Financial overhaul brings London back as the capital of capitalism
In a much shorter time than even the optimists had expected, London is reasserting itself as a world financial center. That's not all. Present trends indicate that London is likely to end up becoming the world financial capital that it was until two world wars, the loss of overseas empire, and a generation of socialism devastated it.
``It's a very good picture,'' says Allen Budd, an economics professor at the London Business School. ``It looks as though there could be 30 good years after 30 bad ones.''
London has long been world headquarters for insurance (Lloyd's), currency trading, Eurobonds, and a number of commodities such as tin, rubber, and gold. Now these are especially heady times for banking and securities trading:
Liberal British banking laws are attracting droves of American, Japanese, and other foreign banks. They are setting up big operations in London and dealing worldwide in all manner of financial products. American and Japanese attempts to alter banking laws to negate this British advantage have met with continued resistance.
A radically reorganized stock market, using unprecedented computerization, has thrust the City of London (its Wall Street) into the forefront of efficient, competitive international markets. The openness and accessibility of the system to all financial houses is proving enormously popular.
Meanwhile, the natural advantages of London remain - its position at the center of time zones, access to continental Europe, English-language and Commonwealth ties, and firmly entrenched free-enterprise government.
The biggest building boom since World War II is transforming the low-rise square mile of the City. It will soon turn the nearby Docklands area into a financial Oz. Just one part of the building boom, Canary Wharf on the Isle of Dogs, is the biggest planned office development in the world.
A financial boom after `the Bang'
A year ago, just before the Oct. 1 ``Big Bang'' of financial deregulation, Stephen Raven, then with S.G. Warburg and now with County Natwest, was optimistic about London's financial prospects. Now he is positively bullish. So are other economists, government officials, and financial specialists.
It's not only deregulation that has caused all this; the London market has consciously eschewed parochialism - once epitomized by clubby ``old boys'' in bowlers interested only in doing business with one another. Now one-third of the members of London's stock exchange are foreign. American, Japanese, Germans, and self-made Britons are equal players with the old boys.
``Big Bang was fine in bringing us up to speed,'' Mr. Raven says. ``But what is perhaps not as appreciated is that as from Jan. 1 the London Stock Exchange formed itself into the International Stock Exchange. All the major players in the world are becoming part of this.... We're going to pinch quite a lot of business from around the world.''
He adds that looking at the growing turnover of various foreign stocks, ``we'll go into the No. 1 slot without doubt.''
London as a resurgent capital of capitalism has not gone unnoticed nor uncriticized by Britain's left. Thus the Conservative Party's reelection last month came as a relief to the City.
Still, even many Tories have expressed dismay with the wholly unaccustomed high salaries and conspicuous consumption of a new breed of yuppie financiers in the City. Everyone seems to cringe when hotshot young brokers are seen tooling around in shiny new Porsches or BMWs.
A popular new play here, ``Serious Money,'' lambastes City money-grubbing and naked ambition. Interestingly, though, investment bankers have gone to the play in droves, often reserving the whole theater for corporate parties. Whether the play chastises or glorifies is uncertain.
Britain's insider-trading crackdown, which has focused on Geoffrey Collier, a young star with Morgan Grenfell, has raised questions about ethics in a country whose stock market slogan is ``my word is my bond.'' Government officials promise that the anti-insider campaign will continue. They point out that the busts should have the beneficial effect of making would-be criminals think twice.
Perhaps the biggest reason for the continuing Big Bang boom is a revolutionary new computer system operated by the stock exchange. The Stock Exchange Automated Quotations (SEAQ, pronounced ``see-ack'') outstrips anything American or Japanese exchanges have devised. It is roughly akin to the fast-growing NASDAQ in the US, which lists thousands of smaller over-the-counter stocks. SEAQ lists the big and small.
SEAQing the world
After a shaky start last October, SEAQ has proved to be a great success. In fact, it rapidly caused the once-bustling London Stock Exchange's trading floor to shut down, since computers were doing the work more quickly and efficiently. Centuries of face-to-face trading vanished overnight.
``Six months ago, these guys were trading face to face,'' says Royston Keeble, head of equity trading at Morgan Grenfell. His troops now pilot workstations equipped with video terminals.
``You miss the hubbub, the personalities, but you can be more calculating, weigh the pros and cons, and see what everybody is offering. You miss the camaraderie and freedom. Nobody likes to sit at a desk. Still, it's the way of the world. And profitability has certainly gone up.''
On SEAQ, the buy and sell prices and the volumes in which trades can be executed are offered by ``marketmaker'' securities firms. There is no mystery and very little personal dealing. It is what economist Zannis Res of the City Business School calls ``an open market, with limited barriers to entry.''
SEAQ is rapidly acquiring international business as well. Mr. Raven, who is vice-chairman of the stock exchange's Foreign Equity Committee, says the attractiveness of SEAQ International is putting it in a position to do more share trading in certain stocks than is done on their home markets.
Since big financial houses do business all over the globe, it's easier and less expensive for, say, a Japanese firm to execute trades in IBM stock, for instance, via the London market than through the New York Stock Exchange. The open bidding of SEAQ's marketmaker system is more appealing to many big trading firms than the limited disclosure of the Big Board's ``specialist'' system.
A veritable global market
At present, some 200 American stocks are listed on SEAQ, along with Dutch, French, West German, Japanese, Scandinavian, South African, Canadian, and Hong Kong issues.
Already 15 percent of French volume takes place in London. Dutch shares such as KLM, Royal Dutch, and Philips see 20 to 40 percent of their trading volume take place via SEAQ International.
``It's a great worry to the French that we have developed this way, and of great concern to Amsterdam,'' Raven observes. `` But we're not trying to squeeze anybody out of existence.
``All this,'' he adds, shaking his head, ``has happened in a matter of months. I don't think anybody realized this, but we have been sitting on a securities gold mine.''
An official with the Bank of England, Britain's central bank and the body in charge of keeping the financial system here sound, says simply that ``the whole thing has changed.''
She adds,``The City went from a cartel-oriented market to a free one, opening up to competition in an extreme fashion.''
Possibilities for generational change
Professor Res of the City Business School figures that US and Japanese resistance to a similar financial revolution could give Britain ``10 years' free ride.''
The British strategy under Prime Minister Margaret Thatcher, of course, is to push private initiative and make Britain competitive again. The financial push is one leg of this. Privatization and entrepreneurship are others.
Having worked in Britain for 15 years, the free-market-oriented Res feels a historic change has occurred here.
``As long as the benefits accrue,'' Res says of this economic strategy, ``the possibilities are there for generational change.'' He adds that London's City now has ``the pole position in Europe and maybe the leading position in the world.''