Another kick at the can

Another kick at the can

Not to be discouraged, I quickly recovered from the Antony Gibbs debacle. I wanted to be involved in the world of investment banking and I decided that the location for me was London, England. So I began another letter writing campaign. In addition, I looked for help.

At that time, the Minister of National Revenue of the Government of Canada was the Honorable Herb Gray, MP. He was involved in developing a government position paper on financial services, the focus of which was that Canada needed to encourage the development of merchant banks. This position paper was right on point with my career aspirations to get involved in merchant banking in the England.

So I did something very bold! It was a leap of faith in my ability and chutzpah. I jumped off the bridge. I wrote to Herb Gray arguing that in order to implement the position paper’s recommendations, it was necessary to train merchant bankers. And what better place was there to do that than in London, England!

What happened

Remarkably enough, the cabinet minister responded to my letter. I was shocked. He agreed with my observation that Canada needed to train merchant bankers and in order to assist me in my job search, he asked me to contact a Mr. R.G.P. Styles of the Royal Bank of Canada who was at that time working in London, England. Mr. Styles was a senior executive of the Royal Bank of Canada. I contacted Mr. Styles regarding my correspondence with Mr. Gray.

All this was going on when I was in my third year at university. In order to support my job search, I decided that I would like to study abroad. At the time, it was not unusual for students to spend their junior year abroad. Many American universities had programs in place to facilitate students spending their junior year abroad. I was in my junior year at my university. So my timing was off by a year. Let it never be said that I didn’t make things as complicated as possible!

In order to allow me to spend my senior year abroad (fourth year), it was necessary for me to receive the approval of the Senate of the University. Fortunately one of my professors agreed to sponsor the resolution and it was passed. So I had cleared the hurdle of receiving the necessary approvals to allow me to spend my senior year abroad. I was accepted at a number of universities in the United Kingdom and decided to attend the University of Edinburgh, Edinburg, Scotland.

I had all “my ducks in order”. In the fall of 1972, I headed off to Scotland, found a place to live and attended the university.

At the same time, Mr. Styles introduced me to the Managing Director of the Orion Bank Limited in London, England. With that kind of sponsorship, it seemed that being offered a position was pretty much a sure thing. After all, as discussed below, the Royal Bank of Canada was a participant in the Orion Group which being established in London, England.

The job front

Now there is a bit of story here that involves banking history in the United Kingdom at that time. London was the center of the Eurodollar market. The term “Euro-dollar” refers to dollar-denominated deposits held in banks outside the United States, including such deposits in foreign branches of United States banks. These Euro-dollar balances were not limited to European banks, despite what one might infer from the term “Euro-dollar.”  The Euro-dollar market might best be viewed as a wholesale market for dollars among banks outside the United States. This market was well-developed in many parts of the world, with major Euro-dollar markets existing in London, Paris, Frankfort, Amsterdam, Zurich, Basle, Geneva, Milan, Vienna, Beirut, Tel-Aviv, Cairo, Liverpool, and Tokyo. The London market was by far the largest and most active.

During the time when the US balance of payments worsened in the 1960s, it instituted a series of capital controls, which led to the holding of dollars in banks outside the US . In 1964, the US passed the Interest Equalisation Tax to discourage foreign borrowers from raising money in the US market. The Foreign Credit Restraint Program of 1965, limited American bank loans to foreign borrowers. Finally, the Foreign Investment Program of 1968 restricted US corporations from using domestic dollars to fund foreign investments. These measures encouraged the establishment of an off-shore dollar market which became known as the Euro-market. The name derives from the telex sign-off of a Soviet dollar-denominated bank account in London, Eurobank. This Soviet Dollar holding was necessary for international commercial transactions by the USSR, since oil and other commodities are denominated in US dollars. The fear that the US would seize these funds if they were kept on US soil prompted the USSR to keep dollars outside the US . The notion that the federal government sought to regulate the effects of dollars deposited outside the United States upon monetary policy. As these dollars were outside the domestic banking system, the Federal Reserve had no jurisdiction (i.e. those deposits were not subject to reserve requirements set by the Fed). Various legislation, designed to limit the use of Eurodollar deposits by domestic companies ultimately drove the market overseas – intact and stronger than before.

Another argument was that, the surpluses of oil producing states (such as OPEC) and short-term deposits of multinational corporations, fuelled the development of the Euro-market industry. This was confirmed, by Born (1977) , and also Lees (1974) . The American Federal Reserve Act of 1937 did not permit banks to pay interest on sight-deposits, and interest rates on time-deposits could not exceed the rate set by the Federal Reserve. It was thus more profitable to deposit dollars in accounts outside the US. This point was developed by Windecker (1993) , and Smedresman and Lowenfeld (1989) , by stressing the size of the Euro-market industry. That the Euro-market grew at over 25% per annum through the 1970s, and between 1971 and 1984, the Euro-currency market grew from $85 billion to $2,200 billion. In 1988, the Euro-markets comprised of $4 trillion, which exceeded the domestic deposit market of the United States by $1 trillion.

The vast majority of Eurodollar transactions are conducted in London. The Bank of England in 1964 stated that: Banks in London have been able to attract large sums in dollars by quoting better rates for deposits, including interest on money at call and short notice categories which earn nothing at all with New York and have employed them at less than the US lending rate and still made a worthwhile turn. They are able to operate on a fairly small profit margin because the additional overhead expenses of conducting their Eurodollar activities are minimal.

