The Case for British Investment

Banking: Decline and Fall

 REPORT
ON
THE CASE FOR BRITISH INVESTMENT BANKING; DECLINE AND FALL

Course Title:
Merchant & Investment Banking - FNB 309
Submitted To:
Debashish Saha

Assistant Professor

Department of Finance & Banking

Jahangirnagar University
Submitted By:
Kamaru Nazmun Koheli -1654
Samia Tabassum -1655
Maliha Azim - 1665
Saika Jannat Dulon - 1669
Umme Habiba Liya - 1673
Shaikh Tawfique Ahmed - 1699
Date of Submission:
August, 2020
 LETTER OF AUTHORIZATION

This is to certify that the Report on ‘The Case for British Investment Banking: Decline &
Fall’ for the course Merchant & Investment Banking from Jahangirnagar University is carried
by:

1. Kamaru Nazmun Koheli -1654

2. Samia Tabassum -1655

3. Maliha Azim - 1665

4. Saika Jannat Dulon - 1669

5. Umme Habiba Liya - 1673

6. Shaikh Tawfique Ahmed - 1699

was prepared under my supervision. No part of this report has been submitted for any course
before.
 LETTER OF ACCEPTANCE

We, the student of Department of Finance &Banking, Jahangirnagar University, hereby declare
that the report on ‘The Case for British Investment Banking : Decline & Fall’ for the course
of “Merchant & Investment Banking” in Department of Finance &Banking from Jahangirnagar
University is our work that has not been submitted by us before for any course. The report was
prepared under the supervision of Debashish Saha, Assistant Professor, Department of Finance &
Banking, Jahangirnagar University.

Kamaru Nazmun Koheli ……………………………

Samia Tabassum …………………………….

Maliha Azim ……………………………...

Saika Jannat Dulon ………………………………

Umme Habiba Liya ………………………………

Shaikh Tawfique Ahmed ……………………………...

 LETTER OF TRANSMITTAL

August, 2020
Debashish Saha
Assistant Professor
Department of Finance & Banking
Faculty of Business Studies
Jahangirnagar University, Savar, Dhaka-1342.
Subject: Submission of report writing on ‘‘The Case for British Investment Banking:
Decline & Fall’
Dear Sir,
With due respect, we, the undersigned students of Department of Finance and Banking, are very
pleased to submit you the report on, ‘‘The Case for British Investment Banking: Decline & Fall’.
The report has been prepared with great effort and dedication in compliance with course
requirement and your instruction. The report has been completed by the information we have
collected. Now that the report is ready, we would be happy if you read the report carefully.
As a team we found this report to be truly interesting. Thank you for assigning us with this
report. However, if any explaining it requires, we would be honored to be obliged.
Sincerely,
Kamaru Nazmun Koheli ………………………………
Samia Tabassum ……………………………...
Maliha Azim ……………………………...
Saika Jannat Dulon ………………………………
Umme Habiba Liya ………………………………
Shaikh Tawfique Ahmed ……………………………...
 ACKNOWLEDGEMENT

This is our pleasure to prepare and submit the report on ‘The Case for British Investment
Banking: Decline & Fall’ under the course-Merchant & Investment Banking (FNB 309). We
went through many websites, newspapers, journals and articles to complete our report and it is
really a great opportunity for us to acquire valuable knowledge for this interesting subject.

First of all, we would like to express our gratitude to Almighty Allah to whom we are grateful
forever for giving us all the opportunities in doing each and everything for enabling us to
accomplish this report successfully.

At the beginning, we want to express our profound gratitude to our respected course teacher,
Debashish saha, for providing us with such a nice opportunity to prepare this kind of report.

We would like to take this opportunity to express our wholehearted gratitude to our fellow
friends who offered encouragement, information, inspiration and assistance during the course of
preparing this report. We would also like to express our sincere gratitude to all the people who
have contributed towards the successful completion of our report. It’s difficult for us to thank all
of those people who have contributed something to this report.

This report suffers from many shortcomings; nevertheless, we have exerted our best efforts in
preparing this. We seek excuse for the errors that might have occurred in spite of our best effort.
EXECUTIVE SUMMARY
TABLE OF CONTENTS
 Abstract
The United Kingdom, and particularly London, helps as one of the leading foreign centers for
Investment banking and other related helps. About one-half European investment action happens
via London as well as, with New York, London comprises the worldwide leader to the planning
of investment banking helps. Nonetheless, we cannot exactly specify why British investment
banking deteriorates in spite of having the acknowledgement of being the leading foreign center.
To address this issue, this study, by using theoretical analysis examines the failure of UK
investment banks. A specified collection of disputes contains emerged in the situation of the
insolvency of such that business firms, admitting with the reference to the way in which
executives as well as additional insolvency officials handle with explicit locations in the market
and the delivery of customer possessions in one case the unsuccessful business firm has
Participated insolvency. This study significantly contributes in identifying the drawbacks and
future of British investment banks as well as prompts for appropriate strategy and decision to
perform better.

