It's amazing what a couple of weeks off can do for you, even if you spent them changing nappies. Gordon Brown arrived back at the Treasury on Tuesday full of grand ideas and thwarted ambition. And while this had Westminster chattering of the final showdown with Tony Blair, a few miles east they are getting nervous.
The City likes the Chancellor. He has pretty much honoured the pledges made during the famous prawn cocktail offensive of the mid-1990s - to stay within "prudent" fiscal boundaries and champion stability at all costs. In Labour's early years, when it might have been tempted to be expansive, the Treasury kept an iron grip on the spending departments. The traditional antipathy between Labour chancellors and the money men turned almost into a love affair.
But then Mr Brown got to believing the time had come for him to be Prime Minister, and started trying to dictate government policy from 11 Downing Street. You can trace this back to the 2001 Budget, when he was happy to direct the high revenues he was getting from City bonuses and IT profits towards boosting education and health spending. The City was nervous, but trusted him on past form. Then came the 2002 Budget, when he pressured the Treasury into wildly optimistic growth forecasts and continued spending as if the "fat tax" revenues of the late 1990s were still rolling in. The City was scathing, but reasoned that if you were in a recession, higher public spending might just be a way of ameliorating its effects. And anyway, prudence would prevail come the 2003 Budget.
It didn't. As a result we are heading for net borrowing of more than £30bn this year, some £6bn worse than Mr Brown predicted. When I've been talking to economists and bankers recently, praise for the Chancellor has been sparing.
That was until last week, when the politicos started suggesting the Blair-Brown tension was in danger of becoming a schism. The belief is Mr Brown is unsackable. But if chancellors and prime ministers fall out, it is rarely the chancellor who wins. In the words of King Kaiser, in the comedy My Favourite Year: "He's irreplaceable ... Replace him."
If we are in a fight to the death, how long will the battle take? The markets hate uncertainty, and if this shoot-out is more Sergio Leone than John Ford, the depressive effect could be profound.
Assuming Mr Brown is out before the next Budget and, more crucially, the next spending round, the City will get particularly nervous. His successor - Patricia Hewitt or Alistair Darling or John Reid or Charles Clarke, you place your bets - will not have his presence, intellectual domination or sheer bloody-mindedness. Will former spending ministers let the spending departments off the leash? And with Mr Blair's obvious successor neutralised, will any of them be as willing as Mr Brown was to risk unpopularity in order to defend public finances?
The other scenario is that he wins out. The City would clearly prefer this but is still rather unsure. The two years of Mr Brown as a pretender to the throne have not enhanced his reputation for frugality. Would the Iron Chancellor turn into the Iron Prime Minister? Not on your nelly. The days of deficit are upon us.
After Big Bang, back in 1986, most of the big City merchant banks decided the future was in being financial supermarkets. However, SG Warburg, Kleinwort Benson and Morgan Grenfell learnt the hard way that buying stockbrokers was a fast route to slow ruination.
The ones that resisted - NM Rothschild, Schroders and Lazards - thrived. A few years ago, Rothschild struck a canny deal with ABN Amro giving it exposure to the capital markets without having to put its own balance sheet on the line. More recently, Schroders was sold to Citigroup for a mouthwatering sum so the US bank could bolt it on to its own capital market business. And now Lazards is about to splash out north of £50m on Panmure Gordon, a broker with an impressive past.
If Lazards wants a useful but controlled exposure to the capital markets, this could be a good deal. But the bank is run these days by "Bid 'em up" Bruce Wasserstein, a deal maker with an ambition almost as large as his ego. He will not want to play second fiddle to the likes of Merrill Lynch.
The farm will soon be gambled. I give Lazards five more years as an independent company.Reuse content