CITY AND SUBURBAN
City cowboys chuckle to see the marshals shooting each other
CHRISTOPHER FILDES
he undergraduate came to see me and asked, as undergraduates now do, about going into the City: what was the proce- dure? I said (as I now do) that it wasn't like that, and how much did he know about the City, anyway? The intellectual curiosity fostered by his tutors had plainly stopped short at this point, but he did know of a friend who had got a City job a year ago and was now pulling down £100,000. I named a notorious firm. Yes, said the undergraduate, that was the employer, how did I know, should he try and get a job there too? I advised him to get his friend out, with his salary and commission cheque cleared, while the firm was still in business. This firm specialises in introducing inves- tors to the futures markets. It charges commission, at a high rate, on the value of futures contracts, irrespective of results. An investor who makes a profit and takes it will thus generate commission — but nothing like as much as an investor who loses and is tempted to double up and double again to get out of trouble. The final commission cheque can be as much as the losses themselves: then, on to the next customer. This firm's operations have left a trail of misery. It is well known to the Securities and Investments Board. It would make a test case for the powers which are meant to devolve on and through the SIB under the Financial Services Act. Its direc- tors must now chuckle to see the SIB's attention diverted, and its authority en- tangled in a quarrel with reputable oppo- nents — the High Street banks, and now the Director-General of Fair Trading. It is all about the banks' right to sell their own life assurance policies and unit trusts. Influenced by the life assurance com- panies, the SIB has ruled that the banks must choose which half of their business to discard. Their managers must either re- commend their own policy or unit and no one else's, or recommend anyone's policy or unit but not their own — unless theirs is so transcendently the best that not to recommend it would be a breach of duty to the customer. The Financial Services Act requires this and the other SIB rules to be vetted by Sir Gordon Borne at the Office of Fair Trading. Sir Gordon has now found against it, saying that it is anti-competitive and reduces the consumer's choice. That decision will be binding on the Secretary of State for Trade and Industry, Paul Chan- non, unless he is satisfied that the loss of competition is no more than is necessary to protect investors. (Hard to prove, for investors could be protected in other ways — obviously, by requiring the banks, when selling recommended units or policies, to disclose their interests.) Having made up his mind, Mr Channon must submit the rule book, revised or not, to Parliament, which must approve it before he can delegate authority to the SIB. What a performance. Now, back at the SIB, chair- man Sir Kenneth Berrill is digging in for his own version of the rules, and word has been put round that he would make it a resigning matter. At facing the cowboys and conmen down, no one would be better than Sir Kenneth. He is a formidable opponent. What a pity that, so far, he has chosen to fight those who would rather be his allies! It is time for Paul Channon, or for the Governor of the Bank of England, to knock these warring heads together, and get them to make common cause against the true enemies, before another under- graduate generation learns the craft of the City cowboy.
Russian roulette
CITY legend has long held that the mod- ern fortunes of the old house of Baring were founded on the gold of the Tsars. Barings banked for the Romanovs, whose deposits were said to have been sitting tight ever since 1917. Sir John Baring in his statement with the accounts puts it more soberly: 'In July the Imperial Russian government balances which had been with us for over 70 years were finally released by agreement between the United King- dom and Soviet governments.' So much for last year's ballyhoo about Sir Geoffrey Howe's diplomatic triumph, in getting the Russians to honour their bonds! The money was in London all the time. It will be enough to pay off the bonds at about ten per cent of their face value, ignoring 70 years of interest. The offer closes on 31 March, but the Council of Foreign Bond- holders, that grizzled watchdog, wonders whether it is worth the legal costs involved in accepting. Low-denomination bonds might be worth more as lampshades. Their value to collectors depends not on their face value but on their rarity and condi- tion. Railway bonds are popular for their jolly pictures of Nicholas-II-vintage trains. It is a guessing game — the fewer the acceptances, the further the money from Barings will go round. I recommend switching into the State bonds of Mississip- pi, in default since 1841. The Council met the State Treasurer in London and is pressing the case for an amicable settle- ment — and failing that, there might even be a pot of plantocracy money in one of Barings' old oak chests.
Lessons in greed
IT WAS like waking up to find that Rothschilds had been taken over by the Trustee Savings Banks. Lehman Brothers was the senior independent investment banking partnership on Wall Street, long enough established to have traded in slaves. Three years ago its partners sud- denly sold it out to Shearson, the retail broking business of American Express — than, as now, restlessly buying and selling financial businesses. So culminated a year's civil war in Leh-man Brothers, chronicled as Greed and Glory on Wall Street by Ken Auletta, now published by Penguin (£6.95). If it suggests the script of a corporate soap opera with less sex than usual but even more money, it is no effort of reconstructed 'faction': it is put forward as accurate, word for (frequently indeli- cate) word. What an envious and graceless shop Lehman was in its last year! How reluctant one would have been to bring business to it, how much one would have paid not to work for it! A partnership in that state had only one way out. The patrician Stanislas Yassukovich, chairman of Merrill Lynch Europe (and deputy chairman of the Stock Exchange) blamed the debacle on the going of the old, prosperous partners and on the changed priorities of their successors: 'They start with no money and are out to make it quickly, which produces a different ethical approach.' In Greed and Glory Lehman's decline can be traced back 15 years to the death of Bobbie Lehman, last of the family senior partners, who left no successor. Family businesses (and the City has exam- ples, too) tend to come apart without their families. The answer was a Lehman.
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