“Moral hazard is when they take your money and then are not responsible for what they do with it.” - Gordon Gekko
On this day 30 years ago, the closeted ‘clubby’ world of the City was subject to a positive tsunami of new regulatory changes, referred to as the “Big Bang”, all with the aim of forcing the London Stock Exchange (LSE) to clean up its act. But did it?
What first led to the Big Bang was that the LSE was really an almost regulation free (when compared to today) cartel, fixing commissions and linking this with trading floor admission complexities that would do the Royal & Ancient some credit.
It was a posh, gentlemen’s club version of the old London markets of Smithfield or Billingsgate, but with manners.
We saw a closed shop for the benefit of brokers and stock-jobbers all safely contained in their pin striped, bowler hatted bunker which, in the coming brave new world of class and professional barrier deconstruction, would not be seen as acceptable any more.
It’s certainly true that the new regulatory regime led to visible changes in the behaviour and even the appearance of those working in the City.
The late starts, long lunches and early finishes were no longer fashionable. Instead, everybody started dressing like Gordon Gekko in a US-stylisation of business practices.
Aesthetics aside, along with the skyscrapers of Canary Wharf, the Big Bang also brought considerable diversity introduced by foreign banks.
But the downside of all this was the rise of a certain killer instinct that would mean even your friends and colleagues were not guaranteed a particular benefit without a cost attached.
According to a release of UK Government papers in 2014, former Prime Minister Margaret Thatcher was warned pre-Big Bang that deregulation would lead to a new culture of ‘unscrupulous practices in the City’.
Her Cabinet Secretary, Sir Robert Armstrong, said that a “‘bubble was being created that would be pricked” and that “corners were being cut and money made in ways that are at least bordering on the unscrupulous”.
It turned out there was more than a little bit of truth in this warning. Signs of a different type of troubling behaviour from the new and improved City arguably first arose in the flotations of once staid mutual institutions such as the Halifax and Abbey National building societies.
These flotations created nothing short of a feeding frenzy amongst merchant banks like SG Warburg, Hill Samuel and Morgan Grenfell, while US investment banks like Goldman and Solomon Brothers were also eager to get involved, having been excluded from the old City club.
The biggest success story of the Big Bang was Warburg’s swallowing up of Ackroyd and Smithers, Rowe & Pitman and Mullens & Co who in turn were swallowed whole by UBS, then UBS/Phillips and the Drew/Swiss Bank empire.
