CITY AND SUBURBAN
Here comes the Bang to blast the stars out of their courses
CHRISTOPHER FILDES
The Big Bang is now. That much- heralded popping noise last autumn was no more than a preliminary maroon, a sort of cosmic five-minute gun. What we now hear and see is a chain reaction, not stopping short of the City's biggest and brightest stars, blasting them into new topographies and new constellations. It began last week when, for the first time, British high street banks were sold into foreign ownership. The Clydesdale and Northern banks were the most spectacular offers in the Midland Bank's forced sale. They were sold to make the Midland's balance sheet strong enough to carry its ruinous Latin American loans. I then asked what hitherto shock- proof bank would next come up for sale — an accepting house? City and Suburban had barely scraped into print before Hill Samuel, the accepting house which advises more British companies than any other independent merchant bank, started trad- ing its independence to the Swiss — as its chief executive, Christopher Castleman, resigned. Hill Samuel, like the Midland, shows what forces are at work. When it Prepared for the proto-Bang by buying stockbrokers Wood Mackenzie, I asked Mr Castleman: was he worried that Hill Samuel might be too small for a supermar- ket bank, and too big for a specialist with a niche? No, he said — but it has, decisively, Worried the majority on his board. Hill Samuel, they now suspect, lacked the resources, in money, people, and market- making experience, to go it alone into the new game of investment banking. At the same time, significant shareholdings were being prised loose, and falling into hands Which the directors distrusted. They are happier to talk merger with the Union Bank of Switzerland. That would produce about the biggest securities trading busi- ness in London (UBS already owns Phillips & Drew), with Hill Samuel's corporate finance skills behind it, and £27 billion of investments under management across the world. Hill Samuel and Phillips & Drew are both among the 26 firms which the Bank of England accepted, for the new- style markets, as market-makers in British Government stock. More will be admitted in the autumn, including a pair of Japanese. The existing 26 have not, taken together, made any money at all — after employing more than £500 million of capit- al in the business, and heaven knows how many highly-paid traders and salesmen. Hill Samuel must be among the losers, and its operation will be merged into Phillips & Drew's. Lloyds Bank has already dropped out. That was shaking, for if one of the Big Four banks had not the patience and the money to ride out bad times, who has? The answer is that even the Big Four, nowa- days, have to count their pennies. Lloyds has yet to provide for its Latin American loans. The Midland is earning good money from its gilt-edged operations, but has stopped making markets in equity shares, and is now trying to sell the equity side of W. Greenwell, the stockbroker it bought. A pitiful destruction — but when Stuart Wamsley, the ICI specialist, left, we had to fear that Greenwell was going. Other banks, other sales. We have to hear from Standard Chartered. It has some choice properties to sell, and I wonder what it would say to an offer for its world-class bullion business, Mocatta & Goldsmid. Turn to the accepting houses, and we now have to rephrase the question, which be- comes: who will follow Hill Samuel? The stock market's favourite for that is Morgan Grenfell. The shares have shot up — though still not to the price at which they were issued, last year, and the institutions which then paid 500p might well be content with their money back. Morgan lately acquired a new chief executive, John Craven, by taking over his business, Phoenix Securities, and paid for it, liberal- ly, in Morgan shares. It is as though Morgan had built in an incentive for Mr Craven to get the best offer for its shares. City mergers were Phoenix's speciality. At Mercantile House, change is now, sadly, certain. This is the House that John Bark- shire built — one of the City's builders and leaders, the founding spirit of the most successful new market (in financial hi- tures), who bought a modest money- broking concern from his employers, and raised it to be, now, the world leader. If only he had stuck to his plan, that Mercan- tile House should be a broker in every kind of financial market and a principal in none? More boldly, he tried to make it an integrated securities business, British- owned, to take on the world's best in the new markets. (It, too, is a market-maker in Government stock.) Though the latest bid talks were called off, it seems only a matter of time before Mercantile House is bought wholesale and sold piecemeal. The fall-out from the Bigger Bang is only beginning, and the City already wonders how many of its grand old names will keep their inde- pendence and survive. The threatened merchant princes of banking should take example from Lloyd's of London. There, some five years ago the foreigners seemed poised to buy the market's leaders. The Committee passed a rule limiting foreign shareholdings but could not enforce it. They arranged for some eager Americans to pay a fortune for Alexander Howden and discover that they had bought a can of worms. After that there was no further trouble.
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