Tag: Stockbroking

The umbrella

He was giving me the chance to jump before I was pushed…

It took me until I was 23 to realise that getting wet was avoidable. I bought a cheap folding umbrella in a hardware store on the Kilburn High Road. I couldn’t have known the effect it would have on my career and my life.

It had not been a good year. Accountancy, my career choice on leaving university was not going well. I didn’t enjoy auditing, which made up ninety percent of the work: demoralised and unmotivated, I was struggling with the professional exams. I failed my driving test for the fourth time. I was sharing a damp and cold flat in Kilburn, playing gooseberry – third wheel these days – to a young couple very much in love. Their comfort and happiness contrasted with my lonely malaise.

In November I had a halfhearted second effort at PE1, the first and easier part of the accountancy exams. The year ended on a suitably miserable note with the murder of John Lennon, a brutal full stop marking the end of my youth, as it did for a generation.

1981 did not show any immediate improvement. In January, I learned I had, as expected, failed my PE1. I was called into an interview with a partner in the firm. It seemed Deloitte Haskins + Sells could no longer overlook my technical differences with, er, the examiners, and he asked me where I thought my future lay. He was giving me the chance to jump before I was pushed, and I took my cue. “Not here” I replied. I was allowed to continue working there for a few months while I looked for a new employer.

There followed a discouraging parade of interviews: some jobs sounded interesting, but not the ones I was offered. I was pointed towards vacancies as bookkeepers or junior accountants, where it was obvious that without any qualification, responsibility and reward would be modest.

On my rounds I visited a slightly down-at-heel employment agency on Liverpool Street. A young woman there scanned my CV – a basic thing in those days – and said there was a vacancy for a statistical assistant at a small firm of stockbrokers. It didn’t sound glamorous, but what could I expect? So I said yes please, I’d like to go for an interview.

So one dark morning in May I set out on the half mile from the audit I was currently plodding through. Rain was pelting down, but luckily I had remembered my cheap umbrella. One of the ribs was buckled and it was a crumpled mess. But it just about did its job, and I managed to reach Gilbert Eliott’s offices looking more or less employable.

I was ushered in to the small room which served as the stats department, where I was interviewed by a formal and slightly grumpy man in his early sixties. He said his name was Denis, but everyone called him Dick. I wondered why anyone would go out of their way to be called Dick.

He told me about the job: I would be working just with him in that small room providing statistics and publications for the fixed interest department. He tried me with a few questions: I remember giving him a passable definition of a debenture.

When I reported back to the agency, I was ambivalent. I liked the idea of working for a firm of stockbrokers – stocks and shares had fascinated me since my school days – but the work looked deadly dull, and the thought of spending five days a week cooped up in a small office with this fellow and his cigarette smoke wasn’t enticing.

The agency woman pointed out that once I had my foot in the door, I might get the chance in due course to move over to the broking side. I was sceptical – that stats room had the look of a prison about it, and of course the agency were keen to take their commission – but could nonetheless see the possibilities. So when, a few days later, they told me I’d been offered the job, I decided to take it.

From that point, things started to look up. The young couple bought a flat and moved out: my rent wasn’t high, so I didn’t look for a new tenant, but enjoyed coming and going as I pleased. After a few months of work, I had established a steady if low key working relationship with Dick, and had my feet firmly under the desk.

I had taken a cut in pay compared to Deloittes, but Gilbert Eliott made up the difference with a bonus equivalent to about a month’s salary. In those innocent days of relatively affordable property, I had saved enough for the deposit on a flat. So with the help of a mortgage from the Abbey National and a contribution from my parents for furniture, I moved into a two-bedroom flat in Tottenham at the end of the year. It wasn’t grand, but it was modern, neat, warm and dry: and the area wasn’t smart, but it was decent, and the commute to the City was tolerable.

