Anthony Peters, SwissInvest Strategist
To hear commentators blame Mrs Thatcher for the financial crisis simply because she had instituted deregulation of the City really was a bit steep. Oh, they barked, but she sowed the seeds of future destruction. In that respect, Charlemagne was responsible for World War II by splitting his empire between his sons. Anyhow, I’m not quite sure what she had to do with the American sub-prime mortgage market or with French banks structuring synthetic CDOs but if that is what those people want to believe, far be it from me to try to convince them that they are talking rubbish.
The people who seem to be criticising loudest are those who, without the democratisation of the City implemented by the Thatcher government, would most likely not be working here today. Until Big Bang, the higher hierarchy of the City was largely a closed shop of noble public school toffs who looked after each other and who made sure that their little cartel worked nicely. Or that is the perception.
However, it was in their world that the oft forgotten phrase “remember to leave something on the table for the next guy” originated. The ethic of squeezing every last penny out of every last trade or transaction is something newer and something which was not recognised by the Warburgs, the Schroders and the Barings, and which has not made the City either a nicer or a happier place to be.
Whenever I think of a classic old-style City-type, Ian Fleming, the author of the James Bond books, springs to mind. Born with a silver spoon in his mouth, the grandson of Robert Fleming, founder of the eponymous merchant bank (now part of JP Morgan), educated at Eton and Sandhurst, he flopped around (including a spell as a Reuters journalist) until he was eventually planted into the venerable old firm of Rowe & Pitman (later to be subsumed into UBS) as a stockbroker. I suppose one must assume that he didn’t cut the mustard when it came to being slotted into the family firm, but he was good enough for the City – not a rocket scientist but a “decent kind of chap”. No PhD in mathematics, no MSc. in banking and finance, no MBA and no CFA – just an all-round good egg.
I wonder, when thinking of Big Bang, not whether it laid the base for the financial crisis but whether the influx of new blood which followed might have killed off ethics – so very important when one is charged with managing other people’s money.
The likes of Fleming did not need to pinch pennies. He, like many of his peers, did things a certain way because it was the right way to do it. Step out of line and, much worse than being fired, you were blackballed – and with that you were finished. Nowadays, you blow the bank and immediately get hired elsewhere because you have the reputation for being a “big hitter” and we all love big hitters.
Changing culture
The inference of the Salz Report is that “culture” is some sort of top down thing. It isn’t. It’s a simple matter of people doing the right thing for the right reasons because that is what they were brought up to do. I have not heard of any individual in either investment banking or in investment management whose budget has been cut in order to relieve the pressure that leads to the sort of sharp practices which so horrify those outside of our industry.
We persistently hear of the shareholders who have failed to control the companies they “own”. As far as I can see, it is the shareholders who are screaming for higher revenues, higher earnings and higher dividends. I was once told that a non-exec at HBOS, when asked why they had not stopped the wild risk-taking, answered that he felt he had been put there to make sure as much was earned as possible. It had not been for him to object.
I suspect that Rowe & Pitman did not protest too much when young Fleming packed up and moved to Naval Intelligence but he was, in many respects, of a type, of a caste, which dominated the Square Mile for generations. His grandfather was a risk-taker in the vein of John Pierpont Morgan and not of Joe Jett, Nick Leeson, Jerome Kerviel or Kweku Adoboli – to name some of the ones who got it horribly wrong.
If there is one thing which would have horrified the “Iron Lady”, it would have been the greed. But the Polytechnique in Paris or Department of Computer Sciences at Stanford are not the places where the consequences of algorithmic banking are discussed. Clever is not necessarily good. Culture is what you grow up with and which cannot be legislated for or enshrined in a handbook.
I’m not sure that any of us would have envisaged in 1987 that it was not only three hour lunches and three-piece pinstriped suits which were being confined to history. Least of all would we have expected Barclays Bank to have to spend £15m to ask itself where its ethics went and where the greed had come from – especially as the author of the report paid himself £1.5m for the pleasure. Not a bad return for questioning the culture of greed.