Do we really mean to kill investment banking, or are we trampling it by accident in a fit of righteous zeal? By ‘we’ I mean politicians, regulators and public opinion, and by ‘kill’ I mean rendering it unattractive or unviable for any shareholder-owned financial business except on the most limited scale — and as uncertain a career choice as, say, Liberal Democrat politics or freelance journalism.
The announcement last week of a radical scaling back of Barclays’ trading and deal-making arm has stoked a debate that had been smouldering for some time; for background reading, I recommend recent articles by Philip Augar in the FT and Frances Coppola in Forbes. In essence, the British and European presence in the investment banking arena is shrivelling fast, the titans of Wall Street are feeling the chill, and the future lies with partnership-owned boutique providers of specialist skills, meeting the needs of savvier clients. In the long term, this evolution should be good for stability and productive use of capital; it’s more or less what this column has been advocating over the past several years; but it’s an accelerating shift for London as a global financial centre, and we had better grasp what it means.
Bob Diamond’s Barclays Capital, particularly after its purchase of the rump of Lehman in 2008, was the last British-owned world-scale competitor in this field. New-broom chief executive Antony Jenkins is now following the path of RBS’s Ross McEwan, who announced in February that his bank would henceforth engage only in investment banking activities essential to a full-service offering for corporate customers. The proposed ‘ringfencing’ of the so-called casino from the utility function of retail banking, when it comes along, may barely seem useful any more.
As to the rest of Europe, only Deutsche Bank (which absorbed Morgan Grenfell in the sector’s last upheaval 20 years ago) still looks like a committed player, followed by Credit Suisse — though the latter may be about to sustain huge fines for allegedly helping its clients avoid US taxes. UBS (which absorbed Warburg) has already withdrawn to a minimal operation in support of its wealth management business. Société Générale of France is barely to be seen after its trading scandals.
Meanwhile, five big Americans command between them 30 per cent of the sector’s global revenues, and are still hiring the best people over here at bonus levels that make the whole industry politically toxic — and won’t be much affected by the EU bonus cap, which is easy to circumvent. The five, in league order, are JPMorgan Chase, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley and Citigroup.
But no large-scale London player is finding life peachy these days. All now have to cope with a fearsome regime of international banking regulation. Higher capital requirements and lower client activity make bread-and-butter bond trading less remunerative since the financial crisis. Income from providing equity research to clients is about to be halved by a new ruling from the Financial Conduct Authority. Proprietary trading — taking big, leveraged bets for the bank’s own account — is deeply out of fashion. What’s in fashion is customer service, an alien concept to the fast-buck breed of 21st-century banker. Advising on mergers and acquisitions is still lucrative — but also fertile ground for nimble specialist boutiques who are less likely to have conflicting client interests. And there are still fees to be earned from governments such as ours for debt-raising and privatisation work, but that comes with reputational risks: look at the flak directed at Lazard (a multinational hybrid just below the top bracket) for its pricing of the Royal Mail sell-off.
What happens to London as this trend gathers momentum? For oft-recited reasons of language, tax and quality of life, the Yanks and Euro-bankers won’t be going home any time soon, and house prices are unlikely to tumble. But more firms will retrench, job numbers will continue to fall, and bijou Mayfair office suites will be a better investment than Canary Wharf towers. Bonuses may moderate — but not by much, because successful boutiques will pay plenty, too. And companies will do more of what they already do, which is to buy financial services ad hoc from a range of providers, rather than seeking relationships of trust with banks that have a record of letting them down. If all this means that the Chancellor is poorer in tax revenue in coming years, he’s less likely to have to fund bailouts in the next downturn.
But will we have ‘inadvertently destroyed the one industry in which the UK was clearly a world leader’ in what boils down to a fit of pique, as one banker put it to me recently? No, my friend, the language is too colourful: we will merely have encouraged you to operate in a safer, more sustainable way, because you seem to have forgotten that but for taxpayer and central bank largesse on both sides of the Atlantic, you would already have destroyed yourselves.
The Billionaires’ Diet Book would not be a bestseller — or so I judge from limited experience of lunching with the denizens of this week’s Sunday Times Super-Rich List. They’re just not happy eaters. Lord Bamford (£3.1 billion) described the elegant little salad served in his office as ‘rabbit food’. In 48 hours of partying across India with Sir Richard Branson (£3.6 billion), I never once saw him tackle a sumptuous buffet. As for the list’s winners, Sri and Gopi Hinduja (£11.9 billion), they’re so fastidious that ‘when a dinner guest of the Queen, the teetotal and vegetarian Sri is said to bring his own food’: if I’d known that was the etiquette, I’d have taken a Whopper Meal with me when I tried to interview them.
Perhaps one of the secrets of wealth is to watch what you eat — I imagine oligarchs employ tasters against the risk of poisoning by their rivals — but the super-rich might be more lovable if they were seen to enjoy the pleasures of the table like the rest of us.