13 October 2002 17:20
EXPERT VIEW: Hello black bag, goodbye bonus
Sabbatical fever is sweeping the City. Brokers and bankers, buy side and sell side, the urge to take off or drop out
is all-pervasive. As this bear market grinds towards its third year, the Square Mile is shrugging its shoulders and
experiencing a collective mid-life crisis. Even the dealers are starting to get introspective, as they head in droves
for Sydney beaches, country cottages or the psychiatrist's couch.
You don't need a shrink to work out these are hard times. It seems ages since investors scrambled along the
market see-saw from the greed end to the fear one, and we've been stuck at the bottom ever since. With Wall Street
plummeting, talk of an economic double dip and the looming prospect of war, it's a brave man who calls the
change.
Such a man is Peter Lynch, who used to run the massive Magellan fund in the US and stood up on Thursday to deliver
just that message. But the high-handed American rhet- oric that seems to dominate such pronouncements (" we'll
pull you out, you Europeans haven't produced job growth since Charlemagne") ignores the crisis of confidence
in the US capitalist system. No cure appears in sight for Enronitis, scandals multiply, and investigations into
analysts' independence are just beginning. I'm sorry Peter, but it's you Americans who got us into this
mess.
Fear among investors is trumped by personal fear in the financial community. Black bags made yet another appearance
on City desks last week, with JP Morgan, CSFB and Goldman Sachs all rumoured to be "trimming". In some cases,
banks are cutting headcount for the fourth or even fifth time. Survivors are left asking, "Am I next?" No
wonder people are scared.
The collapse on the greed side is just as important. For investors, a whole generation's savings and pensions
have been decimated. Surveys suggest many investors have been put off the markets for life; bricks and mortar have never
felt safer, at least for now.
For market practitioners, the upside has also disappeared. Merger and acquisition activity is now so low that some
banks aren't just cutting departments, they're closing them down. Fund managers' income is calculated as
a percentage of market values, and with capitalisations nearly half what they were, there's not a lot in the pot.
What bonus are you expecting this year? Take the ABN guy who said on receiving his cheque: "That's not a
bonus, it's a tip."
Most people admit it's less and less fun working in the City. The hours get longer (try taking your first
business call at 7am after entertaining clients till 2am) and job security is non-existent. It's a rare
professional who hasn't been made redundant once or several times, and the period between jobs can be excruciating
financially and mentally. Given this background, bankers need all their baubles, bangles and beads ... or rather
Porsches, bonuses and luxury holidays.
And here's the killer, they are increasingly out of reach. One of the overhangs from the feeding frenzy of the
recent Wall Street boom has been the massive inflation in luxury goods prices. There was a time when City folk could
afford good wine. At Christies' wine auction on Monday, I watched a favourite go for pounds 1,300 a bottle.
Equally, while not being able to afford to stay at the Hotel de Paris in the south of France (EUR1,000 a night), I hoped
at least to dine there. A bowl of soup last Saturday? EUR60.
The ill-gotten gains made on Wall Street have led to a dual-pricing system across Europe. It's starting to feel
like an old-style business trip to Moscow, where the good shops and hotels took dollars, and the locals were stuck in
the rouble dives. We, I'm afraid, will increasingly be the rouble spenders. So is it any won- der people are
dropping out?
Next time you see your broker, he may be handing you the beach towel.
[UKIR [UK & Ireland Intelligence Wire]] |
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