Warburg, maker of the modern City
WITH a tan topped up over the weekend by a stay on a Greek island and his TV don’s hair – which looks like a tame version of Melvyn Bragg’s – a crisp white shirt, relaxed manner and a gentle Scottish accent, Niall Ferguson is without doubt a smoothy-chops. He’s also one of the best-known historians in Britain and his interest in economic matters means that he is deeply engaged with the current financial crisis. Somehow, between lecturing on the Greek crisis, writing informed newspaper articles and teaching on the Harvard MBA course, he has found time to write a new book, High Financier, a superb biography of Siegmund Warburg, the founder of investment bank SG Warburg, and the man who made the modern City.
So why Warburg? And why now? “What attracted me to him was that he was a banker motivated by something other than the pure bottom line,” Ferguson says, sipping a ginger beer. The idea for the book began 12 years ago, just after Ferguson’s book about the Rothschilds was published. “Warburg’s people came to me and asked me if I’d thought of doing a life of Siegmund. I took a look at the 1933/34 diary and it was electrifying.” He wanted to work on it but the timing wasn’t quite right. “Then the financial crisis happened and I thought: ‘This is about the lost world of bankers with morals. Now’s the time.’”
Indeed, when asked what were the characteristics of a good banker, Warburg put “moral standing” top of the list. Banking was “a calling” for him, says Ferguson, who describes him as a “monk”, a “puritan” and an “artist banker”. This is a man who would turn down potential clients if he didn’t approve of their behaviour, however wealthy, and he was worth just £2m when he died. “He didn’t really care about money,” says Ferguson, “which is unusual for a banker.”
Born in 1902, Warburg was the highly educated scion of a Jewish banking dynasty who entered the family business, despite interests that might have led him into the arts or academia. His experiences in Weimar Germany – where he was already involved in politics – formed his outlook, and he left in 1934 as the rise of the Nazis made life untenable. In many ways, Warburg created the City as we know it. In an era when banks were more like gentlemen’s clubs and bankers wandered into the office at 10 before taking long lunches, Warburg employees were in at eight, laboured for long hours and could expected to be called any time – even Christmas Day. And instead of being locked in oak-panelled offices, the Warburg building at 30 Gresham Street had open-plan offices, creating a more dynamic and democratic environment.
Warburg was also influential on the way the City does business. In the late 50s he advised on the hostile takeover of British Aluminium – the first in Britain – an episode which became known as the Aluminium War. His activities were described by Treasury officials and competitors as “monkey business”, “jungle warfare” and “piratical ventures”. Warburg thought nothing of poaching clients from other banks, something considered beyond the pale at the time. There was no time for sentiment. When his own son’s bank began to wobble Warburg was quick to pull his financial support. He was, to use a cricketing analogy, a player in a world of gentlemen.
Warburg is also largely responsible for turning London from a financial backwater into Europe’s financial centre. An ardent advocate of European union, he believed that money could unite people better than nation states, which he saw as outdated 18th century constructs. It was this idealism that led him to almost single-handedly create the Eurobond market in the early 60s and he spent far more time and effort on the market than on more profitable business. Eurobonds were company bonds denominated in dollars or sterling, and which could be transferred with minimal tax and without having to declare your purchases, something which helped money flow across borders without government interference. He was, says Ferguson, “a prophet of globalisation”.
Banking, for Warburg, was a way to live a cultured life and he loved to surround himself with people who had a hinterland. He would ask interviewees for the SG Warburg bank what they were reading and if the answer came back “Thomas Mann”, or “Kafka”, then they were employed. One senior SG Warburg described the attitude to hiring as: “You don’t buy a tie because you need it, but because you like it.”
Ferguson also says that he was intrigued by Warburg’s view of himself as a “banker-physician”, a trusted confidant and advisor making use of his skill and knowledge to diagnose and treat. He considered M&As and takeovers to be the really important things – it was all about “relationship”, rather than “transactional” banking and he was scathing of “gamblers” who played the stock markets. He called mathematical economics “a cult”, deriding “those dogmatic economist-statisticians who prove with a terrific array of figures that certain definite things will happen at a certain definite date”. He refused to have charts in a bond issue prospectus.
PRINCIPLED ACTION
Behind it all was a deeper ethic, and Warburg would talk eloquently about the culture of personal freedom running from Ancient Greece to Renaissance Italy – modern banking was continuing the traditions, he thought. His beliefs and experiences informed his actions. “He was typical of a generation of German Jews whose world was ended, in some senses literally, by the events of the 1920s and 30s,” says Ferguson. “His experience taught him that life could be pretty bloody nasty and that informed the way he behaved, his career was the result of a traumatic youth. He was very wary, especially in the 1970s when it looked like things were going in a Weimar direction.”
This contrasts to the current crop of bank CEOs, Ferguson says, few of whom began their careers before the 1980s. “Nothing has ever happened to the current bankers. Volker tamed inflation, then there was Thatcher and Reagan, it has been one long party. In 1987 Greenspan just cut interest rates and things carried on as before. It’s no surprise that they kept dancing until the music stopped.”
What would Warburg have made of today? “He would be disgusted by what has happened. The downturn was the result of the triumph of transaction banking, and he’d say that this is exactly what he warned about. For him transaction banking was what caused the crash of 1929 and he saw relationship banking as the solution to that.”
Ultimately, Warburg failed to see that relationship banking couldn’t work in the world of large-scale American markets, and that only universal banks could flourish there. His firm was eventually bought by Swiss Bank Corporation and eventually swallowed up into UBS. But still Ferguson thinks that the example of Warburg’s attitude can help guide the next generation of bankers. “I’m wary that ethics teaching becomes like Thought for the Day,” he says. “I don’t think that we should just interrupt the [MBA] programme every so often to bring you news from the New Testament”. Instead, they should understand the duties that bankers have, and the deep importance of banking to society.
Ferguson thinks that there should be a Hippocratic Oath for bankers, although it has to be far deeper than a few high-sounding rules. That ethics was reduced to rule-following was one of the triggers for the crisis. Again, Warburg’s physician-financier model is illuminating here. “Imagine if doctors behaved that way, doing the minimum to make sure what they did complied with the standards, just think what a scary an experience going to the doctor would be,” Ferguson says. “As we are re-thinking the role of the CEO, I think we can learn a lot from Warburg”.
Niall Ferguson will be giving a talk called Men, Money and Morality: How Can Trust in Banking Be Restored at St Paul’s Cathedral tomorrow at 9pm. Entry is free.
High Financier is out now, priced £30
CV | NIALL FERGUSON
Born: 1964, in Glasgow
Life: Married to Susan Douglas, a journalist, although they have now separated. They have three children together.
Positions: Laurence A Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School. He is also senior research fellow at Jesus College, Oxford, where he taught for 10 years.
Books: The Ascent of Money (also made into a television programme); The World’s Banker: The History of the House of Rothschild; Empire: The Rise and Demise of the British World Order and the Lessons for Global Power. He is working on a biography of Henry Kissinger.