WEEKLY FAYRE – Monday, 13th December 2021

December 13, 2021

“The time has come,' the Walrus said,

To talk of many things:

Of shoes — and ships — and sealing-wax —

Of cabbages — and kings —

And why the sea is boiling hot —

And whether pigs have wings.'

 

But wait a bit,' the Oysters cried,

Before we have our chat;

For some of us are out of breath,

And all of us are fat!'

No hurry!' said the Carpenter.

They thanked him much for that.

 

A loaf of bread,' the Walrus said,

Is what we chiefly need:

Pepper and vinegar besides

Are very good indeed —

Now if you're ready, Oysters dear,

We can begin to feed.'

 

But not on us!' the Oysters cried,

Turning a little blue.

After such kindness, that would be

A dismal thing to do!'

The night is fine,' the Walrus said.

Do you admire the view?

 

It was so kind of you to come!

And you are very nice!'

The Carpenter said nothing but

Cut us another slice:

I wish you were not quite so deaf —

I've had to ask you twice!'

 

It seems a shame,' the Walrus said,

To play them such a trick,

After we've brought them out so far,

And made them trot so quick!'

The Carpenter said nothing but

The butter's spread too thick!'

 

I weep for you,' the Walrus said:

I deeply sympathize.'

With sobs and tears he sorted out

Those of the largest size,

Holding his pocket-handkerchief

Before his streaming eyes.

 

O Oysters,' said the Carpenter,

You've had a pleasant run!

Shall we be trotting home again?'

But answer came there none —

And this was scarcely odd, because

They'd eaten every one."

 

Lewis Carroll – Poet & Author – 1832-1898

 

This ‘Weekly Faye’, 13th December 2021, will be my last. After 23 years, it’s time to move on, before I outstay my welcome. Thank you for indulging me for all these years. I have so enjoyed compiling comment, which I hope has been of interest and maybe a modicum of amusement.

Red Bull’s Max Verstappen secured his first Formula One world championship with victory at the Abu Dhabi Grand Prix in a tense and highly controversial season decider, denying Hamilton what would have been his eighth F1 Championship. Mercedes, however, has protested against the result of the race with both teams now having to report to the stewards. Verstappen was allowed a lap’s grace due to a safety car technicality, leaving Mercedes’ Toto Wolff and Sir Lewis Hamilton incandescent with rage at the decision made by the stewards

I walked out of Moorgate tube station on 14th September 1962 to join the aspiring and aggressive merchant bank, Philip Hill Higginson Erlangers, as a bank clerk. At that time, the Barbican was in the process of being transformed from a ‘bombed site’ into a thriving community. My first jobs were cutting Shell Transport & Trading dividend coupons for bearer shares, the daily bank reconciliation, and distributing petty cash to the directors. Life was just starting to move on at a pace just 17 years after the end of the war, not so much for me, as much as for those who were making a real fist of putting the UK economy back together. The main joint stock banks of that era were Midland Bank, National Provincial Bank, Barclays Bank, Lloyds Bank, Martin’s Bank, Glyn Mills & Co, and Williams Deacons Bank.

The main ‘gilt’ traded was the 3% War Loan. The broad sheet newspapers, especially the FT, had an ‘offer for sale’ document in the business section every day, as the merchant banks started to ‘strut their stuff’ with confidence, with the likes J Henry Schroder Wagg, Morgan Grenfell, Lazard Bros, SG Warburg, Samuel Montagu, Baring Bros, and Philip Hill, the bank I worked for, which was one of the main new issues and merger & acquisitions cognoscenti, very much in the vanguard of financial engineering. These merchant banks/accepting houses dominated the scene for some years before UBS, Deutsche Bank, Societe Generale, Comptoir Nationale D’Escompte de Paris, First National City Bank, Morgan Guaranty Trust Co of New York Goldman Sachs, and Salomon Brothers ‘took hold of the financial bit!’ These international banking titans certainly made up for lost time, sweeping all before themselves, in an aggressive manner, culminating with Big Bang in 1986, when they became pre-eminently omnipotent.

