UK Starting Business

In the book the Square Mile Plender and Wallace examine the critical changes that have taken place, assess the far-reaching effect on the financial institutions and draw conclusions for the future of the city itself.

They suggested that one of the reasons there were so many buyers of broking and jobbing firms was that the buyers were taking out an option, or making a down payment, on the right to whatever was likely to be profitable in the new deregulated climate.

Most of the buyers’ thinking seems defensive: if one bank bought a broker or jobber, had to ask whether they could afford to be without some players in the market had clearly defined objectives. These included the acquisition of experienced management or a strong position in a given area of the market, others swept along without making realistic appraisals of the risks involved.

Warburg’s competitors argued that its comprehensive merger of a merchant bank, two brokers and a jobber involved an investment in good will well in excess of £100 million and amounted to what the Americans refer to as ‘betting the bank’ - that is, risking the future of the whole business on one throw of the dice.

Neither the government nor the Bank of England publicly admits to having encouraged individual firms towards particular parents. The official line of the Government was that they wishes to see an established a number of strong British investment houses capable of taking on the international competition.

Stockbrokers and stock-jobbers fell into the arms of every conceivable kind of financial, British and foreign, ranging from clearing banks to insurance.

There came a point in 1984 when announcements about pending alliances were being put out almost by the week. Events started to impose logic of their own. Simon and Coates, a medium-sized firm well-known for its equity research and its business in the Unlisted Securities market originally had not wished to tie up with anyone.

At the start they considered staying away from the action and even contemplated going public on the stick market to bring in new capital. But as the number of merger announcements multiplied and the revolution became all-embracing, the independence option simply became untenable.

Michael Prog, one the city’s most prominent analysts argued that there was no satisfactory answer to the question of how Simon and Coate would perform if its peers were all part of some mega corporation backed by billions of dollars.

The last independent broker might stand to make a lot of money he said but that was not a strategy on which the company could afford to gamble.

Even some of the biggest firms which had hoped to remain independent, such as Philip and Drew, came reluctantly to the same conclusion and joined the rush.

The outcome was that every major Stock Exchange firm had been accounted for bar one: Cazenove. Such was the firm’s strength in corporate finance; where its ability to distribute shares in even the most indigestible issue was legendary, that splendid isolation remained an option that the firm could afford to keep open.

The hunt for other people’s customers will be very competitive, where the boundary between city and non-city will become more burred. Recognising the need to recoup their heavy costs, the favoured approach was to begin pumping more products through their branch networks.

It is anticipated that the dominant species will inevitably prove to be the international conglomerate no longer thinking of itself as just a bank but as a global holding company covering the spectrum of markets in financial services.

Plender and Wallace, P. (1985) The Square Mile, Century Publishing, London.