Money, like death, travels in black. It is 5am in the City of London, and rivers of black cabs and the odd limousine swish along in the dark drizzle. Inside each car, bankers, dressed in regulation black suits and shoes, and carrsying black briefcases, sit punching their BlackBerrys. They are heading for the gilded palaces surrounding the Bank of England. It is an early start but it has to be. Already trillions of dollars, pounds, euros and yen are flowing silently across the trading screens. Missed minutes cost. The money on the move has special names, such as interest-rate swaps, no-credit defaults, exotic and vanilla options, warrants, bunds, bobls, shaz and goodness knows what else. It is shuffled between central, commercial and investment banks, vast companies, Russian oligarchs, Middle Eastern movers and sheikhers, Texas oilmen, Italian counts and secretive billionaires in Bermuda and the Cayman Islands. Almost every second of every day, London’s bankers make a million and lose a million, and when they do it affects us all.
“I should be at the office in time to catch the end of the Korean market,” says Mike Humphrey. The 28-year-old equity derivative index arbitrage trader at Mako Global is sitting in one of the dawn cabs. He trades in every market – markets that never close. “I’ll catch the end of Asia, European futures open at 8am, the US at 2.30pm our time, and then it’s round to Asia again. Our positions change every minute. The trick is to be on top of the market when it moves. It’s a bit like surfing a wave.”
Money, these days, is a virtual wave crashing over the City. Mere humans such as Humphrey cannot control it but they ride it, toy with its moods, soar to its peaks and plumb its depths. These men – and the odd woman – have been doing it for years, but recently something has changed. They have started doing it better than anybody else. Bankers, traders and research analysts, once famously dismissed as “teenage scribblers”, have become the master-mariners of the money wave, the heirs of Sir Francis Drake and Captain Cook. London is overtaking New York and is re-establishing itself as the world’s financial centre for the first time since the days of Empire. In the 21st century, London has become what Babylon, Samarkand, Constantinople, Marrakech and Timbuktu were to earlier civilisations – the city is the world’s main trading post.
“London is going from strength to strength and is outperforming the rest of the world,” says Olivier de Givenchy, head of JPMorgan Private Bank in London. The 43-year-old worked in finance in New York for 14 years before moving to London eight years ago. He now occupies a corner office on the 15th floor of Terry Farrell’s pink wedding cake, Alban Gate, where he manages billions of pounds for JPMorgan's richest private investors. London, he argues, is now more international than New York. It attracts the best financial talent and is overtaking New York in terms of the size of funds managed. Although official studies show that London has only 7% of
global funds under management, this does not take into account its importance as an offshore centre. “People say that the assets managed in London are smaller than those in New York, but I’m not so sure,” de Givenchy says. “There are billions of pounds held offshore that are perfectly legally managed here but never appear on any City balance sheets. The real figure for funds is many times larger than the official one and, I believe, is bigger than New York.”
What all agree on is that London is the location for 70% of the global secondary bond market and almost 50% of the derivatives market. London dominates foreign-exchange trading, and volumes here are growing at 39% a year, faster than New York. Almost 80% of all European hedge funds are managed here and the average UK fund made returns of over 16% last year: about twice the US average. Last year there were 419 new listings on the London stock exchange, including those on Aim (the Alternative Investments Market), against 36 on the New York exchange and 138 on the high-tech Nasdaq.
The value of European corporate takeovers, led by London, is on course to eclipse the US market this year for the first time in four years. With only a few weeks before the end of the year, European-targeted takeovers have totalled $1.15 trillion, just ahead of $1.14 trillion of deals involving US companies. Over the past 12 months, £20 billion of new capital has been raised by UK private-equity firms. Throw in the almost £11 billion worth of fees each year generated by City law firms – London is home to three of the four biggest commercial law firms in the world – and it’s easy to see why London has become the global capital of global capitals.
Looking out from de Givenchy’s eyrie, the dry statistics take a thrilling, concrete form. All around, the City is soaring like the stock market. There’s the Swiss Re “gherkin”, which will soon be jostling for space with Rem Koolhaas’s proposed shimmering glass HQ for Rothschild, the investment bank, the Heron Tower, Rafael Viñoly’s “walkie-talkie” tower, and the 72-storey “shard of glass” at London Bridge, which will be the tallest building in Europe. These monuments to prosperity will soon begin to rise, while City workers celebrate the best year they can remember. It has not been the most wildly exuberant 12 months, but nobody wants a return to the 1980s, when yuppies brayed as the Bolly sprayed, or to the 1990s, when the internet entrepreneurs dotconned their way through billions. This year, fixed-income and commodities markets are up. Equities are set to close the year on a six-year high. Mergers and acquisitions are booming. All this activity has created a record bonus-pot of
£9 billion – up 20% on last year – which will start finding its way into the Coutts accounts of bankers, lawyers and accountants this month.
