City & Business: Sir David Scholey vindicated

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There are two axioms to business reporting in Britain. Every story has a long tail. At some level, every story is connected to every other story.

It was therefore no surprise that in the same week Mercury Asset Management announced its sale to Merrill Lynch the name of Sir David Scholey should pop up. Sir David sits on the Bank of England's governing court. His term expires in February. It looks like he won't be reappointed and will be replaced by a man more to the taste of Gordon Brown.

This news does not give Sir David his due. It was he who oversaw the creation of the modern Warburg in 1984, merging the old merchant bank - and inventor of the eurobond - with the City jobber Ackroyd & Smithers and an equally pukka old-line City stockbroker.

It was Sir David - and his successor at the helm of Warburg, Lord Garmoyle - who were most personally embarrassed when Warburg was forced to find an outside buyer in 1994 after failing to hold its own against Wall Street's biggest and best.

It was Sir David who must have been mortified when Warburg's merger talks with Morgan Stanley collapsed, forcing the bank into the arms of Swiss Bank Corp for a comparatively piddling pounds 600m plus.

It is Sir David who must have been smiling last week when Mercury Asset Management, the investment management arm of Warburg, which floated off from the bank when the bank was taken over by SBC, announced that its shareholders would get the extremely handsome sum of pounds 3.1bn for turning over Mercury to Merrill Lynch.

"You have to understand how traumatic the Warburg sale was," says a source close to the bank. "Everyone inside knew how undervauled Warburg was in its sale to SBC. The Mercury people were determined never, ever to let what happened to Warburg happen to them."

Warburg was the great white hope of the City in the global contest for investment banking business. When Sir David and his colleagues went down, it took the wind out of the City. The sale of Mercury is really the last after-shock of that still under-appreciated event.

The Mercury sale will look well-timed, to say the least, if the Asian crisis now threatening the international financial system turns nasty. Still, at some point, the British managers of the remaining British-owned firms in the City must find new faith in their ability to stand up to the monsters of Wall Street.