The Governor's eyebrows
Christopher Fildes
The eyebrows of Gordon Richardson are large, and bushy, and gubernatorial. That is as it should be, because the most powerful force in the City of London is, proverbially, the Governor of the Bank of England's raised eyebrows. They represent an authority based on custom, respect, and mutual convenience, rather than any force of law. Now, though, they are in danger of being singed.
In the struggle for control of the Royal Bank of Scotland, the largest bank in Scotland and (through its subsidiary, Williams and Glyn's) the fifth largest in England and Wales, it is the authority of the Bank of England that has proved to be at stake. The struggle began eight months ago, when the banns were called for a merger of the Royal Bank and Standard Chartered, Britain's biggest overseas bank. The match had the blessing of both banks' directors, and, that, too, of the Bank of England. 'We are shaping our own destiny', said the Royal Bank's chairman, Sir Michael Herries. 'It's much better to do something when you have a good opportunity than wait for someone to come along and attack you.'
Someone came along at once — the Hongkong & Shanghai Bank, the world's most highly valued banking business, dominant in their home base, busy the world over, and the nearest thing the colony has to a central bank. The Hongkong Bank had long had its eye on the Royal Bank. The terms Standard Chartered had offered were less than overwhelming to Royal Bank shareholders. The Hongkong Bank determined to trump them. Its chairman, Michael Sandberg, flew to London and called on the Governor of the Bank of England.
The two met four times in ten days — meetings which seem to have had some of the qualities of a dialogue of the deaf. Mr Sandberg explained his plans. He was asked what his opposite number at the Royal Bank had to say. There could be no answer to that question, because the Hongkong proposed to make its bid first, and learn the Royal Bank's reactions afterwards. That, said the Bank of England team, would not do — the Bank would not, as a matter of policy, approve of bids for banks unless they had the agreement of both sides. The Bank had said as much, in the early Seventies. So the circular argument rotated, getting nowhere and becoming more acerbic, and the Hongkong Bank went ahead and made its bid.
Fluster, commotion, flurrying of dovecotes — frustration at Standard Chartered, red-faced silence at the Royal Bank, and, at the Bank of England, un concealed fury. The Bank, which had been trying to keep the original merger out of the hands of the Monopolies Commission, at once changed its tack, successfully. Standard Chartered raised its bid to match the Hongkong Bank's, and both were referred to the Commission, which has been brooding on them since.
Arguing before the Commission, the Bank appears to have pitched its case in terms of control. Britain is wide open to foreign banks — there are 400-odd of them here, more than any other country. So long as they are properly financed and managed, they are free to compete with the home team, and have in fact in a short time taken a large share of the banks' lending to business. They are, in principle, free to buy banks here, so long as they do so by agreement. Two banks in the Accepting Houses Committee, the inner circle of merchant banks, have passed or are passing into overseas hands — one of them .Antony Gibbs, now belongs to the Hongkong Bank. But, argues the Bank of England, the High Street retail banks are something apart. There are so few of them, and their part in the British economy is so central, that there must never be any question of their loyalties being divided. They need to be subject, not just to British law and regulation, but to the whole apparatus of persuasion and guidance by which the Bank — and for that matter the Government — try to get their way. When the Governor's eyebrows twitch, they must take note.
This argument has run into various obstacles — what (it is said) about the British banks, busily buying banks abroad? What about offending Hong Kong, which has just given us our biggest ever export order? What about the Royal Bank's shareholders and their rights? And anyway, is a bank based in a British crown colony foreign, or overseas, or outside British control? 'We are a British bank', say the Hongkong Bank firmly. 'When it suits you', mutter their opponents. Last week the Lord Privy Seal, Humphrey Atkins, put his foot in these muddy waters. Yes, he said, the Hongkong Bank was a British bank, and the Government were quite satisfied with the way it was regulated in Hong Kong. Mr Atkins is a Foreign Office minister (he succeeded Sir Ian Gilmour) and in this quarrel the Foreign Office is firmly in the Hong Kong lobby.
The Prime Minister's position may be more delicate. She and the Governor are less than the best of friends. Their styles are antagonistic — hers staccato and impatient, his cautious and judicial. She has blamed him and the Bank for setbacks before now. She might not be personally sorry to see egg on his face. But have she and her Government enough credit to spare — political, economic, financial — to take on a public quarrel with the Bank of England and its Governor?
They have come closer to it this week. The Bank had put up a case for statutory powers, to control foreign takeovers of British banks. On Tuesday the Cabinet's Economic Committee looked at the idea and dispatched it to the pigeonhole. All go back now to work out a system, not of law, but of guidelines. That is the way the Bank likes to work, but a guideline is only as strong as the authority behind it — which is where, eight months ago, the circular argument began.
The Hongkong Bank is no innocent abroad. It fought for control of Marine Midland Bank of New York, met implacable opposition from New York's Commissioner of Banks, finally found a way to take the argument over that formidable lady's head, and won. Even so, the Hongkong Bank would not willingly see itself challenging the Bank of England's authority. But if the Bank of England loses this battle, its authority will never be the same again.
On that authority, much hangs. It is felt throughout the City of London — in the banks and beyond them. It lies behind the whole of the City's system of selfregulation. It deserves some credit for the success of the group of businesses which make this country the world's biggest exporter of financial services. It underpins the Bank's independence, such as that is, as the guardian of the currency. Take it away, and something must certainly replace it — something more evidently legalistic, more evidently governmental, not more evidently experienced or respected or suited to the task.
Everyone, the Bank of England certainly included, has had to learn fast from the Royal Bank affair. But there is nothing to gain and all to lose by unlearning Rule One of the City: when the Governor raises his eyebrows, that is that.
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