Gentlemen return to City as swashbucklers sink

It is time to welcome back what could be dubbed "gentlemanly capitalism" - a return of personal relationships and client service instead of swashbuckling investment bankers goading their clients into larger and larger deals, while stuffing their wallets with bonuses earned from flogging toxic financial instruments.

There are plenty of signs that the City - London's financial district - is undergoing dramatic changes. Many of the biggest players have either disappeared or are scaling back large areas of their investment banking operations, as at UBS, Citigroup and Dresdner Kleinwort.

That is creating opportunities for the few who have survived the financial meltdown relatively unscathed. Investec has poached more than 15 FTSE 250 companies to its corporate broking services in little over a year from bigger rivals; Numis has added 30 new clients in the past six months, its fastest rate of wins ever; and JP Morgan Cazenove has recently attracted 3i and Vodafone from rivals.

Bankers, too, are moving in droves. Nomura, which acquired Lehman Brothers' London investment banking operations, Investec and Evolution have been carving up the investment banking arms of Dresdner Kleinwort between them, as its new owner, Commerzbank, effectively pulls out of London.

Barclays Capital is building an equities business to complement its debt and foreign exchange trading operations.

At the same time, clients are demanding better services. Chief executives are all too aware that the bulge-bracket companies were making huge profits by flogging them products or pushing transactions - Merrill Lynch, for example, made £150 million advising Royal Bank of Scotland on its takeover of the Dutch bank ABN Amro, a deal which was a key factor in RBS's collapse into near-nationalisation.

Andrew Umbers, chief executive of Evolution Securities, was hammering home the point about personal service and relationships in a letter to his clients last week. Boasting about hiring 46 people from Dresdner, including most of its equity sales and trading team, he wrote: "The challenging financial markets are set to endure for some time to come, and it is our view that companies will need to restructure both businesses and balance sheets over the next few years. To do this successfully will require the best possible levels of talent, experience and commitment from advisers, and we are confident that Evolution Securities can deliver the highest standards of advice required."

Bill Staples, a 27-year City veteran whose career has spanned Rothschild and the Takeover Panel and who now heads the small and mid-cap specialist Hanson Westhouse, thinks the switch back towards relationship banking will endure. "[The City] has not just lost the confidence of the general public but of company boards too."

Others, however, are less sure. David Currie, co-head of investment banking at Investec, fears that "the empire will strike back. Inevitably, when stability returns, they will come back aggressively and woo clients. When [a bank such as] Citigroup woos, it can do very well."

And Philip Augar, who a decade ago published a book entitled The Death of Gentlemanly Capitalism, thinks it unlikely the current fad for relationship banking will endure. He is sceptical about the long-term nature of any changes as the reforms that governments propose are about fixing the present model, rather than creating a new one, he says.

Augar concludes: "The business model that we run in banking carries risk and conflict of interest. Until this is eradicated, it will haunt us."

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