In the early sixties, there were about four hundred stockbrokers, with Cazenove & Co, Joseph Sebag, de Zoete & Bevan, James Capel, Phillips & Drew and Mullens & Co, as the Government’s broker for gilts, considered to be the pick of the more influential firms, but there was plenty of business to go around, as London, as a financial centre, rose like the ‘Phoenix from the Ashes.’ This number dwindled, due to mergers and increasing costs, to less than a hundred by 1986. Stock jobbing was dominated by Wedd Durlacher and Akroyd & Smithers, with the likes of Pinchin Denny, Bisgood Bishop and Smith Brothers, all of whom made more than a scrap or two that fell ‘from Lazarus’s table.’ Slaughter & May, Linklaters, Coward Chance and Allen & Overy were the ‘go-to’ corporate lawyers and Price Waterhouse, Cooper Brothers, Peat, Marwick & Mitchell and Whinney, Murray was the pick of the chartered accountants. British law and financial advisory services have been the backbone of the success of the City of London and were the envy of Europe and the Far East.

Also, at this time, the importance of the role played by the London Discount Market and its relationship with the Bank of England was not to be underestimated from the tender and issuance of Treasury bills for short-term borrowing by the Government, to decisions made on the ‘minimum lending rate’ (bank rate) by Government, as a home for the banking sectors’ liquid assets, to the acceptance of bills of exchange for the finance of business, industry commerce, and trade. By today’s standards it was small beer, but in the 60s through to the 80s, the function of the London Discount Market was hugely influential. Secombe Marshall and Campion was the Bank of England’s broker for money market affairs, in the same manner that Mullens was for gilt-edged securities. Union Discount, Gerrard & National, Smith St Aubyn, Gillett Bros, Clive Discount and Jessel Toynbee were amongst the leading lights in the market. This market disappeared in the advent of Big Bang, making way for market-makers, as did the role of the ‘jobber’. GEMMS (gilt-edged market makers) also came to the fore at this time. The Bank of England gained its independence away from Government clutches in 1997, by which time the London Discount Market Association’s role would have been irrelevant.

London’s importance as a top financial centre grew in stature during the 70s and 80s, when the Euro Dollar market became so dominant. By 1980, London housed over 300 trading banks from all over the world, especially US-based banks and those from Japan. At that time, there were 26 Japanese banks in London funding much of their Dollar lending requirements in the wholesale money markets in London. It was not only New York-based ones that came to London. Names to conjure with included Security Pacific National Bank, First Wisconsin National Bank of Milwaukee, Crocker National Bank and Nations Bank, to add to those who had been in the ‘City’ for years. By 1980, London, in its own way, was challenging New York as a financial centre and significantly more so than Singapore, Hong Kong and Tokyo.

When I failed to negotiate any measurable increase on my parsimonious salary of £900 per annum at Philip Hill, I moved on to money broking at RP Martin & Co, known at the time for its prowess in both foreign exchange as well as deposit broking in Sterling, Dollar, and other currencies. The unsecured deposit market flourished during the 70s and 80s, resulting in many money brokers establishing themselves domestically and internationally. MW Marshall was very influential in foreign exchange and went public under the banner of Mercantile House. Others followed to include RP Martin, Exco and International City Holdings. Companies such as Guy Butler & Co, which became part of Mills & Allen, Eurobrokers, Tullett & Riley and Tradition were also major contributors to international markets. In the 90s Prebon Yamane, a conglomerate, which evolved from the acquisition of a numbers of small boutique brokers, coupled with a merger with a major New York operation Prebon and the Japanese ‘tanshi’ house, Yamane. Cantor Fitzgerald and ultimately BGC Partners, for whom I worked for 15 years (through the heart-rending loss of 658 colleagues in 2001) until 2013, also came to the fore in the 90s. Its recovery post ‘9/11’ was miraculous and I was proud to observe its success.

Big Bang in 1986 saw the sudden deregulation of financial markets. It included the abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers on the London Stock Exchange. Also, the change from open-outcry to electronic, screen-based trading, was effected during the Thatcher administration. Many considered Big Bang to have been the greatest financial revolution experienced by the City of London. It was hugely important, but not as important as the abolition of exchange controls in 1979. Prior to 1979 the most amount of money that could leave the UK’s shores by an individual was £50! By abolishing exchange controls Margaret Thatcher sent a clear message to the world that the UK was open for international business. Activity in foreign exchange, initial public offerings, mergers and acquisitions, and the finance of foreign trade exploded from that day on. The opening of the LIFFE market in 1984 gave a further massive injection of activity to financial activity, with futures giving greater credence to the development of the derivative markets in London.

