City diary: the bill revolution MONEY
CHRISTOPHER FILDES
A development of the first importance to the City, and what may prove a major contribution to the finance of world trade, is imminent. The London market in bills of exchange is now re- stricted to bills denominated in sterling. The Bank of England, which enforces this restric- tion, is known to be looking at it afresh, and is, I consider, certain to abolish it.
The Bank is sterling's manager, and never cares to see the pound belittled or its conse- quence reduced. In particular, the Bank has been accustomed to argue that, the more widely sterling is used, the more potential customers the City has for its services. The Clarke com- mittee on invisible exports stood that doctrine on its head, saying that foreigners were attracted to the currency by the services—not the other way about. The growth of the Eurodollar market, which London dominates, and the astounding expansion of foreign banks' business here—their deposits are now as great as the clearing banks'—underline the committee's point. Now it seems that the Bank is converted.
Several houses have applied to deal as prin- cipals in non-sterling bills, and I gather that discussions with the Bank are in progress. One of them--Allen Harvey and Ross—has for a year been acting as a broker in these bills, by way of getting experience: turnover has ex- ceeded $10 million. Allen Harvey was also a pioneer of the London secondary market in dollar certificates of deposit, which means that it is already accustomed to dealing in a dollar money market—and one where there is no lender of last resort. All the same, it feels that the bill market will be largely a new one, and that there will be plenty to learn. It won't be just a question of dollar bills, but of bills denominated in less easily available currencies as well.
What seems possible, looking further ahead —and this is where the implications for world trade appear—is that one of the international monetary organisations will come in as lender of last resort, to underwrite and supervise an international bill market. Perhaps the hand of the Bank for International Settlements (say) will be forced, just as the Baring crisis of 1890 drove the Bank of England into the business of redis- counting sterling bills. Mr Hugh O'Connor, chairman of Gillett Brothers, has argued before now for a system of bills to finance develop- ment and investment credit in which so much of the advanced countries' money is fruitlessly tied up. Britain alone is thought to have 'untapped reserves' of this kind which run into thousands of millions of pounds.
The Smith and Nephew situation begins to read like those impossibly tangled serial stories that run-to three paragraphs of résumé, two lines of new narrative, and a note saying 'Continued next week.' The story so far: genial giant _Uni- lever astonishes its friends by making an un- welcomed bid for Smith and Nephew, saying that it wants to be in the market for `disposables' —throw-away tissues and so on. But Smith and Nephew owns 22 per cent of Jeyes, who make rival product to Domestos, Unilever's market- leading disinfectant. Newton Chambers, who also make disinfectant, now bid for Jeyes; are rebuffed. Meanwhile unquoted Brobat—yet another disinfectant-maker due to go public this autumn--approach Jeyes with a view to buy- ing Parozone division; hoping (so it is thought) to provoke 'eyes into counter-bidding for Brobat, leaving Brobat shareholders with large stake in combined company, and avoiding the expenses of a flotation. Now read on . . .
I don't see how all this can possibly do any harm, except by inducing vertigo among mer- chant bankers. But already it is being said that this state of affairs can't go on and that the authorities must intervene. If they do, it will be a concession to that body of opinion which re- gards contested takeovers as vulgar and dis- orderly, and thinks that the City's reputation is best served by keeping everything neat, tidy and prearranged. That vitiates the whole idea of an open market and takes the decisions away from those most directly concerned.
But I wish we were as good as the Americans at using tax to keep the executive in check. In the seventeenth century we had the knack—'Griev- ances before supply.' One particular grievance which I hope the Chancellor will satisfy—it won't cost him much supply—is expressed in an amendment to the Finance Bill put down by Mr John Temple. To mark Chester race week —he is member for the City—he has asked the Chancellor to let the duty on on-course betting remain at 2-1 per cent.
The case for this is well rehearsed. Most bet- ting takes place away from the racecourses. Bets are settled by reference to the prices ruling on the racecourses. It is in everyone's interest, especially the Chancellor's, that these should be representative and honest. For that to happen, they need a reasonable volume of money. At the moment, they don't get it.
Captain Threadneedle, who enlisted my sup- port in this cause, also reminds me that the St Leger will be run this year on 11 September. This is essential information for those of my readers who, looking at the stock market, plan to Sell in May and go away : Buy again on Leger day.
Speculative minds round the City—and which minds in the City are not?—have been turning to the Government's plans for offering repatria- tion to immigrants. One school of thought argues that it would be monstrous if they were not allowed to repatriate their capital—in which case do we wave farewell to the Rothschilds, Barings, Hambros, Brandts, Kleinworts, Schroders . . ? The alternative view is simpler. It expects Mr Callaghan to draw up the rules with special reference to economic advisers.
So Mr Mills has relented. It is now sixteen months since President Johnson asked for his tax surcharge, and I can only say that it seems longer. Stroking my thick white beard, I rell:ct on those days of my youth when spring and monetary disarmament were in the air and Mr Henry Fowler as a rule was not. With what innocence the foreign exchange markets took the President's will for the deed! Only one wise old bird said to me: 'Just a minute: this isn't through Congress yet.'
It still isn't; and the Congressional battle will turn on the reductions in government expendi- ture which are part of the tax bill's price. I see the view expressed that if the reductions exceed $4,000 million, individual Congressmen with constituents' interests to protect will jib at put- ting the bill through. And a very good guesser from Wall Street, in London this week, says that his figure would be $2,500 million. There are, he says, four Ifs.
'If the tax bill is for real : and if the cuts in expenditure are for real; and if peace in Vietnam is for real; and if the Middle East doesn't blow up—then interest rates are at or near their peak.' Peak until what? he was asked. 'Peak until next time.'
If you want to go to Harvard Business School, now is your chance. A year at the school is, I suppose, the most prized qualification that a young manager in this country could have; and competition for a place there is normally in- tense. This year, though, the us government is, for the first time, calling up students into the services as soon as they take their bachelors' degrees: they can no longer get deferment to read a post-graduate course. So, with the next intake of would-be managers diverted to Viet- nam, the British candidate has a first-class chance. Hurry along—before peace breaks out.
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