The London Paper – 16 Jan 2009
With hindsight everything appears inevitable. However, when it comes to the bank mergers and job losses that are currently cutting a swathe through the City I genuinely believe that they were completely inevitable and, not only that, but a long time coming too.
Bank of America, that effectively rescued Merrill Lynch by acquiring it in September, announced last week that the take-over would result in 2000 City-based jobs being lost by March this year. That’s almost a third of Merrill’s London-based workforce and one of the biggest single job culls ever announced in the Square Mile. This comes after around 28,000 City jobs were lost last year and there is likely to be even greater cuts in 2009. It is a blood bath, make no mistake.
What’s interesting is that throughout my twelve year career in the City there was constant talk of the inevitable upcoming clear-out in investment banking. Hardly a day went by without some old lag boring us all senseless about how job-destroying bank mergers were just around the corner because the City was massively over-broked i.e. there were way too many banks chasing far too few clients. Commission rates were constantly dropping and fund managers were demanding ever more lavish service and entertainment as the competing banks fell over themselves to get what little revenue they could. The mini financial crisis that occurred in late 1998 and the end of the tech boom in 2001 were both identified by the Cassandras as the beginning of the end but the City proved more resilient. It would take the credit crunch to be the catalyst for the long-predicted catastrophe now with us.
So, from at least the mid-1990’s we City boys all knew that the good times couldn’t last and that each extra bountiful year was a bonus – literally, a big, fat bonus. This pessimistic mentality ensured that each dramatic stock market fall was greeted by cries of ‘we’re all doomed’ on the trading floor and many was the time I had to take out nervous graduate trainees for a glass of Sancerre at Coq D’Argent to calm them down about their future job prospects. We also felt obliged to do whatever necessary to make as much as cash as quickly as possible because disaster was apparently just around the corner.
Of course, this mindset led more unscrupulous scoundrels to take massive gambles and make short-term investment decisions that would inflate near-term bonuses though they may explode at a later date e.g. giving poor Americans loans they couldn’t afford and selling those loans on to other firms. So, ironically, City boys’ assumption that the end was imminently nigh directly led to the credit crunch, thus making it a self-fulfilling prophecy.
In the film Wall Street, that great anti-hero Gordon Gekko says ‘Wall Street is littered with the graves of people who were correct too early.’ I strongly believe that Wall Street and the City is now littered with the graves of once-bright career prospects precisely because we assumed that at any moment it would be.