The 80s saw the government, under Chancellor Sir Geoffrey Howe, sell-off of British Aerospace, followed by Rolls Royce, BP, British Telecom, Jaguar, the remainder of Cable & Wireless, Britoil and British Gas. The focus had then shifted to privatising core utilities. In the 90s it was the turn of the Building Societies to take pride of place at the altar of free enterprise, including the likes of the Halifax, Abbey National, Woolwich, Alliance Leicester and Northern Rock. However, it was the evolution of the derivative market, which was influential in driving London as a financial centre to the pinnacle of international excellence. The expansion of the futures market London was the catalyst. A combination of the huge turnover driven by the likes of Goldman Sachs, Salomon Brothers, Deutsche Bank, UBS, Morgan Stanley, plus copious European operators, not forgetting domestic players such as Barclays, Midland, soon to be acquired by HSBC, and the greatly respected existing operations in London of Chase Manhattan, Chemical Bank, JP Morgan, Bankers Trust and Citibank gave LIFFE its pre-eminence, aided and abetted by a frenetically efficient ‘local trading’, which provided significant liquidity. All these operations acquired UK brokers or jobbers to be converted into market makers.

The development of the derivative market was synonymous with the arrival of ICAP, relentlessly driven by its founder Lord Michael Spencer. There have been many great and successful financial luminaries during this period – too many to name. However, for me, Michael Spencer stands ‘head and shoulders’ above them all for his vision and foresight. He ‘grasped the nettle’ as to where financial engineering was heading before any of his peers. I could also write a tome on the contributions made by fund management, with operations like Fidelity and CQS to the fore, hedge funds like Marshall Wace and private equity moguls such as KKR and Blackstone to the unqualified success of London as a financial centre, but time and space do not allow such indulgence.

London has been for centuries a bastion for global insurance. Underwriters, mostly wealthy individuals at Lloyds of London made serious losses between 1983 and 1991. Of the 34,000 underwriters who lost money, due to the crisis, 95% chose to settle with Lloyd's in 1996 and pay back £100,000 each. Much of the success of ameliorating the substantial losses made at Lloyds was down to the formation of Equitas, the company that was set up in 1998 to reinsure the liabilities of over 30,000 “Names” of Lloyd’s of London insurance syndicates. Equitas was chaired by Hugh Stevenson, the former chairman of Mercury Asset Management. Stevenson remained chairman of Equitas through to the transfer of liabilities in 2009. He was deservedly knighted for services to the financial services industry in the 2010 Birthday Honours list. Lloyds is maybe not quite as dominant as it was thirty years ago, but it is still a major global player

There has been a litany of crises, which international financial markets have had to cope with in my professional lifetime – the 1987 ‘crash’ referring to the prevailing over-valuations of assets, Greenspan’s ‘irrational exuberance’ speech in 1996, relating to junk bonds, the 1998 Russian Credit crisis, the 2000 ‘Dot.com’ bubble bursting, the ‘9/11’ New York attack, the 2003 the Iraq war, 2008/9 banking and credit crisis and finally the 2020 Covid-19 pandemic. All created great waves of volatility and significant uncertainty but with incredible resolve to recover. In the past 50 year there have been some formidable Bank of England Governors – Lord Cromer, Gordon Richardson, Robin Leigh Pemberton, Eddie George, Lord Mervyn King, Mark Carney, and Andrew Bailey. I would like to pay special tribute to Lord King and to Sir Paul Tucker, for the incredibly strong, sensitive, and unfussy manner they oversaw the liquidity crisis at the time of the banking and credit crisis of 2008/9. Without their guidance and that of Lord Alastair Darling, it would have taken considerably longer to return to normality.

It has been a real privilege to watch the City of London grow in stature over the past 59 years and though my career has had its ‘peaks and troughs’, I am so pleased to have been given the opportunity of making a miniscule contribution to its development. My only wish is for those who voted to remain, accept that BREXIT is here to stay, and we must all do what we can to make it a success. We may be short of friends in Europe and certain businesses, such as trading Euro-based securities may have been lost. However, 70 years of infrastructure, coupled with the best legal and financial engineering advice in the world, will keep London, somewhere near to the pinnacle of activity for many years to come. London is now the centre of fintech, and I am also so pleased to have had a ringside seat to watch Aquis Exchange PLC grow from ‘strength to strength.’ If I can see the likes of Numis and Panmure Gordon extract more of the ‘pie’ from the large international investment banks, I shall go to meet my maker a very happy man!