On the face of it, I picked a bad week to volunteer to write about the rebirth of gentlemanly capitalism. My thesis was that the credit crunch would lead to a profound shift in the way the City goes about its business, heralding a return — if not to bowler hats and brollies, liquid lunches and civilised working hours — then at least to an environment where longstanding relationships once again took precedence over the quick buck. After two decades in which the City appeared to have adopted Caveat Emptor as its new motto, I reckoned this financial crisis would bring about the restoration of its old one, Dictum Meum Pactum: ‘My word is my bond.’
But last week, bowler hats did make a comeback in a way that no one had expected. Bradford & Bingley, famous for adopting this symbol of old-world City respectability in its advertising, was forced to renegotiate a £300 million rights issue that had been fully underwritten by two top banks. Did UBS and Citigroup walk away — or threaten to walk away — from their commitment, thereby breaking perhaps the most sacred contract in the financial world? Both banks deny they did any such thing. But that is almost beside the point. The reality is that many people don’t believe them.
That alone gives an indication of how far trust has broken down in the Square Mile. But it is hard to underestimate what a disaster it is for the City should the suggestion that banks can refuse to honour an underwriting commitment take hold. ‘No one is going to believe anything we say again,’ says a top executive of a rival bank. ‘When we underwrote last year’s rights issue by Fortis [the Belgian bank] to enable it to buy a piece of ABN Amro [as part of Royal Bank of Scotland’s consortium], we had to look Belgian, Dutch and EU regulators in the eye and convince them Fortis would definitely have the money.
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