Tuesday 6 May 2014

The end of investment Banking in London?

In the 'Great Harrumph' that our politicians so enjoy about Banking - with the the Left wing ones desperate to blame banks rather than its own governance for the 2008 crisis, a story is being missed.

The City was a great centre for Investment banking, bigger than New York and far above the weight of any other European city.

Of course, we had our key supporting areas such as law, currency trading and accountancy which provided a good net to support the industry, but nonetheless the rise was large from the 1980's - US Bulge Bracket banks has often bigger offices in London than in New York.

Arguably, the height came in 2009, when Barclays bought the investment banking unit of Lehman Brothers in New York.

How the tables have turned, not just on the British banks, but on Investment Banking in general and particularly in London. Barclays is in a mess, today it announced more disappointing profits at its investment bank. The US CEo, Skip McGee has left and there is talk of a culture war within the Bank. I don't pretend to understand the details, but as an outside it would seem sensible to sell the unit rather than close it down, with all the associated costs, piecemeal.

This after all, is what RBS has done, slowly closing its investment bank. It would have been better to sell it for a £1  a few year ago.

Lloyds Bank has long ago relieved itself of any Equity Capital Market business.

Only HSBC remains in the market of the UK banks. Even in the City, the news is worse. Credit Suisse and UBS have both massively scaled down their Investment banking to focus on their Private Client business.

The US banks too, mindful of the London Whale scandal and also US Regulation, have scaled down in the UK.

So, in effect I would guesstimate that something approaching 50% of frontline roles are no more. many have been replaced with people in compliance or legal, but in terms of generating business this is not the same thing at all.

Of course, many people will just assume this is a good thing - less 'Casino' Banking. They are wrong for the most part. The Casino lives, in Bermuda funds, in direct advice to foreign sovereign entities, in boutiques. The sad news is that this is fine for the generation of bankers who have the contacts already. There is no ladder for the next generation.

Instead the next generation will be in Singapore, Shanghai, Dubai, Hong Kong, New York and maybe London too.

This, over time, will have a big knock on to the professional services business and other UK businesses. We may have a better balanced economy, but sub-prime was not an issue for UK lending really was it? We have killed the goose that laid the eggs. It will be sometime yet before this is apparent but we have done so nonetheless.

I am not saying we will not find a new goose, but at the moment that seems to be a property bubble, as it has been many times in the past and we all know this leads to a cyclical boom and bust that does little good in the long-run and much ill.


Swiss Tax Exile said...

Surely it's just the retreat of some banks from investment banking. London still hosts an enormous amount of activity.

Perhaps we've seen it before? Anyone remember NatWest Markets, BZW and even Abbey National was doing structured finance under Luqman Arnold.

They get out of the business well into the downturn and then by the time business is booming again they start to build-up a "platform". Clearly they have terrible timing and many destroy astonishing sums of capital over the period of their involvement.

CityUnslicker said...

STE - great comment, hard to disagree - but much harder for the infrastructure to support a 1000 boutiques than a few banks.

john miller said...

The real killer will be the FTT which will undoubtedly be implemented by the EU to kill off London and bring the UK to heel.

Demetrius said...

When you plug in too many devices to a system already stretched then fuses begin to blow. Apart from that we now think that London is no longer what it was and have run down our activities there quite a bit.

Sebastian Weetabix said...

I find it hard to care that these parasitic scum are declining in number. The idea that the UK can support a banking sector 10x the size of GDP is a nonsense. The current structure has enriched the scum at the top and done nothing for the rest of us.

andrew said...

having financial services 10 X gdp is fine if we export 9 of that.

if we were French we would assert our "cultural exception" with the ftt.

one thing that really is different this time is the growth in small boutiques backed by or linked to global custodians.
these people tend to want to be close to where the mega rich are - like London.

CityUnslicker said...

SW - Labour built a lot of shcools and hospitals off the back of the taxes in 2008...since then the recovery has partly been built on the fines.

I will one day soon work out when cross-over is reached in terms of bailout-taxes ratio.

Clive said...

It's a bit funny isn't it, how (some) capitalists laud "creative destruction". Except when it comes a bit closer to home. You can't have it both ways.

Newcastle shipyards one day... law firms, auditors, "consultants", market makers, derivatives traders, energy analysts the next.

Sebastian Weetabix said...

@CU: are you fucking serious??? The liabilities from those broken banks we stupidly propped up outweigh the tax receipts by orders of magnitude. It is a net disbenefit. And all the while monopoly money banksters have been enriching themselves selling off our world leading industries to foreigners, who promptly asset strip and ship the money and jobs offshore.

Lamposts are too good for 'em. I'm with Clive on this one. Let the creative destruction of the City commence.

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