A tale of two Cities

In early 2017, our head office will move to the City of London. To mark this move, we look at the changing face of the City over the centuries and, in particular, the last 25 years.

Aerial view of The City of London

Christopher James, Investment Director, Rathbones

What is the City of London? Until recently, this described the ‘Square Mile’ that lies north of the River Thames between Fleet Street in the west and the Tower of London in the east. It largely retains its medieval boundaries: it isn’t a square mile, however, but a rectangle covering 1.12 square miles.

This was the site of the original city, which dates back to Roman times (Londinium). Nowadays, it is administered by the City of London Corporation under a Lord Mayor — not Sadiq Khan, but the successor to Dick Whittington — who is elected for a one-year term by the members of the City’s livery companies.

As of 2011, the City had a population of 7,375, making it the UK’s smallest city. However, hundreds of thousands of people flood in to work there every day and its financial services businesses account for around 3% of the UK economy by value and more still in terms of tax revenues. London is the world’s biggest foreign exchange market — in 2009, it accounted for nearly half of the $4 trillion global daily turnover.

Today ‘the City of London’ also describes much of the UK’s financial services sector — not just in the Square Mile, but also in Canary Wharf and hedge funds in the West End. It covers many activities: banking, insurance, investment banking, investment management, commodities trading, commercial property and so on. Although the City is often portrayed as a little club, you can work there for many years and only know people in your line of work.

It’s just as important to say what the City is not. It may once have been a place for upper-middle-class men to work, but these days it is perhaps the most meritocratic working environment in the UK. It doesn’t matter what sex, colour or creed you are — if you’re bright and good at what you do, you’ll be welcome in the City.

A rich history

Its origins were in the trade of livestock, goods and services — this history can be seen in some of the street names, such as Poultry, Milk Street and Bread Street. But by the late 1500s, London was increasingly a major centre for banking, commerce and international trade — reflecting Britain’s maritime adventures and the start of Empire.

The original Royal Exchange was opened in 1571 by Queen Elizabeth I as a centre for commerce and subsequently hosted the Lloyd’s insurance market for 150 years. It was Britain’s first specialist commercial building, but has an unfortunate habit of burning down — the current Royal Exchange was built in the 1840s and rather unhappily is now a cafe and a home to luxury boutiques.

A key development was the shift from a mercantile to a capitalist economy, in which the owners of capital were separate from the owners of ideas or trading rights. The wealthy could invest in various inventions or schemes, such as the railways, but a key requirement was a secondary market, so they could sell their shares if needed. The original stockbrokers were considered so lacking in manners that they were banned from the Royal Exchange and had to operate from various local coffee houses. These coffee shop traders ultimately joined up to form the Stock Exchange, which first opened in December 1801 and still exists today, albeit in electronic form.

On the old stock exchange floor, the booths were operated by stockjobbers and the stockbrokers would ask them for a share price on behalf of their client. These were the days of ‘My word is my bond’ (the Stock Exchange motto) and many older people in the City look back at these days with affection, like a golden era of finance. This isn’t quite true as the Guinness scandal showed.

Their cosy face-to-face world came to an end on 27 October 1986 with the Big Bang, which deregulated London’s financial markets. This was driven by the Office of Fair Trading and Mrs Thatcher, who disliked the power and vested interests of the City. Big Bang involved a move to screen-based electronic trading; the abolition of the rule that separated banks from stockbrokers and stockjobbers; and abolished minimum commissions.

It changed the landscape of the City almost overnight. The small partnerships were snapped up by big banks like Barclays and firms emerged with unlikely names like Barclays de Zoete Wedd (BZW), formed from Barclays’ merchant bank, the stockbroker de Zoete & Bevan and jobbing firm Wedd Durlacher. This was when merchant banks became investment banks. 

With it came the need for large balance sheets for trading and to facilitate client business. Slowly the British firms slipped off the map: S.G. Warburg was taken over by Swiss Bank Corporation, Morgan Grenfell by Deutsche Bank, Kleinwort Benson by Dresdner Bank and Smith New Court by Merrill Lynch. Within a decade, there were no British investment banks of any scale left — even the aforementioned BZW was mostly sold off to Credit Suisse First Boston. In the meantime, Goldman Sachs, Citigroup and J.P. Morgan moved in from the US.

In 1984, two years before Big Bang, another change took place that would have a long-term impact on investing — the FTSE 100 was launched. Prior to that, investors used the FT30 of industrial and commercial companies, but the new index took Britain’s 100 biggest companies across all sectors and weighted them by market capitalisation. It started at 1000 and is recalculated every 15 seconds — at the time of writing, it is close to its all-time intraday high of 7128.

The City today 

By the early 1990s, everything was more or less in place for where we are today: the FTSE 100; increasing globalisation, where London’s position between the US and Asia gave it a key geographical advantage; and the shift eastwards towards Canary Wharf. The Thatcher government wanted to revitalise the former docklands and the large banks, frustrated by the City’s sky-high rents and restrictions on space, started to look at Canary Wharf.

The City was initially slow to react and the Jubilee Line extension encouraged a lot of firms to relocate. However, recent years have seen it respond — the Shard is south of the river, but the Gherkin, Cheesegrater and Walkie-Talkie show that the City’s planning department is more imaginative than previously. The Heron Tower is the City’s tallest building (755 feet with mast), one of many where the NatWest Tower used to stand more or less alone.

This redevelopment looked rather unnecessary when the global financial crisis blew up in 2008, taking Lehman Brothers, Bear Stearns and AIG with it. Trading volumes and profitability collapsed and thousands lost their jobs, banks needed bailouts and interest rates were cut to their lowest-ever level.

Yet the City recovered and is thriving today, although Brexit and the covetousness of the German and French governments are a major threat. Whereas 25 years ago it was a social desert, limited to dated wine bars and restaurants that sold old school food to chaps wearing old school ties, today high-end department stores rub shoulders with trendy hotels and Michelin-starred restaurants. The pubs no longer shut at 9pm or stay shut at weekends — in fact, where weekends were once dead in the City, it now bustles with tourists and shoppers.


We’ve covered over 400 years of history. In many ways the City is exactly the same as it’s always been — buying and selling, with relationships still very important, although there is little time for lunch. Yet in other ways, it is totally different — dominated by American, European and Chinese banks, conducting screen-based trading from skyscrapers in Canary Wharf and the Square Mile. We look forward to seeing you there soon.

This article is based on a talk given by Christopher James and Samantha Boyd, both Investment Directors at Rathbones, to the London Ladies Club. 

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