By Ruth Sunderland for the Daily Mail
Published: | Updated:
In 1933, a little-known Italian-American cobbler’s son, armed with just a cigar, a sharp intellect and a relentless disposition, squared up to the most arrogant titans on Wall Street.
It may have seemed an unequal fight, but Ferdinand Pecora, in his role as chief counsel to the US Senate Committee on Banking, won a decisive victory that benefited the world’s financial system, and ordinary businesses, savers and borrowers, for generations to come.
Charged with investigating the causes of the great stock market crash of 1929, he subjected the bankers of his day to merciless public grillings about their behaviour.
Hitting the headlines: The scene outside the New York Stock Exchange on the day of the 1929 Wall Street Crash
Pecora’s ruthless anatomising of legal tax avoidance, conflicts of interest, bad loans by the bucketful and cosy dealings with politicians led to the founding of Wall Street regulator the Securities and Exchange Commission, still a feared watchdog today.
It was also the catalyst for the Glass-Steagall legislation that forced banks to separate their casino operations from their utility savings and loan activities.
His legacy was a major contributor in keeping the financial system, if not scandal-free, then at least broadly stable for the following half-a-century. Readers, you can see where I’m going with this. The chief executives of the UK banks have appeared before the Treasury Select Committee, but it has all been fairly decorous. They should be subjected to a full-blown inquisition.
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There ought also to be full-blown institutional separation of retail and casino banking, along Glass-Steagall lines, and not the diluted ‘ring-fencing’ option the Government proposes.
Good retail bankers are ill-suited bedfellows for investment bankers, whose mentality is all about risk, profit and personal gain.
In the past five years the banks have dismissed their critics as panders to populist sentiment. Their self-image is that they are misunderstood social benefactors, as with Bob Diamond and his Citizenship programme. Plus ça change. In the preface to his book Wall Street Under Oath, Pecora noted how the bankers of the 1930s saw themselves as ‘simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob’.
He concluded drily: ‘These disingenuous protestations are, in the crisp legal phrase, “without merit”.’
If we are ever to cleanse the banking system of the corruption and greed that have brought about this week of shame, we need to find our Ferdinand Pecora.
Rock of Agius
The ruling cabal of investment bankers is unlikely to remain intact at Barclays for much longer.
First to depart will probably be chairman Marcus Agius, a former Lazard man. He was already bruised by the row over Diamond’s £5.75m tax payment, and some investors still bear a grudge over his handling of the sale of a stake to Qatari investors that left them diluted.
He is now under pressure from shareholders to accelerate the announcement of his retirement date thought to have been pencilled in for Christmas. Alison Carnwath, the pay committee chair, may well glide out in his slipstream. That would clear the way for senior independent director Sir Mike Rake to oversee a bigger shake-up.
One school of thought among shareholders is that Diamond is dispensible as soon as a credible replacement is lined up.
Other influential investors want more radical change, with a re-examination of the whole business model and a move away from investment banking.
For Diamond and his lieutenants Rich Ricci and Jerry del Missier, that is not easy listening.
Melrose boys
Fortunately, Diamond, Ricci and del Missier are not the only trio in town. Another threesome, Christopher Miller, David Roper and Simon Peckham of engineering group Melrose have better reasons for being in the spotlight.
They have pulled off a manufacturing takeover, and not only that, their acquisition is a German firm, reversing the trend for UK businesses to be swallowed by overseas predators.
Melrose is an acquisition vehicle run on private equity lines, but without the secrecy or tax wheezes; it has raised £1.2bn of equity in three days, with 65pc underwritten by existing shareholders which is quite a vote of confidence in the management and the £1.4bn bid for Elster, a utility meter-maker.
The City has reason to trust Melrose on its track record, having made more than three times their money out of its previous acquisitions of Dynacast and McKechnie, and two and a half times their money so far out of FKI.
The Melrose boys are handsomely rewarded, but having seen the share price rise more than 300 per cent in the past five years, there are few if any objectors.
It is not all despondency in the Square Mile this weekend.
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