COMMENT:Meeting the OFT challenge
Saturday 25 March 1995
Nine years after the City's Big Bang, a second wave of mergers and takeovers now looks increasingly on the cards. The culprit this time, as it was in 1986, is the Office of Fair Trading and its outgoing director-general Sir Bryan Carsberg. While it may not have been the Office of Fair Trading's main intention to reshape the City when it issued a raft of proposals to reform market practices, that may well be the outcome.
If the OFT's proposed changes to underwriting and market makers' privileges are implemented, even in part, they will add significantly to the already considerable pressures for concentration in the securities business. Should the generous fees for issue underwriting be cut, as the OFT insists must happen, then another nice little earner for the merchant banks is going to be squeezed. The prospect explains their distinct lack of enthusiasm for any tampering with such time-honoured customs. The same goes for the call to remove certain privileges for market makers, notably the ability to hide big trades.
The OFT argues, quite justifiably, that these privileges are bringing market makers unfair profits, distorting the market. British investment houses are fighting tooth and nail to protect their profits and privileges. But it looks a losing cause.
The OFT challenges come close on the heels of the Barings crisis. One lesson of that affair is that independent merchant banks are having to take on more risk to earn a living in a world where you need capital as well as brains and connections to survive. The lesson has not been lost on the remaining independent British investment banks.
Already the risk premium they must pay to attract funds has risen; so they are all paying more for their money. That hurts profits. The reform threats by the OFT add to an already heavy competition burden. All investment houses are feeling the pain of the excessive cost build-up in the past few years' bull markets. They earn next to nothing in this year's financial doldrums.
The writing is on the wall for another wave of restructuring in London, and houses like Cazenoves, Smith New Court, Schroders, Flemings, Rothschilds and Hambros, to name but the obvious few, are unlikely to emerge unchanged. The most enthusiastic predators are mostly continentals, such as ABN Amro, Swiss Bank Corporation and Paribas. The City is realising its ambition of becoming Europe's financial centre, but not quite in the way it intended.
- 1 Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 The secret report that helps Israel hide facts
- 4 Israel's propaganda machine is finally starting to misfire
- 5 'Hello mum, this is going to be hard for you to read ...'
Sally Farmiloe dead: Howards' Way actress, and former mistress of Jeffrey Archer, dies aged 60
Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
Pope Francis issues top 10 tips for happiness – including don’t try to convert other people
Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
Justin Bieber posts Instagram photo of Orlando Bloom crying after Ibiza fight 'over Miranda Kerr'
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...