selling a london · london. it is the cluster that helps. if you are looking for advice it is much...

lan Yarrow has spent 43 years working in the financial industry inLondon.Histenuresawhimwork his way up the ladder of the city’s leading investment bankinginstitutions, enjoying the city’s highs and lows,workingthroughthe‘BigBang’eraofthemid-1980sandthesubsequenttransformationofLondonintothefinancialpowerhouseitistoday.

An industry stalwart, Mr. Yarrow’s career has alsoincluded terms as Chairman of LIBA (LondonInvestment Banking Association), Member of theTakeover Panel, and Vice Chairman of the FSAPractitionerPanel.

His civic career has been equally notable, includingterms as Alderman for Bridge & Bridge Without,serviceasaJusticeofthePeace,Sheriff,andin2013,asHMLieutenantoftheCityofLondon.

InNovember2014,hewasinvestedastheLordMayorof the City of London, head of the City of LondonCorporation,inchargeofservicesfortheSquareMile–theheartofLondon’sfinancedistrict.

He has big plans for his year in office, not leastimproving London’s international standing andendorsingself-regulationinthefinanceindustry.

“Thereareanumberofplans: thereareplanswhicharedomesticandplanswhichareexternal.IspeakforthecityasmuchasIspeaktothecity.SpeakingforthecityIthinkthecityhastoimprovetheimagethathasbeen created by economic circumstances of the pastfive years and part of that is getting the admissionsright – admissions of failure and ofmistakes – andalsosayingthatwerecognisewehavemademistakesand that we are doing something about it and arediscipliningthosewhohaveerred,”Mr.Yarrowstates.

ThemessagetheLordMayorwantstogetoutisthatLondon’s financial market understands things have

gonewrong, but that the industry is doing concretethings to get it right. “If I can leave a vestige ofunderstandinginthemarket,havingdonesomethingtoimprovetheimageofthecity,thenIwillfeellikeIhaveachievedsomething,”hesays.

Mr. Yarrow’s 43 years of industry experience is,naturally,abigboonforhisyearinoffice.Hecomesatthingswithaninsider’sknowledge,andisprobablyone of the city’s biggest critics, aswell as one of itsbiggestambassadors.

“Ihavedonemost thingsandbeenmostplaces. I’vebeenastockbroker,Ihavebeenaninvestmentbanker,Ihavebeeninvolvedincapitalmarkets,Ihaveraisedmoney,andmyfundamentalethos is toraisemoneyforgrowingcompanieswhich improve theeconomy,andthatisthemanifestofwhereIhavebeenworking,”heexplains.

Having been involved in the active coalface of thefinanceindustry,in2000,Mr.Yarrowtookachange in career path moving away from running a bigequitiesbusinesstoworkinpolicyandimprovingthemarket. Thismove sawhim take up theChairman’srole for LIBA, an advocacy group of investmentbankers,whoworkedwiththeEuropeanCommissiononISD2(MiFID).

“I made LIBA the place where you came to.Where theEuropeanCommissioncameto,theTreasurycametoandtheregulatorscametoowhentheywanted toknowtheopinionoftheinvestmentbanks.Itdoesn’tsoundveryinterestingbutItellyou,itwaslikeherdingcats!”headmits.

“Trying tofind the commonmessageof thebankingsectorwas critical.Wehadaveryeffectiveadvocacygroup talking to people on issues that impacted thecity.”

A dedicated ambassador, supporting and promotingtheCityasaworldleaderininternationalfinanceand

businessservices,theLordMayortravelsextensively,inliaisonwiththeForeignandCommonwealthOfficeandUKTrade& Investment, fostering goodwill andboosting British trade, particularly the markets andservicesoftheCity.

For Mr. Yarrow, coming to office in the wake ofLondon’s ‘Fixing Forex’ scandal, promoting thecity and getting out into the global market is moreimportantthanever.However,hesaysthattheimageoutsidethecountryisverydifferenttotheoneinside.

“The message coming from overseas is ‘don’t startapologising forwhat you’ve donewrong, just tell uswhat youhavedoneabout it andwhatwe can learnfrom it as anoverseasmarket sowedon’tmake thesamemistakes’. They really appreciate an open andhonestdiscussion,”hesays.

