A Life of Transactions

I attended a lecture by the eminent economic historian, Niall Ferguson, on the life of Sir Sigmund Warburg, probably the foremost British merchant banker of the post-war era.  The focus of the talk was the difference in business approach between Sir Sigmund and those of a typical large, modern investment bank; between relationship banking, focussed on successful long-term relationships and transaction banking, focussed on winning the next mandate.    Mr. Ferguson's assertion was that Warburg's focus on:

• Building strong and lasting client relationships, based on trust, equality and mutual benefit;
• Cultivating connections across the business and political world, as well as broader society;
• Concentrating on the quality of advice and service rather than the short-term bottom line;
• The importance of reputation over profitability;

would have avoided the excesses of the current financial crisis.  This was a position that I could not disagree with, but it got me thinking about these matters in a broader context.  Have our lives in general become too transactional and less about relationships?  It is very easy to pin the blame for the financial crisis on "banks" and "bankers", but "banks" are not independent organisms and "bankers"are not a different species (even though they may seem so).  "Banks" are run by people; those people are "bankers", and they are a reflection of the world in which they operate and the society in which they exist.

Over the last 30 years banks have grown exponentially, services levels have deteriorated and the focus has moved to selling the most number of products/transactions and increasing productivity/profit levels.  Certain bankers have done very well, e.g. the proprietary traders at large investment banks, but others have done badly, e.g. the clerks and branch managers who used to man high street branches and whose jobs have either disappeared to call centres in India or have had their jobs de-skilled to become loan and insurance sales people.  Public opinion bemoans the disappearance of "old fashioned" banking, but any attempt to offer such services have failed to gain traction beyond niche sectors (principally the wealthy utilising private banking services); the mass market wants no fees, the highest savings rate, the lowest loan rates etc..  Banks are after all merely businesses; we may claim we want better service, but we buy on price; we have the banks we deserve.  Maybe the best example of this were Northern Rock and the Icelandic banks that collapsed so spectacularly: Northern Rock gained a huge share of the UK mortgage market by lending a greater proportion relative to the value of a property (its infamous 125% loan to value mortgage being the worst example) and the borrowers income; IceSave, whose savers had to be baled out by the British and Dutch governments pulled in over £2bn of UK savers money by regularly topping the "Best Buy" tables for offering the highest interest rates.

As an aside to this, I think it is also worth commenting on Sir Sigmund's personal financial position.  He was clearly a very wealthy man from a even wealthier family, but he appears to have viewed money as a reflection of satisfied clients rather than an objective in itself, and dedicated a large element of his fortune for philanthropic purposes. 

What about in areas outside the world of banking?  Survey after survey claims we desire a return to the days of when high streets were filled with independent retailers offering good service and who knew their customers by name, but the reality as demonstrated by where we actually spend money is that we want cheap food from Tesco and WalMart and cheap clothes from Primark and TopShop.  We don't give a damn about service, about having a shopkeeper we have a history with; we want yet another £1 t-shirt or a bargain price on a crate of Stella.  We get the shops we deserve.

How often do you hear people bemoan the "lack of community spirit" or how "kids have no respect any more"?  Next time you hear such a comment, ask that person whether they are a Scout leader/football coach/Sunday school teacher/etc.?  I would stake my buy one, get one free bottle of Tesco Cava that the answer will be "no"; they will be "too busy", "have enough responsibilities", etc.; thus we get the kids we deserve.

So to put Mr. Ferguson's suggestions into a broader context:

• Building strong and lasting relationships throughout our lives, based on trust, equality and mutual benefit;
• Cultivating connections across the communities in which we live, work and play;
• Concentrating on the quality of our human interactions and our surroundings rather than the short-term bottom line;
• The importance of reputation over wealth;

would lead to a better society.  So before we all point our fingers at others, blaming them for the problems that surround us, let us look in the mirror first.

Nick