Key Words: Investment Banks, Theoretical Analysis, Declining, Insolvency, Appropriate

Strategy
 Introduction
An investment bank is a financial organization that enhances capital, trades as well as deals
corporeal. In other terms investment banking is named as corporate finance. The United
Kingdom, and particularly London, helps as one of the leading foreign centers for Investment
banking and other related helps. About one-half European investment action happens via London
as well as, with New York, London comprises the worldwide leader to the planning of
investment banking helps. Even then The United Kingdom benefit corporation industry
comprised embarrassed using inadequate investment execution and a series of eminent tariff
gaffes that proposed the industry constituted out of control. In our study, we found out the British
Investment Banking collapse. On 2 April 2007, nine banks occupied places in the FTSE 100 all
share index. They had a market capitalization of £316.9 billion and constituted the single largest
component by sector of the index. By 7 April 2008, Northern Rock and Bradford & Bingley had
dropped out of the index and the capitalization stood at £245.1 billion. Finally, by 6 April 2009,
the FTSE top 100 banking sector was worth only £138.1 billion. Our theoretical analysis also
conveys the decline and fall of some renowned British investment banks e.g., S.G Warburg,
Barclays, Barings, BCCI (Bank of Credit and Commerce). Some of them became defunct, some
were forced to great tax penalties, experienced aggressive acquisition, declared insolvent, and
some went through closure because of distributing fraudulence.
The UK is a leading financial service center, with the highest concentration of global financial
institution in the world. Based on the findings we document that the UK’s investment and trade
would be worse off if it left the EU. Britain’s exit from the EU will have significant
repercussions for the economy and citizens across Europe. Some banks’ management and boards
have failed their shareholders and created concerns for their customers and this failure has had
devastating consequences for the UK’s private and public finances. The consequences of this are
being felt by individuals and households around the UK, and by UK businesses. We also analyze
that Westminster; the Bank of England and regulatory authorities have let Britain’s investment
banks go to the wall. The banking sector received no protection from foreign takeover in the
1990s when they were finding their feet after Big Bang. Before the crisis, there was an
excessively liberal regime of “light- touch” regulation. The most senior US investment bankers
have a drive their British counterparts lack. They display a hard-edged, winner-takes-all
approach to business. Informed accounts of the financial crisis show a determination at the top of
the Wall Street banks that I have rarely encountered in London, even in moments of extreme
crisis.
The rebuilding of consumer trust is closely wound up in depositors having faith in the safety of
their deposits, and the stability of payment systems and other utility aspects of banking. In our
view, depositor reassurance can in the short-term best be provided through improving and
strengthening the regulatory regime for all types of bank. We do not lightly dismiss the Governor
of the Bank of England’s instinct that a separation of retail from investment banking functions is
“very attractive”.
We recommend that the British investment banks must meet their demise at the hand of complex
financial instruments. The complexity and aggregate volume of transactions resulting from
disguised risk and made risk management far more onerous, imposing a secondary effect of the
collapse of the housing. So, the investment banks should be very careful regarding this matter.
Investment Bank
An investment bank is a financial organization that enhances capital, trades as well as deals
corporeal. In other terms investment banking is named as corporate finance. The word
‘investment bank’ can define administrations contracting a too wide range of actions, admitting
the planning of advice, the broking of proceedings, benefit corporation and chief distributing
action. For each one of these actions is notable to the operating of liquid wholesale markets as
well as goes on both inside the wide commercial banking concerns as well as inside the more
modified establishments to which the word, investment funds bank is conventionally employed.
Through the investment banking, a basis generates finances in two separate methods. It might
take out on common funds via the capital market by trading stock in its industry, as well as it
might also look for out scheme capital or personal equity in interchange for the stake in its
industry. An investment banking business firm might as well contract referring employment.
Investment bankers might, for instance, afford corporations advice on fusions and
accomplishments. They cross the market in order to afford advice on as to constitute common
offers and how better to control the corporations’ common possessions. Certain of the advisory
actions investment banking business firms commit in meeting with those of a nonpublic
brokerage, like they will frequently afford purchase-and-sell advice to the corporations that they
were present.

