[Editor’s note — “The City” is London’s financial district, Britain’s equivalent of Wall Street. In 1986, West Germany’s counterpart was in Frankfurt, on the US-friendly side of the Iron Curtain.]
The Observer reports: Back in 1986, as the City broker L Messel was being acquired by a fast-expanding investment bank called Lehman Brothers, a young, ambitious financier was parachuted into London from Wall Street and put in charge of European expansion.
That man was Dick Fuld, who later achieved notoriety as the captain of the investment bank as it went down with all hands, but even in the mid 1980s he was demonstrating a deftness of touch.
At an early meeting, Messel executives told their new thrusting boss that if he was serious about achieving his aggressive growth plans, they really needed to supplement the London office with another in Frankfurt.
“No way,” fired back the earnest American. “We’re never going behind the iron curtain!”
Many of the Messel staff present have dined out on that one ever since, but it is only one of many anecdotes about the events leading up to what will forever be known in the City as the Big Bang.
This month marks the 25th anniversary of that radical Thatcherite reshaping of the City, a period in which the Americans arrived to snap up ancient City institutions for huge premiums, leading to the clubby atmosphere of the Square Mile being replaced with the rapacious, bonus-grabbing culture of the investment bank.
“Nobody could quite believe how much the Americans wanted to pay,” recalls Adam Pollock, now head of corporate broking at Panmure Gordon, then a banker at Lazard. “It brought with it a renewed vigour and enthusiasm, with everybody working a lot harder. But that ended some traditions. It used to be de rigueur to have a big lunch.”
The Big Bang was partly about modernisation – ensuring that the City used up-to-date technology such as computers. But it also dismantled the barriers between the separate, narrowly focused firms in the City, the stockbrokers, advisers and “jobbers” who created the markets in shares. Afterwards, all these services could exist under one roof and ultimately, some would argue, it led to the catastrophe of the credit crunch, whose effects the UK is still living through. “Big Bang was the start of investment banking in the UK,” says Tony Dolphin, chief economist at the Institute for Public Policy Research.
With the Glass-Steagall Act, separating investment banking and deposit-taking, still in force in the US, Britain’s laxer regime brought an influx of US firms, with their chinos, booze-free lunch-breaks and bumper bonuses, helping to bust open the old City cliques.
With them, argues City veteran Tony Greenham of the New Economics Foundation thinktank, came deep-seated conflicts of interest.
“On the plus side, the Americans brought a more meritocratic culture,” he says. “But they also brought the idea that, instead of being client-based, it was a transaction-based business. You change from long-termism to short-termism, from looking after the long-term interests of your client to making the biggest buck out of today’s deal.”