Tonight:
5°c
A quarter of a century ago, in the run-up to Big Bang, one firm stood aloof from the series of reforms which internationalised the stock exchange and the equity markets. Lesser stockbrokers might feel the need to merge with merchant banks to create institutions fit for the brave new world, but such behaviour was not for Cazenove. The world might change around it, but it was not for changing. It would make its own arrangements.
And it did. Cazenove had four things going for it. No one was better connected with the leading British companies, no firm was better connected with the investing institutions, no firm was better connected in the equity markets, indeed no firm was better connected, full stop. So it arranged a modest injection of capital, it cemented its relationships with the long-only funds and, in the two decades that followed, it if anything enhanced its prestige by dint of being obviously independent at a time when most advice from most investment banks became progressively more compromised by self-interest.
But time does not stand still even for Cazenove. Its first challenge was that the style of takeovers and corporate activity was changing, and a few years ago it recognised that it needed access to a bigger balance-sheet. So it did a deal taking it under the umbrella of JPMorgan, but which allowed it to operate through an independent joint venture and remain separately managed.
The price it got was a whole lot less than it could have sold for a few years earlier when the likes of Goldman Sachs came courting, so it missed the opportunity to sell at the top of its own market. But the lack of big money aside, the deal seems to have worked quite well.
Its second challenge was that the investment markets were changing. The power rested no longer with the big institutions, where it had unrivalled contacts, but with a new generation of hedge funds where its name mattered much less. This eroded its reputation for knowing better than anyone what was happening in the markets. This brings us to the third, and toughest-challenge. Throughout its life Cazenove had been able to choose who would work for it, and for many years operated a policy where partners could present one son (no daughters) at the door for induction into the fold. They would be taught when to wear a hat and when not, and that if Lazard called they would go to it, but if the caller was a less blue-blooded bank like Ansbacher its people would come to them. That's how the City worked in those happy days and, though that policy evolved with time, Cazenove has struggled with the conflicting images of being aristocratic on the one hand and meritocratic on the other - given the two do not always overlap. So in recent years it has found it increasingly hard to get the best brains - if they could get in, they preferred to work at Goldman or Morgan Stanley, where the pay was better and the work more varied.
Yesterday's appointment of Naguib Kheraj as chief executive is hugely significant. For a start it is an outside appointment - something the firm has not done for years. Second he is not blue-blooded - though given he went to Dulwich College and Cambridge, these things are relative. third, though he has worked in investment banking, and as finance director of Barclays, his is a quite different tradition and outlook from those popularly associated with Cazenove. The message, therefore, is clear. His appointment is a public acknowledgement that Cazenove needs to change - to internationalise and no longer to rely so heavily on uK Plc. When it does, though, it won't be Cazenove. How long, one wonders, before the name disappears and it becomes fully integrated within JPMorgan?
Don't think negatively
Perhaps because few people under 40 have owned a home which has fallen in value - until now - there is a lot of unnecessary scaremongering about negative equity, where the outstanding amount of a mortgage is greater than the value of the house.
Until not long ago, some homebuyers were only too pleased to get 125% mortgages - enough to buy the house and put in a new kitchen. They were happy to start home -owning life with negative equity. So what you think of it depends on the direction in which you reckon house prices are headed.
Negative equity does not matter unless the borrower has to sell and crystalise the loss. In past times when house prices fell, people got on with life and did not move unless they had to. Sitting tight got most people through the storm, and eventually house prices recovered enough to push them back into profit. There was no need for emergency action to shore up the housing market. Indeed, such action was deemed to be socially undesirable because it would have stopped prices falling to the level where they would become affordable again to first-time buyers. There seems to be an assumption, which accounts in part for the weakness of HBOS shares, that negative equity always crystallises into losses for both borrower and lender. In fact, in the vast majority of past cases it did not. Why should it be different this time?