Failure of Investment Banking in the United Kingdom (Background

History):
Great Britain and Margaret Thatcher’s Conservatives succeeded influence by the City in 1979
when energetic liberal market political economy substituted a post state of war disorder like the
channel vitality political orientation. One of their initiative acts of the Margaret Thatcher
government was to get rid of abroad interchange commands, dispatching a forty-year-old
constraint that had admonished the British investors as well the industrialists from adorning
beyond the sea. In public possessed usefulness’s specified the gasoline, electrical energy as well
as telecoms companies were deregulated as well as privatized, exhibiting strategically divisions
of the economic system to market pressures for the beginning period.
By 1997, London got on the path to turning the existences financial institutions helps capital but
this was despite instead of due to the domestic foundations. Between 1995 and 1997 UK-owned
as well as handled investment banking concerns such as Warburg, Kleinwort and the Smith New
Court traded themselves to abroad competitors as well as the broad United Kingdom banking
concerns Nat West as well as Barclays were pressured by shareowners to reduce their investment
banking ambitions. The United Kingdom benefit corporation industry comprised embarrassed
using inadequate investment execution and a series of eminent tariff gaffes that proposed the
industry constituted out of control. The corporeal division was fascinated by scandal specified
the Guinness occasion in which the company’s chief executive director as well as various
superior City men were charged to prison for their contribution in an unauthorized share
backbone performance as well as by the raiding of pension funds consisting to the Maxwell
group of corporations. The report of Great Britain’s governors was corrupted by the breakdown
of Barings, an honorable City foundation got down by a part-qualified young dealer whose
actions were escaped by the corporation and governors which are similar. The Lloyds insurance
market got big losing as well as its corporation was criminated of ‘lack of care, fake, satisfaction
and ironic engagingness’ by the novelist Julian Barnes.
In Feb 2000 Nat West, among Great Britain’s biggest banking concerns was adopted by a
simpler competition, the majestic banking concern of Scotland [RBS], its corporation bearing
missed the backbone of shareowners as a resultant of an unsuccessful investment banking
concern as well as unpopular diversification scheme. In 2005 Philip Purcell, Morgan Stanley’s
worldwide chief executive director was pushed from business office by a collection of ill-
affected shareowners who required the banking concern to acquire a lot of hazards in its
corporations. In 2007, merely before they took charge, an activist shareowner possessing merely
0.3% of the banking concerns absolute contribution capital assaulted Great Britain’s greatest
banking concern, HSBC. Criticism concentrated on the composition and system of the
administration, corporeal wage policies as well as the aligning of certain of the banking concerns
global business enterprises.
The chief executive director of RBS, Sir Fred Goodwin, was admiringly called ‘Fred the Shred’
for his capability to strip down prices away of previous as well as new adopted banking
concerns. Finally, he made out a deal very distant, bearing a peak of the market value for ABN
AMRO’s investment funds banking section. The leverage of the British banking concerns’
equilibrium sheet comprised even more challenging. In 2000, the British banking concerns
simply contributed away what they concealed bank deposits. There was no influence in the
industry’s equilibrium sheet as well as no financial support break. They conceived they slept in
an unhazardous existence as well as they comprised heartened to omit their acknowledgment
criteria, contribute a lot of aggressively to individual as well as corporeal borrowers and they
assume proprietorship attitudes in their own as well as additional foundations’ securitizations.
Merely seven years later on, the British people banking concerns’ financing.
In 2002, James Sassoon, an early underwriter with S G Warburg, admitted business office as
managing director of finance as well as ordinance at the Treasury. In December 2005 he was
assigned as the prime minister and also as a Treasury’s Representative for advancement of the
City, a half-time function in which he championed internationally the concerns of the United
Kingdom monetary as well as enterprise helps business firms as well as markets. Great Britain’s
chancellor Gordon Brown comprised one of Greenspan’s most burning adherents as constituted
got clear at a voice communication he constituted in 2006 at London’s mansion, one of the
showpiece functions in the British monetary calendar. Brown presented a tribute to globalization,
liberal markets as well as the British economic system, functioning in respect to Greenspan and
Adam Smith, the eighteenth century Scottish philosopher whose discourse on liberal commercial
was the market economic experts Christian Bible. As the consequence of abiding by liberal
market rules as well as prioritizing financial as well as fiscal constancy via an individual Bank of
England, Brown was capable to boast that ‘authorities’ debt in Great Britain is smaller than
France, Germany, Italy, United States of America as well as Japan’ as well as that development
in Great Britain comprised ‘required to be firmer this year. than final as well as firmer adjacent
year than this. ‘Chancellor Brown’s voice communication that evening accepted the banker’s
vibration as he showered them with congratulations. They comprised stated that they had aided
to secure ‘London’s location of worldwide distinction not alone as the foreign financial focus of
the global but of worldwide distinction: London the 2012 Olympic city.’ What intelligent
companions they altogether were: ‘London has delighted among its most booming years.
The worldwide acknowledgment crisis of 2007-2008 demonstrated that this enterprise pattern
comprised risky as well as unsustainable. The United Kingdom 8th biggest banking concern,
Northern Rock, had to constitute nationalized, the nation’s biggest finance loaner, Halifax
banking concern of Scotland [HBOS], had to comprise delivered by a competition as well as the
state finished up possessing across 40% of the Lloyds Banking collection, across 60% of RBS as
well as executing an insurance strategy for banking possessions. The executive director at the
chief of Great Britain’s banking concerns has been hard criticized for greed, in competency as
well as hubris. It is important that two of the banking concerns that exists the crisis better
comprised Goldman Sachs and J P Morgan, two banking concerns that were strike hard in the
bond certificate market impact of 1994 as well as studied the morals by innovating firm hazard
corporation machines as well as analytics. As we have determined, the British bankers acted
upon in a nation which had converted itself regarding a new orthodoxy.
For 30 years the British authorities of the left over as well as correct minded distant a bit much to
underwriters as well as not adequate to domicile in additional companies. They as well minded a
bit much too utmost economical progressives as well as not adequate to authors specified John
Kay, Will Hutton and John Plender, these three admonished of the hazards of relying very hard
on promote simply advanced of the crisis.

Literature Review

The key principle for any British Investment Bank is that it must operate in a commercial manner
to ensure that investments and interventions are made on a rational basis, only to support viable
businesses with a proper analysis and pricing of risk. [ CITATION Nic \l 1033 ] suggests that, the
activities of a British Investment Bank and the involvement of the Government as an investor
in/funder of the Bank give rise to issues relating to compliance with EU State aid rules which
need to be considered. This includes both public interest activities and commercial activities.
After the Second World War the Industrial and Commercial Finance Corporation (ICFC) was
created to address the business funding gap. The company was set up by the Bank of England
(BOE) and the then ‘big five’ clearing banks. The banks were proposed as funders of ICFC by
the Bank of England to meet criticism that they had neglected long-term investment in British
industry. It employed its own technical specialists as well as familiarity with local businesses
through a regional branch network. Its role was that of the locally informed investor plugged into
the business climate and the client. However, that capital raising created pressure to produce
greater returns on equity, which led to a shift away from longer term, less attractive returns
which its core mission delivered, to shorter term, higher returns. The economic slumps of 1974
and 1981 resulted in a dilution of its aims even further as it attempted to chase profitability by
widening its investment remit. This is important where the intervention is designed to fill a gap
which the market is not providing. Interventions must be based on sound credit decisions not on
a ‘finger in the air’ picking of winners or support for businesses which will never be profitable.
[ CITATION Nic \l 1033 ]
The UK is a leading financial service center, with the highest concentration of global financial
institution in the world. The UK’s investment and trade would be worse off if it left the EU.
Britain’s exit from the EU will have significant repercussions for the economy and citizens
across Europe. The most important impacts will probably be felt within the financial industry
and within that by investment banks because the region’s central hub, London, is probably
going to lose its full access to the one European market. This might have substantial
consequences for Britain: at 6.6% of national gross value added, it's the most important financial
sector among major European countries, relative to the dimensions of its economy. Financial
services exports play a significant role – and 44% of them move to the EU. Without the excess it
generates from providing investment banking services to EU customers,
Britain’s accounting deficit would be 40% higher. Foreign banks, which account for nearly 50%
of the United Kingdom industry, dominate in London’s investment banking business. Most of
their business is conducted through branches. Investment banking accounts for nearly three-
quarters of the UK’s financial services exports. For major investment banks, the challenges come
not just from losing the one passport under Brexit but also from EU IPU proposals that
need subsidiarization via Intermediate Parent Undertakings for big non-EU banks. This
represents an extra leg of balkanization with trapped capital, liquidity and resources
profitability are fraught and not all EU business models are viable.

