In the second of a two-part series looking at the legacy of the Big Bang, Martin Vander Weyer examines the cultural changes it set in motion, including globalisation.
As an engine of ‘shareholder democracy’ – offering the wider public the chance to prosper through share ownership – the City was only successful for as long as that run of privatisation issues continued.
As a mechanism for channelling capital from savers and institutions to productive parts of the economy, Big Bang probably did not make much difference.
The creation of the eurobond market in the 1960s had more global impact. And the launch of the Aim market in 1995 did more to draw smaller companies onto the capital-raising ladder.
As a milestone of advancing technology, Big Bang certainly mattered.
But while the newfangled trading screens overcame early glitches, the Stock Exchange’s jinxed Taurus settlements system had to be scrapped in 1993, at huge cost, to be followed by another system called Crest.
New rules and regulations
Meanwhile, all these cultural changes – mirroring the creation of large, multifunctional firms whose headhunted executives were very often strangers to each other and unfamiliar with each other’s mode of business – in turn led to heavier emphasis on rules, both internally and externally imposed, and to the creation of a new profession of compliance.
The idea that any City market could be left to regulate its own activities gradually yielded to a belief in stronger statutory authority and codification.
But it cannot be said that the regulatory model brought in alongside Big Bang — the Securities and Investment Board empowered by the Financial Services Act of 1986 —achieved universal respect.
What followed over the decades – partly in response to scandals – were repeated redesigns by successive Chancellors. First they took powers away from the Bank of England with the creation of the Financial Services Authority and later giving most of them back by way of the Financial Conduct Authority and the Prudential Regulation Authority.
Mergers and acquisitions
Meanwhile also, well-known City firms of the earlier era were largely expunged either in the immediate aftermath of Big Bang or in later periods of turbulence.
Broking firms such as Scrimgeour, Vickers da Costa, Laurie Milbank, Simon & Coates and L Messel were bought but effectively demolished by American owners.
Merchant banks such as SG Warburg and Kleinwort Benson first swallowed brokers and jobbers and were later themselves swallowed by European banks.
Barclays tried to build a world scale investment bank by merging the broker de Zoete & Bevan and the jobber Wedd Durlacher as BZW – where I was a director. But later it got shot of much of it to keep only Bob Diamond’s fixed-income trading business, renamed Barclays Capital.
We do not need a complete roll-call of Big Bang ventures that failed to fulfill their promise while eating up their owners’ capital. And we need feel no nostalgia for partnership firms, however historic, that disappeared because the partners of the day chose to take the cheques that were on offer.
But it is also worth mentioning some of the names that survived and prospered largely by standing apart from the Big Bang melée, including Lazard, Rothschild, Schroder and Cazenove. The latter was the only leading broker that declared itself not for sale to anyone, though it eventually joined the JPMorgan stable in 2004.
A step in a process
So, I remain, after all these years, a sceptic of almost everything that was claimed for Big Bang. But as I said above, the City’s leaders of the time were probably right to try. And for that side of the argument I cannot do better than quote one of those leaders, my former chairman at BZW Sir Martin Jacomb, who held a succession of major City roles, and (approaching 90) remains an acute observer of the financial world today.
In 2006 – in a piece I commissioned to sit alongside my own rather severe judgement of Big Bang in The Spectator
– he praised the physical renewal Big Bang had brought to London’s skyline, and the concentration of investment and professional service firms it had attracted.
“So has it all been a resounding success? The answer is a resounding ‘yes’. The number of foreign banks…and the number of jobs are all astounding. The financial sector…is now a large and vital part of our economy. Imagine how short of tax the Chancellor would be without it.”
When we met recently, I asked him whether he would say the same again, with an even longer perspective.
“Oh yes,” he said, “But what we can also see now is that Big Bang was a necessary step in a much larger process of globalisation. The City could not possibly have continued as it was.”
So, there we have it. Big Bang was imperfectly designed, amounted to less than it seemed at the time, and destroyed good as well as bad aspects of old City life.
But it made us fitter for the wider financial world.
Through 33 years of crashes, scandals and changes of political tide, London has remained the pre-eminent entrepot of global money flows.
As Brexit looms, that is more important than ever. And if Big Bang played a part in securing our position, it surely was not all bad.
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Martin Vander Weyer is business editor of The Spectator. Before turning to journalism, he spent 15 years as an investment banker and was a director of Barclays de Zoete Wedd, the predecessor of Barclays Capital. He is a visiting research fellow of York University Management School.