square mile of fear, The

Spectator, The, Nov 7, 1998 by Trefgarne, George

George Trefgarne on the City's mood - and whether it is justified

A SHADOW is cast across the City. As the November winds gust down Cheapside, once confident and prosperous faces are drawn and brooding. Markets propelled by greed, now seem to be driven by fear. Like Guardsmen long accustomed to ceremonial duties unexpectedly caught in an ambush, bankers and brokers are suddenly finding gaps opening up in their ranks as their jaded employers report losses for the third quarter. Anxiety is rife and the neglected Wren churches report sharply rising attendance. Everywhere people are asking themselves the same fretful questions - is it meltdown time and am I for the chop?

The last month has seen the first wave of casualties. Merrill Lynch is cutting 400 of its 6,000 jobs in London and staff at its Mercury Asset Management subsidiary fear a cost-cutting exercise there. Layoffs continue at ING Barings. More are expected at the Bankers Trust subsidiary BT Alex Brown, which bought Natwest Markets, after reporting huge losses. The same goes for Nomura, the Japanese broker and Credit Suisse First Boston. Citigroup, which owns Salomon Smith Barney, is going to cut 8,000 jobs worldwide, many of which will be in London. The group has bought the Japanese broker Nikko Europe and 300 jobs are expected to go when it is effectively closed at the end of the month. Even that quintessential symbol of the 1980s, the Liffe Exchange -- where shouting traders deal futures - has been affected; it is to shed 600 people.

As for Christmas bonuses, Rothschild's turkey for every employee (normally the subject of cruel mockery) will look especially generous this year.

So far, however, the rumours have been much worse than the facts. Telephone conversations in the City are taped for legal reasons, so the chosen method of circulating gossip is e-mail. Up until recently, email has mostly been used in the City for distributing long official documents or alternatively dirty jokes and pictures downloaded off the Internet. Now, at the press of a button, speculation spreads like wildfire. `Have you heard Barclays Capital is being closed?' Not true. `Apparently, Warburg's is up for sale again and they'll announce job losses in two weeks.' Rubbish. 'Is it true Citibank bailed out Lehman's?' Of course not. They are all just rumours.

Nonetheless, everyone seems to know someone who has been affected. Fulham has lost its sparkle and Battersea its gaiety as wives worry desperately about what the future holds. Commuters talk on the train home of the `wealth trap' - you may seem rich but your outgoings are so high, with your mortgage and so on, that money gets eaten up quickly. High-flying couples dread losing both their gym memberships at once. In the last two weeks parties have started to feature a new type of guest: a cheery character putting a brave face on it all but licking the wounds of one the City's famously brutal sackings.

Redundancies in the square mile are swift and ruthless. The experience of one banker is typical. He says, 'A message came round the office saying "will the following people please leave the building immediately". In my case it was not so bad because someone who looked on me kindly had said that it might happen, so I had already gone around and said goodbye to people and that sort of thing. Anyway, we all went to the nearby pub and they called us one by one on our mobiles and ordered us to come back into the office to be told we were going. People who have never worked in the City cannot imagine what it's like to be handed a cardboard box and then escorted from the building. But in the City it is no longer a horror story, it is the norm.'

The hire-and-fire culture is partly a consequence of merchant banks no longer being partnerships or family-run. Their costs have spun out of control as `big hitters' (i.e. Americans and traders from Watford) have demanded bigger and bigger salaries. Cutbacks were inevitable.

Foreign banks have been the worst hit. Most British banks have already pulled out of investment banking and instead conform to two ideals -- either conservatively managed high street outfits like Lloyds, or specialised boutiques with efficient ways of retaining staff, such as Close Brothers or Hawkpoint Partners. There has also been an explosion in small fund managers, often not based in the City at all but in places like Hampstead or Knightsbridge or further afield at the end of an ISDN telephone line.

Outsiders may feel tempted to rub their hands in glee at the prospect of all those overpaid twentysomethings getting their come-uppance. There is, after all, an element of classical tragedy to it all - first the pride, now the fall. However, too much glorying in City slaughter would be a mistake. It is not just that bankers have families too, but that the City is a pillar of the British economy and we all benefit from its success. British Invisibles, the City's promotions arm, says that 1997 was a record year, with financial services reporting net overseas earnings up to 32 per cent at (L)25.2 billion. Add in the lawyers and accountants and other fellow travellers and you reach (L) 26.6 billion - four times the earnings of North Sea Oil. Two hundred and fifty thousand people work there and it provides a quarter of London's output.