Belief In Vision And Commitment.
Define Shared Values And Let Values Rule.
Build And Synergize Corporate Capabilities.
Focus On Care About Our Customers.
Re-invent Our Business Continually.
Institutionalize Innovation.

How To Increase Revenue: - Part One

Read Part Two
The second half of the last decade of the twentieth century got off to a bad start for London’s financial community. Not only did London’s oldest merchant bank. — Barings — go bust early in 1995 as a result of speculation in Far Eastern financial markets. But the Bank of England declined to bail out London’s oldest merchant bank. And, when the remains of Barings were eventually and ignominiously scooped up by a Dutch banking group, did the City of London resound to the cry ‘The Barings investors must be saved’? Not a bit of it.

The Barings staff, according to press reports, was more concerned with negotiating to retain their bonuses. Hardly less edifying was the sight of major insurance companies and other financial institutions forced to set aside many millions of pounds in compensation for members of the public. These were the people they had persuaded to opt out from perfectly good occupational pension schemes to buy inappropriate and expensive personal pension products.

To complete a dismal picture, another one-time colossus of the insurance world was in trouble. Lloyd’s of London, the international insurance market, had lost over £8 billion for its investors in recent years and its long-term solvency was being increasingly questioned. These were the disasters. There were successes as well. But in their own ways, the Barings collapse, the personal pension’s fiasco and the problems of Lloyd’s highlighted several strands in Britain’s financial life as the millennium drew to its close.

We will come to some of them in a moment. But first, a little history is in order. For the investing public the early years of the 1990s were relatively sober, if not sombre. The decade kicked off with the most painful recession in recent memory. It destroyed many long-cherished illusions. House prices could only rise, the post-war generations had been taught to believe. They fell, often by more than 30 per cent, and many buyers of the late 1980s found themselves owing considerably more on their homes than the homes were worth. They learned the miseries of ‘negative equity’. Commercial property values slumped and for a time the market almost seized up. Many of the stock market’s darlings of the 1980s — companies that had expanded rapidly on the back of borrowed money in the boom days — went bust or survived extinction only by the grace of their bankers.

The UK banks themselves had to write off many billion pounds worth of loans: much of it representing lending to property companies. And the chill threat of unemployment spread far beyond its traditional bounds to invade professional homes in the once-pampered south-east of Britain. What later came to be characterized as the ‘feel-good factor’ was noticeably absent. The contrast with the 1980s could not have been more marked — which is not surprising, since the early 1990s were forced to pay for the excesses of the previous decade. The feel-good factor had been much in evidence in the 1980s, except among the poor.

Share prices on the stock market more than trebled between 1982 and 1987 and house prices trebled over the decade. The Thatcher boom had created the illusion of wealth-without-effort as the former state industries were sold to the public at prices below their true value. A generation which had known nothing different came to believe that shares could move only upwards. And there was plenty of encouragement from the booming financial community, which made the fatal mistake of believing its own sales pitch and convinced itself that it had discovered the philosophers’ stone. The euphoria came to an abrupt end in October 1987, when stock markets worldwide crashed. Shares in London dropped 20 per cent in two days and continued on down for a fall of more than 36 per cent, from their peak.

Investors learned the hard way that no boom continues for ever. Though the events of 1987 are now fading into history, we have retained in this edition a chapter on the crash. Investors forget the lessons of crashes at their peril. In fact, the 1987 crash was largely a stock market phenomenon. An excessive boom which had driven share prices far too high was corrected by a stock market bust, remarkable only in its speed. At this point inflation, not recession, was the gathering problem. It was more than two years on that recessionary forces began to bite, with interest rates roughly doubled as the government attempted to restrain the inflation that its policies had fuelled.

With the exception of over- borrowed businesses and property-related concerns, companies as a whole survived the recession rather better than might have been expected and the stock market was far from being a disaster area in the early 1990s. But the feel-good factor had well and truly evaporated. Much else was to go with it. The publisher Robert Maxwell went over the back of a boat as his business empire crumbled. In one of Britain’s biggest ever financial scandals, it emerged that his company pension funds had been ripped off for hundreds of millions of pounds as he had attempted to prop up his crumbling business edifice. Margaret Thatcher went, propelled partly by her adherence to the deeply unpopular poll tax, though a Conservative government survived for the time being.

Britain’s membership of the Exchange Rate Mechanism of the European Monetary System came and went, and politicians savaged each other in the deep controversy over Britain’s place in the European Union. But these domestic preoccupations paled into insignificance on the global scale. Communism had gone. Stock exchanges were springing up in the former Eastern Bloc countries. Every manner of Mafia-style business activity was springing up, too. The inhabitants of the new Wild East were learning the transition pains as well as the joys of a move towards market systems. Investors in Britain who were active at the beginning of the 1980s have thus experienced two vastly different financial climates.

But fundamental changes to Britain’s and the world’s financial systems were taking place throughout, only slightly tempered by the cycle of boom and bust. The process was not over by the mid-1990s, but the most important changes had probably taken place and, indeed, some of the developments of the 1980s needed review in the light of experience. In the 1960s and 1970s you could safely have assumed that a life assurance company sold life assurance and pensions, a bank took deposits and lent money and a building society provided mortgages for homebuyers. They still do, but they do a lot of other things as well.

The life assurance company may manage unit trusts, provide mortgages for homebuyers and perhaps even own estate agents. The bank probably markets mortgages, unit trusts, pensions and insurance, and may be deeply involved in the stock markets. The building society is chasing the banks by offering cheque accounts, credit cards, personal loans and maybe even pensions. It may also be proposing to turn itself into a bank. And a wide range of overseas financial institutions is now competing with the domestic ones on their home patch.

The changes mean we have to rethink ‘-our definition of traditional financial institutions and learn to accept new words to describe the practices of new markets or the new practices of existing ones. The changes are part of a deregulation process known as the financial services revolution. In the course of this revolution the traditional demarcation lines between different types of financial institution have been breaking down. Some of these demarcation lines were the result of legal restraints. Some had grown up over many years following custom and practice.

Where the restraints were legal ones the government may have relaxed them, as in the case of the building societies. Where they were merely traditional, the institutions themselves have changed. Deregulation at its simplest stands for competition in the domestic savings market. The financial community is vying for the privilege — and the profit — that derives from managing the nation’s savings. Another aspect of the deregulation process in Britain is what came to be known as the Big Bang on the London Stock Exchange.

Traditionally the Stock Exchange had been a club, deciding its own rules, working practices and the very hefty charges clients paid for its services. The government forced a change towards a more competitive trading system and a breakdown of traditional demarcation lines. It became known as the Big Bang because the most important changes took place on one explosive day: 27 October 1986. No longer were banks in Britain prevented from undertaking stock market business. Most of the country’s traditional stockbrokers and stockjobbers were taken over by UK and overseas banks.