The following year the agency lady was proved right. I was asked to join the broking desk, initially to help out with the admin, but with a view to training as a broker. It took a while to get going, but within a couple of years I had become established on the desk. My personal confidence grew with my career, and a few years later I proposed to a wonderful girl called Debbie. And it’s nice to think that that umbrella led me to a vow.

Votes for Members

Imagine what the press would make of such behaviour in a trade union strike ballot.

Sir Nicholas Goodison

In early 1985, change was in the air for the London Stock Exchange (LSE). For decades stockbrokers had charged a fixed scale of minimum commission, and the distinction between stockjobbers, who traded stock on their own account, and stockbrokers, who could act only as agents, had been rigidly enforced.

This system had proved robust, and had certain advantages. It aligned the brokers’ and clients’ interests – as there was no discussion about commission rates, brokers were incentivised to provide the best research and negotiate the best dealing price for their clients. As for the jobbers, being constituted as partnerships or unlimited liability companies, if they failed the owners were personally liable. As a result, risk was very carefully managed, and failures were rare.

But this modest appetite for risk was consigning the City of London to the second division of world equity markets. The Thatcher government had ambitions for London as a global financial centre: also, and not unreasonably, saw the minimum commission scale as a cosy cartel.

Cecil Parkinson, the Trade and Industry Secretary, had Margaret Thatcher’s backing to shake up the LSE. In 1983 he negotiated rule changes with Chairman Nicholas Goodison: the carrot was the continued growth of the LSE, and of London as a financial centre. The stick was the threat of being taken to the Restrictive Practices Court over commission rules.

By 1985, the LSE was ready to put forward detailed proposals to its members. The most important was that Member Firms (whether brokers or jobbers) could now be owned by a single non-member (in practice, a limited company). This would pave the way for the partners who owned the broking and jobbing firms to sell their firms to the big banks – mostly American or British – who wanted a foothold in the growing London market. Other changes included permitting member firms to take positions in stock, and abolishing the fixed commission scale. These changes, which became known as “Big Bang” would also introduce computerised, screen based trading, and soon lead to the end of the Stock Exchange trading floor.

***************

By now, my career was starting to take off. I had been at Gilbert Eliott (a broking firm) for over three years: I had passed the four parts of the LSE membership examination, and was bringing in new business for the Preference desk. It was becoming clear that members would be offered shares in exchange for their ownership of the LSE, and that these shares would be valuable: besides the value of the Exchange as a business, the LSE owned the Stock Exchange Tower at 125 Old Broad Street, 26 floors of prime London property.

The Stock Exchange Tower pictured from the National Westminster Tower (1983) (Photo: Richard Hoare)

My boss in the Preference Department was Robert Wild, a shrewd and patient mentor. Spotting an opportunity to provide a benefit to employees at no cost to the firm, he put me and our market dealer Roger forward to become Members. I was quite flattered by this: three years was the minimum period of service in an LSE firm to obtain membership, and I had only been there a few months longer than that. I was still a lowly “Blue Button”, allowed to check prices but not officially to deal. I was now in line for the coveted “Silver Button” which denoted Membership, bypassing the intermediate Yellow. Our applications were successful, and on 11th April 1985 Roger and I celebrated becoming LSE members.

Numbered just 000030

But there was a fly in the ointment. Once it became known that members’ shares would become transferable and saleable, the LSE feared “speculative distortions in the pattern of application for membership”. So they had ruled that any applicants after 10th January could still be granted membership, but would not receive a share or vote.

“…you are not a shareholder, therefore not a Proprietor.”

Roger and I weren’t happy about this. Gilbert Eliott weren’t famously generous employees, and the rumoured value of the new members’ shares was substantial. We didn’t like the idea of the door being slammed in our faces. But what could we do about it? Only try to kick up a fuss. I asked Robert Wild if he objected to our launching a campaign. He did not, although he quite reasonably asked that we should keep Gilbert Eliott’s name out of it – the firm was in the midst of delicate negotiations with a potential buyer, an Austrian bank called Girozentrale. Any whiff of scandal or trouble could have derailed the whole deal.