The causes of London’s ascendancy are complex and include 9/11, Enron, cluster theory, time zones, the decline of the dollar and the rise of the pound, India, China, Russia, the Middle Eastern petrodollar boom, the legal system, private equity, hedge funds and many other local and global changes. But to understand the background you need to know about top hats and big, greasy bangers washed down with pints of bitter, about white port and long, boozy lunches. As recently as 30 years ago, the City was a very different place. It was a big club centred around Threadneedle Street and the Royal Exchange. Computers were nonexistent and brokers wrote down deals in longhand. The stock exchange had a real market floor using an antiquated system that divided brokers, who brought in the business and worked for fixed commission, from jobbers, some of whom wore silk top hats, who made the market in shares.
All took long lunches, usually plates of solid cholesterol in dark pubs. In this flushed, Dickensian world, men of insurance, law, accountancy, shipping, pork bellies, gold, copper and zinc returned, dazed, to their offices to lie down if the dreaded white port – a killer, never touch it – had been served with the coffee. One City veteran recalls seeing an overindulgent colleague arriving back at his office and stepping out of a taxi still holding a glass. “I thought then, ‘This has got to stop.’”
And it did. Twenty years ago, Margaret Thatcher, encouraged by her industry secretary, Cecil Parkinson, set off a bomb beneath the stock exchange. It was, in fact, called the Big Bang, and it involved the radical deregulation of the financial markets. It ended fixed-share commissions on trading shares, introduced corporate ownership of brokers and paved the way for screen-based trading. The effect was to destroy the closed trading shop and open the City’s doors to the world. It blew the Square Mile into the future – by simultaneously blasting it back into its past. The City came into being because of its laissez-faire attitude. Three hundred years ago, east Europeans, Germans, French and Chinese arrived and began trading everything from textiles to gold. They were attracted by London’s commercial and social freedoms.
“London has always been successful as a trading entrepot,” says Terry Smith, chief executive of Collins Stewart Tullett, one of the Square Mile’s leading trading houses. “At first, the City dealt in physical goods. Then, in the last 100 to 150 years, it changed to financial trading. It was a combination of factors but it all comes down to freedom. Lombard bankers, Huguenot weavers in Spitalfields and, later, Jewish émigrés, Americans and Japanese moved here because it was a place that offered tolerance and freedom.”
The market liberalisation created by the Big Bang attracted a new wave of immigrants – the world’s biggest financial-services groups. America’s Citigroup, Goldman Sachs, Merrill Lynch, Morgan Stanley and the Bank of America opened vast offices here. Deutsche Bank moved the global headquarters of its investment banking division from Frankfurt to London. These finance factories not only brought with them a tidal wave of much-needed new capital, they imported new working practices.
Lunch swiftly went from being something you did to the mark of a wimp. Days that used to start at 9.30am and finish at 4.30pm got longer and longer. British Rail was forced to bring forward the time of the first trains from Surrey to Waterloo. The fusty, old-school British firms who recruited Tim Nice-But-Dims from the Guards did not stand a chance against the bright young business school graduates, foreigners and – God forbid! – women. All but the most talented and hardest-working were forced out, mainly into estate agency, where they are now profiting handsomely from their successors.
Today, the City is a land of joggers training for triathlons, of Evian and of rushed lunches. Only the most derelict traders are out all night, playing FTSE with strippers. For a one-course lunch at the Don in St Swithins Lane with David Charters, former managing director of Deutsche Bank in London and unofficial City historian, the bill comes to a modest – by City standards – £49.67. Only half the tables are taken; only a handful are drinking wine. Nobody dares to plump for the Chevalier-Montrachet 1996 Grand Cru Etienne Sauzet. “It's all still alpha-male stuff, but instead of out-drinking the competition, it’s about out-thinking, out-trading and out-running the competition,” says Charters. “It’s all very boring and American.”
