THE RETURN OF THE GENTLEMAN
It's going to be a tough year in the City,
says Peter °borne, but loyalty and
honesty are back in town
THE most successful investment banker in Europe of 2002, according to the league tables that pronounce on these matters, was Nicholas Wrigley of Rothschild. Those familiar with the history, ethics and conduct of the City of London over the past two decades will fully appreciate the subversive significance of this. People like Wrigley. and firms like NM Rothschild, were not supposed to exist in the modern Square Mile. They were widely believed to have become an endangered species at the time of Big Bang and to have been hunted into extermination during the 1990s. Yet here they are, not merely alive but ruling the roost, while many of their competitors are wounded and broken.
Wrigley, now in his late forties, is, in investment-banking terms, not merely an outrage but an impossibility. No first-class degree from a swell university lurks menacingly in the background. After Harrow, his education took the form of a diploma from Leeds Polytechnic, followed by articles at Bradford School of Accounting. (He is now a steward at the local racecourse.) No one, least of all Wrigley, claims that he is Brain of Britain, His clients are unlikely to end up in an Enron-style situation, in part at least because Nicholas Wrigley would regard the various 'financial instruments' that caused Enron's downfall with bafflement.
It is held that to succeed in investment banking 'aggression' is the key. But Wrigley has never sought to bully, mesmerise or bamboozle anyone. He gets his way with good manners, tact and charm. He joined NM Rothschild, rather diffidently, two decades ago, and has never tried to move. Nor has he courted publicity, like most investment-banking 'stars', and this article will only embarrass him.
The emergence of Wrigley as Europe's most successful investment banker is a moment of sheer atavism. It is as if the Corinthian Casuals suddenly re-emerged to win the FA Cup. He represents everything that the City of London self-consciously set out to repudiate from the early 1980s onwards: loyalty, modesty, discretion, selfeffacement. Those were the values of the old merchant-banking houses that held sway till two decades ago. Merchant bankers were commercial enough. But they valued long-term relationships with their clients, and would advise them against transactions, even if it meant losing a fee. These relationships, like the one between Lazards and Rolls-Royce, lasted for decades. They were based upon total trust, deep understanding of their clients' needs, and an appreciation of the long term. Sir Siegmund Warburg, the greatest postwar banker, defined the relationship by using the analogy of a GP and his patient.
This began to collapse 20 years ago when Morgan Grenfell broke the code of the City by poaching clients and creating a system of corporate finance 'stars', who promoted themselves as much as the company. They flourished for a while, then went wrong with Guinness. The Morgan Grenfell story belongs to the 1980s, rightly remembered as a decade of greed. But the 1980s had nothing on the 1990s, the arrival of the Americans and the creation of one of the great financial bubbles of all time, comparable to the 1890s or the 1920s.
One of the earliest American bankers to arrive in London was John Thornton of Goldman Sachs. Thornton mocked the British way of doing business. Though able, he lacked even the most elementary social courtesies except when it suited him for business purposes. He made an impressive personal fortune of more than 5100 million from Goldman, and he is now said to harbour ambitions to become American president.
Within two or three years of the US descent on London. British-style relationshipbanking was finished. There were some advantages in the unstable set of arrangements that followed. It was sharper, cleverer and more ruthless. It made a large number of not particularly scrupulous individuals unheard of sums of money. With hindsight, however, it is easier to perceive its drawbacks. Clever investment bankers must share the blame for the partial or total destruction of some of Britain's greatest companies, of which Cable & Wireless and GEC are tragic recent examples. Mergers and acquisitions experts prevailed upon the board of GEC to exchange its solid but boring electronics business for the fashionable chimera of the new economy, with fatal consequences. It is impossible to imagine Siegmund Warburg pushing his old client down that path — Warburg had an interest in keeping his client alive for the long term, rather than grabbing a fee and annual bonus.
Central to the sales pitch of the investment banks was the contention that only integrated banks with global reach and a massive capital base were capable of competing in the financial markets. For a very long time this piece of conventional wisdom carried with it utter conviction. It has now collapsed. The end of the story may have come just before Christmas, when the US attorney-general Eliot Spitzer forced Wall Street firms to pay a composite $1.4 billion fine. The culprits were the same names that had barnstormed through London in the 1990s: Salomon Smith Barney (which now calls itself Citigroup: it enjoys the melancholy distinction of having employed Jack Grubman), Morgan Stanley, Goldman Sachs, Lehmann Brothers, etc. The fine was punishment for a collective cynicism which saw analysts promoting shares that their private emails described as 'pieces of junk' or worse.
All financial booms end in a return to sanity. During the short-lived excess of the Barber boom, the stockbroking house of Cazenove was sneered at by upstart rivals like Slater Walker. Slater Walker went bust, and Cazenove soon regained its customary dominance. It may not do so this time. Two years ago it surrendered to the ambient greed and gave away its unique partnership status. Cazenove, which before Christmas suddenly shed a reported 10 per cent of its staff, is now hopeful of a flotation on the Alternative Investments Market, at any rate when conditions improve, I.azards is another firm which maintained its equanimity when the boom was raging at its fiercest. Then it suddenly panicked, Bruce Wasserstein, a Wall Street investment banker who represented everything that Lazards had resisted for so long, was brought in to transform the company culture. According to reports, he has triumphantly succeeded. Rothschild is the only major merchant bank to retain its integrity.
This will be a bitter New Year in the City. Sackings and lay-offs have barely begun. But some good things may have emerged from the bloodbath. And one of them is that honesty, discretion and loyalty have, for the first time in decades, once again become valued qualities in the City of London.
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