The Collapse of the Banking Sector

On 2 April 2007, nine banks occupied places in the FTSE 100 all share index. They had a market
capitalization of £316.9 billion and constituted the single largest component by sector of the
index. By 7 April 2008, Northern Rock and Bradford & Bingley had dropped out of the index
and the capitalization stood at £245.1 billion. Finally, by 6 April 2009, the FTSE top 100
banking sector
was worth only £138.1 billion.

Banks in FTSE-100 2 April, 2007 6 April, 2007 7 April, 2007

Alliance and Leicester 5.7 2.2

Barclays 47.1 14.3 32.1
Bradford & Bingley 2.9
HBOS 39.3 21.5
HBSC 103.1 74.3 100.9
Lloyds-TSB/ Lloyds Banking 31.6 12.9 25.8
Group
Northern Rock 4.8
RBS 62.8 17.2 32.1
Standard Chartered 20.3 18.9 25.5
Total 316.9 138.1 245.1
Failed Investment Banks in UK
1.Bank of Credit & Commerce (BCCI)
The BCCI, an unsuccessful banking corporation in July 1991 due to distributed fake. The little
Banking Concerns Crisis happened in 1991-1992, while a numeral of little United Kingdom
banking concerns went wrong because of acknowledgment losses during a recession. BCCIs
compound system comprised of a bearing industry, integrated in Luxembourg, as well as two
important subsidiary companies incorporated in the Cayman Islands and Luxembourg. The bank
of England (BOE) was responsible supervising of United Kingdom banking concerns. All the
same that BCCIs principal in large quantities Corporations was acquitted from the London
agencies, the BOE had no more duty for the Supervising of the BCCI grouping in general. In
1987 Due to the BCCI compound system grouping, ‘College of governors an eight-nation was
accomplished to monitor BCCI Actions.
Explanation of Crisis
It’s at present conceived that BCCIs financial commands had been faked from its constitution in
1972. A strategy of dishonesty was acquired to backbone of BCCIs rapid increment as well as to
hide contributing departures. To accomplish this, BCCI unsuccessful to register bank deposit
financial obligations and generated Pretended lends that created essential but pretended benefits.
Fake as well happened inside BCCIs treasury performances. Instead of applying its possess
finances for proprietary merchandising, BCCI Applied depositors net worth to monetary fund
their merchandising actions, when this merchandising ensued in huge Departures they comprised
covered up with more unreal lend. Before these troubles coming up in 1990, supervisors as well
as commercialized bankers comprised wary of BCCI because of its rapid increment and opaque
corporeal system Anyway, while BCCI comprised Occasionally noted in the public press
“mainly for the mystery that enclosed it”28, financial institutions market players normally found
out BCCI as a banking concern that had earned departures via in competency instead of fake.
From the spring of 1990, businesses regarding the prove of fake inside BCCI extended to in
progress Discourses with in BCCIs listeners (cost Waterhouse), banking supervisors as well as
BCCIs Shareowner in 1991, cost Waterhouse turned expanding convinced which the fake inside
BCCI comprised common as well as that issued financial commands were disgustingly inexact.
In recent June 1991, cost Waterhouse advised the BOE of their determinations.
BCCI Defunction
When the mass of BCCIs fake comprised accounted to the BOE a conference of the eight-nation
Regulative college was configured. On 2 July 1991, the membership discoursed the clocking of
the closure of BCCI appropriate to minimize interruption to financial institutions promote. As
BCCI functioned in multiple nations as well as period districts, it was hard to determine a period
which comprised conformable to all. At last, BCCI comprised came together on Fri 5 July
merely before New York markets afforded. Desirable depositors in the United Kingdom were
paid from the bank deposit defenses monetary fund inside the boundaries of the strategy as well
as receivers are carrying on the method of the sharing of dividends to creditors afterwards a
compound actualization module and much litigation.

