After the turmoil of the past two years, Scotland, led by its fund management community in Edinburgh, is fighting hard to restore the country's tarnished reputation in the financial world.
There was a time, not long ago, when Scotland was a byword for financial probity and success. Traders might play casino capitalism elsewhere, but Scotland and its financial community, largely based in Edinburgh, firmly resisted such temptations.
Those days are now past.
Sir Fred Goodwin's building of the Royal Bank of Scotland empire on the outskirts of the Scottish capital, and the firm's subsequent demise, saw the Paisley-born knight become the credit crunch's anti-hero. He was forced to quit Edinburgh after his home was stoned.
Since Sir Fred's disastrous acquisition of the Dutch bank ABN Amro two years ago, RBS's largely Scottish management team has been replaced by lieutenants born south of the border.
HBOS, led by Andy Hornby, was also playing financial games – placing ludicrous bets on the continued ascent of the property market that would ultimately lead to, in effect, the demise of the company, and to its government-sponsored bailout by rival Lloyds.
Some companies have sought an exit from Scotland, with the likes of Fidelity, the giant US fund manager, closing its new Edinburgh outpost after ploughing vast sums into its creation.
On top of all this, Scotland has recently had to deal with the controversial release of the convicted Lockerbie bomber on compassionate grounds. Talk of a trade payoff with Colonel Gaddafi has, in particular, incensed crucial US opinion.
And, two weeks ago, Scotland's woes were exacerbated when a survey of financial centres across the globe saw Edinburgh slip in importance.
According to the Global Financial Centres Index, Edinburgh is now the 27th most important financial centre in the world. It is down seven places, and has slipped behind capitals such as Dublin and offshore tax havens such as the Isle of Man and the Cayman Islands. Glasgow has also fallen in importance from 31st to 47th, behind Copenhagen and the Bahamas.
But despite the negative headlines, the poll shows that Edinburgh is still the seventh most important financial centre in Europe, ahead of cities such as Amsterdam, Munich and Stockholm. And in Edinburgh's traditional area of strength, asset and fund management, the Scottish capital ranks as the 15th most important fund-management centre across the globe.
According to the Investment Management Association (IMA), the UK trade association for fund managers, some 14 per cent of all of Britain's assets are managed out of Edinburgh.
"Scotland's financial services industry has, of course, felt the impact of the crisis," says Owen Kelly, the chief executive of Scottish Financial Enterprise (SFE), which promotes financial services in Scotland abroad. "But we will get through it. Scotland is recognised as an international financial services centre, and asset management is a particular strength."
The strength of Scotland's fund managers is likely to grow in the coming weeks and months. Giants such as Standard Life Investments and Scottish Widows have recently been flexing their muscles on the London stage.
Edinburgh's fund managers have been asked to stump up billions to support a glut of rights issues during 2009 from firms such as HSBC, which raised £12bn, to the likes of last week's rights issues by the property groups Redrow, Liberty and Barrett.
A visit to Edinburgh to garner support for a rights issue is likely to be on the agenda for many more corporates seeking to raise fresh capital.
Should the IPO market take off next year, as many are predicting, Edinburgh's fund managers will assume even greater importance. "Collectively, Edinburgh's fund managers have backed a hell of a lot of companies through rescue rights issues this year," says a leading fund manager. "Perhaps we will all be a little more discerning as to who we back in the coming months."
A delegation of Edinburgh-based fund managers recently visited London to vent their anger over fees pocketed by investment banks underwriting such rights issues. Some are even proposing to cut the banks out by working directly with the companies themselves. "The banks will tell you this is impossible, but it's not," says another manager based in the Scottish capital. "It's certainly something that we will continue to explore."
Aside from pure fund management, Scotland's reputation for asset servicing has also grown in recent years. Glasgow can boast JP Morgan, Morgan Stanley, BNP Paribas and Barclays Wealth. In Edinburgh, the US giants State Street and Citi enjoy a strong presence.
"We benefit from having a cluster of companies from one sector in one place, which helps attract talented people," says a spokesman for the SFE. "There are messages related to this that we can use in the year ahead. The long-term savings business is here to stay."
Jim Watson, director of financial services at Scottish Enterprise, which promotes businesses in Scotland, says: "Scotland continues to attract significant investment and remains internationally recognised as a top-class location." He adds: "Over the past year, this has been reinforced by investment from companies such as Tesco Personal Finance, which established its headquarters in Scotland, creating 200 jobs in Edinburgh and 800 in Glasgow."
Capturing Tesco Personal Finance, headed by the former HBOS executive, Benny Higgins, is no mean feat. The supermarket, which received a £5m grant from the Scottish authorities, is looking to build a full-service banking presence in the UK.
"We had to pay up for Tesco but ultimately it will prove to be a wise move in the longer term," said one MSP.
Besides Tesco, Scotland – Edinburgh in particular – is benefiting from the recession, with many financial-services exiles returning after stints in London and elsewhere. Many are using the recession to set up new, smaller, boutique-style operations in Edinburgh, in the hedge-fund world, for example.
One hedge-fund manager, who recently quit his role with a large London-based asset manager, said: "I'm setting up a base in Edinburgh because I want a better quality of life. Everything is here to set up the fund. The days of having to be in the Square Mile, Canary Wharf or Mayfair are over. There's this perception in London that Edinburgh has lost its place at the top table. I think people down south might need to rethink that."
Back in 2007, the Scottish Nationalist leader, Alex Salmond, infamously trumpeted that Scotland sat betwixt Ireland and Iceland in an "arc of prosperity" that would lay the foundations for future generations to come. Those foundations proved to be built on sand, but Scotland is fighting hard to restore its once unblemished reputation.
Gerry Grimstone, the chairman of Standard Life, says: "Scotland and Edinburgh remain at the heart of the UK's financial-services sector. Despite all the negative headlines, there's no doubt that customers still like a Scottish voice at the end of the phone. Scotland is and will continue to remain influential in financial services."Reuse content