Sometimes it is the simplest phrase that captures everything in five words that some articles of a thousand words fail to do. A private client fund manager encapsulated the challenge that everyone in the financial sector is facing at the moment when she said “The problem is no wealth is being created right now”. And the GDP figures for the UK certainly bear that out.
For years banks, fund managers, intermediaries and brokers feasted on a rising tide of wealth. Some of it came from economic growth, some of it came from government largesse, but the bulk of it came from the miracle of fractional reserve banking. Each additional pound of equity a bank retained could be lent out nine times to others clamouring to buy a bigger house, larger kitchen or just pay off the credit card. No one liked banks particularly much then but, hey, if it was going to lend you 100% of the value of your dream home that you could flip for a 20% increase in five years who were you to moan about greedy bankers.
Bankers only became pariahs when they wanted their money back. Then they were greedy. In his mind the 50% gain the householder had made by astutely buying the worst house on the best street was all his and was nothing to do with the cascade of cash that fuelled the housing boom by granting limitless credit to him and his neighbours.
It couldn’t last of course. And it didn’t. Moreover, it was much more convenient to blame investment bankers, especially those in America, than our own greed when the Ponzi scheme stopped.
Nevertheless, the 16 years between the “green shoots” of recovery so accurately spotted by Norman Lamont, Chancellor of the Exchequer, in 1992 and the crash in 2008 did create huge amounts of wealth for householders, builders, plumbers, car dealers and a whole host of industries relying on consumer spending. That fuelled a boom in savings and eventually some of it did find its way into the stock market via ISAS, SIPPs and pensions. Wealth management is a late cycle business because saving is the last thing you do with cash.
Even the tech bubble of 2000 didn’t really dent the wealth management business. It was the bank collapse in 2008 that did that.…
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Rob Davies
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