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Any other business

I still think Big Bang hurt the City – but it’ll survive even Brexit

Also in Any Other Business: Heathrow, the AT&T/Time-Warner deal, and the simple, sinful appeal of tobacco stock

29 October 2016

9:00 AM

29 October 2016

9:00 AM

As the 30th anniversary of Big Bang loomed, I found myself back at the scene of my City demise. Ebbgate House — headquarters of BZW, the investment banking arm of Barclays where I worked until one fateful morning in 1992 — fell deservedly to the wrecking ball a decade ago. It was replaced by Riverbank House, and there I was last week, hovering above where my desk used to be, talking about ‘why no one listens to the City any more’ and reliving the P45 moment that released me into the happier world of journalism.

Personal echoes apart, this was also a moment to revisit Big Bang, the Thatcherite reforms launched on 27 October 1986 that allowed banks such as Barclays to buy stock-exchange firms, create BZW and its ilk, and compete against Wall Street’s giants. Arguably, Big Bang cemented for London the pre-eminent place in the financial world that Brexit negotiators must now seek to defend. It attracted huge foreign investment and critical mass in every area of finance, up to and including the now fashionable ‘fintech’. It provoked the development of Canary Wharf and the rebuilding of the Square Mile itself, providing unrivalled trading-floor space. It replaced the cartels of the old City with a fiercely competitive capital market of vast scale and sophistication.

But I still believe the negatives of Big Bang outweighed the positives. New ownership structures destroyed the partnership ethos that worked so well in terms of risk control and specialisation. A community of niche businesses that lived on their wits became an oligopoly of ill-managed and largely foreign-owned conglomerates. The urge to imitate New York engendered a bonus-hunting hire-and-fire culture that distorted risk judgment and eroded loyalty, trust and institutional memory. Long-term client relationships gave way to transactional and securitised ways of business in which human empathy was lost. The Thatcherite notion of ‘people’s capitalism’, embodied in the privatisation share sales of the 1980s, was buried as the City retreated into a self-admiring, self-serving silo; rule-bending, mis-selling and trading folly abounded.

And that, in a nutshell, is why no one listens to the City any more. If Brexit breaks open the silo and shakes out the complacency, perhaps it will encourage London’s financial community to rediscover its better self.


Brexodus: where will they go?

Anthony Browne of the British Bankers Association says his members’ ‘hands are hovering over the relocate button’ as they work out which operations must migrate to preserve EU ‘passporting’ rights. A report by consultants for the CityUK lobby group estimates Brexit-related City job losses at up to 35,000 in a ‘lowest-access’ no–passporting scenario; 40,000 adjacent jobs might also be at risk. But where would they go?

I’m grateful to Financial World magazine for a survey of possibilities. Dublin would be first choice for many Anglophones, but its resources as a financial centre are tiny — ‘Canary Dwarf’, local wags call it — and the Irish capital would prefer to complement London, as Boston does New York, rather than compete. Frankfurt is more aggressive: it aims to snatch the European Banking Authority from London as well as the merged London-Deutsche stock exchange and will expect full-scale banks to relocate, not mere front-office functions that might secure market access. But it also lacks scale, and to London bankers it will always be drearily provincial; in truth, it is the hard-pressed German banks themselves that will be keenest on moving jobs there.

Meanwhile La Défense, the Parisian equivalent of Canary Wharf, is campaigning under the jaunty slogan ‘Try the Frogs!’ to attract financial firms from London with a promise of tax and labour-law breaks; a local government chief has promised to ‘roll out the red carpet’. But for all its charm, France retains a prejudice against Anglo-Saxon capitalism that international bankers find uncomfortable, recalling that President Hollande once described them as ‘mon véritable adversaire’. In the end, Brexodus will be limited by the plain fact that, for all its current faults and past mistakes, there’s nowhere quite like the City of London.

In the real world

The Heathrow decision was heralded as top news and a big boost to London’s continuing claim to be ‘open for business’ — even if bankers actually prefer the more civilised City Airport. Heathrow’s opponents still have everything to play for: I’ll be amazed if the third runway becomes operational before I move into a care home, and mildly surprised if it happens at all. So in real-world, what-happens-next terms it is less of an event than, say, the $85 billion bid by US telecoms giant AT&T for the entertainment group Time-Warner, or even the $47 billion offer by British American Tobacco for the portion of rival cigarette-maker Reynolds that it does not already own.

Then again, the AT&T deal may be a non-event if it fails to secure regulatory approval, as many pundits predict, or becomes a value-destroying fiasco like the previous marriage of Time-Warner (owner of CNN and HBO) with the internet provider AOL, often cited as one of the worst merger deals of all time. It’s a 21st-century cliché that the future of mass entertainment is in partnerships with mobile and digital networks — but no one has built a winning model, while disruptive new players spring up all the time. So let’s not hyperventilate about that story, either.

That leaves cigarettes, another industry in which consolidation is the path ahead — but with an unchanging product that billions of people, mostly in developing countries, continue to buy despite proven health risks. If you had bought BAT and Reynolds shares in early 2000, you would have multiplied your money 20 times by now — and there’s no reason why investors should not continue to do well out of their combination. Morally troubling it may be, but simple, sinful investments are often the best.


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