When Wall Street Came to London
When a number of British institutions were taken over by their Wall Street counterparts and the hardworking, hard-gambling culture of global finance as we know it began to take shape.
Illustrations by Sarah Mazzetti
Englishmen love a cricket analogy, so here's one. From the beginning of the 19th century until 1962, a game of cricket was played almost every year, almost always at Lord's in London, between a team of amateurs known as the Gentlemen and a team of professionals known as the Players. The Gentlemen, it was presumed, were above doing something quite as vulgar as making money playing a sport. They were privately educated members of the British elite. Their opponents were ordinary wage-earning members of the masses.
When the game—and the concept of amateurism in Cricket—was abolished in 1963, the Players had won 125 games to the Gentlemen's 68. The City of London, which has for centuries been the home of Britain's trading and financial services industries, was the venue for another game played by men who thought of themselves as gentlemen. Before the arrival of the big American banks in the 1980s, when a number of British institutions were taken over by their Wall Street counterparts and the hardworking, hard-gambling culture of global finance as we know it began to take shape, the city was a closed shop dominated by chaps who'd been to expensive schools and didn't want to be seen to be trying too hard.
This was an era in which banks were not the incomprehensible monolithic institutions beset by conflicts of interest that they are today. It was an era in which tying yourself to a corporation and pursuing a policy of get-the-money-whichever-way-you-can was not acceptable. One bank wouldn't poach another's clients, and a degree of loyalty was shown to customers. It was also an era in which insider trading was seen, in the words of the now elderly British businessman Sir Martin Jacomb, as a "victimless crime" and in which the Accepting Houses committee fronted as a trade association while acting as a cartel, its policy coordinated between a collection of established banks, the Bank of England, and the government.
Then, on October 27, 1986, for good and ill, everything changed. This was the day known as the "Big Bang," on which a sudden wave of deregulation swept through London's financial markets. Margaret Thatcher's Conservative government thought that too much regulation and a banking system presided over by a dozy old elite had seen London slip far behind New York as a financial center of the world. The Yanks were running around doing deals on massive mobile phones while the Brits were putting a bottle of wine away at lunch and napping till dinner. For Thatcher, a disciple of free-market prophets like Milton Friedman and Friedrich Hayek, the key to London regaining its place as a dominant financial hub was in unrestricted competition.
So fixed commission charges were dropped, the distinction between stockjobbers (guys who made a market in the shares) and stockbrokers (guys who traded on behalf of investors) was abolished, trading moved from the floor of the stock exchange to a screen-based system, and the way was paved for smaller banks to merge with investment banks and for big American institutions to come in and gobble up the old British firms that were in danger of being engulfed by the rising tide of the free market. London, because of its history, language, time zone, and relative political stability, became the bridge between Wall Street and Europe, the second base for the American banks' global conquest. Wall Street was coming to the City of London, and it was bringing longer working hours, shorter lunches, conflicts of interest, fiercer competition, and a "greed-is-good" attitude with it.
This change was not completely unprecedented, though. Over lunch at a restaurant owned, suitably, by the Hambro family of Hambros Bank fame, Tom Chandos, who was for many years an executive at Kleinwort Benson, a long-established banking institution in London, told me that in the old days the investment bank S. G. Warburg & Co. was the outlier. Warburg's founder, Siegmund Warburg, was an outsider, a German Jew who'd fled the Nazis in the 1930s. Just as the Americans would in the 1980s, Warburg brought a more aggressive, rigorous culture to banking—a culture that set his institution apart from the old British banks and was best exemplified by the fact that it carried out the first hostile takeover in the UK. Warburg disrupted London in the same way the American banks did in the 1980s. They provided the early warning signs.
Chandos told me a story about his father, who was a partner in an established stockbroking firm after the Second World War. In the late 1950s, Siegmund Warburg tried to persuade him to come work at his bank. Chandos Sr. liked Warburg, and he knew that the working culture was different there and that you had to try harder. He lived in Hampshire, about an hour outside London, and in those days, if you were a refined man like Chandos Sr., you didn't just roll out of your office and into the nearest pub. You went home and you dressed for dinner. The problem with working at S. G. Warburg, Chandos Sr. confided to his son years later, was that "you sometimes had to be at your desk beyond six o'clock, which meant you couldn't get home in time to change for dinner." He had other reasons for turning the job down, of course, and while he approved of the bank's culture, it wasn't quite for him.
