CITY AND SUBURBAN
Exit the gentleman from Whitehall who didn't know best
CHRISTOPHER FILDES
The roads out of the City had become congested with refugees, fleeing from the prospect of being made chairman of the Securities and Investments Board. The chairman of a high street bank said to me: `If only they could persuade David Walker to do it himself.' They have. The SIB's first chairman, Sir Kenneth Berrill, had gone so far towards creating the job in his own image as to make it singularly thankless to others. A desperate difficulty has evoked a spectacular remedy, and its consequences will reach far. Sir Kenneth's departure will come as no surprise to City and Suburban readers. (Financial Times readers were less fortunate; the paper was wrong-footed throughout, and finally reduced to arguing that it was bad for the SIB to replace a chairman who had said that he wanted to go on.) He had fallen out with the City's first and traditional regulator, the Bank of England, which had a blackball on his reappointment. He fell out with his new political master, Lord Young — missing the shift in priorities towards enterprise. He engendered in the City a resentment which became personal. A merchant bank- er speaks for many: `Kenneth Berrill de- serves a great deal of sympathy,' he says, licking his claws, `but not too much.' The City needs to blame itself for not seeing what was happening. It saw the trouble start, in (of all unlikely places) the halls of the Bank of England. A plausible fund manager, with a business plausibly named Norton Warburg, offered to look after the lump sums of Bank staff who were being paid off. `Norty' Warburg (no relation of S. G. Warburg) folded, its promoter, who had not fully distinguished between his clients' pockets and his own, went to jail, and most of the Bank staff's money was lost and had to be replaced. From this Nortiness sprang Professor Jim Gower's report on investor protection, and the Bank of England's own inquiry, and the Financial Services Act and the SIB and all Its offshoots. It was supposed to be a system of self-regulation, with statutory backing, designed to protect the personal investor, and drawing on the practical knowledge and understanding of the best People in the financial businesses. That is not how it has worked out. Instead of responding from the bottom up, reacting to investors' specific needs, it has been im- posed, comprehensively, from the top down. Its consequences, however expen- sive or absurd, must lie where they fall supervisory costs running into tens of millions, compliance costs running far beyond them, stacks of printed postcards in newspaper offices, telling readers that it is now illegal to give advice about shares. It was significant that the first quarrel the SIB picked was not with some latter-day Norty, but with the building societies and the high street banks — not hitherto regarded as the gravest menace to the private investor. They did not fit into the SIB's neat divisions, and so their practical knowledge and understanding, for what it was worth, never got a look-in.
it Martin Jacomb, of Barclays de Zoete Wedd, had headed the Bank of England's inquiry into financial supervi- sion, and was the first choice to be chair- man of the SIB. Increasingly unhappy about the way it was developing, hoping without success, at that time — for a more direct involvement on the part of the Bank, he stood down as deputy chairman and left the Board at the end of his first term of office. We shall now see how far the SIB's top-down approach derives from the Act which empowered Sir Kenneth, and how far it reflected his personal style. It is, certainly, characteristic. He is an assured and formidable bureaucrat — the Gov- ernor of the Bank, seeing him off, tactfully praised his energy and determination and was formed in the Civil Service when the gentleman in Whitehall was supposed to know best. He did not, though, write the Financial Services Act (or, at any rate he did not enact it) and Lord Young has been saying, to City ears, that one section, in particular, was a mistake and had made for a legalistic response. It will be binding, all the same, on David Walker. Do not judge him by the first response to his appoint- ment. It was cheered, or derided, as a victory for the City and the Bank of England, where Mr Walker is an executive director. The Bank, it was said, has now got the SIB where it wants it.
The first point about Mr Walker, though, is that he is an unusual and untypical Bank man. He came from the Treasury. He was recruited by Governor Richardson, of whom his deputy said that he was an oriental potentate in reverse far from giving his treasures away to guests who admired them, he would respond to the praise of others' treasures by securing them for the Bank. Mr Walker was secured to look after the relationship between the banking and financial system and its cus- tomers in industry and commerce — of the first importance, but not exactly main- stream Bank. He launched and steered the `industrial lifeboat' which put out, in the recession of the early 1980s, to some 30 or 40 major companies which were in trouble with their banks. He took the Bank to and through Big Bang, impatient of the Stock Exchange's cartel, determined that the City, with all its potential for growth and for overseas earnings, should have an international securities business to match its strength in banking and insurance. (It was equally his concern that the SIB should not choke it to death.) Most recently he has been pressing the • big investors to be tougher with the companies whose shares they own, to be readier to oust inadequate managements — and he has virtually offered, on the Bank's behalf, to tackle the boardroom barons. He combines an active, original, fast-running mind with the tem- perament of an interventionist. Any City frog which thinks that its pool has ex- changed its King Stork for a nice cosy King Log is making the mistake of its — possibly brief — life. What can be made of the SIB, David Walker will make. It now has its best chance of becoming what its devisers hoped it would be. It will be no branch office for the Bank, and no pushover for anyone. In the City, it will be a power, and, I dare say, a power base. Its new chairman will be received with reserve by his staff, some of whom must rightly fear for their jobs, but he can rely on his welcome from his board. One City mem- ber says: 'There's nobody with wider hori- zons than David Walker. David points out horizons, Kenneth paints white lines.'
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