2.Barings
Baring Brothers comprised the oldest merchant banking concern in London. Besides BB&C
(baring Brothers & company), the two important engaging corporations of the baring group
were Barings Securities Limited and Barings Asset Management. BB&C was an
empowered banking concern, founded in London with subdivisions in Singapore as well as Hong
Kong. Barings Securities Limited (BSL) was comprised in the Cayman Islands though its chief
agency was in London. BSL owned a numeral of subsidiary companies one of which was BFS
(Barings Futures Singapore) where the troubles are aroused. Baring is some other sample of how
fake could extend to banking concern bankruptcy. This aggregated with market gamble as well
as weak corporation machines made it conceivable for the huge merchandising attitudes
concentrated by this independent to go undiscovered for a large time.
Explanation of Crisis
The bank collapsed in 1995 after suffering losses of £827 million resulting from fraudulent
investments, primarily in future contracts, conducted by its employee Nick Leeson, working at
its office in Singapore. He laid claim to comprise arbitraging with in differentials markets in
Singapore and Osaka. As Leeson commanded both the merchandising as well as the certification
of these distributes that he comprised capable to disguise the developing attitude he was
acquiring by bearing a significant report expelled from Day-to-day corporation accounts as well
as by determining, via dishonest entrances, this report to be zero on month-ends. He as well
faked accounts to SIMEX appropriate to decrease the necessitated calls. The corporation system
at BFS comprised both complicated as well as occasionally unorganized. Dissimilar strands of
corporation conceived that one another were in appoint of, as well as supervising, Leeson’s
actions. There comprised a bankruptcy of interior commands to discover these troubles as well
as, as such, the fake kept going as well as increased as Leeson acquired progressively hazardous
attitudes in a seek to cover departures attained on existing proceedings.
Barings Collapse
Barings was declared insolvent on 26 February 1995, and appointed administrators began
managing the finances of Barings Group and its subsidiaries. The same day, the Board of
Banking Supervision of the Bank of England launched an investigation led by Britain's
Chancellor of the Exchequer; their report was released on 18 July 1995.
Accompanying the break down, the administration of banking oversight acquitted an
interrogation. It ended that they didn’t demand any alteration to the model of ordinance.
However, it did determine that the execution of certain previous organizations required to be
bettered. For instance, the administration proposed that supervisors required to good realizing the
non-banking concerns contracted by the banking cluster they were Causative. For centric bankers
and supervisors, it showed that the crisis settlement method may postulate close, stabile
deadlines as well as unfinished details. The supervisors’ association with it Superior corporation
from additional commercial banking concerns and supervisors from additional jurisdictions
doubtless assisted to further the settlement method. The bankruptcy of Barings was credited for a
combining of fake, market hazard as well as insufficient Interior commands. As comprised the
event with BCCI, it exhibited that still separately Inspected calculating details could be incorrect.

3.S. G. Warburg
S. G. Warburg & Co. was a London-based investment bank. This bank was founded in 1946 by
Siegmund Warburg and Henry Grunfeld. S. G. Warburg and Co. were recognised for its
pioneering mergers and takeover work in the UK in the 1960s. These works included the first
ever hostile takeover in the UK and the first-ever Eurobond issue, which fostered the new
Eurodollar market. The firm's acquisition of Seligman Bros. in 1957 was a significant event in its
rise to prominence; through this, Warburg gained a place on the Accepting Houses Committee,
which is composed of the 17 top merchant banks with access to cheap capital backed by the
Bank of England.
Explanation of Crisis
Warburg had been struggling since last fall, when profits turned down sharply. Hoping to forge a
partnership with an American firm, Warburg entered negotiations with Morgan Stanley, but then
saw those talks collapse in December. Since then the firm's chairman has resigned, two sets of
key employees have defected to a rival firm, it has abandoned several areas of business and
profits have continued to deteriorate. The problems were centered in its investment bank, while
its 75%-owned money management subsidiary, Mercury Asset Management, continued to
perform solidly. The trading conditions have adversely affected the performance of the
investment bank and thus the profits of the group as a whole are expected to be very significantly
below the range of current market forecasts.
For the year ended March 31, 1994, Warburg posted record pretax earnings of $:297 million, or
about $475 million at current exchange rates. Analysts had been predicting earnings for the most
recent year of between $:100 million, or $160 million, and $:130 million, or $208 million. The
investment bank was expected to lose money in the second half of the year, in part because of the
cost of job cuts and the closing of its Eurobond trading desk and other activities.
Mercury is by far Warburg's most valuable asset, accounting for nearly two-thirds of the
company's market value of $2.9 billion. In announcing on Tuesday that it was in talks with the
Swiss Bank, Warburg said that any deal would exclude Mercury, the other 25 percent of which is
owned by public shareholders. Warburg would distribute its holding in Mercury to its
shareholders if it went ahead with a deal with the Swiss Bank. Warburg's shares closed at $:8.14,
or $13.02, down 7 pence, or about 11 cents.2
Aggressive Acquisition
After World War II, S.G. Warburg established a reputation as a daring merchant bank that grew
to be one of the most respected investment banks in London. Following a flawed and costly
expansion into the US, in 1994 a merger was announced with Morgan Stanley, but the talks
collapsed. S.G. Warburg was purchased by Swiss Bank Corporation in 1995. The bank merged
S.G. Warburg with its own existing investment banking unit to create SBC Warburg, which
became a leading player in global investment banking. In 1997, SBC Warburg was merged with
U.S. investment bank Dillon, Read & Co. to create Warburg Dillon Read. After the merger of
Swiss Bank Corporation and Union Bank of Switzerland in 1998, Warburg Dillon Read was
renamed, UBS Warburg. The Warburg name was finally retired in 2003 when the investment
banking operation of UBS was renamed UBS Investment Bank.

