winning Cup. FT should be proud: gd training ground. )))
perguntador
That's one of the beauties of football. It is not very logical. But sometimes it is.

Anyway, it does not take much to elude the banks' best minds. Or else we taxpayers wouldn't have to bail them out so often.    
MarekRiacek
@perguntador Indeed. Bookies and punters are putting their money where their mouth is, so they'll try to get it. Bankers just play with other people's money.