AFTER OVER 30 years at the sharp end of the City and a full three months of what was supposed to be well-earned retirement, I now find myself as head of strategy for a start-up brokerage based in Portugal’s lovely Algarve.
Some readers may recall my report from here last May titled “Fun in the Sun” which resulted from a week’s visit to see the boys who are now my new colleagues. The idea of working from a low-tax, low-cost and sunny environment made more than just a little sense, although the thought of joining did not at the time cross my mind.
With the benefit of modern communications systems, it doesn’t really matter where one sits and one can fly from here to London for not a lot more than it costs to do the same from Edinburgh – and it is surely cheaper than taking a train from Manchester.
This is not the first start-up I’ve been involved with but, given the shiny new regulatory environment, it is far and away the most difficult.
Since the day the first Italians set up their bench, their “panca”, in order to do exchange and discount trade people working for one firm have jumped ship and set up their own businesses.
Renewal has always come from the bottom. Senior people, fed up with corporate structures and strictures, have gone off and set up flexible and nimble boutique businesses. The City was once replete with equity shops offering independent research in exchange for business and low-cost bond market producers who had in many cases forgotten more about bonds than most market-makers would ever know and who were, in advising, not restrained by positions held by the in-house traders. In other words, there were the big guys and there were the little guys and there was a role for all of them.
We were brought up to believe that “scientia potentia est” – that knowledge is power. Now it appears to be much more a case of “metu primo” – fear first.
I’m not going to go into one of my regular diatribes about how compliance killed the trading star, although now we’re trying to get the business up and running, the number of hoops which need to be jumped through is increasing at the same rate at which the diameter of the hoops is getting smaller.
SOMEWHAT BY CHANCE I ended up talking last week to a former colleague who has risen through the ranks and who now sits on the executive committee of the non-ring-fenced part of a London bank. In the old days, he and I would have chatted about business we’re doing, possibilities we’re pursuing and whether we prefer our 450 horse power to come from the back or the front of a car.
Instead he spent the best part of 20 minutes talking about how the experience and knowledge of the grey-haired bankers on the committee is wasted, because, he said, no more than 20% of the time at their meetings is spent talking about business – with the rest dedicated to making sure none of them go to jail for not having done something about something they didn’t even know was being done.
We spoke about the FCA’s rather harsh and dictatorial senior managers regime with the concomitant 10-year claw-back and wondered, idly, what clever people are doing in order not to get cleaned out many years after their retirement.
My man confirmed that protecting one’s personal wealth was something which needed to be seriously considered and we joked about setting up a Cayman Island company. He, not I, suggested “doing a Bernie Ecclestone” and putting everything in the wife’s name but having been through the divorce thing I humbly advised against that course of action.
I suppose until the claw-back has been tested in the courts, it’s of little meaning. Nevertheless, the authorities should be ashamed of themselves for creating an environment in which such a significant amount of senior management time and experience is being wasted on pleasing the box-tickers who, and this we all agree on, still haven’t really understood the difference between equity and debt markets.
THE CONVERSATION THEN took a direction – one I did not expect. My chum, never known to have turned down a generous pay cheque, began to talk about the correct price for the risk of being a senior manager under the new regime. Although pay scales are generally under pressure throughout the industry, the long-dated risk that officers affected by the regime are under might need to be compensated.
So how are those caught by the senior managers regime supposed to value the risk they are exposed to? More to the point, how can we be seriously talking, even hypothetically, about having to remunerate the top management of our banks for the personal risk they are taking, rather than for the returns they are generating for their shareholders?
OUR LITTLE SHOP here in Vila Sol might not have a lot of balance sheet and it might not have a lot of people working for it, but it does sport more experience and knowledge per square foot than most bulge-bracket trading floors.
And yet we find it hard to gain acceptance as a counterparty at insurance companies and pension funds where operatives hold a fiduciary responsibility for the money of others and where what we can add should be welcomed and not shunned.
The principle of delivery versus payment was introduced in order to permit players of all sizes to deal with each other as equals and to expose either side to no more than market risk. The number of failures of this system is – unless I include one of Wall Street’s finest (Lehman Brothers) and a number of intentional frauds – pretty negligible.
Knowledge is power … my left foot!