4.Barclays
Barclays plc is a British multinational investment bank and financial services company,
headquartered in London, England. Apart from investment banking, Barclays is organised into
four core businesses: personal banking, corporate banking, wealth management, and investment
management.
Explanation of Crisis
In 1998, Barclays Bank agreed to pay $3.6m to Jews whose assets were seized from French
branches of the British-based bank during World War II. Barclays, along with seven French
banks, was named in a lawsuit filed in New York on behalf of Jews who were unable to reclaim
money they deposited during the Nazi era. In June 2012, as a result of an international
investigation, Barclays Bank was fined a total of £290 million (US$450 million) for
manipulating the daily settings of London Interbank Offered Rate (Libor) and the Euro Interbank
Offered Rate (Euribor). The United States Department of Justice and Barclays officially agreed
that "the manipulation of the submissions affected the fixed rates on some occasions". The bank
was found to have made 'inappropriate submissions' of rates which formed part of the Libor and
Euribor setting processes, sometimes to make a profit, and other times to make the bank look
more secure during the financial crisis. This happened between 2005 and 2009, as often as daily.
The BBC said revelations concerning the fraud were "greeted with almost universal
astonishment in the banking industry. The UK's Financial Services Authority (FSA), which
levied a fine of £59.5 million ($92.7 million), gave Barclays the biggest fine it had ever imposed
in its history. The FSA's director of enforcement described Barclays' behaviour as "completely
unacceptable", adding "Libor is an incredibly important benchmark reference rate, and it is relied
on for many, many hundreds of thousands of contracts all over the world.” The bank's chief
executive Bob Diamond decided to give up his bonus as a result of the fine. Liberal
Democrat politician Lord Oakeshott criticized Diamond, saying: "If he had any shame he would
go. If the Barclays board has any backbone, they'll sack him.” The US Department of Justice has
also been involved, with "other financial institutions and individuals" under investigation. On 2
July 2012, Marcus Agius resigned from the chairman position following the interest rate rigging
scandal. On 3 July 2012, Bob Diamond resigned with immediate effect, leaving Marcus Agius to
fill his post until a replacement is found. Within the space of a few hours, this was followed by
the resignation of the Bank's chief operating officer, Jerry del Missier. Barclays subsequently
announced that Antony Jenkins, its existing chief executive of Global Retail & Business Banking
would become group chief executive on 30 August 2012. On 17 February 2014 the Serious
Fraud Office charged three former bank employees with manipulating Libor rates between June
2005 and August 2007. Four employees were jailed in July 2016 for up to six-and-a-half years,
with two others cleared after a retrial.
Brexit Impact
To ward off the effects of Brexit, Barclays borrowed £6 billion from the Bank of
England between April and June 2017, as part of a post-referendum stimulus package launched
in August 2016. The former boss of Barclays, Bob Diamond, opined in an interview with The
Independent in September 2017 that the City of London would feel a stronger negative impact
from Brexit than generally expected. Diamond argued that both banking jobs and legal and
support operations would eventually relocate to the Continent.
Tax Penalties
In February 2012 Barclays was forced to pay £500 million in tax which it had tried to avoid.
Barclays was accused by HMRC of designing two schemes that were intended to avoid
substantial amounts of tax. Tax rules forced the bank to tell the UK authorities about its plans.
David Gauke, Exchequer Secretary to the Treasury, said that "We do not take today's action
lightly, but the potential tax loss from this scheme and the history of previous abuse in this area
mean that this is a circumstance where the decision to change the law with full retrospective
effect is justified.

BIG BANG Impact on US Investment Banks

Even if London now loses access to the single market, people believe the Big Bang's legacy is a
financial infrastructure with foundations too deep to be moved. But many also say that it sowed
the seeds of the 2008 financial crisis. There were three key elements to the Big Bang revolution:
1) Abolishing minimum fixed commissions on trades 2) Ending the separation between those
who traded stocks and shares and those who advised investors 3) Allowing foreign firms to own
UK brokers. By ending fixed commissions Big Bang allowed more competition; by ending the
separation of dealers and advisors it allowed mergers and take-over; and by allowing in foreign
owners it opened London's market to international banks. It is generally thought that Margaret
Thatcher as Prime Minister drove through Big Bang as part of a program of deregulation, but
there were already powerful forces at work.

City traders were then strictly divided into two- jobbers and brokers. Brokers liaised with clients
and then gave their orders to jobbers who did the actual trading, face-to-face in "open outcry", on
the exchange floor. Nowadays the pre-Big Bang City has a bowler hat image where a good lunch
and long friendships were more important than profit. Crucially for the subsequent development
of London as an international financial centre, the Big Bang produced a free-for-all, as brokers,
jobbers and the City's traditional merchant banks merged. Some were bought by UK clearing
banks but many more were snapped up by much bigger US, European and Japanese banks.

The 300 member firms of the stock exchange had all been domestic - but within a year 75 were
foreign-owned. With this came electronic trading, cutting costs as the competition increased. The
jobbers vanished and the trading floor became deserted. All this meant that the volume of trade
that flooded through the new terminals soared, averaging more than $7.4 billion a week after Big
Bang compared with $4.5 billion a week beforehand. It is said that Big Bang created 1,500
millionaires. Some 95% of the firms had been owned by partnerships and dazzled by the massive
sums on offer many sold up and retired. Yet not everything went to plan. The banks found they
had overspent. The result was a financial sector many believe is Brexit-proof. The banks built a
huge infrastructure in technology, transport, education and telecoms, and that infrastructure is
unique.