We obtained a list of the people who, like us, had been admitted to membership after January 10th, and circulated them all via the pigeonholes at the Stock Exchange with a letter – so incendiary that no copies survive – drawing attention to the injustice of the situation, and calling them to action: a call which was largely answered. Some contributed by writing strongly worded letters to the press and to Sir Nicholas Goodison.

My effort was this letter to the Financial Times, which spawned a small news item in that newspaper, and soon afterwards the leading story in Financial Weekly:

Looking back, I feel some embarrassment about this campaign. An overpaid young man missing out on a bit of extra money was not the worst problem in the world. And my arguments are transparently self-serving: was I really concerned about having a say in the Stock Exchange’s future, or just annoyed to be missing out on a juicy payout? But we did feel a sense of injustice, and wanted to take some kind of action.

Our campaign had, I estimate, zero impact. As we had no votes, the Stock Exchange could happily ignore our opinion. If anything we might have persuaded some voting members to vote in favour of the Deed of Settlement before a bunch of new arrivals came in and diluted their shareholding.

But the LSE and Sir Nicholas had much bigger problems to grapple with. Many members, especially those who had not achieved partner status in their firms, and members of smaller and provincial firms, felt that the changes were being rushed through on disadvantageous terms so that the partners in large firms could cash in. The Deed of Settlement vote required a 75% vote to pass, a high hurdle. Sir Nicholas made a determined case for a yes vote:

Sir Nicholas tries to face down the rebels

Anecdotal evidence had it that some of the larger firms, where partners had a great deal to gain from the proposals passing, were ruthless in pressuring their employees to vote in favour. One firm allegedly demanded that voting forms should not be posted direct, but returned to their secretary’s office – presumably so that the partners could check that people had voted the “right” way, and could bully or discipline those who had not. Imagine what the press would make of such behaviour in a trade union strike ballot.

Despite his urbane and charming personality, Sir Nicholas had become something of a hate figure among sections of the membership in the course of his attempts to implement change: some years later, when he became chairman of TSB Group, one colourful character went to the trouble of buying shares in the company, just so he could continue to harangue and heckle Goodison at meetings.

On June 4th I nervously turned on Channel 4 evening news (yes, this was national news) to hear the result of the vote. The Deed of Settlement vote had failed. Good news.

“Shares will now be allotted to those who have been elected to Membership since 10th January”

So the shares issued in exchange for membership rights would not after all be transferable. But we new joiners celebrated because one share was issued to each of us, and we now enjoyed the same rights as long established members. Our campaign may have had little impact, but we had arrived at our destination by a different route, thanks to the rebellious streak in a large minority of the voting membership.

Though I didn’t give it much thought at the time, my willingness to get involved in a battle might have hindered my career if I became known as a troublemaker. In retrospect, that might be why I spent my career mostly in challenger firms. I wasn’t made of the right stuff for the bigger, established firms.

The shares did turn out to be valuable, eventually. In 2000, as part of the London Stock Exchange’s proposal to become a listed company, they were repaid at £10,000 each. That certainly felt like a victory – even if we hadn’t earned it ourselves.

And Big Bang. Was it worth it? The LSE certainly saw very strong growth in business, and it did my career no harm. But some argue that it was part of a process where market participants grew larger, more interconnected and more sophisticated. They were then better able to insulate themselves from the consequences of their own poor credit decisions, by packaging up and selling risk in opaque and poorly understood securities. And that was a major cause of the 2008 Financial Crisis.

Up to the job

(From Accountancy magazine, February 1982)

Gripping read, isn’t it? That’s how I spent my leisure time when I was 25. It’s the most important thing I’ve ever written, by a wide margin. Having left Deloitte Haskins & Sells the previous year citing technical differences with the examiners, I obtained a measure of closure by getting this article – criticising an aspect of their audit techniques – published in Accountancy, the most widely read magazine of that profession.