“Numberoneistoletpeopleknowthattheycancometothecityandgetqualityadviceonsubjectsthattheymightnot get aproperdebate onathome, and thatiswhyMansionHousebecomesaconveningpointforpeople who want to have financial discussions. Thecity is seen as being a balance of international andwesternfinance,whichisafantasticplacetobe.Theinformationisthat,fromtheoutside,thetrusthasnotbeenasdamagedasontheinside.”

Selling LondonDuringhis12monthsinoffice,Mr.Yarrowwillfollowa hectic programme of international visits leadingdelegations of senior business representatives tomeet those at the highest levels of government and

industryinoverseascountries.ThisiswiththeaimofsellingtheCityasaplaceinwhichtodobusinessandpromoting itsexpertise.Thiscanrange fromadviceonraisingcapitalformajorinfrastructureprojectstoprivate finance initiatives and government-industryco-fundingarrangements.Naturally,he is confidentintheproductheisselling.

“Three out of theworld’s five biggest law firms arein London, all the largest accountants effectivelycome from this country, the markets, the propertyexchange,insuranceareallbasedhere.Itisaone-stop- shop,”hesays.

“We have 8.6 million of the population living inLondon, and one third of businesses are created in London.Itistheclusterthathelps.Ifyouarelooking foradviceitismucheasiertocometooneplace,andfewcountriescanofferwhatweofferhereinLondon.”

Mr. Yarrow points out that while advice oninvestmentisvital,whatalsosetsLondonapartasaninternationalmarketisitsruleoflaw.

“There is a rule of law that is well established andreflective of a fair and objective opinion. We havegood dispute resolution processes in the form ofarbitrationandyoushouldneverunderestimate thevalue of legal contract which, again, is difficult toestablishinsomeforeigncountries.

“Also, we are a destination where people come toinvest in property. Just look at Qatar InvestmentAuthority’s (QIA) recent purchase of CanaryWharfGroup,”hesays.

OneofthekeysellingpointsofLondonistheLondonStockExchange(LSE).LocatedintheCityofLondonat Paternoster Square, it falls under Mr. Yarrow’sremit as Lord Mayor. The LSE is the fifth largeststock exchange in theworld and the second largestin Europe. As at December 2014, the Exchange had a market capitalisation of US$ 6.37 trillion (€5.6trillion).

Career financier Alan Yarrow, Lord Mayor of the City of

Londonfor2014-2015,talkstoSarahMcCay,EditorofFinance

Monthly, about why international investors should still use

London, improvingLondon’s imagedomesticallyandabroad,

theimportanceofself-regulationinthefinancialindustry,and

thepotentialimpactofdeflationontheUK

SELLINGLONDON

A

Selling LondonSpecial Feature

FINANCEMONTHLY 2928 www.finance-monthly.com

“The problem is whether or not the money from QEfindsitswaytotherightplaces.Thereisadegree of ‘ownership’ of the bonds, which effectively isnational. TheECB, I believe, is responsible for 20%of the bonds. So by definition those peoplewho areheavilyindebtalreadyhavelessroomtomanoeuvre,”heexplains.

AtthecentreoftheEurozonefinancialcrunchsitstheSMEand theLordMayor ismindfulofhowQEwillimpactthisvitalcoreofEurope’seconomy.

“Because Europe is so banking related and becausethe banks need to improve their capital buffers thismakes themmoremindful ofwho they lend to.TheSMEisatthebottomofthepileofpeopletheywouldliketolendto.ThethingaboutSMEsisthattheyareparanoidaboutcashflow.Weneedtobetougherongovernments to pay theirmajor contractors on timeandtougheronthemajorcontractorstopaytheSMEsontime.It’safoodchain.Attheendoftheday,smallcompanies live on cash. I saw somewhere the otherday where some company had changed its paymenttermsfrom60to120days–thatiscriminal.Thatisanattitudethathastochange,”hesays.