Some people understood better than others what was happening. David Willetts, who was then
working on the likely impact of the Big Bang. He expressed concern about "unethical behavior"
and that financial deregulation could lead to "boom and bust" But he concluded while there
might be "individual financial failures". He did not expect "a systemic problem". On this, he was
wrong. The 2008 financial collapse was systemic. This was followed in 1986 by what’s known as
the ‘Big Bang’. Soon, foreign banks flooded into the City, gobbling up venerable British minnows
such as SG Warburg, Robert Fleming and Schroders. What tipped the balance towards foreign
takeovers in the late Nineties and 2000s were three key factors: 1) the cheap cost of borrowing; 2)
liberal takeover rules; and 3) the presence of global investment banks in the City, with ready access
to the world’s capital. Throughout the boom years, these banks were allowed to write their own
rules. The result was foreign companies took full advantage of all this cheap and easy credit to
snap up increasing numbers of great British brands. Not only that but their tax system actually
made it more profitable for overseas owners to buy companies with borrowed money.

Shockingly, as it turned out, this high-stakes financial game had been played at the expense of
31,000 elderly and vulnerable residents. Meanwhile, elsewhere in Britain, one great company after
another was being blithely auctioned off. It didn’t matter whether the buyer was a foreign company
or a private-equity fund. If the price was good enough, shareholders and directors took the money
and ran. But no one was thinking any further ahead. Yet the Labor government made little effort to
block this unpopular takeover. They were an open, global economy. They could not start creating
ownership barriers, trade barriers and protectionist barriers. No one is proposing that all foreign
takeovers should be blocked.

As matters stand, trying to protect UK companies was like attempting to guard chickens in a coop
to which foxes have been invited. In the real world, away from the gilded environs of the City, the
tragedy is that tens of thousands of jobs have gone, crucial skills have been lost — probably for
good. And the strategic heart of British manufacturing has been ripped out, which affects their
ability to climb out of recession.

BREXIT Uncertainty

New figures from the Department for International Trade show that investment in the UK by
overseas firms has declined sharply in recent years. The number of new projects in the UK fell
14% in 2018-19. At the same time, there was a 24% fall in the number of jobs created.

In the previous financial year, 75,968 new jobs were created. But in the financial year just ended,
that number fell to 57,625, the lowest level for seven years. There was an even sharper drop in
the number of existing jobs which have been secured by further investment in the UK It would,
however, be very difficult to realize that foreign direct investment in the UK was declining from
the Department for International Trade's own news release about these figures.

Nowhere does it mention that investment is falling or fewer jobs being created. Instead, it
includes an analysis of which regions of the UK are doing best, while pointing out that the UK
remains the number one European destination for foreign investment and is the number one
destination in the world for US investment. Although that is all true, the UK is facing increasing
competition from countries such as Ireland, France and Germany, and the number of businesses
setting up sites here has been in decline since 2014-15, when almost 85,000 new jobs resulted.

These figures tie in well with data on investment in the UK by British firms, which shows many
are putting off spending decisions, a move that the governor of the Bank of England, Mark
Carney, blamed on continued uncertainty over Brexit. That is probably down to a combination of
factors. Many international firms are listed on the UK stock exchange and so a high proportion
of mergers and acquisitions happen in the UK, even if they do not involve UK companies.
Meanwhile, the fall in the value of the pound has made it much cheaper for foreign companies to
buy things in the UK.

For the past three decades, the UK has had a completely relaxed attitude about selling off its assets
to companies based abroad. Indeed, most of the time, the swallowing up of yet another great
British institution barely makes a headline. In the face of political indifference, foreign companies
acquired £30 billion worth of British enterprises in 2009. In 2010, that rose to a value of £54.5
billion. Foreign corporations also currently control 39 per cent of UK patents. This is far more than
the percentage of foreign-owned patents in the U.S. (11.8), Japan (3.7) or even the European Union
as a whole (13.7).

Capital as well as Regulative Government

Before the foundation of the Basel Accord 1988, the BOE demanded United Kingdom banking
concerns to Conserve minimal capital necessities already. These primary ratios were arranging
on a bank-by-bank basis and as the little banking concerns inclined to have comparatively
unvaried lend portfolios they were necessitated to conserve capital ratios simply preceding 8%.
In June 1991, the average risk-weighted Capital ratio of the banking concerns that would later on
miscarry was 26%. This pattern reverberates the Factual risk-assets ratios which in several
instances comprised considerably greater than the minimal collection. Process the little banking
concerns crisis later on exhibited that were too eminent factual risk-asset ratios and they are
related with future bankruptcy perhaps because it reverberated weak market bearing or
carefulness on the division of the banking concern corporation in confront of the greater hazard.
Macroeconomic background and the generation of several crises of the investment banking
concerns that would later on carry to fail went through specifically speedy Lend development in
the last half of the eighties. Abroad Banking concerns, peculiarly those from the United States as
well as Japan, turned progressively anxious regarding the profoundness and duration of the
United Kingdom receding as a decreased their superlative calls on United Kingdom Banking
concerns from all over $110 billion to $76 billion with in end-1990 and end-1991. The BOE
employed its association with the financial markets, specifically the big acquitting banking
concerns, to obtain numerical as well as qualitative details to support assess the sincerity of the
banking concern trouble and it’s probably general influence. Their absolute possessions declined
by all over 25% Within end of 1990 and 1992, three little banking concerns Chancery, Edington
and authorization -Comprised permitted to go wrong in existing 1991. As the BOE didn’t assume
such that bankruptcies a threat to the financial institutions machine, no more emergency
backbone was put up at this level.