Throughout the 1960s, the markets grew at a great pace. Not only did they grow in size; they also spread geographically, moving to other centres in Europe and Asia. London nevertheless maintained its central role. (Table One, Table Two and Table Four offer an indication of the growth). A feature of the markets from their inception is the prominence of the US dollar. Table Three shows that, the dollar has consistently accounted for over 70% of the total markets. In the later 1960s, the dollar proportion was as high as 80%.

An important point to clarify was the deepness of London as a financial centre. Whilst this role of long standing importance, the numbers of banks represented there increased steeply in the 1960s and 1970s. Table Four shows this, which records the number of foreign banks in London from 1967-1986. Initially, during the early 1960s, US banks came to London to tap the Euro-markets for funds, which they would pass back to the US. Soon, American banks were building up a presence in London to avoid the Voluntary Foreign Credit Restraint programme (VFCR) restrictions imposed in 1964. In the 1970s, their numbers increased further as they began to participate in lending in the Euro-markets. Initially this participation was largely through consortium banks because they offered banks the ability to develop a specialist knowledge in the area of syndicated lending, whilst at the same time pooling risk with other large banks. Once this specialist knowledge was secured, the banks tended to pull out of these agreements as they established their own international departments, and set-up branches in London (if they were not represented in that form) .

Another factor which encouraged the US banks to invest in London, was emphasized in various studies , (and also from Table Four), was the liberal regulatory environment which foreign banks in London enjoyed. Throughout the period before exchange control, the Bank of England excluded abolition, foreign currency business with non-residents, from regulatory control. London retained its role as a financial centre by conducting business in non-sterling currencies. (1972 The Euro-dollar market as a source of United States bank liquidity Steve B. Steib Iowa State University).

So what was going on for the Royal Bank of Canada was the creation of a consortium bank called Orion Bank:

Consortium banks were formed as joint ventures to enable banks to operate in the booming Euromarkets, with virtually every major international bank participating in a consortium bank during their heyday in the 1970s and 1980s. Orion Bank was one of the leading players in the Euromarkets in those decades: its shareholders were six of the biggest banks in the world from the three major trading blocks: Chase Manhattan, Royal Bank of Canada, NatWest, Westdeutsche Landesbank, Credito Italiano and Mitsubishi Bank. Like other consortiums banks, Orion Bank was prominent in Eurocurrency syndicated lending, but more unusually, it was also a top Eurobond lead manager. (Roberts, Richard (2001) Take your partners: Orion, the consortium banks, and the transformation of the euromarkets.Palgrave Macmillan).

The Orion Bank Group include two entities that were of interest. The first one was Orion Term Bank which was established to participate in the syndicated loan market and a second called Orion Bank Limited which was to engage in traditional investment/merchant banking activities. After a series of many interviews, I was offered a position with the Orion Bank Limited as an associate. I started to work there after my graduation from university.


Orion Bank Limited was a newly established entity when I joined in 1973. There was no training program, no formal system to deal with new recruits. But true to English banking tradition, the Bank hired some truly notable individuals to work there such as:

  • Jeremy Soames, whose grandfather was Winston Churchill. His father, Arthur Christopher John Soames, Baron Soames GCMG GCVO CH CBE PC (12 October 1920 – 16 September 1987) was a British politician belonging to the Conservative Party and the son-in-law of Winston Churchill. A European Commissioner and the last Governor of Southern Rhodesia, he had previously been the Member of Parliament (MP) for Bedford from 1950 to 1966. He held several government posts and attained Cabinet rank.
  • Alexander Charles Thomas Wriothesley Russell, whose father was Ambassador to Spain and the family included in its history a Prime Minister of Great Britain (Lord Russell).

I had gotten to where I wanted to be.

As time went by, however, I was like a fish out of water. That time was a difficult time for Britain. The 6 Day War in the Middle East caused energy rationing. At the same time. there was labor unrest as a result of some of the policies instituted by the then Prime Minister Edward Heath. Coal miners’ strikes almost brought the country to its knees. It was a tough place to live at the time. I remember that there was a shortage of electricity as a result of the coal miners strike, and we were sitting in the office with Coleman camping lamps for reading light.

In any event, the job was going badly. I was struggling with the level of compensation (I had no money). There was no informal or formal training as the Bank was in its initial development stages. Staff turnover was unsettling, but it was normal as London was growing quickly as a financial center at the time. Lots of job opportunities, so many left the Bank for greener pastures.

To make a long story short, guess what happened? I left. Threw it all away and returned to Canada. “Play it again Sam”.

The why

There we a number of factors that led to another dysfunctional decision:

  1. Turmoil in the United Kingdom;
  2. No on the job training;
  3. Working for an organization that was just getting started with little infrastructure to support new staff;
  4. Financial constraints (budgeting).

The pattern repeated itself. It played out exactly the same way as the Antony Gibbs opportunity I referred to in another post. Poor planning, financial constraints and an inability to understand that everything takes time. Getting there was only half the job. Staying there was the other half. Working within constraints to achieve your career goals. And probably most important, patience. Everything takes time and one cannot expect to have it firing on all cylinders at the start.

So having overcome barriers, I was unable to execute. But remember, executing takes time. Nothing happens overnight. In fact, most things take years. Establishing a career plan at inception that encompassed long-term goals would have helped me “hang in” there. The failure to do so was once again, catastrophic in its results. This theme would repeat itself in many of my subsequent career decisions.

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