Slater, the paper tiger
Twice in the past fifteen years, London has been overshadowed by rather nasty outbreaks of collective fantasy. The first was the period between the Profumo affair of 1963 and the end of 'Swinging London' in 1966/7. The second was in the early 'seventies, the time of the 'Barber bubble' and the great property boom, when the City and the media appeared to be hypnotised by the belief that money could be conjured out of nothing, and all sorts of rather unusual operators, running companies with names like Cannon Street Investments, Vavasseur Securities and Cedar Holdings, briefly enjoyed a strange, unpleasant glamour. The undoubted dream hero of this second period was the boyish financier Jim Slater, who had built up his empire since 1964 with astonishing speed, and was idolised by City and media alike (Patrick Hutber called him in 1972 'cleverer with money than anyone else in the world).
One of the tens of thousands who worshipped Slater at this time was David Frost, who at the beginning of 1973 acquired with his new-found idol a company called Equity Enterprises ('a sort of investment piggy bank for David and a few friends' as Slater called it). The Equity shares rose faster in 1973 than any others on the Stock Exchange, and I remember Frostie on a summer evening that year standing in a South London garden, pointing dramatically at a rose bush in the twilight and saying 'You would be fascinated by Jim's mind. I mean, Jim is as interested in why that rose should wither and die, as he is in a balance sheet'.
Well, as we now all know, both the rose and the balance sheet withered and died with a vengeance; and in two books just published, Slater's own self-justification Return To Go (Weidenfeld and Nicolson £5.95), and Slater Walker: an Investigation of a Financial Phenomenon (Andre Deutsch £6.95) by Charles Raw, an enormously diligent journalist who has spent three Years piecing together the whole sorry jigsaw, we can see why the name of Slater Walker has now passed into history, alongside those of John Law of the South Sea Bubble, Horatio Bottomley, Bernie Cornfeld and countless others, as further evidence of the almost limitless gullibility of those supposedly hard-headed men of business who, from time to time, imagine that the riddle of how to make money out of nothing has somehow miraculously been solved.
Undoubtedly what will come as the greatest surprise to many people in Charles Raw's rather laborious book (although it Should not really be a surprise) is his demonstration that the mighty Slater empire was based on nothing more than a confidence trick (in the quite literal sense of those words) all along. Right from the start, Slater's one trump card, apart from a few happy intuitions and many long hours studying other people's balance sheets, was his reputation as a financial wizard, which gave other people the confidence to support his hunches with their money.
Raw in effect takes up the Slater story in 1961/2 when, as Deputy Sales Director of Leyland Motors in his early thirties, Slater begins in a modest way to play the market. As we learn from his own book, he was a fairly likeable, but limited young accountant from a modest suburban home, who from his earliest years had always enjoyed a 'deal; (such as swapping birds eggs for a microscope). Now he has suddenly found his kingdom. He specialises in small companies, with a narrow share market (whose shares are thus sensitive to quite modest interventions). He passes on his tips to richer business associates, like Lord Brabazon of Tara. And often, as they move in, pushing the share price up, he moves out, taking his profit. In 1963, he is able to play this game on a wider scale when he persuades the Sunday Telegraph to allow him to contribute a monthly anonymous sharetipping column; again he buys ahead of his recommendation, and takes his profit when his readers move in the following week. Finally, in 1964, with a young ambitious Tory MP Peter Walker (who thereafter plays only a small part in the story) he buys a small public company, changes its name to Slater, Walker, and repeats his familiar strategy, although he is now able to influence the market even more directly by means of the quite arge funds that are put at his disposal by clients who use Slater Walker as an investment service.
By 1966, the first phase is over. Many of the clients are not too happy about the Slater Walker service (both the Leyland and Standard/Triumph pension funds, for instance, withdraw their custom). But the company is now prosperous enough to embark on phase two — the 'dream stage' of the fantasy between 1966 and 1969 when, as 'merger-mania' swept through industry and the City (under the benign guidance of Technology Minister Anthony Wedgwood Benn), Slater Walker took over some thirty companies to become the City's leading 'conglomerate'. Profits rose from £370,000 to over £10 million, SW's market valuation from £4 million to £135 million; and the secret of this phase rested again entirely on confidence.