London's relaxed approach to work was for a long time a source of scorn and amusement on Wall Street. Tom Bernard, who worked on Wall Street for 30 years and who was immortalized as the "Human Piranha" in Liar's Poker, Michael Lewis's memoir of his time at the now dead investment bank Salomon Brothers, told me that "there was a view among many at Salomon's HQ that employees outside New York City did not work as hard as they did. Tokyo and San Francisco (salesmen were at their desks at 5 AM) were notable exceptions."
In Liar's Poker, this view is more strongly expressed, with one Salomon employee referring to a group of his company's Englishmen as "Eurofaggots" who left their desks at 5 PM and deserved their losses. In turn, Lewis refers to the "older Europeans who staffed the offices of Salomon" as "freedom fighters." Bernard was more diplomatic: "In general, I enjoyed working with my British counterparts. Their wry humor provided a refreshing balance to our American, in-your-face gallows humor. On my part, the trans-Atlantic jibes were all in good fun. If you were a productive team player, you were respected regardless of nationality or locale."
Lunch was the symbolic battleground on which the war of working practices was fought. It wasn't until 1987 that Gordon Gekko declared that "lunch is for wimps," but the nails had been hammered into the coffin of the Wall Street lunch a decade earlier. "When I started at Salomon in 1979," Tom Bernard said, "the old Wall Street custom of drinking at lunch was dying fast for trading-desk professionals. We usually ate at our desks, but when we did lunch with clients, the markets had become way too demanding to return to our desks any less than 100 percent sober."
The tradition of the big lunch, with wine, took longer to die in Europe. In fact, it's still not dead in London. One young corporate finance executive told me that Wall Street would "never take our lunches away from us." Friday is usually the day for this. "I'll leave the office at midday, and I won't come back. I take clients to lunch, we get the drinks in, and we go from there." In London, there's a formula for how lunch is done: If it's a traditional London lunch, you have a bottle of wine. If it's a Wall Street lunch, you don't have any wine. You can compromise with a glass.
This view of American bankers as boy scouts is confined to lunch, though. In the 80s, an English banker told me, there was a rumor that the trading desk at First Boston once brought in more cocaine in a day than profit. In many ways, the people—still mostly men—who populate Wall Street and London have far more in common with one another than they do with their fellow citizens. Tony Volpon, a strategist at Nomura on Wall Street, told me that "your nationality may be important, but it's just too competitive for it to have that much of an impact."
There are very few areas in life where you can have this much money this young. There are also very few areas in life where you have to work as hard, where you may even be expected to spend 72 straight hours in the office, as Moritz Erhardt did. The 21-year-old intern at Bank of America Merrill Lynch died in his shower from an epileptic seizure after putting in a shift of that length.
Cocaine, espresso, Red Bull, testosterone: These are the fuels that run through Wall Street and London.
Stamina is the name of the game. In many institutions, if you can pull a series of all-nighters for a few years in your early 20s, if you can take your clients out to restaurants and strip clubs, fill them with booze and drugs and get them laid, then you can begin dreaming about becoming a senior banker and clocking off at 6 or 7 PM. Cocaine, espresso, Red Bull, testosterone: These are the fuels that run through Wall Street and London. And these fuels are all powering you on in the pursuit of one thing: money. As Chandos, who was already in his 30s in the 1980s, said to me, "I was excited to enjoy the innovation and change the American banks brought to London while it was still possible to have an acceptable lifestyle. Now, in order to succeed, you have no life. It's a Faustian pact."
Did this Faustian pact begin to take shape in the 1980s? Following the arrival of their trans-Atlantic counterparts in London, many British bankers wanted to be more American than the Americans. Up until the 1980s, middle- and upper-class British society turned its nose up at those working in American banks. Even if you made more money at a firm like Goldman Sachs, it was socially far more advantageous to be part of an old British institution. Chandos told me about a high-flying English banker who left Kleinwort Benson for JPMorgan and then came back. Apparently, one of the reasons for his return was that it meant more to his wife to say, in their social circles, that he was a director at a British bank than that he had better prospects at an American one.
