On this day 30 years ago, the closeted ‘clubby’ world of the City was subject to a positive tsunami of new regulatory changes, referred to as the “Big Bang”, all with the aim of forcing the London Stock Exchange (LSE) to clean up its act. But did it?
What first led to the Big Bang was that the LSE was really an almost regulation free (when compared to today) cartel, fixing commissions and linking this with trading floor admission complexities that would do the Royal & Ancient some credit.
It was a posh, gentlemen’s club version of the old London markets of Smithfield or Billingsgate, but with manners.
We saw a closed shop for the benefit of brokers and stock-jobbers all safely contained in their pin striped, bowler hatted bunker which, in the coming brave new world of class and professional barrier deconstruction, would not be seen as acceptable any more.
It seems Gekko has proved himself a master philosopher in this case: the banks, post Big Bang, did take our money and were not responsible for what they did with it,It’s certainly true that the new regulatory regime led to visible changes in the behaviour and even the appearance of those working in the City.
The late starts, long lunches and early finishes were no longer fashionable. Instead, everybody started dressing like Gordon Gekko in a US-stylisation of business practices.
Aesthetics aside, along with the skyscrapers of Canary Wharf, the Big Bang also brought considerable diversity introduced by foreign banks.
But the downside of all this was the rise of a certain killer instinct that would mean even your friends and colleagues were not guaranteed a particular benefit without a cost attached.
According to a release of UK Government papers in 2014, former Prime Minister Margaret Thatcher was warned pre-Big Bang that deregulation would lead to a new culture of ‘unscrupulous practices in the City’.
Her Cabinet Secretary, Sir Robert Armstrong, said that a “‘bubble was being created that would be pricked” and that “corners were being cut and money made in ways that are at least bordering on the unscrupulous”.
It turned out there was more than a little bit of truth in this warning. Signs of a different type of troubling behaviour from the new and improved City arguably first arose in the flotations of once staid mutual institutions such as the Halifax and Abbey National building societies.
These flotations created nothing short of a feeding frenzy amongst merchant banks like SG Warburg, Hill Samuel and Morgan Grenfell, while US investment banks like Goldman and Solomon Brothers were also eager to get involved, having been excluded from the old City club.
The biggest success story of the Big Bang was Warburg’s swallowing up of Ackroyd and Smithers, Rowe & Pitman and Mullens & Co who in turn were swallowed whole by UBS, then UBS/Phillips and the Drew/Swiss Bank empire.
If it all went wrong, the bank carried the losses until, as we saw with the spectacular 2007 banking collapse, the taxpayer did if nobody else seemed interested. Surely this would never have happened in the world of ‘Gentlemen and Players’?
The new world of deregulation is now seen in many quarters as reckless abandon, using somebody else’s money to trade on your own account for the benefit of the Banks who employed you and more importantly yourself.
The largest banking fine in history levied this year has shown only too clearly that for rogue traders, in Gordon Gekko speak: “There is a very big difference between rehabilitation and repentance” and, as far as casino banking and regulation is concerned, there is some way to go on both counts.
And so it seems Gekko has proved himself a master philosopher in this case: the banks, post Big Bang, did take our money and were not responsible for what they did with it.
The sea of change of deregulation saw the disappearance of the City’s traditional and cautious values, using your word as your bond along with a good bit of trust and a quick nod, wink or tip added for good measure.
But without condoning this behaviour (I wouldn’t feel too sorry for the old City breed either; the majority retired immediately having “trousered” a lot of money) admittedly, upon reflection, the financial services world did seem a nicer, gentler place in the years prior to the Big Bang.
Derek Bradley is founder and chief executive of PanaceaAdviser