SW almost invariably made its purchases by means of its own shares, which of course were hurtling upwards in value almost perpendicularly, as public excitement grew. It was one of those self-generating spirals endlessly familiar from the history of financial speculation: the higher SW's shares went, the easier it was to use them to buy other companies, and the more companies that were taken over, the higher rose the shares. Every kind of accountancy device was used to show SW's record in the best possible light (even a deal which lost £600,000 was shown in the balance sheet as a surplus, by writing down the purchase price shares at their nominal rather than market value). And Raw effectively demonstrates that SW's much vaunted record of improving the efficiency of companies taken over (by selling off surplus assets, and thus showing a greater percentage return on the capital base remaining) was in many cases illusory. In particular he analyses the sad story of Crittall-Hope, the biggest industrial purchase SW ever made.
Stage three came with the decline of the stock market in 1969-70, when Slater Walker began to run into trouble (it is of course always easier to win a bubble reputation for financial wizardry when the market is rising). The new device to preserve the 'go go' image was the creation of satellite companies, like Ralli International. The paper value of businesses could thus, in Raw's words 'be blown up by shuffling them from one company to another in the Slater orbit'. One of the beneficiaries from such juggling in this period was Edward Heath, whose anonymous purchases of shares in a Slater satellite company Tokengate, Raw shows, made profits in 1970 of just over £20,000.
At this point, Slater himself sold a great many of his shares in Slater Walker. His intuition was still good; and in 1972, when, after the 'Barber boom' of 1971/2, the market started to slide again, he managed to unload no less than 40 per cent of all SW's industrial equities, on the grounds that cash was now 'the best investment'. But at the same time, he was still advertising for the public to invest in his proliferating mass of investment trusts, insurance cornpanies and unit trusts (as the perceptive Graham Serjeant of the Sunday Times called it 'a seething pyramid of escalating paper). And even though, among other journalists and the City at large, Slater's reputation had never been higher, the fundamental contradictions of trying to keep ahead of the game on a falling stock market were becoming more and more of a nightmare. Slater became fooled by his own propaganda into buying back a lot of the SW shares he had sold. He plunged heavily into property (1 recall writing an article with Bennie Gray in the Sunday Times in January 1973, predicting the collapse of the property bubble, at just the time when Slater was wading in).
And then, at the end of 1973, came the greatest collapse in share and property values since 1929. Slater had a temporary success with his investments in gold which, at the SW Annual General Meeting in 1974, seemed proof of his continuing wizardry at a time when the press and shareholders were desperately searching for reassurance from any quarter. But in fact, as Raw shows, the only thing which had kept SW afloat at all was the success of its speculations in the Far Eastern stock exchange boom of 1972/3 — and finally, in 1975, the pretence could be maintained no longer. The 'nightmare stage' of the fantasy culminated in the most spectacular financial crash of modern times.
Charles Raw has painstakingly demonstrated that there was not a single moment in its history when Slater Walker, by traditional criteria, could have been accurately described as a 'sound' financial institution. As for Slater himself, the most revealing thing about his ingenuous book is its title, Return To Go, which shows that he still thinks the whole adventure has been nothing more than a game of Monopoly (at which, in a much-publicised tournament in 1972, incidentally, he lost to Sir Jack Cohen, even though the supermarket king had only learned the game the night before from his chauffeur). Despite Slater's claim that he has gained 'inner strength' from his ordeals (he spares only what appears to be rather perfunctory sympathy for Dick Tarling, his close associate, who may soon be extradited to face charges in Singapore), he appears to have learned almost nothing as to why it was eventually inevitable that the whole paper-fantasy would come crashing down in ruins. The only question which remains is, not why did so many other people get fooled for so long, but why will such a chapter of ,human folly inevitably one day be repeated, just as such episodes have occurred so often before in history?
I3ut here we move into the province, not of the financial historian, but of the psychologist — and of potentially a much more interesting book than either of these.