Change is supposed to be as good as rest, but after The Pinch by David Willetts where one generation allegedly robbed its children of their financial future, a different book by Niall Ferguson High Financier about Siegmund Warburg throws up the same issue. The book dispels some old myths too and mentions the curious concept of haute banque. Most people have heard of couture or haute couture (tr. high sewing or high fashion) but haute banque or high banking is a new idea even to an old ACIB like me.
Early on in his career, Siegmund is trapped in a familial and cultural framework where the generation in control are doing things very much the old way in a world which has been changed forever by WW1. Much of the business conducted is unprofitable.
Most surprising is the author’s assertion that the huge reparations imposed on Germany by the victors were not the main reason for the economic collapse which paved the way for Hitler. Sadly, the National Socialist and Democtratic Workers Party was one of four organised anti-semitic groups and Hitler was by no means the first member. His party card had the number 555 but these numbers started at 500. Government weakness and poor economic policy were as much to blame for the collapse as reparations, where Warburg was involved in the discussions. Payments were eventually stopped but this does not seem to have helped. On one of his many visits to the UK he meets economist Keynes who laid the Bretton Woods framework for economic life post ww2, but the impression is not favourable.
Warburg must have been an interesting guy to work for – he believed strongly in graphology and always asked interviewees what they were reading as the answer had a large effect on their progress or success. Colleagues described working in the firm of S G Warburg as rather like being in a monastery in contrast to the more clubby atmosphere of merchant banking at the time.
Whereas high street or retail banks accept deposits and lend money, merchant banks generally advise on mergers & takeovers, flotations on the Stock Market and issue bonds for governments and big or multi-national companies. Companies that have floated on the Stock Market will still retain a merchant bank whose fees are never cheap.
Publicly quoted companies are by definition much more in the public eye and to the original owner’s irritation, often find a string of correspondence from their merchant bank raising one issue or another. Occasionally, entrepreneurs find this all too much and de-list their companies as Richard Branson did with his Virgin Group in 1988, after floating in 1986. Reporting requirements for the second and third level stock markets AIM and PLUS are less onerous, but then there are far fewer buyers for your shares.
Boundaries these days between different types of bank are blurred. High street banks also own merchant banks or investment banks as they are increasingly called. They have also developed into product-flogging institutions rather than their original purpose. The bank Kuhn Loeb mentioned in the book later merged with Lehman Brothers who were more or less the sacrificial lamb whose failure precipitated the credit crunch. Had Lehman Brothers had a retail network or ordinary people as customers, they would probably have survived or rather been rescued. Their core investment banking business was bought by Barclays in 2008.
With a title originating from Shakespeare’s The Tempest used in a futuristic novel by Aldous Huxley Brave New World is the heading on a message from a client joyous at escaping the City and looking forward to a well-planned retirement. Great when a plan comes together.
As if to prove a point, my unplanned participation in Mayor of London’s GoSkyRide is well, OK. 85,000 people did it this year, a healthy increase on the 65,000 who took part last year. Highlights were two imaginative dog owners who got their charges to to the pulling for them – three huskies in one case who seemed to be making easy weather of it and one smaller dog tugging an elderly lady on a tricylce. Victoria Embankment shows me only the second Sinclair C5 I have seen on a public road, being pedalled by a young guy – perhaps the battery was flat? The central part of the ride is very crowded with as much time being spent standing as cycling – much less crowded on the extra bits on each end of the route. If you can’t wait till next year, there are similar events are happening all over the country.
But on what was a cool day with not a goose pimple in sight, one has to admire these ladies
Thanks to Filip Matous of Stand Strong TV for his help with the video.