As a failed accountant, I didn’t exactly have the world at my feet. An employment agency sent me along for an interview for the role of assistant in the two-man statistics department of a small, specialised stockbroking firm, Gilbert Eliott & Co. I reported back that I did like the idea of working at a stockbrokers, but the job seemed pretty dull. The agency gave me some excellent advice: once I got settled in, she said, if I showed promise I could get the opportunity to try out on the sales desk, where the money was made.

So I had settled for a fairly dull job as assistant in the two-man Statistics department of a small, specialised stockbroking firm, Gilbert Eliott & Co. My boss Dick was about sixty, and I could see my future etched in his closed, tetchy old face, measured in endless priority percentage calculations, monthly preference and bond updates, and in thirty-nine annual fixed interest handbooks.

But one day while Mr George Baylis FCA – the firm’s personnel officer and a qualified accountant – was enjoying his complimentary copy of Accountancy, my face stared back at him from page 136. He let me know he had seen the article, and he must have mentioned it to his fellow partners. Within a week, the head of the preference department, Peter Thompson, had come into our tiny office – carefully choosing the hour when Dick was at lunch – and asked whether I would like to transfer to his department: initially to help with administration and dealing, but with a view to graduating to broking.

In the early 1980s the City was still largely populated by the old guard of aristocratic third sons, blackguards unsuited for the army or the church and old gents wandering in to to the office at ten from the Waterloo train, disappearing for lunch between one and four. Many were lazy, some were plain stupid. Steadily they were being replaced by sharp- witted lads from Essex, grammar school boys and even the odd graduate.

So when Mr Thompson made his offer, I didn’t hesitate. Given the calibre of some of my colleagues, it shouldn’t be difficult to make a mark. My knowledge of the stocks was comprehensive after the stats training, but the sales aspect of the job didn’t come easily: for a long time I was nervous of making a fool of myself on the telephone.

The partners must have thought the safest course was to assign me accounts where the firm was doing little business, so I couldn’t do much damage, and might improve our revenue there. After a slow start – Mr Wild, one of the partners, had to take me out to lunch to remind me that I was supposed to be bringing in new business as well as looking after the admin – ambition eventually overcame fear. One lunchtime when I was alone, minding the shop, it was as if a switch had been flicked in my head: suddenly I knew what to do. I made four sales calls, and two of them were successful. The two partners on the desk came back to a couple of decent dealing slips they hadn’t expected.

But the day I really got my feet under the desk was in 1983, on 3rd August which happens to be my birthday. A fund manager from a previously barren account which I had been carefully (but so far unsuccessfully) cultivating – supplying a stream of what I hoped was helpful information and analysis – called me up out of the blue. “Are you busy this morning?’ she asked. “Oh, one or two things on” I lied. She ignored my reply and pressed on. “Well, you will be now. Have you got a pen and paper? I want to sell these.” And she read out a long list of holdings. Over the day we got all the business done. Now I knew I could do the job.

Of course, the problem for the firm in assigning its barren accounts to the new guy was that I now knew that the revenue I had generated attached to me personally as much as it did to the firm. This made me confident of what I was worth to my employer, current or future.

And if a person gives you something, it is instinctive to thank them. But when Mr Thompson handed me a bonus slip representing an amount of money I could only have dreamt of three years earlier – and of course exceeded the social value of my work by a huge factor – I resisted the impulse to thank him. I simply nodded acknowledgement and said “OK.” Because the bonus was clearly a miserly percentage of the increased revenue I had brought in.

This was Thatcher’s decade, the age of the yuppie. Before long, opportunity knocked again in the shape of an approach from a rival firm. “Big Bang” was on the horizon, and broking firms, buoyed with cash from US and other banks, were aggressively recruiting. When Simon & Coates (soon to trade as Chase Manhattan) named the salary they were proposing to pay me – roughly triple what I had been earning before – I needed time to consider it. About three seconds. I tried to contain my excitement. “I think that sounds reasonable” I said. I was on my way. And all thanks to that very dull article.