Is the Square Mile kaput, game over, finished? That is the question raised in the very good series of articles entitled “The City in Crisis” running all this week in the business section of The Independent.
To answer the question, start first by examining what is required to be a world-class financial centre. Do we still have the necessary qualities? One of the most important qualities is that the locals have some sort of aptitude for trading.
If I may indulge in some wild generalisations, we have it, the Dutch, too, but not the French or the Germans. Perhaps this is because trading is essentially a pragmatic exercise and not one based on over-arching principles.
To give an example of British prowess in this regard, most advanced prosperous countries have perfectly good firms of fine art auctioneers, but it is only we who have established our two best examples, Sotheby’s and Christie’s, right round the world. The others have stayed at home. For Napoleon, we were famously the “nation of shopkeepers”. And when Charles de Gaulle rejected Britain’s application to join the Common Market, forerunner of the European Union, in 1963, he said: “[England] is maritime, she is linked through her exchanges, her markets, her supply lines to the most diverse and often the most distant countries; she pursues essentially industrial and commercial activities”.
I referred above to the “locals” because I did not wish to imply that having an aptitude for trading was a uniquely British characteristic. Many of the great City firms that I knew as a young financial journalist, such as Rothschilds, Warburgs, Kleinwort Benson, and Schroders, were evidently not English by origin judging by their names.
When Warburgs was established in 1947, the partners spoke German when they were on their own. And Siegmund Warburg’s chief colleague, Henry Grunfeld, had the most beguiling German accent I have ever heard. I can recall it to this day. No, an aptitude for trading seems to be a London characteristic rather than a British one.
This still seems to be intact. If anything, the cosmopolitan aspect of the City has intensified in recent years. But at the same time, foreign ownership of City firms has vastly increased.
There is also a second valuable quality that a world financial centre must have to survive. It must offer a very wide range of financial services. London has long had this quality – chartering freight carriers, buying specialised insurance from Lloyds, trading in commodities, number one in foreign exchange, the gold fixing at Rothschilds every morning that determines the price of the metal, the famous and now discredited Libor, the so-called London Inter Bank Offered Rate, that establishes the reference point for short-term interest rates right round the world. All this, too, appears intact.
Mention of Libor, however, brings us to a third necessary characteristic, which is trust. Everybody used to know the motto of the London Stock Exchange, “Dictum Meum Pactum”, or “My word is my bond”. It meant that if you shook hands on a deal, that was it, the equivalent of it being signed and sealed. You didn’t even have to write down the terms. We’d agreed hadn’t we? I am not sure whether this notion even exists any longer in the City of London. Wasn’t that part of the old City, long gone, when business was conducted in partners’ panelled rooms and brokers dealing in government bonds strode onto the floor of the Stock Exchange in silk hats? Yes and no. It was part of the old City, but its absence will prevent the London market from regaining its old eminence.
If trust did linger on in the over-heated 2000s, I am afraid the Libor scandal, after a series of earlier blows, blew that notion straight out of the water. Banks had been falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more credit-worthy than they were.
You could say that the City of London cannot be blamed exclusively for the Libor fraud. It was a global phenomenon. While that is true, I don’t take any comfort from it. For at the same that the Libor scam was going on, British banks were systematically miss-selling financial products to their retail customers, people like you and me. The enormous amount of £10 billion of personal protection insurance has been wrongly sold in recent years.
It’s simple really. You cannot be trusted abroad if you are not trusted at home. The financial institutions must first rebuild their reputation with their British customers. And this in turn requires firm action. Every financial institution should establish a code of conduct for its employees that becomes part of their contracts of employment and can be enforced as such. And one of the most important terms of this document would be that customers are not to be thought of as sales targets but as people with whom the institution aims to have a mutually profitable relationship. If there were an improvement, it would permeate everything and the wider world would soon get to know about it.