Losing Shareholders and Customer Trust

Some banks’ management and boards have failed their shareholders and created concerns for
their customers and this failure has had devastating consequences for the UK’s private and public
finances. The consequences of this are being felt by individuals and households around the UK,
and by UK businesses. Enormous effort will be needed on the part of financial institutions to
restore public confidence in them. It is widely accepted that the Government has been obliged to
intervene very heavily in the banking sector to ensure its survival and maintain economic
stability. In doing so, competition concerns have not been a priority. Moreover, such is the
sophistication of current (and no doubt future) banking operations that a different intensity of
supervision may be needed to protect lenders, investors and other participants. We look forward
to contributing to discussions on this issue.

Why US Investment Banks are Well-Fortified than UK Investment

Banks?

US investment banks are not paragons of virtue. They sometimes break the rules, are sued by
clients or need to be rescued by governments, shareholders and bigger banks. They merge and
demerge but throughout these changes, America’s investment banking industry has remained
intact, with many of the same players easily recognizable. There are three differences with the
UK. Now, we are going to discuss the differences between UK investment banks and US
investment banks:

Management Deviation:
The most senior US investment bankers have a drive their British counterparts lack. They display
a hard-edged, winner-takes-all approach to business. Informed accounts of the financial crisis
show a determination at the top of the Wall Street banks that I have rarely encountered in
London, even in moments of extreme crisis. There are examples of Britons who hold senior roles
in US investment banks; a few have actually led them. But there is a deeper pool of Americans
who simply want success more and have the energy and resilience to win it.

Public opinion:
Britain has never really understood investment banking. Shareholders do not like the risk and the
press and public do not like the pay. Wall Street has not had an easy ride from investors or the
media since the financial crisis but there is not the same intensity of criticism as in the UK.
Hostile public opinion, as much as anything else, lies behind Barclays’ decision.

Government:
Between them, Westminster, the Bank of England and regulatory authorities have let Britain’s
investment banks go to the wall. The banking sector received no protection from foreign
takeover in the 1990s when they were finding their feet after Big Bang. Before the crisis, there
was an excessively liberal regime of “light- touch” regulation. After it, this gave way to a
regulatory backlash that took a parochial view of a global problem. Tough UK rules on pay,
capital and the separation of retail and investment banking all have merit but made certain that
Barclays would have to withdraw from full-service investment banking.

The Future of Investment Banking Sector in UK

The rebuilding of consumer trust is closely wound up in depositors having faith in the safety of
their deposits, and the stability of payment systems and other utility aspects of banking. In our
view, depositor reassurance can in the short term best be provided through improving and
strengthening the regulatory regime for all types of bank. We do not lightly dismiss the Governor
of the Bank of England’s instinct that a separation of retail from investment banking functions is
“very attractive”. We believe that this is a live issue which requires further debate, and one to
which we will return. We acknowledge that the toxic shock that major financial institutions have
been exposed to by securitization is likely to result in changed business practices. We expect that
one such change will see banks returning to the practice of keeping a greater portion of the loans
they originate on their own balance sheets. But we also believe that a regulatory response may be
required and recommend that the FSA coordinate efforts with its international counterparts to
require that those undertaking securitization retain a tranche of the commodities they trade. Their
judgment was further clouded by the strong correlation between complexity and profitability.
Looking to the future it is desirable that such obscurity is avoided. We recommend that the FSA
takes steps to encourage trading through clearing houses and where appropriate on exchanges.

Recommendation

 First of all, the investment banks must meet their demise at the hand of complex
financial instruments. The complexity and aggregate volume of transactions resulting
from disguised risk and made risk management far more onerous, imposing a secondary
 effect of the collapse of the housing. So, the investment banks should be very careful
regarding this matter.
 Secondly, bonds of some investment banks were improperly underwritten and marketed
during the time of gross irrationality in both the housing and capital market. The
investment banks had to check whether the bonds were properly underwritten or not for
their own good.
 The investment banks have fundamentally fueled their business away from client
services and intermediating functions of the capital market which was another mistake
they have done. All of them must carefully find solution to these problems and also
provide effective client services.
 Standard corporate finance theory suggests that leverage can boost profitability of
investment banks. The business cycle of investment banks is needed to understand more
completely.
 The investment banks must be very cautious to control the terms that increase
bankruptcy risk.
 The investment banks should find solutions to overcome their financial crisis that
exposed serious gaps in models and risk management system.
 Lastly, thinking about the regulations they should weigh the profitability concerns. It is
good habit to institute counterfactual regulations to retrofit law with the goal of
preventing their crisis situation.

Conclusion

The UK is a leading financial service center, with the highest concentration of global financial
institution in the world. The United Kingdom, and particularly London, helps as one of the
leading foreign centers for Investment banking and other related helps. About one-half European
investment action happens via London as well as, with New York, London comprises the
worldwide leader to the planning of investment banking helps. The most senior US investment
bankers have a drive their British counterparts lack. They display a hard-edged, winner-takes-all
approach to business. Our theoretical analysis also conveys the decline and fall of some
renowned British investment banks e.g., S.G Warburg, Barclays, Barings, BCCI (Bank of Credit
and Commerce). Some of them became defunct, some were forced to great tax penalties,
experienced aggressive acquisition, declared insolvent, and some went through closure because
of distributing fraudulence. The key principle for any British Investment Bank is that it must
operate in a commercial manner to ensure that investments and interventions are made on a
rational basis, only to support viable businesses with a proper analysis and pricing of risk. We
recommend that the British investment banks must meet their demise at the hand of complex
financial instruments. The complexity and aggregate volume of transactions resulting from
disguised risk and made risk management far more onerous, imposing a secondary effect of the
collapse of the housing. So, the investment banks should be very careful regarding this matter.
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