“QE is important and it had to happen and hashappened,butwehave to lookat cashflow to smallcompanies.99%ofcompanies intheUK,and98.5%intheSquareMile,areSMEs.IfyouareanSMEyoumightemployfivepeople;ifyouputonemoreperson

onthatisa20%increase.IfyouareGlaxoSmithCline,forexample,andyoumerge,thefirstthingyoulookatishowmanypeopleyoucancutout.”

Sowhile Europe debates its financial future, shouldthe UK now feel vainglorious in its decision not toenterthecurrencybloc?TheLordMayorthinksnot,

butbalancesthepositivesandnegativesoftheSterlingstandingalone.

“Look at what happened to the Swiss Franc. Nocurrency can possibly stand up to the global flowsthathappen. Itsfinewhenthingsaregoingwellandwhenyouhaveyourborrowingundercontrol,anditsfinewhenthingsaregenerally lookinggood,butyoudowantabiggerpool toprotectyouwhenthingsgowrong.Butwhatwehaveistheabilitytodevalueandrevalue. It givesmore flexibility and ammunition togovernment if their currency is floating. There’s nodoubtaboutthat,”hemaintains.

Looking forwardThefinancial future still remainsdifficult to predict,with the UK facing possible deflation. Inflation hit its lowest point since 1960 towards the end ofFebruary, with many industry analysts predictingdeflation to be just a month away. However, Mr.Yarrowisquicktopointoutthatthereisgooddeflationandbaddeflation,andthatinthisscenariodeflation isdefinitelyagoodthing.

“Theloweringcostof fuel isgood.However,I thinkit’sverytemporary–thissocalledbenefitofdeflation.Idon’tknowanyonewhohasputoffbuyinganythingbecause they think it will be cheaper tomorrow.However,Ithinktheconsumerhashadanenormousboosttotheirpocketinviewofthe30%reductioninoilprices,andwewillstarttoseethiscomethroughtothewagepacketinthenextsixmonthsandthenwewillstarttoseeinflationagain.

“Manufacturers are also seeing the benefit of adecrease in expenses. This will impact at least 1%GDP.That’simportant,”hepredicts.

Soallisgoodnews,oratleastitwillbeinsixmonthsorso?Mr.Yarrowhasotherconcerns.

“No one has asked the question about balanceof payment or the invisible balance of paymentrecently.Theseareallissuesthatwillcomeoutofthewoodworkandgivethecurrencyabigshock.Itwon’tbegoodnews,”heforecasts.

“We are selling all these assets off, such as CanaryWharftoQIA.Thesepayarentandtheseareinvisiblecapital flows going out of the country. You might see the capital coming in for buying it but thensomeone has to pay the rent. If they buy CanaryWharf,why?BecausetheywantanassetinLondon,and they can get a foreseeable income flow, but that income comes out of the balance of payments.What’s CanaryWharf going to dowith themoney?Chances are they might invest it outside of the UK. Looking at that, those two issues are going to be pretty critical going forward and it’s going to bebadnews.”

Challenges lay ahead, whether from deflation, thebalanceofpaymentsdeficit,orfurtheruncertaintyinthe Eurozone.However, ifMr. Yarrow does deliveron his promise of improving the image of the city,London will be in a stronger position than ever totacklethesechallengesheadon.

Xavier Rolet, the current CEO of the LSE, wasMr. Yarrow’s Head of Trading when he worked atKleinwort’s and sat on his markets committee atLIBA,alongwithRobertBarnes,CEOofTurquoise,he therefore knows the LSE and its inner workingsverywell.

“IthinktheLSEisdoingafantasticjob.ItisthefastestgrowingequitymarketinEuropewithTurquoise,theequitiesandderivativestradingplatform.Turquoiseisgrowingveryrapidly,ithasalsochangeditsapproachtoitscorporatestructure;itrecognisedthatthegrossrevenuesofmarketsacrossEuropearesolow,Ithinkatabout€120milliongrossrevenueofallexchanges,thatdiversificationwascritical.TheLSEhasthereforeboughtotherbusinesses tobroadening theirsupportservicesforinvestmentfundsandalsotheyworkverycloselywiththeircustomers.Allthoseissuesareveryimportant;youhavegottohaveacollegiateapproachtomarkets,”Mr.Yarrowmaintains.