Private schoolboys leaving Oxford or Cambridge and entering finance in the 1960s and 70s thought that if you went to an American bank you were a dimwit who couldn't cut it. It was a variation on a long-held Old World assumption about Americans: that they are burger-guzzling simpletons who like to wander around ancient sites of European culture in shorts and socks and sandals, breathing exclusively through their mouths. By the 1990s, that attitude had disappeared from London completely.
The Americans turned the game into something much more competitive, brought in their own culture, and sucked in a whole new load of British bankers, who often took the aggressive, hardworking instincts of Wall Street and ran even further with them. Matthew Greenburgh, a British banker who was formerly vice chairman of Merrill Lynch, told me that "it was normally the European bankers (and other non-Americans) who were more innovative, aggressive, entrepreneurial, and risk-taking—characteristics that are no longer in vogue in banking, of course. Americans were considered to be more rule-bound and herd-following. Perhaps all the brightest or most daring Americans went into hedge funds or Silicon Valley."
In the era of globalization, London also reached out to the rest of the world faster than Wall Street. Volpon pointed out that for financial workers in New York, the domestic market is important. This means that they need to get up to Boston and across to Los Angeles from time to time. Wall Street may think of the flyover states as being populated by a bunch of suburban moms, regional salesmen, and trailer trash good only for a subprime mortgage, but they at least have to acknowledge that this world exists and that it provides them with money. In London, the rest of the country is basically irrelevant. London's financial areas—the old City, Mayfair, and Canary Wharf—are connected to Britain by geography alone. The market is global. It's about EMEA: Europe, the Middle East, and Africa. A banker based in the UK's capital is more likely to go to Hong Kong than he is to go to Manchester.
This is now also reflected in the international staffs that fill the offices in London, as well as the people they do business with. Volpon said that "over the last ten years, London has become a place where people from the Middle East and Russia do business. They might be worried that in the US their money would be frozen. London has a more international flavor to it... When I worked there, my day-to-day life had a much more cosmopolitan feeling."
But this high-financial cosmopolitanism, which has its roots in the arrival of American banks, has left many ordinary Londoners feeling alienated. They are removed from this world and its money, and they are paying for it in the form of steep housing prices. In some areas, they can't even set foot on the land these banks occupy. The City of London Corporation, the municipal governing body of the city, has been around for almost a thousand years. It has its own police force, as does Canary Wharf, which is a private estate patrolled by a private security force. There is a closed, ancient form of justice and protection in these modern places. The anonymous towers of Canary Wharf could be anywhere in the world while those of Wall Street feel organic to New York, one of the birthplaces of modernist architecture.
But Canary Wharf is in East London's Docklands, once the cutthroat, bustling center of the British Empire's trade, bringing in cargo from all four corners of the globe. Between 1960 and 1980 all the docks were closed down, leaving behind mass unemployment and a swath of derelict land. The old game was dead. In the 1980s, a new game struggled into life: global capital in the heart of the old Docklands. The Canary Wharf project responded to the coming of the American banks and to the increasingly global nature of finance. Where working men in overalls and flat caps once stood outside pubs hoping to be chosen to bring that day's cargo in, now working men in suits and ties stand inside corporate offices, hoping to force through that latest merger. Cranes always hang high in the Docklands. Something is always being built. Someone is always making money, and someone is always being ripped off.
These two cities—New York and London—and their financial centers have become intertwined in a way that means that when we think of "bankers," we think of them not as Americans or Brits but simply as bankers. Both systems have been the beneficiaries of massive government bailouts in the last few years. This conversation about Wall Street and London has, at the root of it, a still-unanswered question about risk and how it should be managed. Should these financial institutions be compensated by the state, even when they have been knowingly gambling away the money of ordinary people?
The entitled amateurism of those gentlemen cricket players was founded on a system that kept them in place at the top of the chain. The amateur gentlemen of old London may have been swept aside by the professionals of Wall Street, but the takeover merely created another elite, another set of winners ready to make the system work for them.