AlibabaFor2014,oneofthebigtalkingpointsofthemarketwas not a major win, but the loss of the AlibabafloatationinSeptember.

“Why didn’t Alibaba come here? It’s because we believethereshouldbeoneclassofequity.Webelieve

the value of equity should be protected We don’tbelieve in having multiple classes of share becausethatisthewayyougetcronyism,”saysMr.Yarrow.

“Becausewewouldn’tagreetothelistingofdualclassofshareiteffectivelywentawayfromus,butbecausewewanted it to.$25million (€22.6million) isabigfloat tomiss, but it is not about one listing.DespiteNYSE getting Alibaba, LSE is in rude health andgainingrapidly,”hemaintains.

GFC and self-regulation Arguably,thefinancialworldhaslearntalotsincetheglobalfinancialcrisis (GFC)of2007/2008.Today,aseachangeistakingplace–notjustinthemarketbutalsointhemoralsofthemarket,andthisisonechangetheLordMayorischampioningwithspirit.

“From2003onwards,and thebuild-up to2007/08,therewasa lossof focusontheservice to theclient.Peoplewereovertakenbya very selfishgreedwhichlooked at how much they could make despite whattheyweredoingandforwhom.Thatwasthethingthatreallydidthedamage.Wehavetorecognise the factthatthepriorityistheclient.Andthattheyhavetobere-establishedasthepersonwhoneedstoreceivethegoodserviceandadvice,”hesays.

“I chair the Chartered Institute for Securities &Investment (CISI)–we look at integrity and ethicalissues and ‘dictum meum pactum’ (my word is mybond)isourmotto,theotheroneis‘theclientcomesfirst’,”headds.

Talkingaboutthe‘Culture of Banking’report,releasedinNovember2014bytheNewCityAgenda,afinancialservices think tank and forum, the Lord Mayor iscandidinhisapportionofblame.

“Let’sbehonest,itwasn’tjustthebanks–itwasrightacross the board. Itwas a change of attitude,whichtookplaceafter2000,thatreallydidthedamage.Thebanksjusthappenedtohavebalancesheetsthattheycouldgetcompensationfrom.

“Theseniorlevelofthebankshaveallbeencleanedout and sorted. Now we have the more painfulprocessofgettingtheethosandthecultureembeddedbackintothebigstructureof150,000peopleandalsoto recognise that they also have got to put throughchangesthataregoingtotaketime.It’sgoingtotake5-10years.Wehavetoapproachthisforalong-termchange.Whatisittheysay?‘ReputationrisesbyfootbutgoesoutinaFerrari’?”heremarks.

Self-regulationandbusinessmoralsareintheheartofMr.Yarrow’smessage.

“Self-regulation is critical and I think that tradebodies play a very important part here. But tradebodies and professional institutes also have to have an instance of disciplining their members. CISIhastodisciplinetheirpeopleiftheymisbehave.What we are looking for is more professionallyqualified people who have to sign up to a setof professional principals that focuses on theirbehaviour and we are very keen we make sure wemaintain a strong representation of professions in thefinanceworld,”hestates.

“Appropriateregulationisnecessaryinanymarket.Alotofthatisdonebyself-regulationandbehaviour.Ithinkthependulumhasswungtoofarwhenitcomesto self-regulation and I would like to see it swingbackagainandbecomemuchmoreofafeatureofthefuture.Wearetougherandfaireronourownpeopleas a self-regulatory organisation because you arebeingjudgedbyyourpeersandnotbysomeofficialregulatorfromoutside.”

Europe’s woes, London’s gains?The pound sterling jumped in value against theEuro as soon as the European Central Bank (ECB)announceditsQuantitativeEasing(QE)programmeinlateJanuary.WhileMr.Yarrowseesthecurrencyfluctuationsasanaturalreaction,heremainswaryofhowtheECB’sQEprogrammewillpanout,andwhomayindeedactuallybenefit?

The consumer has had an enormous boost to their pocket in view of the 30% reduction in oil prices, and we will

start to see this come through to the wage packet in the next six months and then we will start to see inflation again.

“ “

Selling LondonSpecial Feature

FINANCEMONTHLY 3130 www.finance-monthly.com